Ensurance Limited
Annual Report 2018

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ABN 80 148 142 634 ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Corporate directory DIRECTORS ANNUAL REPORT 30 June 2018 Tony Leibowitz Chairman Adam Davey Tony Wehby Non-Executive Director Non-Executive Director Appointed 29 September 2017 Appointed 17 August 2012 Appointed 3 May 2018 COMPANY SECRETARY Sam Hallab (appointed 1 February 2017) REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS SHARE REGISTRY Street: Level 2/2 Glen St Computershare Investor Services Pty Limited Milsons Point NSW 2061 Level 11, 172 St Georges Terrace Postal: PO Box 523 PERTH WA 6000 Milsons Point NSW 1565 Telephone: 1300 850 505 (investors within Telephone: +61 (0)2 9806 2000 Facsimile: +61 (0)2 9806 2099 Australia) Telephone: +61 (0)3 9415 4000 Email: web.queries@computershare.com.au Website: www.ensurance.com.au Website: www.investorcentre.com SECURITIES EXCHANGE Australian Securities Exchange SOLICITORS TO THE COMPANY Steinepreis Paganin Level 40, Central Park, 152-158 St Georges Terrace Level 4, The Read Buildings, 16 Milligan Street Perth WA 6000 Telephone: Telephone: Facsimile: Website: 131 ASX (131 279) (within Australia) +61 (0)2 9338 0000 +61 (0)2 9227 0885 www.asx.com.au ASX Code: ENA PERTH WA 6000 AUDITORS Mazars Risk & Assurance Pty Limited Level 12, 90 Arthur Street NORTH SYDNEY NSW 2060 Telephone: +61 (0) 2 99 22 11 66 Website: www.mazars.com.au P a g e | i ANNUAL REPORT 30 June 2018 Contents ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' report .................................................................................................................................................................... 3 Remuneration report ........................................................................................................................................................... 10 Auditor's independence declaration .................................................................................................................................... 17 Consolidated statement of profit or loss and other comprehensive income ...................................................................... 18 Consolidated statement of financial position ..................................................................................................................... 19 Consolidated statement of changes in equity ..................................................................................................................... 20 Consolidated statement of cash flows ................................................................................................................................. 21 Notes to the consolidated financial statements .................................................................................................................. 22 Directors' declaration .......................................................................................................................................................... 61 Independent auditor's report .............................................................................................................................................. 62 Corporate governance statement ........................................................................................................................................ 67 Additional Information for Listed Public Companies ........................................................................................................... 73 P a g e | ii ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' report ANNUAL REPORT 30 June 2018 Your directors present their report on the consolidated entity, consisting of Ensurance Limited (Ensurance or the Company) and its controlled entities (collectively the Group), for the financial year ended 30 June 2018. 1. Directors The names of Directors in office at any time during or since the end of the year are: Mr Tony Leibowitz Chairman (appointed 29 September 2017) Mr Adam Davey Mr Tony Wehby Mr Stefan Hicks Mr Brett Graves Mr Neil Pinner Mr Grant Priest Non-Executive Director (resigned as Chairman 29 September 2017) Non-Executive Director (appointed 3 May 2018) Non-Executive Director (resigned 3 May 2018) Executive Director (resigned 21 September 2017) Non-Executive Director (resigned 3 November 2017) Non-Executive Director (resigned 3 November 2017) Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. For additional information of Directors including details of the qualifications of Directors please refer to paragraph 6 “Information relating to the directors” of this Directors Report. Company secretary 2. The following person held the position of Company Secretary at the end of the financial year: Mr Sam Hallab Qualifications Experience (cid:1) B.Ec., CA, F-AIST, GAICD, Diploma FP Mr Hallab has spent more than 35 years in the financial sector and brings extensive experience to the group. As a chartered accountant, he was a partner with Sydney accounting firm Sothertons for more than a decade before moving into the superannuation industry as Deputy CEO of the Australian Catholic Superannuation and Retirement Fund. Mr Hallab also held positions of COO, CFO and Company Secretary. He is a registered auditor and tax agent and has gained extensive experience in risk management and compliance. 3. Dividends paid or recommended There were no dividends paid or recommended during the financial year ended 30 June 2018. P a g e | 3 ANNUAL REPORT 30 June 2018 Directors' report ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 4. Significant changes in the state of affairs Following an analysis of its business and key drivers for future growth, the group announced it would adopt a new strategic direction and build its international operations as a Managing General Agent (MGA) with large insurance capacity lines. Subsequently, the company announced its intent to dispose of its Australian retail brokerage business to allow it to apply its resources to expansion of its UK operations and underwriting agencies. On 25 July 2018, an agreement was reached to sell 100% of the issued capital, including all assets and related management, in Savill Hicks Corp Pty Ltd for consideration of $4.1m. The sale is expected to complete in October 2018. 5. Operating and financial review 5.1. Operating review During the financial year, a new, experienced leadership team was appointed to drive the long-term growth of the Company, with a complete Board and management team refresh. Following a strategic review led by the new Board, the decision was made to focus on building the Company’s operations as a Managing General Agency (MGA), initially in the UK and Australia. The Company has seized on a growing opportunity to provide specialist insurance underwriting to the construction and engineering market, estimated to be worth GBP 2.9 billion in the UK and EU alone. Following two years of investment, management is focused on delivering strong growth in FY19 and beyond, supported by the recent launch of a new Engineering Inspection and Insurance product to bolster the Company’s product portfolio in the UK and the addition of specialist underwriting staff. The financial year delivered a number of milestones for the Company’s UK operations (Ensurance UK (EUK)), as a globally- focused MGA with the capacity to underwrite large wholesale policies. Successful partnerships with Swiss Re, Lloyds of London and XL Catlin have provided EUK with the capacity to offer a range of specialised insurance products focused on the construction and engineering market, on an exclusive basis in the UK and parts of the EU, with the capacity to write up to GBP 100 million per risk. In December 2017, the Financial Conduct Authority (FCA) – the UK’s financial regulatory body – granted EUK with FCA approval, giving it full authorisation as an MGA, less than 18 months since the Company’s UK operations were established and representing a major milestone for the business. Adding to its product portfolio, EUK launched a new Engineering Inspection and Insurance product in July, to provide policyholders with protection against sudden and unforeseen damage during construction. The policy will provide access to over 450 engineer surveyors and was developed in partnership with British Engineering Services, a privately-owned company, which was formerly part of the FTSE 100 insurer RSA. The product is expected to be met with strong customer demand. Providing strong validation and recognition of one of the most recently established independent Managing General Agents in the UK, EUK has been shortlisted for MGA of the Year for the 7th annual Insurance Insider Honours after just 18 months of operation. The Insurance Insider Honours Awards are supported by an international judging panel of industry experts, bringing expert knowledge and experience to the adjudication process. P a g e | 4 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' report 5.2. Financial Review ANNUAL REPORT 30 June 2018 a. Operating results The Group delivered an FY18 loss after tax of $8.707m, representing an increase of $3.614m on the prior year loss of $5.093m. The increase in the loss of the group was due to several main factors: Increase in Employment Costs of $1.78m (predominantly in the establishment of the London office); Increase in Finance costs of $530k (principally involved in short-term financing) A one-off impairment charge of $2.007m to impair the Group’s intangible assets Revenue from all of the Group’s operations increased to $3.82m (2017: $3.22m). In its first full year of trade, Ensurance UK turned over GBP £161k (AUD $280k) and has shown strong indications of future growth, operating as an MGA in the UK to provide wholesale insurance for construction and engineering in the UK and EU. Fully authorised by the FCA, Ensurance UK has the ability to sell insurance globally and develop an Appointed Representative Network. In the financial year, the Company successfully completed three capital raisings, including a $3.5m placement of shares to sophisticated investors in December 2017, a further placement of $800k in April 2018 and a fully underwritten entitlement issue of one new fully paid ordinary share for every share held by eligible shareholders in June 2018. The entitlement issue raised $6.9m before costs and its completion was announced to the market on 21 June 2018 with the under subscription taken up jointly by Transocean Securities Pty Ltd and Patersons Securities Limited, as underwriters of the issue. The financial statements have been prepared on a going concern basis, which contemplates the continuation of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business. Details of the Company's assessment in this regard can be found in Note 1a.ii Basis of preparation: Going Concern. b. Financial position The net assets of the Group have increased from 30 June 2017 by $1.998m to a net deficiency of $778 at 30 June 2018 (2017: Net deficiency of $1.999m). As at 30 June 2018, the Group's cash and cash equivalents increased from 30 June 2017 by $2,819,633 to $3,203,479 at 30 June 2018 (2017: $383,846) and had working capital of $1.402m (2017: $1.754m working capital deficit). 5.3. Events Subsequent to Reporting Date On 25 July 2018, the Company announced an agreement had been reached to dispose of 100% of the issued capital of Savill Hicks Corp Pty Ltd, including all assets and related management. The consideration for the sale is $4.1m and proceeds will be used to build out ENA’s specialised insurance offering, hire additional underwriting resources and invest in sales and marketing staff to support the Group’s strong growth as a globally focused Managing General Agent. The sale proceeds will comprise of $2.2m cash, the buyback of 30,140,905 fully paid ordinary shares in ENA, assumption of employee entitlements and the cancellation of convertible notes held by a related party of Stefan Hicks. The sale is subject to a number of conditions precedent, including shareholder approval and is expected to complete in October 2018. There are no other significant after balance date events that are not covered in this Directors' Report or within the financial statements at Note 27 - Events subsequent to reporting date. 5.4. Future Developments, Prospects and Business Strategies Likely developments, future prospects and business strategies of the operations of the Group and the expected results of those operations have not been included in this report as the Directors believe that the inclusion of such information would be likely to result in unreasonable prejudice to the Group. 5.5. Environmental Regulations The Group's operations are not subject to significant environmental regulations in the jurisdictions it operates in, namely Australia and the United Kingdom. P a g e | 5 ANNUAL REPORT 30 June 2018 Directors' report 6. Information relating to the directors ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Mr Tony Leibowitz Qualifications Length of service Experience Interest in Shares and Options (cid:1) Executive Chairman (cid:1) Chartered Accountant (FCA) (cid:1) 9 months from appointment 29 September 2017 (cid:1) Mr Leibowitz has over 30 years of corporate finance, investment banking and broad commercial experience and has a proven track record of providing the necessary skills and guidance to assist companies grow and generate sustained shareholder value. Previous roles include Chandler Macleod Limited and Pilbara Minerals Limited, where as Chairman and an early investor in both companies, he was responsible for substantial increases in shareholder value and returns. Mr Leibowitz was a global partner at PricewaterhouseCoopers and is a Fellow of the Institute of Chartered Accountants in Australia. (cid:1) 45,210,780 ordinary shares in Ensurance Limited (indirect) (2017: 2,633,722). Shareholding increased as a result of share placement completed 15 December 2017, Entitlement Issue dated 28 May 2018 and as a sub-underwriter of the Entitlement Issue. 1,000,000 options exercisable at 8 cents, expiring 31 July 2020; 250,000 options exercisable at 4 cents, expiring 31 July 2020; 250,000 options exercisable at 4.6 cents, expiring 31 July 2020; 2,000,000 options exercisable at 8 cents, expiring 15 December 2019; 3,150,000 options exercisable at 5 cents, expiring 15 December 2019; 3,500,000 options exercisable at 5 cents, expiring 15 December 2020. Directorships held in other listed entities (cid:1) None Mr Adam Davey Length of service Qualifications Experience Interest in Shares and Options Directorships held in other listed entities Mr Tony Wehby Length of service Qualifications Experience Interest in Shares and Options Directorships held in other listed entities (cid:1) Independent Non-Executive Director (cid:1) 5 years, 11 months from appointment 17 August 2012 (last re-elected 29 November 2016) (cid:1) Professional Diploma in Stockbroking (cid:1) Mr Davey has had experience in the securities industry over the past 25 years. He has served as a Non-Executive Director of a number of industrial and mining companies. He has significant experience in capital raisings, mergers and acquisitions. Mr Davey also serves as Chairman of the not-for-profit organisation Teen Challenge Foundation. (cid:1) 3,542,819 ordinary shares in Ensurance Limited (indirect) (2017: 604,090). Increased holding a result of Entitlement Issue dated 28 May 2018 and as a sub-underwriter of the Entitlement Issue. Cash was paid for these shares. 4,000,000 partly paid shares in Ensurance Limited (indirect) (2017: 4,000,000) 3,000,000 options exercisable at 8 cents, expiring 15 December 2019. (cid:1) Non-executive director of PainChek Limited (PCK) and The Agency Group Australia Ltd (AU1). (cid:1) Independent Non-Executive Director (cid:1) 2 months from appointment 3 May 2018 (cid:1) Chartered Accountant (FCA), member of Australian Institute of Company Directors. (cid:1) Mr Wehby was a partner in PricewaterhouseCoopers for 19 years where he specialised in Corporate Finance and was responsible for the management of that part of the national practice. Since 2001 he has held Non-Executive Director roles and maintained a financial consulting practice, focusing on companies considering significant changes. Mr Wehby was a founding Director and Chairman of Aurelia Metals Limited (AMI), Chairman of Tellus Resources Ltd and member of the Board Advisory Committee of Moss Capital Funds Management Limited. Mr Wehby is currently chair of Kingston Resources Ltd (KSN) and deputy chair (and Chair of the Audit and Risk Committee) of Royal Rehab. (cid:1) 1,077,603 ordinary shares in Ensurance Limited (indirect) (2017: nil). Acquired shares as a sub-underwriter to the Entitlement Issue dated 28 May 2018. Cash was paid for these shares. 1,000,000 options (yet to be issued) exercisable at 5 cents, expiring 3 years from date of issue; 1,000,000 options (yet to be issued) exercisable at 8 cents, expiring 3 years from issue. (cid:1) Chairman of Kingston Resources Ltd (KSN) P a g e | 6 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' report ANNUAL REPORT 30 June 2018 7. Meetings of directors and committees During the financial year ten meetings of Directors were held. Attendances by each Director during the year are stated in the following table. DIRECTORS MEETINGS Number eligible to attend Number Attended Tony Leibowitz Adam Davey Tony Wehby Stefan Hicks Brett Graves Neil Pinner Grant Priest 8 10 1 9 1 3 3 8 10 1 7 1 1 3 8. Indemnifying officers or auditor 8.1. Indemnification The Company has entered an Indemnity, Insurance and Access Deed with each Director. Pursuant to the Deed: The Director is indemnified by the Company against any liability incurred in that capacity as an officer of the Company to the maximum extent permitted by law subject to certain exclusions. The Company must keep a complete set of company documents until the later of: a. The date which is seven years after the Director ceases to be an officer of the Company; and b. The date after a final judgment or order has been made in relation to any hearing, conference, dispute, enquiry or investigation in which the Director is involved as a party, witness or otherwise because the Director is or was an officer of the Company (Relevant Proceedings). The Director has the right to inspect and copy a Company document in connection with any relevant proceedings during the period referred to above. Subject to the next sentence, the Company must maintain an insurance policy insuring the Director against liability as a director and officer of the Company while the Director is an officer of the Company and until the later of: a. The date which is seven years after the Director ceases to be an officer of the Company; and b. The date any Relevant Proceedings commenced before the date referred to above have been finally resolved. The Company may cease to maintain the insurance policy if the Company reasonably determines that the type of coverage is no longer available. The Company has not entered into any agreement with its current auditors indemnifying them against any claims by third parties arising from their report on the financial report. 8.2. Insurance premiums During the year the Company paid insurance premiums to insure directors and officers against certain liabilities arising out of their conduct while acting as an officer of the Group. P a g e | 7 ANNUAL REPORT 30 June 2018 Directors' report 9. Options 9.1. Unissued shares under option ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 At the date of this report, Ensurance Limited has the following unissued ordinary shares under option (unlisted): Issuing Entity Kli Pty Ltd Transocean Securities Pty Ltd Kalonda Pty Ltd Portafortuna Pty Ltd Jalonex Investments Pty Ltd Transocean Securities Pty Ltd Kalonda Pty Ltd Portafortuna Pty Ltd Jalonex Investments Pty Ltd Mr Adam Davey Kalonda Pty Ltd Kalonda Pty Ltd Kalonda Pty Ltd Transocean Securities Pty Ltd Kalonda Pty Ltd Kli Pty Ltd Shares Under Option No. Class of Shares Exercise Price of Option $ Expiry Date of Option Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 1,000,000 1,321,429 250,000 250,000 1,178,571 1,948,465 1,250,000 250,000 2,648,849 3,000,000 2,000,000 2,000,000 1,150,000 3,500,000 3,500,000 250,000 25,497,314 0.120 0.046 0.046 0.046 0.046 0.080 0.080 0.080 0.080 0.080 0.080 0.050 0.050 0.050 0.050 0.050 31 July 2020 31 July 2020 31 July 2020 31 July 2020 31 July 2020 31 July 2020 31 July 2020 31 July 2020 31 July 2020 15 Dec 2019 15 Dec 2019 15 Dec 2019 15 Dec 2019 15 Dec 2020 15 Dec 2020 15 Dec 2020 The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the Company. These options were issued in connection with the Entitlement Offer Prospectus dated 6 June 2017 (9,097,314 options), short-term loan agreements (2,400,000 options), an executive employment agreement (4,000,000 options), for services provided (3,000,000 options) and with the share placement completed in December 2017 (7,000,000 options). Prior to the end of the financial year, the Board resolved to grant Tony Wehby 1,000,000 options exercisable at 5 cents, within 3 years and 1,000,000 options exercisable at 8 cents within 3 years. These options are in connection with his non- executive employment agreement and as at the date of this report, Mr Wehby’s options are yet to be issued. 9.2. Shares issued on exercise of options No ordinary shares were issued by the Company as a result of the exercise of options during or since the end of the financial year. 10. Non-audit services During the year the Company’s auditor, Mazars Risk and Assurance Pty Limited (Mazars), did not provide any taxation compliance advice & assistance (2017: $28,630). During the year the Company’s auditor in the UK, Buzzacott LLP (Buzzacott), did provide taxation, payroll and compliance advice amounting to $40,148 (2017: $32,836). Details of remuneration paid to the auditor can be found within the financial statements at Note 5 - Auditor's Remuneration. The Board has established certain procedures to ensure that the provision of non-audit services are compatible with, and do not compromise, the auditor independence requirements of the Corporations Act 2001 (Cth). These procedures include: non-audit services will be subject to the corporate governance procedures adopted by the Company and will be reviewed by the Board to ensure they do not impact the integrity and objectivity of the auditor; and ensuring non-audit services do not involve reviewing or auditing the auditor's own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. The Directors are satisfied that the provision of non-audit services during the year by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). P a g e | 8 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' report ANNUAL REPORT 30 June 2018 11. Proceedings on behalf of company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. 12. Auditor's independence declaration The auditor's independence declaration under section 307C of the Corporations Act 2001 (Cth) for the year ended 30 June 2018 has been received and can be found on page 17 of the annual report. P a g e | 9 ANNUAL REPORT 30 June 2018 DIRECTORS' REPORT ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 13. Remuneration report (audited) The information in this remuneration report has been audited as required by s308(3C) of the Corporations Act 2001. 13.1. Key management personnel (KMP) KMP have authority and responsibility for planning, directing and controlling the activities of the Group. KMP comprise the directors of the Company and key executive personnel. All individuals held their positions throughout the financial year unless otherwise stated: Mr Tony Leibowitz Executive Chairman (appointed 29 September 2017) Mr Adam Davey Mr Tony Wehby Mr Stefan Hicks Mr Brett Graves Mr Neil Pinner Mr Grant Priest Non-Executive Director (resigned as Chairman 29 September 2017) Non-Executive Director (appointed 3 May 2018) Non-Executive Director (resigned 3 May 2018 after resignation as Executive Director 18 Jan 2018) Chief Operating Officer (resigned as Executive Director 21 September 2017) Non-Executive Director (resigned 3 November 2017) Non-Executive Director (resigned 3 November 2017) Mr Michael Huntly CEO of Ensurance Underwriting Mr Peter Fielding COO of Ensurance IT Mr Tim James CEO of Ensurance UK Mr Sam Hallab Chief Financial Officer & Company Secretary (resigned as Chief Financial Officer 28 February 2018) Mr Arjan van Ameyde Chief Financial Officer (appointed 1 February 2018) 13.2. Principles used to determine the nature and amount of remuneration The remuneration policy of the Company has been designed to ensure reward for performance is competitive and appropriate to the result delivered. The framework aligns executive reward with the creation of value for shareholders, and conforms to market best practice. The Board ensures that Director and executive reward satisfies the following key criteria for good reward governance practices: Competitiveness and reasonableness; Acceptability to the shareholders; Performance; Transparency; and Capital management. The remuneration policy has been tailored to increase the direct positive relationship between shareholders' investment objectives and Directors' and Executives' performance. Currently, this is facilitated through the issue of options to the majority of Directors and Executives to encourage the alignment of personal and shareholder interests. The Company believes this policy will be effective in increasing shareholder wealth. The Board's policy for determining the nature and amount of remuneration for Board members and Senior Executives of the Company is as follows: a. Executive Directors and other Senior Executives Executives receive a base salary (which is based on factors such as length of service and experience), retirement benefits, options and performance incentives. The Board reviews Executive packages annually by reference to the Company's performance, Executive performance, and comparable information from industry sectors and other listed companies in similar industries. Executives are also entitled to participate in the employee share and option arrangement. b. Non-Executive Directors The Company's Constitution provides that Directors are entitled to be remunerated for their services as follows: (cid:1) The total aggregate fixed sum per annum to be paid to the Directors (excluding salaries of executive Directors) from time to time will not exceed the sum determined by the Shareholders in general meeting and the total aggregate fixed sum will be divided between the Directors as the Directors shall determine and, in default of agreement between them, then in equal shares. (cid:1) The Directors' remuneration accrues from day to day. (cid:1) The total aggregate fixed sum per annum which may be paid to non-executive Directors is $250,000. This amount cannot be increased without the approval of the Company's Shareholders. The Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred by them respectively in or about the performance of their duties as Directors. P a g e | 10 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 DIRECTORS' REPORT 13. Remuneration report (audited) c. Fixed Remuneration ANNUAL REPORT 30 June 2018 Other than statutory superannuation contributions, no retirement benefits are provided for Executive and Non-Executive Directors of the Company. To align Directors' interests with shareholder interests, the Directors are encouraged to hold shares in the company. d. Performance Based Remuneration – Short-term and long-term incentive structure The Board will review short-term and long-term incentive structures from time to time. Any incentive structure will be aligned with shareholders' interests. (cid:1) Short-term incentives Cash bonuses were granted during the year to Mr Peter Fielding and Mr Sam Hallab. (cid:1) Long-term incentives The Board has a policy of granting incentive options to executives with exercise prices above market share price. As such, incentive options granted to executives will generally only be of benefit if the executives perform to the level whereby the value of the Group increases sufficiently to warrant exercising the incentive options granted. The directors of the Company are not eligible to participate in the "Ensurance Limited Employee Incentive Option Plan". e. Service Contracts Remuneration and other terms of employment for the directors, KMP and the company secretary are formalised in contracts of employment. f. Engagement of Remuneration Consultants During the financial year, the Company did not engage any remuneration consultants. g. Relationship between Remuneration of KMP and Earnings The Board does not consider earnings in determining the nature and amount of remuneration of KMP. 13.3. Remuneration Details for the Year Ended 30 June 2018 Details of the remuneration of the key management personnel are set out in the following table:- 2018 Group Key Management Person Short-term benefits Salary, fees and leave $ 237,645 62,500 9,125 230,343 197,293 18,250 16,667 231,000 Profit share and bonuses $ - - - - - - - - Tony Leibowitz Adam Davey Tony Wehby Stefan Hicks Brett Graves Grant Priest Neil Pinner Michael Huntly Peter Fielding 190,000 33,000 Non- monetary $ - - - - - - - - - - Tim James Sam Hallab 312,392 - 169,459 45,000 24,353 Arjan van Ameyde 94,654 - - Post- employment benefits Super- annuation $ 20,454 5,937 - 15,307 18,616 Other $ - - - - - 35,000 - - - - - - - 1,583 21,945 18,050 15,620 14,345 8,992 Long-term benefits Equity-settled share- based payments Total Other Equity $ $ Options / Rights $ $ - - - - - - - - - - - - - - - - - - - - - - - - - - 51,000 309,099 29,550 97,987 14,700 23,825 - - - - - - - - - 245,650 215,909 53,250 18,250 252,945 241,050 328,012 253,157 103,646 95,250 2,142,780 1,769,328 78,000 24,353 35,000 140,849 P a g e | 11 ANNUAL REPORT 30 June 2018 Directors' report 13. Remuneration report (audited) 2017 Group Key Management Person Short-term benefits Adam Davey Stefan Hicks Brett Graves Grant Priest Neil Pinner Michael Huntly Peter Fielding Tim James Sam Hallab Salary, fees and leave $ 100,000 419,371 195,183 54,750 50,000 238,108 194,110 177,904 227,236 1,656,662 Profit share and bonuses $ - - - - - - - - - - Non- monetary $ - 1,852 7,031 - - - - - 19,523 28,406 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Post- employment benefits Super- annuation $ 9,500 42,600 18,542 - 4,750 22,620 16,258 3,812 23,879 141,961 Other $ - - - - - - - - - - Long-term benefits Equity-settled share- based payments Total Other Equity $ - - - - - - - - - - $ - - - - - - - - - - Options/ Rights $ - - - - - - - - - - $ 109,500 463,823 220,756 54,750 54,750 260,728 210,368 181,716 270,638 1,827,029 13.4. Service Agreements a. Executive services contract (ESC) with Tony Leibowitz The Company has entered into an executive services contract with Mr Tony Leibowitz on the following terms: Mr Leibowitz is employed by the Company as Executive Chairman under an ESC that commenced 1 May 2017. The gross annual remuneration package (including superannuation) is $394,200 per annum, payable in fortnightly instalments Should Mr Leibowitz hold any office or directorship with any other Group company, he will not be entitled to any additional remuneration in respect of those appointments. The remuneration will be reviewed by the Board annually in accordance with the Company's policies and procedures. The ESC formalises Mr Leibowitz’s full-time employment as Executive Chairman, following an initial appointment of six months. The current ESC expires 31 December 2018 and any extension beyond this date is to be on a month to month basis, as agreed between Mr Leibowitz and the Board. b. Non-Executive Director appointment letter with Adam Davey The Company appointed Mr Adam Davey as a non-executive Director, on standard terms for agreements of this nature, under which he is entitled to director fees of $50,000 per annum, plus superannuation. c. Non-Executive Director appointment letter with Tony Wehby The Company appointed Mr Tony Wehby as non-executive Director, on standard terms for agreements of this nature, under which he is entitled to director fees of $54,750 per annum. P a g e | 12 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' report 13. Remuneration report (audited) 13.5. Share-based compensation a. Securities Received that are not performance-related ANNUAL REPORT 30 June 2018 No members of KMP are entitled to receive securities that are not performance-based as part of their remuneration package. b. Options and Rights Granted as Remuneration As referred to in Note 26 ‘Share-based payments’ and paragraph 13.6.c of this Remuneration Report, on 30 November 2015, 6,500,000 Performance Rights Class A (Note 26a.i) and 500,000 Performance Rights Class B (Note 26a.ii) were issued to Directors of the Company. During the year, 5,500,000 Performance Rights Class A were forfeited when the holding Director terminated their Directorship with the Company. The balance of Performance Rights at 30 June 2018 were 1,000,000 Class A and 500,000 Class B. During the financial year, 3,000,000 options were granted to Adam Davey in relation to services provided over and above the normal scope of his duties as Director. They are exercisable at 8 cents within two years of issue. 4,000,000 options were granted to Tony Leibowitz as part of his executive services agreement to become Chairman of the Company. 2,000,000 are exercisable at 8 cents within 2 years of issue and 2,000,000 are exercisable at 5 cents within 2 years of issue. Prior to the end of the financial year, the Board resolved to grant Tony Wehby 1,000,000 options exercisable at 5 cents, within 3 years and 1,000,000 options exercisable at 8 cents within 3 years. These options are in connection with his executive employment agreement and as at the date of this report, Mr Wehby’s options are yet to be issued. There were no equity instruments issued during the year to Directors as result of performance rights converting or options being exercised that had previously been granted as compensation. 13.6. Key Management Personnel equity holdings a. Fully paid ordinary shares of Ensurance Limited held by each Key Management Person 2018 Group Key Management Person Tony Leibowitz (1) (3) (5) Adam Davey (2) (3) (5) Tony Wehby (3) Stefan Hicks (4)(5) Brett Graves (4) Grant Priest (4) (5) Neil Pinner (4) Michael Huntly (4) Peter Fielding Tim James Sam Hallab Arjan van Ameyde (3) Balance at start of year No. 2,633,722 4,604,090 - 25,930,006 4,210,899 72,725 758,181 1,813,818 - - - - 40,023,441 Received during the year as compensation No. Received during the year on the exercise of options No. - - - - - - - - - - - - - - - - - - - - - - - - Other changes during the year No. Balance at end of year No. 42,577,058 45,210,780 2,938,729 1,077,603 - - - - - - - - 7,542,819 1,077,603 25,930,006 4,210,899 72,725 758,181 1,813,818 - - - 500,000 500,000 47,093,390 87,116,831 (1) Mr Leibowitz and his related parties held 2,633,722 shares prior to accepting his position with the Company. (2) Mr Davey's shares include 4,000,000 partly-paid ordinary shares held by Mr Davey and his related parties. (3) Other changes during the year represent shares issued under the Share Placement completed 15 December 2017, the Entitlement Issue Prospectus dated 28 May 2018 and the underwriting agreement associated with the Entitlement Issue Prospectus. (4) Messrs Hicks, Graves, Priest, Pinner and Huntly did not take up their entitlement under the Entitlement Issue Prospectus dated 28 May (5) 2018. A number of the above KMP hold Convertible Notes. Upon conversion, shareholdings will increase as follows: Stefan Hicks: 12,500,000; Tony Leibowitz: 2,500,000; Adam Davey: 2,500,000; Grant Priest: 500,000 (see 13.6 (d)). P a g e | 13 ANNUAL REPORT 30 June 2018 Directors' report 13. Remuneration report (audited) 2017 Group Key Management Person Adam Davey (1) (2) (4) Stefan Hicks (3)(4) Brett Graves (2) Grant Priest (2) (4) Neil Pinner (2) Michael Huntly (2) Peter Fielding Tim James Sam Hallab Balance at start of year No. 4,520,000 25,930,006 2,894,994 50,000 527,500 1,222,861 - - - 35,145,361 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Received during the year as compensation No. Received during the year on the exercise of options No. - - - - - - - - - - - - - - - - - - Other changes during the year No. Balance at end of year No. 84,090 4,604,090 - 25,930,006 1,315,905 4,210,899 22,725 230,681 590,957 - - - 72,725 758,181 1,813,818 - - - 2,244,358 37,389,719 (1) Mr Davey's shares include 4,000,000 partly-paid ordinary shares held by Mr Davey and his related parties. (2) Other changes during the year represent the number of shares issued under the Entitlement Issue Prospectus dated 6 June 2017. (3) Mr Hicks did not take up his entitlement under the Entitlement Issue Prospectus dated 6 June 2017. (4) During the year these Directors subscribed to the Company’s Convertible Notes issue. b. Options in Ensurance Limited held by each Key Management Person 2018 – Group Group Key Management Person Balance at start of year No. Granted as Remuneration during the year No. Tony Leibowitz (1) (2) 1,500,000 4,000,000 Adam Davey Tony Wehby (3) Stefan Hicks Brett Graves Grant Priest Neil Pinner Michael Huntly Peter Fielding Tim James Sam Hallab Arjan van Ameyde - - - - - - - - - - - 3,000,000 2,000,000 - - - - - - - - - 1,500,000 9,000,000 Exercised during the year No. Other changes during the year No. Balance at end of year No. Vested and Exercisable No. - - - - - - - - - - - - - 4,650,000 10,150,000 - - - - - - - - - - - 3,000,000 2,000,000 - - - - - - - - - 4,650,000 15,150,000 - - - - - - - - - - - - - Not Vested No. 10,150,000 3,000,000 2,000,000 - - - - - - - - - 15,150,000 (1) Mr Leibowitz and his related parties held 1,500,000 options prior to accepting his position with the Company. (2) Other changes during the year represent options granted to Mr Leibowitz and his related parties in relation to a short-term loan agreement (1,150,000) and in connection with the share placement completed 15 December 2017 (3,500,000) (3) Options granted to Mr Wehby are yet to be issued as at the date of this report. P a g e | 14 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 ANNUAL REPORT 30 June 2018 2017 – Group Group Key Management Person Balance at start of year No. Granted during the year No. Exercised during the year No. Other changes during the year No. Balance at end of year No. Vested and Exercisable No. Not Vested No. Adam Davey Stefan Hicks Brett Graves Grant Priest Neil Pinner Michael Huntly Peter Fielding Tim James Sam Hallab 250,000 - - - - - - - - 250,000 - - - - - - - - - - - - - - - - - - - - (250,000) - - - - - - - - (250,000) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - c. Performance Rights of Ensurance Limited held by each Key Management Person 2018 – Group Group Key Management Person Tony Leibowitz Adam Davey Tony Wehby Stefan Hicks Brett Graves Grant Priest Neil Pinner Michael Huntly Peter Fielding Tim James Sam Hallab Arjan van Ameyde Balance at start of year No. - 1,500,000 - 4,000,000 1,000,000 250,000 250,000 - - - - - 7,000,000 Granted as Remuneration during the year No. Other changes during the year No. - - - (4,000,000) (1,000,000) (250,000) (250,000) - - - - - - - - - - - - - - - - - - Balance at end of year No. - 1,500,000 - - - - - - - - - - Vested and Exercisable No. - - - - - - - - - - - - - Not Vested No. - 1,500,000 - - - - - - - - - - 1,500,000 (5,500,000) 1,500,000 Other changes during the year relate to performance rights forfeited by the termination of each individual’s Directorship with the Company. P a g e | 15 ANNUAL REPORT 30 June 2018 Directors' report 13. Remuneration report (audited) ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 2017 – Group Group Key Management Person Adam Davey Stefan Hicks Brett Graves Grant Priest Neil Pinner Michael Huntly Peter Fielding Tim James Sam Hallab Balance at start of year No. 1,500,000 4,000,000 1,000,000 250,000 250,000 - - - - 7,000,000 Granted as Remuneration during the year No. Other changes during the year No. - - - - - - - - - - Balance at end of year No. 1,500,000 4,000,000 1,000,000 250,000 250,000 - - - - 7,000,000 Vested and Exercisable No. - - - - - - - - - - Not Vested No. 1,500,000 4,000,000 1,000,000 250,000 250,000 - - - - 7,000,000 13.7. Other Equity-related KMP Transactions There have been no other transactions involving equity instruments other than those described in the tables above relating to options, rights, converting loans and shareholdings. 13.8. Loans to Key Management Personnel The Group has a loan payable to Mr Brett Graves of $94,728 plus accrued interest of $17,637 as at 30 June 2018 (2017: $94,728 plus accrued interest of $12,164). 13.9. Other transactions with Key Management Personnel and or their Related Parties Transactions involving equity instruments are described in the tables above. For details of other transactions with KMP, refer Note 23 Related party transactions. END OF REMUNERATION REPORT This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001 (Cth). A H LEIBOWITZ Chairman Dated this Monday, 24 September 2018 P a g e | 16 AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF ENSURANCE LIMITED AND ITS CONTROLLED ENTITIES I declare that, to the best of my knowledge and belief during the year ended 30 June 2018, there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and — no contraventions of any applicable code of professional conduct in relation to the audit. MAZARS RISK & ASSURANCE PTY LIMITED R. Megale Director Dated in Sydney this 24th day of September 2018. M A Z A R S R I S K & A S S U R A N C E P T Y L I M I T E D A B N : 3 9 1 5 1 8 0 5 2 7 5 L E V E L 1 2 , 9 0 A R T H U R S T R E E T , N O R T H S Y D N E Y N S W 2 0 6 0 P O B O X 1 9 9 4 , N O R T H S Y D N E Y N S W 2 0 5 9 T E L : + 6 1 2 9 9 2 2 1 1 6 6 - F A X : + 6 1 2 9 9 2 2 2 0 4 4 E M A I L : E M A I L @ M A Z A R S . C O M . A U L I A B I L I T Y L I M I T E D B Y A S C H E M E , A P P R O V E D U N D E R T H E P R O F E S S I O N A L S T A N D A R D S L E G I S L A T I O N ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2018 Continuing operations Revenue Business development Compliance costs Computers and communications Depreciation and amortisation Employment costs Finance costs Legal and consulting fees Occupancy costs Impairment of intangible assets Travel and accommodation Other expenses Loss before tax Income tax benefit Loss from continuing operations Profit/(loss) from discontinued operations Total net loss for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: (cid:1) Revaluation of assets Items that may be reclassified subsequently to profit or loss: Other comprehensive income for the year, net of tax Note 2018 $ 2017 $ 3 1,208,336 1,008,352 1,208,336 1,008,352 (311,399) (301,869) (397,807) (223,603) (342,690) (345,328) (671,924) (404,461) (5,092,453) (3,315,496) 4 4 (874,774) (355,568) (347,881) 4 (2,007,461) (99,030) (197,904) (344,025) (70,165) (211,189) - (204,248) (118,585) 6 30 (9,001,413) (5,019,759) 286,084 276,994 (8,715,329) (4,742,765) 7,924 (350,267) (8,707,405) (5,093,032) 1,305 - 1,305 1,801 - 1,801 Total comprehensive income attributable to members of the parent entity (8,706,100) (5,091,231) Profit/(loss) for the period attributable to: Non-controlling interest Owners of the parent Total comprehensive income/(loss) attributable to: Non-controlling interest Owners of the parent Earnings per share: Basic and diluted loss per share (cents per share) - - (8,707,405) (5,093,032) - - (8,706,100) (5,091,231) ₵ (2.51) 7 ₵ (6.13) The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes. P a g e | 18 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Consolidated statement of financial position as at 30 June 2018 Current assets Cash and cash equivalents Trade and other receivables Trust account insurer assets Other current assets Total current assets Non-current assets Financial assets Plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Trust account insurer liabilities Provisions Borrowings Total current liabilities Non-current liabilities Provisions Trade and other payables Borrowings Total non-current liabilities Total liabilities Net liabilities of continued operations Net assets of discontinued operations Net (liabilities) Equity Issued capital Reserves Accumulated losses Total equity ANNUAL REPORT 30 June 2018 Note 2018 $ 2017 $ 8 9 11 10 12 13 14 15 11 17 16a 17 3,203,479 823,087 3,672,347 202,960 383,846 1,704,960 1,599,327 68,154 7,901,873 3,756,287 70,204 180,788 26,562 38,240 - 1,934,645 250,992 1,999,447 8,152,865 5,755,734 2,051,180 3,672,347 309,223 467,288 2,535,813 1,599,327 292,680 1,082,394 6,500,038 5,510,214 28,889 - 25,968 25,453 16b 2,583,632 2,747,536 2,612,521 2,798,957 9,112,559 8,309,171 (959,694) (2,553,437) 958,916 554,598 (778) (1,998,839) 18 19 17,527,964 1,545,350 7,210,755 1,157,093 (19,074,092) (10,366,687) (778) (1,998,839) The consolidated statement of financial position is to be read in conjunction with the accompanying notes. P a g e | 19 ANNUAL REPORT 30 June 2018 Consolidated statement of changes in equity for the year ended 30 June 2018 Note Issued Capital Accumulated Losses $ $ Balance at 1 July 2016 6,097,054 (5,273,655) Loss for the year attributable owners of the parent Other comprehensive income for the year attributable owners of the parent Total comprehensive income for the year attributable owners of the parent Transaction with owners, directly in equity Issue of ordinary shares Capital raising transaction costs Share options granted Equity derivative issued - - (5,093,032) - - (5,093,032) 2,077,851 (964,150) - - - - - - Balance at 30 June 2017 7,210,755 (10,366,687) Balance at 1 July 2017 7,210,755 (10,366,687) Loss for the year attributable owners of the parent Other comprehensive income for the year attributable owners of the parent Total comprehensive income for the year attributable owners of the parent Transaction with owners, directly in equity Issue of ordinary shares Capital raising transaction costs Share options granted Translation of Ensurance UK ledger - - (8,707,405) - - (8,707,405) 11,224,554 (907,345) - - - - - - ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Foreign Currency Translation Reserve Share- Based Payment Reserve Share Option Reserve Revaluation Reserve Convertible Note Option Premium Reserve $ - - - - - - - - - - - - - - - - (54,487) $ 8,980 - - - - - - - $ - - - - - - 838,242 - $ 9,687 - 1,801 1,801 - - - - $ - - - - - - - 298,383 Total $ 842,066 (5,093,032) 1,801 (5,091,231) 2,077,851 (964,150) 838,242 298,383 8,980 838,242 11,488 298,383 (1,998,839) 8,980 838,242 11,488 298,383 (1,998,839) - - - - - - - - - - - - 470,710 - - 1,305 1,305 - - - - - - - - - (8,707,405) 1,305 (8,706,100) 11,224,554 (907,345) (29,271) 441,439 - (54,487) Balance at 30 June 2018 17,527,964 (19,074,092) (54,487) 8,980 1,308,952 12,793 269,112 (778) The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. P a g e | 20 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Consolidated statement of cash flows for the year ended 30 June 2018 Cash flows from operating activities Receipts from customers Interest received Interest and borrowing costs paid Payments to suppliers and employees Refund of income taxes Net used in operating activities Cash flows from investing activities Payment for development of intangible assets Proceeds from sale of financial assets Proceeds from intercompany loan with discontinued operation Purchase of plant and equipment Net used in investing activities Cash flows from financing activities Proceeds from share issue Proceeds from convertible notes subscriptions Net proceeds from borrowings Convertible notes interest paid Repayment of borrowings Net cash provided by financing activities ANNUAL REPORT 30 June 2018 Note 2018 $ 2017 $ 1,614,846 1,055,323 8,663 8,084 (513,508) (176,279) (8,856,640) (4,841,019) 342,285 - 8d.i (7,404,354) (3,953,891) (241,983) (533,265) 492 271,304 17,649 136,093 (193,757) (23,337) (163,944) (402,860) 11,098,632 457,507 - 3,000,007 5,372,696 1,171,916 (241,429) (145,692) (5,841,968) (87,140) 10,387,931 4,396,598 Net increase in cash held 2,819,633 39,847 Cash and cash equivalents at the beginning of the year 383,846 Cash and cash equivalents at the end of the year 8b 3,203,479 343,999 383,846 Cashflows from discontinued operations (4,583) 126,096 The consolidated statement of cash flows is to be read in conjunction with the accompanying notes. . P a g e | 21 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Statement of significant accounting policies Note 1 These are the consolidated financial statements and notes of Ensurance Limited (Ensurance or the Company) and controlled entities (collectively the Group). Ensurance is a company limited by shares, domiciled and incorporated in Australia. The separate financial statements of Ensurance, as the parent entity, have not been presented with this financial report as permitted by the Corporations Act 2001 (Cth). The financial statements were authorised for issue on 24 September 2018 by the directors of the Company. a. Basis of preparation The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated. The consolidated financial statements have been prepared on an accruals basis and are based on historical costs modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. i. Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board (AAS Board) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and the Corporations Act 2001 (Cth). Australian Accounting Standards (AASBs) set out accounting policies that the AAS Board has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with AASBs ensures that the financial statements and notes also comply with IFRS as issued by the IASB. ii. Going Concern The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Group has incurred a net loss for the year of $8,707,405 (2017: $5,093,032). As at 30 June 2018, the Group had working capital of $1,401,835 (2017: negative $1,753,927), a net liability of $778 (2017: $1,998,839), and accumulated losses of $19,074,092 (2017: $10,366,687). The Group has had recurring operating losses as a result of the delivery of new products and cashflow generating business units in accordance with the Group’s strategic goals. Based on a cashflow forecast, the Group has sufficient working capital to fund its mandatory obligations for the period ending 12 months from the date of this report. Should the Group be unable to generate sufficient funds from its operations or it is unable to raise sufficient capital, the planned operations of the Company may have to be amended. The Directors consider the going concern basis of preparation to be appropriate based on forecast cash flows. iii. Reverse acquisition Ensurance Ltd is listed on the Australian Securities Exchange. The Company completed the legal acquisition of Ensurance Capital Pty Ltd (Ensurance Capital) on 5 May 2015. Ensurance Capital (the legal subsidiary) was deemed to be the acquirer for accounting purposes as it has obtained control over the operations of the legal acquirer Ensurance (accounting subsidiary). Notwithstanding, as Ensurance Ltd is the listed entity and the ultimate holding company of the Ensurance Group of companies, the financial statements have been referred to as the financial statements of Ensurance Ltd. iv. Use of estimates and judgments The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Judgements made by management in the application of AASBs that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 1p. P a g e | 22 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ANNUAL REPORT 30 June 2018 v. Comparative figures Where required by AASBs comparative figures have been adjusted to conform with changes in presentation for the current financial year. Where the Group retrospectively applies an accounting policy, makes a retrospective restatement or reclassifies items in its financial statements, an additional (third) statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements is presented. b. Accounting Policies The Group has consistently applied the following accounting policies to all periods presented in the financial statements. The Group has considered the implications of new and amended Accounting Standards applicable for annual reporting periods beginning after 1 July 2017 but determined that their application to the financial statements is either not relevant or not material. c. Principles of consolidation As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. Where controlled entities have entered (left) the Consolidated Group during the year, their operating results have been included (excluded) from the date control was obtained (ceased). i. Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control exists when the Group is exposed to variable returns from another entity and has the ability to affect those returns through its power over the entity. The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquire; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. ii. Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. A list of controlled entities is contained in Note 20 Controlled Entities of the financial statements. iii. Transactions eliminated on consolidation All intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. P a g e | 23 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies d. Foreign currency transactions and balances ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 i. Functional and presentation currency The functional currency of each of the Group's entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity's functional and presentation currency. ii. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the profit or loss except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the gain or loss is directly recognised in other comprehensive income, otherwise the exchange difference is recognised in the profit or loss. iii. Group companies and foreign operations The financial results and position of foreign operations whose functional currency is different from the Group's presentation currency are translated as follows: assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations are transferred directly to the Group's foreign currency translation reserve in the statement of financial position. These differences are recognised in the profit or loss in the period in which the operation is disposed. e. Taxation Income tax i. The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/(benefit). Gains and losses on discontinued operations are aggregated with the results of continuing operations for the purposes of income taxes up to the point where the operation no longer forms a legal part of the consolidated tax group. Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (benefit) is charged or credited outside profit or loss when the tax relates to items recognised outside profit or loss. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. P a g e | 24 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ANNUAL REPORT 30 June 2018 Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Where the Group receives the Australian Government's Research and Development Tax Incentive, the Group accounts for the refundable tax offset under AASB 112. Funds are received as a rebate through the parent company's income tax return and disclosed as such in Note 6 Income Tax. ii. Tax consolidation The Board of Ensurance Ltd has entered into the Tax Consolidation Regime from 1 July 2015. This will include the preparation and signing of a Tax Sharing and Funding Agreement. Ensurance Limited is the head entity in the newly formed tax consolidated group. As a consequence, the entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Under the tax funding agreement, the members of the Group are required to contribute to the head entity for their current tax liabilities. The assets and liabilities arising under the tax funding agreements are recognised as intercompany assets and liabilities at call. Members of the tax consolidated group via the tax sharing agreement may be called to provide for the income tax liabilities between the entities should the head entity default on its tax payment obligations. No amount has been recognised in respect of this component of the agreement as the outcome is considered remote. iii. Goods and Services Tax (GST) and Value Added Tax (VAT) Revenues, expenses, and assets are recognised net of the amount of GST/VAT, except where the amount of GST/VAT incurred is not recoverable from the taxation authority. In these circumstances the GST/VAT is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST/VAT. The net amount of GST/VAT recoverable from, or payable to, the Australian Taxation Office in Australia or HM Revenue & Customs in the UK is included as a current asset or liability in the balance sheet. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST/VAT component of investing and financing activities, which are disclosed as operating cash flows. f. Fair Value i. Fair Value of Assets and Liabilities The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable AASB. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly unforced transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant's ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. P a g e | 25 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 The fair value of liabilities and the entity's own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. ii. Fair value hierarchy AASB 13 Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can be categorised into as follows: Level 1 Level 2 Level 3 Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Measurements based on unobservable inputs for the asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3. iii. Valuation techniques The Group selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation techniques selected by the Group are consistent with one or more of the following valuation approaches: Market approach: valuation techniques that use prices and other relevant information generated by market transactions for identical or similar assets or liabilities. Income approach: valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value. Cost approach: valuation techniques that reflect the current replacement cost of an asset at its current service capacity. Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. When selecting a valuation technique, the Group gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. g. Plant and equipment i. Recognition and measurement Items of plant and equipment are measured on the cost basis and carried at cost less accumulated depreciation (see below) and impairment losses (see Note 1i Impairment of non-financial assets). Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts. Where parts of an item of plant and equipment have different useful lives, they are accounted for as separate items of plant and equipment. P a g e | 26 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ANNUAL REPORT 30 June 2018 ii. Subsequent costs The cost of replacing part of an item of plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. Any costs of the day-to-day servicing of plant and equipment are recognised in the income statement as an expense as incurred. iii. Depreciation Depreciation is charged to the income statement on a straight-line basis over the asset's useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. Depreciation rates and methods are reviewed annually for appropriateness. The depreciation rates used for the current and comparative period are: Fixtures, furniture, and equipment Plant and equipment 2018 % 2017 % 11.25 – 37.50 11.25 – 37.50 25.00 – 37.50 25.00 – 37.50 The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of plant and equipment and are recognised net within “other income” in profit or loss. Impairment of non-financial assets h. The carrying amounts of the Group's non-financial assets, other than deferred tax assets (see Note 1e) are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the income statement, unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised. i. Financial instruments Initial recognition and measurement i. A financial instrument is recognised if the Group becomes party to the contractual provisions of the instrument. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group's obligations specified on the contract expire or are discharged or cancelled. P a g e | 27 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. ii. Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity securities, trade and other receivables, cash and cash equivalents and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transactions costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. iii. Classification and Subsequent Measurement Cash and cash equivalents (1) Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of nine months or less, and bank overdrafts. Bank overdrafts are shown within short-borrowings in current liabilities on the Statement of financial position. Loans (2) Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. Trade and other receivables (3) Receivables are usually settled within 60 days. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Collectability of trade and other receivables are reviewed on an ongoing basis. An impairment loss is recognised for debts which are known to be uncollectible. An impairment provision is raised for any doubtful amounts. Trade and other payables (4) These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid and stated at their amortised cost. The amounts are unsecured and are generally settled on 30 day terms. Share capital (5) Ordinary issued capital is recorded at the consideration received. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit. Ordinary issued capital bears no special terms or conditions affecting income or capital entitlements of the shareholders. iv. Amortised cost Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. v. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models. P a g e | 28 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ANNUAL REPORT 30 June 2018 vi. Effective interest method The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. vii. Impairment A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Financial assets are tested for impairment on an individual basis. All impairment losses are recognised in the income statement. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in the income statement. viii. Derecognition Financial assets are derecognised where the contractual rights to cash flow expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. ix. Finance income and expenses Finance income comprises interest income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Financial expenses comprise interest expense on borrowings calculated using the effective interest method, unwinding of discounts on provisions, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred. Foreign currency gains and losses are reported on a net basis. j. Employee benefits i. Short-term benefits Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees' services provided to the reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay at the reporting date including related on-costs, such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services, are expensed based on the net marginal cost to the Group as the benefits are taken by the employees. ii. Other long-term benefits The Group's obligation in respect of long-term employee benefits other than defined benefit plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on-costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. P a g e | 29 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 iii. Retirement benefit obligations: Defined contribution superannuation funds A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions onto a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the income statement as incurred. iv. Termination benefits When applicable, the Group recognises a liability and expense for termination benefits at the earlier of: (a) the date when the Group can no longer withdraw the offer for termination benefits; and (b) when the Group recognises costs for restructuring pursuant to AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the costs include termination benefits. In either case, unless the number of employees affected is known, the obligation for termination benefits is measured on the basis of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised are measured at the (undiscounted) amounts expected to be paid. All other termination benefits are accounted for on the same basis as other long-term employee benefits. v. Equity-settled compensation The Group operates an employee share option plan. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to market conditions not being met. k. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will results and that outflow can be reliably measured. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability. Leases l. Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to entities in the Group are classified as finance leases. Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the Group will obtain ownership of the asset or over the term of the lease. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. m. Revenue and other income Interest revenue is recognised in accordance with Note 1i.ix Finance income and expenses. Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is recognised to the extent that there is no future obligation. Where there is a future obligation, a portion is deferred over the expected service period. When the inflow of consideration is deferred, it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. The research and development (R&D) tax offset, also known as the R&D tax incentive provides for a 43.5% refundable tax offset on eligible R&D expenditure for entities incurring costs on eligible R&D activities and falling under an aggregated turnover threshold of $20m. For financial reporting purposes, this is treated as an income tax item and recognised when the work required to receive the grant has been completed. All revenue is stated net of the amount of GST/VAT (Note 1e.iii Goods and Services Tax (GST) and Value Added Tax (VAT)). P a g e | 30 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ANNUAL REPORT 30 June 2018 n. Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' results are regularly reviewed by the Group's Managing Director to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. o. Critical Accounting Estimates and Judgments Management discusses with the Board the development, selection and disclosure of the Group's critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. i. Key Estimate – Taxation Balances disclosed in the financial statements and the notes thereto, related to taxation, are based on the best estimates of directors. These estimates take into account both the financial performance and position of the company as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents the directors' best estimate, pending an assessment by tax authorities in relevant jurisdictions. Refer Note 6 Income Tax. ii. Key Estimate —Impairment (1) Legal Parent Financial Assets related to Subsidiaries At the end of each financial year, an assessment is made on whether there are indicators that the Company’s investments in subsidiaries and loans to subsidiaries are impaired. Where necessary, the Company’s assessments are based on the estimation of the value-in-use of the assets defined in AASB 136 Impairment of Assets by forecasting the expected future cash flows for a period of up to 5 years, using a suitable discount rate in order to calculate the present value of those cash flows. The Company’s carrying amount of investments in subsidiaries as at 30 June 2018 was $169,121 (2017: $nil), and loans $nil (2017: $212,025) after an impairment loss of $6,993,937 was recognised in 2018 (2017: $4,550,809). The impairment losses have been included in the parent Company’s results for the year. Details of the impairment loss calculation are set out in Note 29. In determining whether an impairment exists, management assumes that a subsidiary will only be able to repay its loans to the extent it has positive net assets. It is also assumed that the Company’s legal subsidiaries have no realisable value as standalone entities and so the shares it owns in them must be fully impaired. It is assumed that loans with each subsidiary are interchangeable and so the extent of any impairment on loans is limited to the amount of the net deficiency of the sub-group. P a g e | 31 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 (2) Intangible Assets The Company assesses impairment of intangible assets at each reporting date by evaluating conditions specific to the Company and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. The Company used the income approach in determining the fair value which reflects the current market expectations about future amounts that will be generated by the intangible assets. This involves employing present value techniques that are dependent on the circumstances specific to the intangible asset and the availability of sufficient data. During this reporting period, the directors have taken a view to impair the full value of the software development costs until the economic benefits flowing from this asset are material and can be determined with reasonable accuracy. The directors are presently of the opinion that the additional economic benefits to be derived from this asset cannot be determined with reasonable accuracy. The decision to fully impair the carrying amount of the intangible asset has resulted in a one-off impairment charge to the profit & loss account in the sum of $2.01 million. iii. Key Estimate —Intangible assets and amortisation Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Intangible Assets, arising from software development costs, are initially recognised as an asset when it is expected that material future economic benefits will be derived from such expenditure. The estimated future economic benefits are used to determine the recoverable amount of this asset, however, where the timing and value of these future economic benefits cannot be determined with reasonable accuracy, the carrying amount is written down to the recoverable amount through an impairment charge to the profit & loss account. P a g e | 32 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ANNUAL REPORT 30 June 2018 iv. Key Estimate – Discontinued operations An operation is classified as discontinued when a decision is made by management to dispose of an operating segment of the business. Due to transactions and agreements incurred at 30 June 2018, which include the taking of a non-refundable deposit from the purchaser, it was concluded that there was a high likelihood of the completion of the sale of Savill Hicks Corp Pty Ltd. It therefore meets the criteria for classification as a discontinued operation in the financial year and the results of this entity are disclosed separately in this document from the continuing operations of the business. p. Amendments to AASBs and the new Interpretations that are mandatorily effective for the current period The accounting policies adopted are consistent with those of the previous financial years except the following which the Group adopted from 1 July 2017: AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of deferred tax assets for unrealised tax losses. AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative – Amendments to AASB 107. AASB 2017-2 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2014-2016 Cycle The adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods. q. New Accounting Standards and Interpretations applicable from 1 July 2017 not yet mandatory or early adopted A number of new standards, amendments to standards and interpretations issued by the AASB which are not yet mandatorily applicable to the Group have not been applied in preparing these financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. i. AASB 9 Financial Instruments and associated Amending Standards (applicable for annual reporting period commencing on or after 1 January 2018) The Standard will be applicable retrospectively (subject to the comment on hedge accounting below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. Key changes made to this standard that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. The Directors anticipate that the adoption of AASB 9 will not have a material impact on the Group’s financial instruments. ii. AASB 15 Revenue from Contracts with Customers (applicable to annual reporting periods commencing on or after 1 January 2018). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: (1) (2) Identify the contract(s) with a customer; Identify the performance obligations in the contract(s); (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations in the contract(s); and (5) Recognise revenue when (or as) the performance obligations are satisfied. This Standard will require retrospective restatement, as well as enhanced disclosures regarding revenue. P a g e | 33 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the Year Ended 30 June 2018 Note 1 Statement of significant accounting policies ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 The Directors anticipate that the adoption of AASB 15 will not have a material impact on the Group’s revenue recognition and disclosures. iii. AASB 16: Leases (applicable to annual reporting periods commencing on or after 1 January 2019). AASB 16 removes the classification of leases as either operating leases or finance leases for the lessee effectively treating all leases as finance leases. Short term leases (less than 12 months) and leases of a low value are exempt from the lease accounting requirements. Rent is no longer charged, instead depreciation and a finance charge, impacting EBITDA. Lessor accounting remains similar to current practice. The Directors anticipate that the adoption of AASB 16 will require representing the Group’s office rental leases in Melbourne and London as finance leases, with applicable accounting treatment applied. There will also be some minor adjustments for representing operating leases over office equipment. An analysis of the Group’s current exposure to leases falling under AASB 16 would not have a material impact on the net profit or net assets of the Group, but would require reclassification of the above assets in accordance with the new standard and as such, the effect on the individual line items of the Statement of Financial Position will be material. It is estimated that non-current assets would increase by approximately $1.0m to recognise the right-of-use assets, less accumulated amortisation, with a corresponding increase in liabilities of $1.1m to recognise the lease liability. iv. AASB 2016-5: Amendments to Australian Accounting Standards – Classification and measurement of share-based payment transactions (applicable to annual reporting periods commencing on or after 1 July 2018). AASB 2016-5 amends AASB 2, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; Share-based payment transactions with a net settlement feature for withholding tax obligations and; a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The Directors anticipate that the adoption of AASB 2016-5 will not have a material impact on the Group’s recognition of share-based payments. v. AASB 2017-4: Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments (applicable to annual reporting periods commencing on or after 1 January 2019). AASB 2017-4 amends AASB 1 to clarify that a first-time adopter whose date of transition to Australian Accounting Standards is before 1 July 2017 may elect not to reflect the application of AASB Interpretation 23, as identified in AASB 1048 Interpretation of Standards, in comparative information in its first financial statements prepared in accordance with Australian Accounting Standards. The Directors anticipate that the adoption of AASB 2017-4 will not have a material impact on the Group’s presentation of its financial statements. vi. Other standards not yet applicable There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions P a g e | 34 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Note 2 Registered Office and Principal Place of Business ANNUAL REPORT 30 June 2018 The registered office and principal place of business of the Company is: Address: Street: Level 2/2 Glen St Milsons Point NSW 2061 PO Box 523 Milsons Point NSW 1565 +61 (0)2 9806 2000 +61 (0)2 9806 2099 Postal: Telephone: Facsimile: Other business locations Melbourne: Telephone: London: Telephone: 4/400 Canterbury Road Surrey Hills VIC 3127 +61 1300 794 079 Level 2, 10 Philpot Lane London, EC3M 8AA, United Kingdom +44 (0)20 3941 7710 P a g e | 35 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 3 Revenue and other income a. Revenue Sales revenue Interest Other Note 4 Loss before income tax ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 2018 $ 1,201,076 7,260 - 2017 $ 977,872 3,947 26,533 1,208,336 1,008,352 Note 2018 $ 2017 $ The following significant revenue and expense items are relevant in explaining the financial performance: a. Depreciation and amortisation: Depreciation and amortisation of plant and equipment Impairment of intangibles Amortisation of intangibles 13b 14b b. Employment costs: Directors fees Increase in employee benefits provisions Superannuation expenses Wages and salaries Other employment related costs Note 5 Auditor's remuneration Audit and review of financial statements: (cid:1) Mazars Risk and Assurance Pty Limited (cid:1) Buzzacott LLP Other services - Taxation compliance provided by a related practice of the Auditor - Mazars Other services - Taxation compliance provided by a related practice of the Auditor - Buzzacott 50,436 2,007,461 173,167 2,231,064 114,875 21,977 367,836 27,709 - 376,752 404,461 204,750 121,277 294,200 4,002,505 2,270,809 585,260 424,460 5,092,453 3,315,496 2018 $ 2017 $ 118,790 24,297 102,500 15,249 - 28,630 40,148 32,836 183,235 179,215 P a g e | 36 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 6 Income tax Note a. Income tax (benefit)/expense Current tax Deferred tax Tax rebate for Research and Development b. Reconciliation of income tax benefit to prima facie tax payable The prima facie tax payable / (benefit) on loss from ordinary activities before income tax is reconciled to income tax expense as follows: Prima facie tax benefit on operating loss of Australian continued operations at 27.5% (2017: 27.5%) Prima facie tax expense/(benefit) on operating profit of Australian discontinued operations at 27.5% (2017: 27.5%) Prima facie tax expense on operating loss of UK continued operations at 19% (2017: 19%) Add / (Less) Tax effect of: Capital-raising costs deductible Timing differences Non-deductible expenses Other Losses in Ensurance UK Limited at 19% Deferred tax asset not brought to account ANNUAL REPORT 30 June 2018 2018 $ - - 2017 $ - - (286,084) (276,994) (286,084) (276,994) (1,869,479) (1,380,434) 2,179 (114,278) (418,629) (192,856) - - 3,471 - 418,629 (20,312) (91,436) - (3,087) 192,856 1,863,829 1,609,547 Income tax (benefit)/expense attributable to operating loss - - Less rebates: Tax rebate for Research and Development Income tax (benefit)/expense c. The applicable weighted average effective tax rates attributable to operating profit are as follows (286,084) (276,994) (286,084) (276,994) % - $ % - $ d. Balance of franking account at year end of the legal parent 8,620 350,906 P a g e | 37 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 6 Income tax (cont.) ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Note 2018 $ 2017 $ e. Deferred tax assets Provisions Other Capital raising costs Tax losses Set-off against deferred tax liabilities Net deferred tax assets Less deferred tax assets not recognised Net tax assets f. Deferred tax liabilities Intangibles Set-off deferred tax assets Net deferred tax liabilities g. Tax losses and deductible temporary differences Unused tax losses and deductible temporary differences for which no deferred tax asset has been recognised, that may be utilised to offset tax liabilities: Deductible temporary differences Revenue losses (47,066) 180,902 28,215 1,494,097 1,656,148 455,549 79,023 - 38,444 1,340,313 1,457,780 (171,700) 2,111,697 1,286,080 (2,111,697) (1,286,080) - - 455,549 (455,549) 171,700 (171,700) - - 617,600 (54,233) 3,213,657 2,134,779 3,831,256 2,080,546 Potential deferred tax assets attributable to tax losses have not been brought to account at 30 June 2018 because the directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this point in time. These benefits will only be obtained if: i. the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss to be realised; ii. the company continues to comply with conditions for deductibility imposed by law; and iii. no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the loss. h. Tax consolidation The Board of Ensurance Ltd has entered into the Tax Consolidation Regime from 1 July 2015. This includes the preparation and signing of a Tax Sharing and Funding Agreement. Ensurance Limited is the head entity in the newly formed tax consolidated group. As a consequence, the entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Under the tax funding agreement, the members of the Group are required to contribute to the head entity for their current tax liabilities. The assets and liabilities arising under the tax funding agreements are recognised as intercompany assets and liabilities at call. Members of the tax consolidated group via the tax sharing agreement may be called to provide for the income tax liabilities between the entities should the head entity default on its tax payment obligations. No amount has been recognised in respect of this component of the agreement as the outcome is considered remote. P a g e | 38 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 7 Earnings per share (EPS) a. Reconciliation of earnings to profit or loss Loss for the year Less: loss attributable to non-controlling equity interest Loss used in the calculation of basic EPS b. Number of ordinary shares outstanding during the year used in calculation of basic EPS c. Earnings per share Basic EPS (cents per share) ANNUAL REPORT 30 June 2018 Note 2018 $ 2017 $ (8,707,405) (5,093,032) - - (8,707,405) (5,093,032) 2018 $ 2017 $ 346,227,724 83,113,862 2018 $ 2017 $ (2.51) (6.13) d. At the balance date, the Group has 25,497,314 unissued shares under options (2017: 10,097,314), 8,000,000 partly-paid shares on issue (2017: 8,000,000), 1,500,000 performance rights (2017: 7,000,000) and 75,000,000 convertible notes (2017: 37,500,000). The Group does not report diluted earnings per share on annual losses generated by the Group. During the 2018 financial year the Group's unissued shares under option, partly-paid shares, and performance rights were anti-dilutive. The Group’s convertible notes are dilutive. e. During the year, the group issued the following unissued shares under options: 5,000,000 options exercisable at 8 cents and expiring 15 December 2019; 3,150,000 options exercisable at 5 cents and expiring 15 December 2019 and 7,250,000 options exercisable at 5 cents and expiring 15 December 2020. Additionally, 3,000,000 options issued in the previous financial year, exercisable at 9.2 cents and expiring 31 Jul 2020 were repriced to be exercisable at 4.6 cents. 3,500,000 options issued in the previous financial year, exercisable at 8 cents and expiring 31 July 2020 were also repriced, to be exercisable at 4 cents. All these options are anti-dilutive. P a g e | 39 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 8 Cash and cash equivalents Note a. Current Cash at bank Cash on hand ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 2018 $ 3,201,734 1,745 3,203,479 2017 $ 382,667 1,179 383,846 b. Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents 8a 3,203,479 3,203,479 383,846 383,846 c. The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 27 Financial risk management. d. Cash Flow Information Note 2018 $ 2017 $ i. Reconciliation of cash flow from operations to (loss)/profit after income tax Loss after income tax (8,707,405) (5,093,032) Cash flows excluded from (loss)/profit attributable to operating activities - - Non-cash flows in (loss)/profit from ordinary activities: Depreciation and amortisation Convertible note interest Impairment Other (option reserves) Movements related to discontinued operations Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: (Increase)/decrease in receivables (Increase)/decrease in prepayments and other assets (Increase)/decrease in net tax assets Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Cash flow from operations e. Credit standby facilities The Group has no credit standby facilities. f. Non-cash investing and financing activities Nil. Note 9 Trade and other receivables a. Current Trade receivables R&D Tax rebate receivable Receivable from underwriter 243,225 344,705 2,007,461 103,770 (612,463) (20,364) (149,927) 58,285 (669,840) (1,801) 436,542 145,692 - - (219,445) (28,460) (40,158) (342,285) 1,049,678 137,577 (7,404,354) (3,953,891) 2018 $ 35,751 284,000 503,336 2017 $ 27,865 342,285 1,334,810 823,087 1,704,960 b. The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 27 Financial risk management. P a g e | 40 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 10 Other assets Current Prepayments Note 11 Compliance of underwriting assets and liabilities 30 JUNE 2017 Trust account insurer assets Insurance debtors Trust accounts Total trust account insurance assets Trust account insurer liabilities Underwriter's liability Unearned commissions Other Total trust account insurance liabilities Excess of insurance assets over insurance liabilities 30 JUNE 2018 Trust account insurer assets Insurance debtors Trust accounts Total trust account insurance assets Trust account insurer liabilities Underwriter's liability Unearned commissions Other Total trust account insurance liabilities ANNUAL REPORT 30 June 2018 2018 $ 202,960 202,960 2017 $ 68,154 68,154 Ensurance Underwriting Pty Limited $ Ensurance UK Limited $ 747,323 849,517 1,596,840 1,462,783 80,912 53,145 1,596,840 - 2,487 - 2,487 2,487 - - 2,487 - Total $ 749,810 849,517 1,599,327 1,465,270 80,912 53,145 1,599,327 - 1,019,367 1,387,150 864,152 401,678 1,883,519 1,788,828 2,406,517 1,265,830 3,672,347 2,276,691 128,254 1,572 1,103,927 121,263 40,640 3,380,618 249,517 42,212 2,406,517 1,265,830 3,672,347 Excess of insurance assets over insurance liabilities - - - The above note reflects only the trust account assets and liabilities of continued operations. However, until the completion of the sale of Savill Hicks Corp Pty Ltd, Ensurance Ltd is still responsible for the compliance of its trust account. As at the balance date, Savill Hicks Corp Pty Ltd had trust account assets of $4,345,981, represented by cash balances of $3,042,805 and insurance debtors of $1,303,176. Corresponding trust liabilities of $4,345,981 were held, represented by Underwriter liabilities of $4,146,877, unearned commissions of $184,681 and other amounts of $14,422. The excess/deficiency of assets over liabilities was nil. Note 12 Financial assets a. Non-current Tier 1 Financial assets: Listed shares Bonds on deposit P a g e | 41 2018 $ 2,564 67,640 70,204 2017 $ 2,164 24,398 26,562 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Note 13 Plant and equipment Fixtures, furniture, and fittings Accumulated depreciation Plant and equipment Accumulated depreciation Total plant and equipment Movements in Carrying Amounts Carrying amount: 1 July 2016 Additions Disposals 2018 $ 187,428 (25,873) 161,555 91,639 (72,406) 19,233 180,788 Fixtures, furniture & fittings Plant & equipment $ 292 9,255 - $ 43,611 12,791 - Depreciation expense (2,011) (25,698) Carrying amount: 30 June 2017 Carrying amount: 1 July 2017 Additions Disposals Depreciation expense 7,536 7,536 177,120 - (23,101) 30,704 30,704 16,637 (773) (27,335) 2017 $ 35,525 (27,989) 7,536 76,463 (45,759) 30,704 38,240 Total $ 43,903 22,046 - (27,709) 38,240 38,240 193,757 (773) (50,436) Carrying amount: 30 June 2018 161,555 19,233 180,788 Note 14 Intangible assets Software development costs Impairment Accumulated amortisation Total intangible assets Movements in Carrying Amounts Carrying amount: 1 July 2016 Additions Amortisation expense Carrying amount: 30 June 2017 Carrying amount: 1 July 2017 Additions Amortisation expense Impairment Carrying amount: 30 June 2018 2018 $ 2017 $ 3,698,562 3,452,579 (2,007,461) - (1,691,101) (1,517,934) - 1,934,645 Software Development $ 1,768,131 543,266 (376,752) 1,934,645 1,934,645 245,983 (173,167) (2,007,461) - P a g e | 42 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 15 Trade and other payables a. Current Unsecured Trade payables & accruals Other payables Other taxes Related party payables Loan with discontinued operation ANNUAL REPORT 30 June 2018 2018 $ 2017 $ Note 15b 351,644 401,158 238,620 - 488,871 461,143 608,659 163,141 813999 15d 1,059,758 2,051,180 2,535,813 b. Trade payables are non-interest bearing and usually settled within the lower of terms of trade or 30 days. c. The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 26 Financial risk management. d. The loan with discontinued operation represents an intercompany loan balance owing from Ensurance Limited to its subsidiary, Savill Hicks Corp Pty Ltd. Normally eliminated on consolidation, with the operations of Savill Hicks Corp Pty Ltd discontinued pending the sale, the balance is restated as a liability owing from Ensurance Limited. However, the balance of $1.06m is not wholly payable in cash. The retained earnings of the discontinued operation of $825k were declared as a dividend on 1 July 2018 and offset against the loan. The remaining balance of $235k is payable in cash and will be settled on completion of the sale. Note 16 Borrowings a. Current Short term loans Related party loans Non-refundable sale deposit taken Premium funding loans b. Non-Current Convertible notes (i) Convertible loans Accrued interest Less: Equity component – value of conversion rights (ii) 2018 $ - 120,378 200,000 146,910 2017 $ 963,900 114,906 - 3,588 467,288 1,082,394 3,000,007 2,280,007 - 76,987 720,000 45,912 (493,362) (298,383) 2,583,632 2,747,536 (i) A $3m convertible note was issued by the Company on 11 July 2016 at an issue price of $0.22 per note. Each note entitles the holder to convert to one ordinary share. Conversion may occur at any time for a period of three years from the subscription date. If the notes have not been converted, they will be redeemed at this point. Interest of 8% will be paid quarterly up until that settlement date. In the prior period $720,000 of these notes were classified as convertible loans, to the extent they were held by Directors of the Company and pending shareholder approval. Approval was granted at the AGM on 29 November 2017 enabling the convertible loans to be reclassified as convertible notes. The conversion price of the note reduces in line with the issue price of any capital raising conducted during the life of the note. As at the balance date, the conversion price was 4 cents and as such a further 75,000,000 shares stand to be issued. P a g e | 43 ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 (ii) The net proceeds received from the issue of the convertible notes have been split between the financial liability element and an equity component, representing the residual attributable to the option to convert the financial liability into equity of the Company. The equity derivative of $493,362 has been credited to equity (option premium on convertible notes). The liability component is measured at amortised cost. The interest component is measured at amortised cost. The interest expense is calculated by applying an effective interest rate of 12.57% for the period since the loan notes were issued. Note 17 Employee benefit provisions Note a. Disclosed as: Current Non-current Carrying amount at the end of year b. Movements in Carrying Amounts Carrying amount at the beginning of year Additional provisions raised during the year Amounts used 2018 $ 309,223 28,889 338,112 Long service Leave $ 65,486 14,319 2017 $ 292,680 25,968 318,648 Total $ 318,648 198,837 Annual leave $ 253,162 184,518 (173,700) (5,673) (179,373) Carrying amount at the end of year 263,980 74,132 338,112 c. Description of provisions Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. P a g e | 44 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 ANNUAL REPORT 30 June 2018 Note 18 Issued capital 2018 No. 2017 No. 2018 $ 2017 $ Fully paid ordinary shares at no par value 346,227,724 83,113,862 17,527,964 7,210,755 a. Ordinary shares At the beginning of the period 83,113,862 57,140,909 7,210,755 6,097,054 Shares issued during the year 263,113,862 25,972,953 11,224,554 2,077,851 Capital raising transaction costs - - (907,345) (964,150) Balance at reporting date 346,227,724 83,113,862 17,527,964 7,210,755 b. Partly paid shares Partly-paid Shares 2018 No. 2017 No. 18b.i 8,000,000 8,000,000 i. Each Partly Paid Share is issued at a price of 20 cents of which 0.01 of one cent is paid with the balance payable, at the election of the holder, any time within five years from the date of Shareholder approval of the special resolution, being 30 November 2020, in accordance with resolution 13 of the Company's 2015 Annual General Meeting. The Partly Paid Shares will not be subject to calls by Ensurance and any of the Partly Paid Shares which are not fully paid up at the expiration date of 30 November 2020 shall be forfeited (in accordance with Ensurance’s constitution) and the holder shall have no right to pay up and shall retain no rights in relation thereto. c. Options 2018 No. 2017 No. Options exercisable at 12 cents expiring 31 July 2020 1,000,000 1,000,000 Options exercisable at 4.6 cents expiring 31 July 2020 3,000,000 - Options exercisable at 9.2 cents expiring 31 July 2020 - 3,000,000 Options exercisable at 8 cents expiring 31 July 2020 2,597,314 6,097,314 Options exercisable at 4 cents expiring 31 July 2020 Options exercisable at 8 cents expiring 15 December 2019 Options exercisable at 5 cents expiring 15 December 2019 Options exercisable at 5 cents expiring 15 December 2020 P a g e | 45 3,500,000 5,000,000 3,150,000 7,250,000 - - - - 25,497,314 10,097,314 ANNUAL REPORT 30 June 2018 Options were valued using the Black-Scholes model as follows ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 2018 $ 2017 $ Options exercisable at 12 cents expiring 31 July 2020 76,100 76,100 Options exercisable at 4.6/9.2 cents expiring 31 July 2020 245,700 245,700 Options exercisable at 8 cents expiring 31 July 2020 219,992 516,442 Options exercisable at 4 cents expiring 31 July 2020 Options exercisable at 8 cents expiring 15 December 2019 Options exercisable at 5 cents expiring 15 December 2019 Options exercisable at 5 cents expiring 15 December 2020 d. Performance rights Performance Rights Class A Performance Rights Class B Carrying amount at the end of year e. Convertible Notes Convertible notes Converting loans Carrying amount at the end of year f. Capital Management 296,450 98,500 98,595 273,615 - - - - 1,308,952 838,242 2018 No. 2017 No. 1,000,000 6,500,000 500,000 500,000 1,500,000 7,000,000 25a.i 25a.ii 16b.i 16b.i 75,000,000 28,500,000 - 9,000,000 75,000,000 37,500,000 The Directors' objectives when managing capital are to ensure that the Group can maintain a capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the availability of liquid funds in order to meet its short-term commitments. Current ratio 2018 1.22 2017 0.68 The focus of the Group's capital risk management is the current working capital position against the requirements of the Group in respect of operations, software development and overheads. The Group's strategy is to ensure appropriate liquidity is maintained to meet forecast operating requirements, with a view to initiating capital raisings as required. The Group is subject to externally imposed capital requirements under the FSRA Legislation through its Australian Financial Services (AFS) Licensees, Savill Hicks Corp Pty Limited and Ensurance Underwriting Pty Limited. This legislation requires that the insurance assets of the entity be equal to or exceed the insurance liabilities. Refer also note 11. P a g e | 46 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 ANNUAL REPORT 30 June 2018 The working capital position of the Group at 30 June 2018 and 30 June 2017 were as follows: Cash and cash equivalents Trade and other receivables Other current assets Trust account insurer assets Trust account insurer liabilities Trade and other payables Short-term borrowings Short-term provisions Working capital position Note 19 Reserves Investment revaluation reserve Share-based payment reserve Convertible note option premium reserve Foreign currency translation reserve Share option reserve Total reserves a. Investment revaluation reserve Note 8 9 11a 11b 15 16 17 Note 19a 19b 19c 19e 19d 2018 $ 3,203,479 823,087 202,960 2017 $ 383,846 1,704,960 68,154 3,672,347 1,599,327 (3,672,347) (1,599,327) (2,051,180) (2,535,813) (467,288) (309,223) (1,082,394) (292,680) 1,401,835 (1,753,927) 2018 $ 12,793 8,980 269,112 (54,487) 2017 $ 11,488 8,980 298,383 - 1,308,952 838,242 1,545,350 1,157,093 The investment revaluation reserve records revaluations of investments held by the Group. b. Share-based payment reserve The share-based payment reserve records items recognised as expenses on the value of equity issues. c. Convertible note option premium reserve The convertible note option premium reserve recognises the equity component attached to the Company’s convertible notes. d. Share option reserve The share option reserve recognises the value of the unlisted share options in the Company. e. Foreign currency translation reserve The foreign currency translation reserve records the unrealised foreign currency gains or losses on translation of the financial statements of subsidiaries where the functional currency differs to that of the parent entity. P a g e | 47 ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 20 Controlled entities a. Legal parent entity Ensurance Limited is the ultimate parent of the Group (refer to Note 1a.iii). i. Legal subsidiaries Ensurance Capital Pty Limited Ensurance IT Pty Limited Ensurance Underwriting Pty Limited Savill Hicks Corp Pty Limited Savill Hicks Corp (NSW) Pty Ltd Ensurance Life Pty Ltd Ensurance UK Limited Country of Incorporation Australia Australia Australia Australia Australia Australia United Kingdom Class of Shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary b. Investments in subsidiaries are accounted for at cost. Percentage Owned 2018 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 2017 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% c. Savill Hicks Corp Pty Limited and Savill Hicks Corp (NSW) Pty Ltd together form the Australian retail brokerage business to be sold in October 2018 and their results are classified as discontinued operations in this annual report. Note 21 Commitments a. Operating lease commitments: Minimum lease payments under non-cancellable operating leases not later than 12 months between 12 months and 5 years greater than 5 years 2018 $ 2017 $ 322,668 266,195 - 267,848 178,401 - 588,863 446,249 A renewed operating lease is held over 400 Canterbury Road, Surrey Hills Melbourne Vic. The period of the lease is a non- cancellable three-year period commencing 9 March 2018. A further operating lease is held over Level 2, 10 Philpot Lane, London. The period of lease is five years commencing 27 November 2017, with an optional break clause after two years. P a g e | 48 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 22 Key Management Personnel compensation (KMP) The names and positions of KMP are as follows: ANNUAL REPORT 30 June 2018 Mr Tony Leibowitz Chairman (appointed 29 September 2017) Mr Adam Davey Mr Tony Wehby Mr Stefan Hicks Mr Brett Graves Mr Neil Pinner Non-Executive Director (resigned as Chairman 29 September 2017) Non-Executive Director (appointed 3 May 2018) Non-Executive Director (resigned 3 May 2018) Chief Operating Officer (resigned as Executive Director 21 September 2017) Non-Executive Director (resigned 3 November 2017) Mr Grant Priest Non-Executive Director (resigned 3 November 2017) Mr Arjan van Ameyde Chief Financial Officer (appointed 1 February 2018) Mr Michael Huntly CEO of Ensurance Underwriting Mr Peter Fielding COO of Ensurance IT Mr Sam Hallab Mr Tim James Company Secretary (resigned as Chief Financial Officer 28 February 2018) CEO of Ensurance UK Limited The total remuneration paid to KMP during the year is as follows: Short-term employee benefits Post-employment benefits Total Note 23 Related party transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Payments made in respect to remuneration of related parties of the KMP: (cid:1) K Graves (spouse of Mr Brett Graves) (cid:1) C Graham (executive assistant of Mr Tony Leibowitz) (cid:1) J Huntly (son of Mr Michael Huntly) 2018 $ 2017 $ 2,001,931 1,685,068 140,849 141,961 2,142,780 1,827,029 2018 $ 2017 $ 46,738 40,684 21,088 45,865 - 11,585 During the year, outstanding Director fees were paid to former Directors Grant Priest and Neil Pinner. Due to the long outstanding nature of these fees, interest of 8% was paid on the overdue amounts. The interest amounted to $9,776 for Mr Priest and $2,804 for Mr Pinner. During the year, the Company established a loan facility with Kalonda Pty Ltd, a related entity of Mr Tony Leibowitz. Interest on the facility was charged at 1.5% per calendar month on any drawn amounts and 0.66% per calendar month on any undrawn amounts. The facility limit was $2.5m. The balance of the loan account was cleared, and the facility was closed on 29 June 2018. Total interest paid to Kalonda Pty Ltd in the year was $249,931. Additionally, Kalonda Pty Ltd was granted 1,150,000 options as a result of establishing the loan facility. These options are exercisable at 5 cents and expire two years from the date of issue. The Company currently has a loan payable to Mr Brett Graves of $94,728 plus accrued interest of $17,637 as at 30 June 2018 (2017: $94,728 plus accrued interest of $12,164). Interest accrues on the principal at a rate of 10% per annum. This loan will be cleared as partial payment towards the purchase price of Savill Hicks Corp Pty Ltd. Additionally, the Company has a payable of $6,000 to Mr Adam Davey (2017: $6,000), representing interest on a loan that was settled in the previous financial year. P a g e | 49 ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 During the year, the Company underwent three capital raisings; a $3.5m placement of shares in December 2017; an $800k placement of shares in April 2018 and; a fully-underwritten entitlement issue of $6,924,554 in June 2018. The related party transactions involved in each of these events is detailed below: a. December 2017 - $3.5m placement of shares. The placement was fully underwritten by Transocean Securities Pty Ltd and part of their fee involved the issue of 7m options. For its involvement in securing investors to take part in this capital-raising on behalf of Transocean, Kalonda Pty Ltd, a related entity of Mr Tony Leibowitz received 3.5m of these options. These options are exercisable at 5 cents and expire 3 years from the date of issue. b. April 2018 - $800k placement of shares. Patersons Securities Limited, a Company on which Mr Adam Davey serves as a Director, received $34,950 as payment for their involvement in organising and securing investors for this capital-raising. This is represented by a $12,000 issue management fee and a $22,950 selling fee. c. June 2018 - $6,924,554 entitlement issue. The entitlement issue was fully underwritten by Transocean Securities Pty Ltd and Patersons Securities Limited, the latter being a Company on which Mr Adam Davey serves as a Director. Patersons underwrote $2,639,936 of the shortfall offer, approximately 44.22% of the total shortfall. They received fees of $271,671, represented by a $30,000 corporate advisory fee, a management fee of $51,934 and an underwriting fee of $189,737. Of the underwritten amounts, a portion was sub-underwritten by Kalonda Pty Ltd, a related entity of Mr Tony Leibowitz, and by Rosemary Wehby, a related party of Mr Tony Wehby. Kalonda Pty Ltd received sub-underwriting fees of 4% on $250,000 and 4.5% on $1.3m sub-underwritten, a total of $68,500. Rosemary Wehby received sub-underwriting fees of 4% on $50,000 sub-underwritten, a total of $2,000. These amounts were paid by Patersons Securities Limited out of their own fees as disclosed above. P a g e | 50 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 24 Operating segments a. Identification of reportable segments ANNUAL REPORT 30 June 2018 2014 $ 2013 $ The Group operates predominantly in the insurance industry. This comprises sale of insurance products & underwriting, and development of industry information technology. Inter-segment transactions are priced at cost to the Group. The Group has identified its operating segments based on the internal reports that are provided to the Board of Directors (the Board) on a monthly basis and in determining the allocation of resources. Management has identified four reportable segments: insurance (both in Australia and the UK), information technology and corporate overheads. b. Basis of accounting for purposes of reporting by operating segments i. Accounting policies adopted Unless stated otherwise, all amounts reported to the Board, being the chief decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. ii. Inter-segment transactions An internally determined transfer price is set for all inter-segment sales. This price is based on what would be realised in the event the sale was made to an external party at arm's length. All such transactions are eliminated on consolidation of the Group's financial statements. Inter-segment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements. iii. Segment assets Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic value from that asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. iv. Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings. v. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: Depreciation and amortisation Gains or losses on sales of financial and non-financial assets Investment income c. Basis of accounting for purposes of reporting by operating segments The Group operates in two geographical areas being Australia and the United Kingdom. Segment results are reported under the Australian regulatory body’s accounting standards. P a g e | 51 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Note 24 Operating segments (cont.) For the Year to 30 June 2018 Insurance $ Insurance (UK) $ Information Technology $ Corporate Head Office $ Revenue Revenue Interest revenue Total segment revenue Reconciliation of segment revenue to group revenue 920,927 5,169 280,149 71 926,096 280,220 Intra-segment income and expense - - - - - - Total $ 1,201,076 7,260 1,208,336 - 2,020 2,020 - _ - 1,208,336 57,010 (2,179,251) (988,242) (3,659,866) (6,770,349) Depreciation, amortisation & impairment (223,546) (24,057) - (1,978,385) - (5,076) - (2,231,064) - _ (9,001,413) Total group revenue and other income Segment net/profit (loss) from continuing operations before tax Reconciliation of segment loss to group loss (i) Amounts not included in segment results but reviewed by Board: (ii) Unallocated items Loss before income tax As at 30 June 2018 Segment Assets Reconciliation of segment assets to group assets Intra-segment eliminations Total assets Segment asset increases for the year: Capital expenditure Acquisitions 3,098,256 1,690,855 17,387 25,524,176 30,330,674 (22,177,809) _ 8,152,865 - 9,287 9,287 - 175,744 175,744 245,983 - 245,983 - 8,726 8,726 245,983 193,757 439,740 Segment Liabilities 2,963,087 1,521,734 4,468,800 9,830,797 18,784,418 Reconciliation of segment liabilities to group liabilities Intra-segment eliminations Total liabilities (9,671,859) _ 9,112,559 P a g e | 52 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 ANNUAL REPORT 30 June 2018 Note 24 Operating segments (cont.) For the Year to 30 June 2017 Insurance $ Insurance (UK) $ Information Technology $ Corporate Head Office $ Revenue Revenue Interest revenue Total segment revenue Reconciliation of segment revenue to group revenue 841,158 2,537 843,695 Intra-segment income and expense - - - - - Total $ 841,158 3,947 845,105 - - - - 1,410 1,410 (147,819) 311,066 163,247 _ 1,008,352 81,361 (1,013,351) (1,009,827) (2,673,482) (4,615,299) (37,186) - (1,681) (361,554) - (4,039) - (404,460) - _ (5,019,759) 5,913,543 128,133 1,741,599 11,708,489 19,491,764 (13,736,030) _ 5,755,734 76,265 8,557 84,822 - 8,981 8,981 466,999 - 466,999 - 2,255 2,255 543,264 19,793 563,057 1,996,248 1,142,995 3,226,384 2,927,657 9,293,284 (984,113) _ 8,309,171 Total group revenue and other income Segment net/profit (loss) from continuing operations before tax Reconciliation of segment loss to group loss (iii) Amounts not included in segment results but reviewed by Board: Depreciation and amortisation (iv) Unallocated items Loss before income tax As at 30 June 2017 Segment Assets Reconciliation of segment assets to group assets Intra-segment eliminations Total assets Segment asset increases for the year: Capital expenditure Acquisitions Segment Liabilities Reconciliation of segment liabilities to group liabilities Intra-segment eliminations Total liabilities P a g e | 53 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 25 Share-based payments Share-based payment expense ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 2018 $ - 2017 $ 8,980 a. The above share-based payment expense is comprised of the following arrangements in place at 30 June 2018: i. On 30 November 2015, 6,500,000 Performance Rights Class A (Class A Rights) were granted to Directors of the Company. Upon the Company achieving the target share price of $0.80, based on a 30-day volume weighted average share price, within 5 years, the Class A Rights will vest, entitling the holder or his nominee to 1 fully paid ordinary share in the Company per vested Class A Right. The Class A Rights hold no voting or dividend rights and are not transferable. At balance date, no Class A Right has converted, 5,500,000 had been forfeited and 1,000,000 Class A Rights remain. ii. On 30 November 2015, 500,000 Performance Rights Class B (Class B Rights) were granted to Mr Adam Davey. Class B Rights will vest on the introduction to, and entry into an agreement with, a strategic partner to the Company which results directly or indirectly in a material increase in the Company's revenue or otherwise increases the value of the Company, at the discretion of the Board of the Company. The Class B Rights hold no voting or dividend rights and are not transferable. At balance date, no Class B Right has converted or been forfeited and 500,000 Class B Rights remain. b. A summary of the movements of all Company performance rights issued as share-based payments is as follows: Outstanding at the beginning of the year Granted Converted to ordinary shares Expired Outstanding at year-end 2018 No. 2017 No. 7,000,000 7,000,000 - - (5,500,000) - - - 1,500,000 7,000,000 The weighted average remaining contractual life of performance rights outstanding at year end was 2.423 years. The fair value of the performance rights granted to Directors is deemed to represent the value of the Directors' services received over the vesting period. These values were calculated using the Monte-Carlo option pricing model, applying the following inputs to performance rights issued: Grant date: Grant date share price: Deemed strike price Number of performance rights issued: Remaining life of the performance rights (years): Expected share price volatility: Risk-free interest rate: Class A Rights Class B Rights 30 November 2015 30 November 2015 $0.19 $0.80 6,500,000 3.423 31.06% 2.00% $0.19 $0.25 500,000 3.423 31.06% 2.00% Volatility has been determined based on the historical share price for the period between 5 May 2015 and 19 October 2015. The start date of May 5 2015 was used as this was the date the Company announced its reinstatement to Official Quotation on the ASX. P a g e | 54 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 26 Financial risk management a. Financial Risk Management Policies ANNUAL REPORT 30 June 2018 This note presents information about the Group's exposure to each of the above risks, its objectives, policies and procedures for measuring and managing risk, and the management of capital. The Group's financial instruments consist mainly of deposits with banks, short-term investments, and accounts payable and receivable. The Group does not speculate in the trading of derivative instruments. A summary of the Group's Financial Assets and Liabilities is shown below: Floating Interest Rate $ 3,203,479 - - - Financial Assets (cid:1) Cash and cash equivalents (cid:1) Trade and other receivables (cid:1) Trust account insurer assets (cid:1) Financial assets Fixed Interest Rate $ - - Non- interest Bearing $ 2018 Total $ Floating Interest Rate $ - 3,203,479 383,846 823,087 823,087 1,788,828 1,883,519 3,672,347 - 70,204 70,204 Fixed Interest Rate $ - - Non- interest Bearing $ 2017 Total $ - 383,846 1,704,960 1,704,960 849,517 749,810 1,599,327 - 26,562 26,562 - - - Total Financial Assets 3,203,479 1,788,828 2,776,810 7,769,117 383,846 849,517 2,481,332 3,714,695 Financial Liabilities Financial liabilities at amortised cost (cid:1) Trade and other payables (cid:1) Trust account insurer liabilities (cid:1) Borrowings Total Financial Liabilities Net Financial Assets/(Liabilities) - - - - - - 2,051,180 2,051,180 3,672,347 3,672,347 3,050,920 - 3,050,920 3,050,920 5,723,527 8,774,447 - - - - - - 2,535,813 2,535,813 1,599,327 1,599,327 3,826,342 3,588 3,829,930 3,826,342 4,138,728 7,965,070 3,203,479 (1,262,092) (2,946,717) (1,005,330) 383,846 (2,976,825) (1,657,396) (4,250,375) b. Specific Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate, foreign currency risk and equity price risk. The Board of directors has overall responsibility for the establishment and oversight of the risk management framework. The Board adopts practices designed to identify significant areas of business risk and to effectively manage those risks in accordance with the Group's risk profile. This includes assessing, monitoring and managing risks for the Group and setting appropriate risk limits and controls. i. Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. The Group does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the Group. P a g e | 55 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 26 Financial risk management (cont.) ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 The objective of the Group is to minimise the risk of loss from credit risk. Although revenue from operations is minimal, the Group trades only with creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is insignificant. The Group's maximum credit risk exposure is limited to the carrying value of its financial assets as indicated on the statement of financial position. The Group establishes that no allowance for impairment is necessary in respect of trade and other receivables. Credit risk exposures The maximum exposure to credit risk is that to its alliance partners and that is limited to the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. Credit risk related to balances with banks and other financial institutions is managed by the Group in accordance with approved Board policy. Such policy requires that surplus funds are only invested with financial institutions residing in Australia, wherever possible. Impairment losses The ageing of the Group's trade and other receivables at reporting date was as follows: Gross 2018 $ Impaired 2018 $ 811,369 618,804 264,723 188,623 1,883,519 35,751 1,919,270 - - - - - - Past due but not impaired 2018 $ Net 2018 $ 811,369 618,804 264,723 188,623 - 618,804 264,723 188,623 1,883,519 1,072,150 35,751 - 1,919,270 1,072,150 Trade receivables Not past due Past due up to 30 days Past due 30 days to 3 months Past due over 3 months Other receivables Not past due Total ii. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring sufficient cash and marketable securities are available to meet the current and future commitments of the Group. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. Typically the Group ensures that it has sufficient cash to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group's AFS Licensees are subject to the conditions of their AFS License. Accordingly, in meeting the cash needs requirement, the Group prepares cash flow projections to demonstrate the Licensees will have sufficient cash under the terms of their license. P a g e | 56 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 26 Financial risk management (cont.) ANNUAL REPORT 30 June 2018 All trade and other payables are non-interest bearing and due within 30 days of the reporting date. Contractual Maturities The following are the contractual maturities of financial liabilities of the Group: Within 1 Year Greater Than 1 Year 2018 $ 2017 $ 2018 $ 2017 $ Total 2018 $ 2017 $ Financial liabilities due for payment Trade and other payables Trust account insurer liabilities Borrowings 2,051,180 3,672,347 467,288 2,535,813 1,599,327 1,082,394 - - 2,583,632 25,453 - 2,747,536 2,051,180 3,672,347 3,050,920 2,561,266 1,599,327 3,829,930 Total contractual outflows 6,190,815 5,217,534 2,583,632 2,772,989 8,774,447 7,990,523 Financial assets Cash and cash equivalents Trade and other receivables Trust account insurer assets 3,203,479 823,087 3,672,347 383,846 1,704,960 1,599,327 Total anticipated inflows 7,698,913 3,688,133 - - - - - - - - 3,203,479 823,087 3,672,347 383,846 1,704,960 1,599,327 7,698,913 3,688,133 Net (outflow)/inflow on financial instruments i. Market risk 1,508,098 (1,529,401) (2,583,632) (2,772,989) (1,075,534) (4,302,390) Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Board meets on a regular basis and considers the Group's interest rate risk. (1) Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings volatility on floating rate instruments. Due to the low amount of debt exposed to floating interest rates, interest rate risk is not considered a high risk to the Group. Movement in interest rates on the Group's financial liabilities and assets is not material. (2) Foreign exchange risk Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group. The Group has no material exposure to foreign exchange risk on its financial instruments. P a g e | 57 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 26 Financial risk management (cont.) (3) Price risk ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Price risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group does not presently hold material amounts subject to price risk. As such the Board considers price risk as a low risk to the Group. ii. Sensitivity Analyses (1) Foreign exchange Notwithstanding the Group’s subsidiary in the UK, namely Ensurance UK Limited, the Group did not carry significant financial assets or liabilities in foreign currencies in the 2018 financial year (2017: nil), and therefore was not subject to material foreign exchange risk, and according not subject to material sensitivities. Balances held by Ensurance UK Limited are not currently material. iii. Net Fair Values (1) Fair value estimation The fair values of financial assets and financial liabilities are presented in the table in note 27a and can be compared to their carrying values as presented in the statement of financial position. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. Financial instruments whose carrying value is equivalent to fair value due to their nature include: Cash and cash equivalents; Trade and other receivables; Trust account insurance assets and liabilities; and Trade and other payables. The methods and assumptions used in determining the fair values of financial instruments are disclosed in the accounting policy notes specific to the asset or liability. Note 27 Events subsequent to reporting date On 25 July 2018, the Company announced an agreement had been made to sell its shares in Savill Hicks Corp Pty Ltd to SHC Insurance Holding Pty Ltd, an entity headed by former Ensurance Directors Stefan Hicks and Brett Graves. The sale is subject to key conditions being met, including Ensurance shareholder approval, regulatory approval and a rebranding of the business name “Ensurance Now”. The settlement is expected to occur in October 2018. A non-refundable deposit on the purchase price was taken by the Company prior to the end of the financial year and as such, the 2018 operations of Savill Hicks Corp Pty Ltd are classified as discontinued. Refer to note 30 for more information in this regard. Note 28 Contingent liabilities There are no contingent liabilities as at 30 June 2018 (2017: Nil). P a g e | 58 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 29 Parent entity disclosures Note a. Financial Position of Ensurance Limited (legal parent) Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets/(deficiency) Equity Issued capital Investment revaluation reserve Convertible note option premium reserve Foreign currency translation reserve Share-based payment reserve Accumulated losses Total equity b. Financial performance of Ensurance Limited Profit / (loss) for the year Other comprehensive income Total comprehensive income 2018 $ 2017 $ 3,637,274 171,321 2,007,943 1,353,487 3,808,595 3,361,430 391,620 3,988,480 2,283,813 3,049,797 4,380,100 5,333,610 (571,505) (1,972,180) 22,649,560 12,332,351 200 269,112 (6,863) (200) 298,383 - 1,423,232 952,522 (23,727,959) (15,555,236) (571,505) (1,972,180) (8,172,723) (5,065,172) - - (8,172,723) (5,065,172) c. Guarantees entered into by Ensurance Limited for the debts of its subsidiaries The Board of Ensurance Ltd has declared in writing that it will support the liabilities of its subsidiaries (the companies) and will continue to financially support the companies while they remain wholly owned under the control of Ensurance Ltd. d. Impairment of investments and loans to subsidiaries The Board of Ensurance Ltd has undertaken an impairment assessment of the parent entity's investment in Ensurance Capital of $7,525,195, its investment in Ensurance UK Ltd of $3,434,916 and loans to subsidiaries of $9,326,770. As a result of this assessment, the Company has recognised an impairment to the investment of $7,525,195 and $3,265,795, respectively and an impairment to the loans of $9,326,770. This equates to an impairment loss of $20,117,759. Of this amount $6,993,937 is recognised in the current year (2017: $4,550,809). These impairments relate only to disclosures as contained in this Note 29 P a g e | 59 ANNUAL REPORT 30 June 2018 Notes to the consolidated financial statements for the year ended 30 June 2018 Note 30 Discontinued Operations ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Discontinued operations comprise the Australian retail broking business, Savill Hicks Corp Pty Ltd, the sale of which was announced to the ASX in July 2018. The sale of Savill Hicks Corp Pty Ltd is expected to complete in October 2018 and operations will continue until that point. As such, results shown in this note represent the full financial year, 1 July 2017 to 30 June 2018 and include the results of Savill Hicks Corp Pty Ltd as well as associated corporate costs directly attributable to the operations of this business, that will cease to exist after the sale completes. a. Profit/(Loss) from Discontinued Operations Revenue Other income Operating expenses Profit/(Loss) from operating activities Finance costs Profit/(Loss) before tax Tax benefit/(expense) Profit/(Loss) for period b. Net Assets of Discontinued Operations Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities 2018 $ 2017 $ 2,593,021 2,354,305 28,422 25,481 (2,590,691) (2,766,388) 30,752 (22,828) 7,924 - 7,924 (386,602) (28,956) (415,558) 65,291 (350,267) 5,663,772 46,217 5,709,989 3,349,871 1,177,054 4,526,925 (4,744,086) (3,271,360) (6,987) (700,967) (4,751,073) (3,972,327) Equity 958,916 554,598 c. Cash Flows from Discontinued Operations Net cash from/(used in) operating activities Net cash (used in)/from investing activities Net cash used in financing activities Net cash used in discontinued operations 216,924 (3,443) (613,603) (165,819) 46,293 (139,642) (400,122) (259,168) P a g e | 60 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Directors' declaration ANNUAL REPORT 30 June 2018 The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 18 to 60, are in accordance with the Corporations Act 2001 (Cth) and: (a) comply with Accounting Standards; (b) are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, as stated in note 1 to the financial statements; and (c) give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the Group. (d) the Directors have been given the declarations required by s.295A of the Corporations Act 2001 (Cth); 2. in the directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: TONY LEIBOWITZ Chairman Dated this Monday, 24 September 2018 P a g e | 61 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ENSURANCE LIMITED AND ITS CONTROLLED ENTITIES Report on the Financial Report Opinion We have audited the accompanying financial report of Ensurance Ltd and its controlled entities (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2018 and consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, other selected explanatory notes and the directors’ declaration as set out on pages 18 to 60. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis of Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1 to the financial report, which indicates that the Group incurred a net loss of $8,707,405 during the year ended 30 June 2018 (2017:$5,093,032 loss) and as of that date, the Group’s reflected a positive working capital of $1,401,835 (2017: negative $1,228,955), net liability of $778 (2017:$1,998,839) and accumulated losses of $19,074,092 (2017: $10,366,687). M A Z A R S R I S K & A S S U R A N C E P T Y L I M I T E D A B N : 3 9 1 5 1 8 0 5 2 7 5 L E V E L 1 2 , 9 0 A R T H U R S T R E E T , N O R T H S Y D N E Y N S W 2 0 6 0 P O B O X 1 9 9 4 , N O R T H S Y D N E Y N S W 2 0 5 9 T E L : + 6 1 2 9 9 2 2 1 1 6 6 - F A X : + 6 1 2 9 9 2 2 2 0 4 4 E M A I L : E M A I L @ M A Z A R S . C O M . A U L I A B I L I T Y L I M I T E D B Y A S C H E M E , A P P R O V E D U N D E R T H E P R O F E S S I O N A L S T A N D A R D S L E G I S L A T I O N The ability of the Group to continue as a going concern and pay their debts as and when they fall due is dependent upon a number of factors including: a) the Group’s ability to either generate sufficient funds from its operations or raise additional funds through debt financing and capital raising arrangements such that they are adequate enough to provide sufficient working capital in line with forecasts; and b) the Group’s ability to realise forecast revenue and expense targets, in both Australia and the UK over the next 12 months. Should the Group be unable to generate sufficient funds from its operations or unable to raise sufficient working capital then it may indicate the existence of a material uncertainty which may cast significant doubt as to the Group’s ability to continue as a going concern and therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the financial report. Key Audit Matters The key audit matters are those matters that, in our professional judgement Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. M A Z A R S R I S K & A S S U R A N C E P T Y L I M I T E D A B N : 3 9 1 5 1 8 0 5 2 7 5 L E V E L 1 2 , 9 0 A R T H U R S T R E E T , N O R T H S Y D N E Y N S W 2 0 6 0 P O B O X 1 9 9 4 , N O R T H S Y D N E Y N S W 2 0 5 9 T E L : + 6 1 2 9 9 2 2 1 1 6 6 - F A X : + 6 1 2 9 9 2 2 2 0 4 4 E M A I L : E M A I L @ M A Z A R S . C O M . A U L I A B I L I T Y L I M I T E D B Y A S C H E M E , A P P R O V E D U N D E R T H E P R O F E S S I O N A L S T A N D A R D S L E G I S L A T I O N Key audit matter How the matter was addressed in the audit Compliance with Australian Financial Services Licence Note 11 Our audit procedures focussed upon the group’s compliance with the financial and operational two Australian Financial requirements of Services Licenses held by the Group throughout the financial year. The group holds Australian financial - Ensurance Underwriting Pty Ltd: 429874 and Savill Hicks Corp Pty Ltd: 240867 which enable them to trade as an insurance broker. Conditions attached to both licenses include the need for positive net assets, sufficiency of cash flows and documentation of operational matters. services licenses Given the emphasis of matter relating to going concern noted in Note 1.a.ii to the financial report, our review of the cash flow requirements and associated projections is a key area of the audit, particularly given significant judgements and estimates required in their compilation. the the projections and other ensuring there are no calculation errors financial Our procedures included but were not limited to:  comparing cash flow forecasts from prior periods to actual balances.  within calculations used.  performing sensitivity analysis over key assumptions and their impact on AFSL ratio requirements.  assessing management’s assumptions and judgements made in the preparation of cash flow projections and performance of associated sensitivities.  reviewing of documentation of all operational requirements ensuring compliance with the licensing requirements.  of disclosures made in the financial report relating to licenses held and the compliance with their conditions. appropriateness assessing financial services the Other Information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. M A Z A R S R I S K & A S S U R A N C E P T Y L I M I T E D A B N : 3 9 1 5 1 8 0 5 2 7 5 L E V E L 1 2 , 9 0 A R T H U R S T R E E T , N O R T H S Y D N E Y N S W 2 0 6 0 P O B O X 1 9 9 4 , N O R T H S Y D N E Y N S W 2 0 5 9 T E L : + 6 1 2 9 9 2 2 1 1 6 6 - F A X : + 6 1 2 9 9 2 2 2 0 4 4 E M A I L : E M A I L @ M A Z A R S . C O M . A U L I A B I L I T Y L I M I T E D B Y A S C H E M E , A P P R O V E D U N D E R T H E P R O F E S S I O N A L S T A N D A R D S L E G I S L A T I O N Responsibilities of Directors for the Financial Report The directors of the Group are responsible for the preparation of the financial report that gives a true and fair view in accordance with the Australian Accounting Standards and the Corporations Act 2001. The directors’ responsibility also includes such internal control as the directors determine is necessary to enable the preparation of a financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence that is sufficient and appropriate to provide a basis for the auditor’s opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the director’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If the auditor concludes that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. M A Z A R S R I S K & A S S U R A N C E P T Y L I M I T E D A B N : 3 9 1 5 1 8 0 5 2 7 5 L E V E L 1 2 , 9 0 A R T H U R S T R E E T , N O R T H S Y D N E Y N S W 2 0 6 0 P O B O X 1 9 9 4 , N O R T H S Y D N E Y N S W 2 0 5 9 T E L : + 6 1 2 9 9 2 2 1 1 6 6 - F A X : + 6 1 2 9 9 2 2 2 0 4 4 E M A I L : E M A I L @ M A Z A R S . C O M . A U L I A B I L I T Y L I M I T E D B Y A S C H E M E , A P P R O V E D U N D E R T H E P R O F E S S I O N A L S T A N D A R D S L E G I S L A T I O N  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient and appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that the auditor identifies during the audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our audit report unless law or regulation precludes public disclosure about the matter or when, in extreme rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 10 - 16 of the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Ensurance Limited for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Group 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. MAZARS RISK & ASSURANCE PTY LIMITED R. Megale Director Signed in Sydney this 24th day of September 2018 M A Z A R S R I S K & A S S U R A N C E P T Y L I M I T E D A B N : 3 9 1 5 1 8 0 5 2 7 5 L E V E L 1 2 , 9 0 A R T H U R S T R E E T , N O R T H S Y D N E Y N S W 2 0 6 0 P O B O X 1 9 9 4 , N O R T H S Y D N E Y N S W 2 0 5 9 T E L : + 6 1 2 9 9 2 2 1 1 6 6 - F A X : + 6 1 2 9 9 2 2 2 0 4 4 E M A I L : E M A I L @ M A Z A R S . C O M . A U L I A B I L I T Y L I M I T E D B Y A S C H E M E , A P P R O V E D U N D E R T H E P R O F E S S I O N A L S T A N D A R D S L E G I S L A T I O N ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 ANNUAL REPORT 30 June 2018 Corporate governance statement This Corporate Governance summary discloses the extent to which the Company will follow the recommendations set by the ASX Corporate Governance Council in its publication ‘Corporate Governance Principles and Recommendations (3rd Edition)’ (Recommendations). The Recommendations are not mandatory, however, the Recommendations that will not be followed have been identified and reasons have been provided for not following them. The Company’s Corporate Governance Plan has been posted on the Company’s website at www.ensurance.com.au. PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION Principle 1: Lay solid foundations for management and oversight Recommendation 1.1 A listed entity should have and disclose a charter which: (a) YES (b) sets out the respective roles and responsibilities of the board, the chair and management; and includes a description of those matters expressly reserved to the board and those delegated to management. The Company has adopted a Board Charter. The Board Charter sets out the specific responsibilities of the Board, requirements as to the Boards composition, the roles and responsibilities of the Chairman and Company Secretary, the establishment, operation and management of Board Committees, Directors access to company records and information, details of the Board’s relationship with management, details of the Board’s performance review and details of the Board’s disclosure policy. A copy of the Company’s Board Charter is stated in Schedule 1 of the Corporate Governance Plan which is available on the Company’s website. (a) The Company has detailed guidelines for the appointment and selection of the Board members. The Company’s Corporate Governance Plan requires the Board to undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director. (b) Material information relevant to any decision on whether or not to elect or re-elect a Director will be provided to security holders in the notice of meeting holding the resolution to elect or re- elect the Director. The Company’s Corporate Governance Plan requires the Board to ensure that each Director and senior executive is a party to a written agreement with the Company which sets out the terms of that Director’s or senior executive’s appointment. the The Board Charter outlines responsibilities and accountability of the Company Secretary. The Company Secretary is accountable directly to the Board, through the chair, on all matters to do with the proper functioning of the Board. (a) The Company has adopted a Diversity Policy. roles, (i) (ii) The Diversity Policy provides a framework for the Company to achieve a list of 6 measurable objectives that encompass gender equality. The Diversity Policy provides for the monitoring and evaluation of the scope and currency of the Diversity Policy. The company is responsible for implementing, monitoring and reporting on the measurable objectives. (b) The Diversity Policy is stated in Schedule 8 of the Corporate Governance Plan which is available on the company website. (c) (i) (ii) The measurable objectives set by the Board will be included in the annual key performance indicators for the CEO, MD and senior executives. In addition, the Board will review progress against the objectives in its annual performance assessment. The Company currently has 46 employees, 20 of those employees are woman. Recommendation 1.2 A listed entity should: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; and (b) provide security holders with all material information relevant to a decision on whether or not to elect or re- elect a director. Recommendation 1.3 A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. Recommendation 1.4 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. Recommendation 1.5 A listed entity should: (a) have a diversity policy which includes requirements for YES YES YES YES the board: (i) to set measurable objectives for achieving gender diversity; and to assess annually both the objectives and the entity’s progress in achieving them; (ii) (b) disclose that policy or a summary or it; and (c) disclose as at the end of each reporting period: (i) the measurable objectives for achieving gender diversity set by the board in accordance with the entity’s diversity policy and its progress towards achieving them; and (ii) either: (A) the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or the entity’s “Gender Equality Indicators”, as defined in the Workplace Gender Equality Act 2012. (B) P a g e | 67 ANNUAL REPORT 30 June 2018 Corporate governance statement PRINCIPLES AND RECOMMENDATIONS Recommendation 1.6 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. COMPLY (YES/NO) YES Recommendation 1.7 A listed entity should: (a) have and disclose a process for periodically evaluating the YES performance of its senior executives; and (b) disclose in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. Principle 2: Structure the board to add value Recommendation 2.1 The board of a listed entity should: (a) have a nomination committee which: NO (i) has at least three members, a majority of whom are independent directors; and is chaired by an independent director, (ii) and disclose: (iii) (iv) (v) the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 EXPLANATION (a) The Board is responsible for evaluating the performance of the Board and individual directors on an annual basis. It may do so with the aid of an independent advisor. The process for this can be found in Schedule 3 of the Company’s Corporate Governance Plan. (b) The Company’s Corporate Governance Plan requires the Board to disclosure whether or not performance evaluations were conducted during the relevant reporting period. Due to the size of the Board and the nature of the business, it institute a formal has not been deemed necessary to individuals. documented performance review program of However, the Chairman intends to conduct formal reviews each financial year whereby the performance of the Board as a whole and the individual contributions of each director are reviewed. The Board considers that at this stage of the Company’s development an informal process is appropriate. The review will assist to indicate if the Board’s performance is appropriate and efficient with respect to the Board Charter. The Board regularly reviews its skill base and whether it remains appropriate for the Company’s operational, legal and financial requirements. New Directors are obliged to participate in the Company’s induction process, which provides a comprehensive understanding of the Company, its objectives and the market in which the Company operates. Directors are encouraged to avail themselves of resources required to fulfil the performance of their duties. (a) The Board is responsible for evaluating the performance of is to arrange an annual senior executives. The Board performance evaluation of the senior executives. (b) The Company’s Corporate Governance Plan requires the Board to conduct annual performance evaluation of the senior executives. Schedule 3 ‘Performance Evaluation’ requires the Board to disclose whether or not performance evaluations were conducted during the relevant reporting period. During the financial year an evaluation of performance of the individuals was not formally carried out. However, a general review of the individuals occurs on an on-going basis to ensure that structures suitable to the Company’s status as a listed entity are in place. that would normally be considered by (a) Due to the size of the Board, it is not practical to maintain separate Board Committees. The Board as a whole considers all matters the Remuneration & Nominations Committee. The Board devotes time at board meetings to discuss board succession issues. All members of the Board are in the Company’s nomination process, to the maximum extent permitted under the Corporations Act and ASX Listing Rules. The Board regularly updates the Company’s board skills matrix (in accordance with recommendation 2.2) to assess the appropriate balance of skills, experience, independence and knowledge of the entity. involved (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, experience, independence and knowledge of the entity to enable it to discharge its duties and responsibilities effectively. P a g e | 68 ANNUAL REPORT 30 June 2018 Number of Directors that Meet the Skill 3 3 3 3 3 3 3 3 3 3 3 0 1 0 COMPLY (YES/NO) YES EXPLANATION Board Skills Matrix Executive & Non- Executive experience Industry experience & knowledge Leadership Corporate governance & risk management Strategic thinking Desired behavioural competencies Geographic experience Capital Markets experience Subject matter expertise: - accounting - capital management - corporate financing - industry taxation - risk management - legal YES YES NO YES (a) The Board Charter provides for the disclosure of the names of Directors considered by the Board to be independent. These details are provided in the Annual Reports and Company website. (b) The Board Charter requires Directors to disclose their interest, positions, associations and relationships and requires that the independence of Directors is regularly assessed by the Board in light of the interests disclosed by Directors. Details of the Directors interests, positions, associations and relationships are provided in the Annual Reports and Company website. The Board Charter provides for the determination of the Directors’ terms and requires the length of service of each Director to be disclosed. The length of service of each Director is provided in the Annual Report and Company website. (c) The Board Charter requires that where practical the majority of the Board will be independent. Details of each Director’s independence are provided in the Annual Report and Company website. The Board Charter provides that where practical, the Chairman of the Board will be a non-executive director. If the Chairman ceases to be independent then the Board will consider appointing a lead independent Director. At the present time the Board has an Executive Chairman in place. The Board Charter states that a specific responsibility of the Board is to procure appropriate professional development opportunities for Directors. The Board is responsible for the approval and review of induction and continuing professional development programs and procedures for Directors to ensure that they can effectively discharge their responsibilities. YES (a) The Corporate Code of Conduct applies to the Company’s directors, senior executives and employees. (b) The Company’s Corporate Code of Conduct is in Schedule 2 of the Corporate Governance Plan which is on the Company’s website. ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Corporate governance statement PRINCIPLES AND RECOMMENDATIONS Recommendation 2.2 A listed entity should have and disclose a board skill matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. Recommendation 2.3 A listed entity should disclose: (a) the names of the directors considered by the board to be independent directors; if a director has an interest, position, association or relationship of the type described in Box 2.3 of the ASX Corporate Governance Principles and Recommendation (3rd Edition), but the board is of the opinion that it does not compromise the independence of the director, the nature of interest, position, association or relationship in question and an explanation of why the board is of that opinion; and the length of service of each director the (b) (c) Recommendation 2.4 A majority of the board of a listed entity should be independent directors. Recommendation 2.5 The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. Recommendation 2.6 A listed entity should have a program for inducting new directors and providing appropriate professional development opportunities for continuing directors to develop and maintain the skills and knowledge needed to perform their role as a director effectively. Principle 3: Act ethically and responsibly Recommendation 3.1 A listed entity should: (a) have a code of conduct for its directors, senior executives and employees; and (b) disclose that code or a summary of it. P a g e | 69 ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Corporate governance statement PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION Principle 4: Safeguard integrity in financial reporting Recommendation 4.1 The board of a listed entity should: (a) have an audit committee which: NO (i) (ii) has at least three members, all of whom are non- executive directors and a majority of whom are independent directors; and is chaired by an independent director, who is not the chair of the board, (a) Due to the size of the Board, it is not practical to maintain separate Board Committees. The Board as a whole considers all matters that would normally be considered by the Audit and Risk Committee. (b) The Board devotes time at board meetings to review and evaluate financial reporting, audit, risk and compliance issues. The Board as a whole also considers the appointment and removal of the external auditor. and disclose: (iii) (iv) (v) the charter of the committee; the relevant qualifications and experience of the members of the committee; and in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its financial reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. Recommendation 4.2 The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3 A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Principle 5: Make timely and balanced disclosure Recommendation 5.1 A listed entity should: (a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it. Principle 6: Respect the rights of security holders Recommendation 6.1 A listed entity should provide information about itself and its governance to investors via its website. Recommendation 6.2 A listed entity should design and implement an investor relations two-way program communication with investors. effective facilitate to YES YES YES YES YES The Company’s Corporate Governance Plan states that a duty and responsibility of the Board is to ensure that before approving the entity’s financial statements for a financial period, the CEO and CFO have declared that in their opinion the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Company’s Corporate Governance Plan provides that the Board must ensure the Company’s external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. (a) The Board Charter provides details of the Company’s disclosure policy. In addition, Schedule 4 of the Corporate Governance Plan is entitled ‘Disclosure – Continuous Disclosure’ and details the Company’s disclosure requirements as required by the ASX Listing Rules and other relevant legislation. (b) The Board Charter and Schedule 4 of the Corporate Governance Plan are available on the Company’s website. Information about the Company and its governance is available in the Corporate Governance Plan which can be found on the Company’s website. facilitate effective to promote and The Company has adopted a Shareholder Communications Strategy which aims two-way communication with investors. The Shareholder Communications is Strategy outlines a range of ways communicated to shareholders. The Shareholder Communications Strategy can be found in Schedule 7 of the Corporate Governance Plan which is available on the Company’s website. information in which P a g e | 70 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Corporate governance statement PRINCIPLES AND RECOMMENDATIONS Recommendation 6.3 A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. COMPLY (YES/NO) YES Recommendation 6.4 A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. Principle 7: Recognise and manage risk Recommendation 7.1 The board of a listed entity should: (a) have a committee or committees to oversee risk, each of YES NO which: (i) (ii) and disclose: (iii) (iv) (v) has at least three members, a majority of whom are independent directors; and is chaired by an independent director, the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or ANNUAL REPORT 30 June 2018 EXPLANATION The Shareholder Communications Strategy states that as a part of the Company’s developing investor relations program, Shareholders can register with the Company Secretary to receive email notifications of when an announcement is made by the Company to the ASX, including the release of the Annual Report, half yearly reports and quarterly reports. Links are made available to the Company’s website on which all information provided to the ASX is immediately posted. Shareholders are encouraged to participate at all EGMs and AGMs of the Company. Upon the despatch of any notice of meeting to Shareholders, the Company Secretary sends out material with that notice of meeting stating that all Shareholders are encouraged to participate at the meeting. Security holders can register with the Company to receive email notifications when an announcement is made by the Company to the ASX. Shareholders queries should be referred to the Company Secretary at first instance. (a) Due to the size of the Board, it is not practical to maintain separate Board Committees. The Board as a whole considers all matters that would normally be considered by the Audit and Risk Committee. (b) The Board devote time at board meetings to fulfilling the roles and responsibilities associated with overseeing risk and maintaining the entity’s risk management framework and associated internal compliance and control procedures. (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the process it employs for overseeing the entity’s risk management framework. Recommendation 7.2 The board or a committee of the board should: (a) review the entity’s risk management framework with management at least annually to satisfy itself that it continues to be sound, to determine whether there have been any changes in the material business risks the entity faces and to ensure that they remain within the risk appetite set by the board; and (b) disclose in relation to each reporting period, whether such a review has taken place. Recommendation 7.3 A listed entity should disclose: (a) (b) if it has an internal audit function, how the function is structured and what role it performs; or if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. YES (a) The Company’s processes for risk management and internal compliance includes a requirement to identify and measure risk, monitor the environment for emerging factors and trends that affect these risks, formulate risk management strategies and monitor the performance of risk management systems. Schedule 5 of the Corporate Governance Plan is entitled ‘Disclosure – Risk Management’ and details the Company’s disclosure requirements with respect to the risk management review procedure and internal compliance and controls. YES The company does not have an internal audit program. The Board is responsible for monitoring the effectiveness of the Company’s risk management and internal control processes. Recommendation 7.4 A listed entity should disclose whether, and if so how, it has regard to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. YES Schedule 5 of the Company’s Corporate Governance Plan details the Company’s risk management systems which assist in identifying and managing potential or apparent business, economic, environmental and social sustainability risks (if appropriate). Review of the Company’s risk management framework is conducted at least annually and reports are continually created by management on the efficiency and effectiveness of the Company’s risk management framework and associated internal compliance and control procedures. P a g e | 71 ANNUAL REPORT 30 June 2018 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Corporate governance statement PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION Principle 8: Remunerate fairly and responsibly Recommendation 8.1 The board of a listed entity should: (a) have a remuneration committee which: NO (i) (ii) (iii) (iv) (v) has at least three members, a majority of whom are independent directors; and is chaired by an independent director, and disclose: the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. Recommendation 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives and ensure that the different roles and responsibilities of non-executive directors compared to executive directors and other senior executives are reflected in the level and composition of their remuneration. Recommendation 8.3 A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it. Due to the size of the Board, it is not practical to maintain separate Board Committees. The Board as a whole considers all matters that would normally be considered by the Remuneration & Nominations Committee. The Board devotes time at board meetings to fulfilling the roles and responsibilities associated with setting the level and composition of remuneration for Directors and senior executives and ensuring that such remuneration is appropriate and not excessive. YES The Company’s Corporate Governance Plan requires the Board to disclose its policies and practices regarding the remuneration of non- executive directors, executive directors and other senior executives. YES (a) The Company’s Corporate Governance Plan states that the Board is required to review, manage and disclose the policy (if any) on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme. The Board must review and approve any equity based plans. (b) A copy of the Company’s Corporate Governance Plan is available on the Company’s website. P a g e | 72 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Additional Information for Listed Public Companies ANNUAL REPORT 30 June 2018 The following additional information is required by the Australian Securities Exchange in respect of listed public companies. 1 Capital a. Ordinary share capital 346,227,724 ordinary fully paid shares held by 498 shareholders. b. Unlisted Options over Unissued Shares At the end of the financial year, the Company had 25,497,314 unlisted options for ordinary shares. Details of these options can be found in note 9 of the Directors’ report on page 8 of this annual report. c. Convertible notes The Company raised $3m via a convertible notes issue on 11 July 2016 at a conversion price of $0.22 per note. The conversion price has been reduced to $0.04 following the entitlement issue conducted as per the prospectus dated 28 May 2017. Each note entitles the holder to convert to one ordinary share. 75,000,000 shares currently stand to be issued. Conversion may occur at any time for a period of three years from the subscription date. If the notes have not been converted, they will be redeemed at this point. Interest of 8% will be paid quarterly up until the settlement date. d. Performance Rights The Company has: 1,500,000 Performance Rights Class A (Class A Rights) on issue. Upon the Company achieving the target share price of $0.80, based on a 30 day volume weighted average share price, within 5 years, the Class A Rights will vest, entitling the holder or his nominee to 1 fully paid ordinary share in the Company per vested Class A Right. 500,000 Performance Rights Class B (Class B Rights) on issue. Class B Rights will vest on the introduction to, and entry into an agreement with, a strategic partner to the Company which results directly or indirectly in a material increase in the Company's revenue or otherwise increases the value of the Company, at the discretion of the Board of the Company. e. Partly Paid Shares The Company has the following: 8,000,000 Partly Paid Shares issued at a price of 20 cents of which 0.01 of one cent is paid on issue with the balance payable, at the election of the holder, any time within five years from the date of Shareholder approval of the special resolution, being 30 November 2020. f. Voting Rights The voting rights attached to each class of equity security are as follows: Ordinary shares: Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Unlisted Options and Performance Rights: Options and performance rights do not entitle the holders to vote nor participate in dividends, when declared, until such time as the options are exercised and subsequently registered as ordinary shares. Substantial Shareholders as at 17 September 2018. g. Name Kalonda Pty Ltd Church Street Trustees Limited Museum Investments Limited Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 51,348,795 21,552,063 19,664,047 14.83 6.22 5.68 h. Distribution of Shareholders as at 17 September 2018. P a g e | 73 ANNUAL REPORT 30 June 2018 Additional Information for Listed Public Companies ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 Category (size of holding) Total Holders Number Ordinary % Held of Issued Ordinary Capital 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over 12 1 81 193 211 498 2,237 4,546 805,663 8,835,454 336,579,824 346,227,724 0.00 0.00 0.23 2.55 97.21 100.00 i. Unmarketable Parcels as at 17 September 2018. As at 17 September 2018 there were 102 fully paid ordinary shareholders holding less than a marketable parcel of shares. j. On-Market Buy-Back There is no current on-market buy-back. k. Restricted Securities The Company has no shares on escrow or other restricted securities. 20 Largest Shareholders — Ordinary Shares as at as at 17 September 2018 l. Rank Name Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 1. Kalonda Pty Ltd 2. Church Street Trustees Limited 3. Museum Investments Limited 4. Mr Stefan Hicks 5. Cabletime Pty Ltd 6. Tisia Nominees 7. 8. 9. Mr Stefan Hicks Citicorp Nominees Pty Limited Megalith Development Pty Ltd 10. Church Street Trustees Limited 11. HSBC Custody Nominees (Australia) Limited 12. Capricorn Eleven Superannuation Fund Pty Ltd 13. Sliberman Holdings Pty Ltd 14. Megalith Development Pty Ltd 15. Mr Robert John Peters + Mrs Sandra Lillian Peters 16. Mr Brett Graves + Mrs Kerrie Graves 17. Flue Holdings Pty Ltd Mr Allan Graham Jenzen + Mrs Elizabeth Jenzen 18. 19. J & TW Dekker Pty Ltd 20. Fidan Holdings Pty Ltd 51,348,795 21,552,063 19,664,047 16,369,044 13,000,000 10,736,324 9,515,962 8,625,002 8,620,825 7,680,000 6,497,500 5,982,397 5,452,074 4,312,500 4,312,500 4,181,809 4,000,000 3,750,000 3,556,362 3,497,500 14.83 6.22 5.68 4.73 3.75 3.10 2.75 2.49 2.49 2.22 1.88 1.73 1.57 1.25 1.25 1.21 1.16 1.08 1.03 1.01 TOTAL 212,654,704 61.42 P a g e | 74 ENSURANCE LIMITED AND CONTROLLED ENTITIES ABN 80 148 142 634 ANNUAL REPORT 30 June 2018 2 3 The name of the Company Secretary is Sam Hallab. Principal registered office As disclosed in Note 2 ‘Company details’ on page 35 of this Annual Report. 4 Registers of securities As disclosed in the Corporate directory on page i of this Annual Report. 5 Stock exchange listing Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Securities Exchange Limited, as disclosed in the Corporate directory on page i of this Annual Report. 6 Use of funds The Company has used its funds in accordance with its initial business objectives. P a g e | 75

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