Euroz Limited
Annual Report 2016

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Euroz Limited 2016 Annual Report PO Box Z5036 T: +61 8 9488 1400 Level 18 Alluvion St Georges Terrace F: +61 8 9488 1477 58 Mounts Bay Road Perth 6831 PERTH WA 6000 Western Australia euroz.com Euroz Limited ACN 000 364 465 EUR 10966 - EUROZ Annual Report 2016 COVER.indd 1 6/10/2016 4:08 PM 2 0 1 6 A n n u a l R e p o r t E U R O Z L I M I T E D B L A C K B O X D E S I G N 1 0 9 6 6 Contents Euroz Limited Contact Details EUROZ LIMITED ANNUAL REPORT 2016 EUROZ LIMITED ANNUAL REPORT 2016 77 Corporate Directory Executive Chairman’s Report Organisational Chart Board of Directors Stockbroking and Corporate Finance Managing Director’s Report Euroz Securities Operating Divisions Euroz Securities Director’s Profiles Funds Management Westoz Funds Management Prodigy Investment Partners Wealth Management Entrust Private Wealth Management Euroz Community Activities Financial Report 1 2 3 6 8 8 9 10 13 13 14 16 16 17 19 EUROZ SECURITIES LIMITED Level 18 Alluvion 58 Mounts Bay Road Perth 6831 PO Box Z5036 St Georges Terrace T: +61 8 9488 1400 F: +61 8 9488 1477 Euroz Securities Limited ACN 089 314 983 AFSL 243302 PERTH WA 6000 Western Australia eurozsecurities.com Participant of the ASX Group WESTOZ FUNDS MANAGEMENT PTY LTD Level 18 Alluvion 58 Mounts Bay Road Perth 6831 PO Box Z5036 St Georges Terrace T: +61 8 9321 7877 F: +61 8 9321 8288 PERTH WA 6000 Western Australia westozfunds.com.au Westoz Funds Management Pty Ltd ACN 106 677 721 AFSL 285607 OZGROWTH LIMITED Level 18 Alluvion 58 Mounts Bay Road Perth 6831 PO Box Z5036 St Georges Terrace T: +61 8 9321 7877 F: +61 8 9321 8288 PERTH WA 6000 Western Australia ozgrowth.com.au Ozgrowth Limited ACN 126 450 271 WESTOZ INVESTMENT COMPANY LIMITED Level 18 Alluvion 58 Mounts Bay Road Perth 6831 PO Box Z5036 St Georges Terrace T: +61 8 9321 7877 F: +61 8 9321 8288 PERTH WA 6000 Western Australia westoz.com.au ACN 113 332 942 Westoz Investment Company Limited PRODIGY INVESTMENT PARTNERS LIMITED FLINDERS INVESTMENT PARTNERS PTY LTD Level 23 Goldfields House 1 Alfred Street SYDNEY NSW 2000 Level 15 385 Bourke Street MELBOURNE VIC 3000 Level 23 Goldfields House 1 Alfred Street SYDNEY NSW 2000 DALTON STREET CAPITAL PTY LTD T: +61 2 8651 3490 prodigyinvest.com.au Prodigy Investment Partners Limited ACN 600 471 430 AFSL 466173 T: +61 3 9909 2690 flindersinvest.com.au Flinders Investment Partners Pty Ltd ACN 604 121 271 AFSL 466173 Flinders Investment Partners Pty Ltd is a Corporate Authorised Representative of Prodigy Investment Partners Limited. T: +61 2 8651 3490 Dalton Street Capital Pty Ltd ACN 609 114 034 AFSL 466173 Dalton Street Capital Pty Ltd is a Corporate Authorised Representative of Prodigy daltonstreetcapital.com Investment Partners Limited. ENTRUST PRIVATE WEALTH MANAGEMENT PTY LTD Level 18 Alluvion PO Box Z5034 58 Mounts Bay Road Perth 6831 PERTH WA 6000 Western Australia entrustpwm.com.au T: +61 8 9476 3900 F: +61 8 9321 6333 E: info@entrustpwm.com.au Entrust Private Wealth Management Pty Ltd ACN 100 088 168 AFSL 222152 EUR 10966 - EUROZ Annual Report 2016 COVER.indd 2 6/10/2016 4:08 PM EUROZ LIMITED ANNUAL REPORT 2016 1 Corporate Directory Registered Office Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 Telephone: (08) 9488 1400 Facsimile: (08) 9488 1477 Email: info@euroz.com Website: www.euroz.com Auditor PKF Mack Chartered Accountants Level 4 35 Havelock Street WEST PERTH WA 6005 Telephone: 08 9426 8999 Bankers Westpac Banking Corporation 109 St Georges Terrace PERTH WA 6000 Share Registry Computershare Investor Services Pty Ltd 172 St Georges Terrace PERTH WA 6000 Telephone: 1300 787 575 Securities Exchange Listings Euroz Limited shares are listed on the Australian Securities Exchange (ASX: EZL). Corporate Governance Statement www.euroz.com/investor-relations/ corporate-governance Board Of Directors Andrew McKenzie Executive Chairman Jay Hughes Executive Director Doug Young Executive Director Greg Chessell Executive Director Russell Kane Executive Director Simon Yeo Executive Director Anthony Brittain Executive Director Company Secretary Chris Webster 2 EUROZ LIMITED ANNUAL REPORT 2016 Executive Chairman’s Report Euroz Limited is a diversified financial services company. Funds Management Westoz Funds Management Euroz Limited reported a turnaround in profitability in the past year with a net profit after tax of $2.56 million. The Directors have declared a final fully franked dividend of 2.25 cents per share. When combined with the interim dividend of 1.75 cents this amounts to a total of 4 cents per share fully franked for the full year. This turnaround in profitability in the past financial year was driven by a second half improvement in Euroz Securities and a rebound in our resource related markets. Our Western Australian focus has delivered excellent returns to shareholders over time and through a number of business cycles. In our 16 year history we have generated significant cash flow and paid over $181.7 million in fully franked dividends to our shareholders. In the context of our historical experience the past two years have continued to be challenging but these quieter markets have provided us the opportunity to build our funds and wealth management businesses. Developing these businesses has required capital, time and patience but we remain confident we are transforming our overall business into a much stronger, more sustainable and valuable Company. Our strategy during the past two difficult years has been twofold: The Listed Investment Companies Westoz Investment Company (“WIC”) and Ozgrowth Limited (“OZG”) are interlinked with their investment universe of Western Australia and Western Australian connected companies. Whilst commodity prices have rebounded in the second half, Western Australia continues to feel the wider effects of the downturn from the past resources boom. An improved second half helped WIC and OZG report gross investment returns of 0.4% and 2.6% respectively for the financial year. Our significant long term investments in WIC and OZG will continue to have a material effect on our reported profitability. During the past financial year, despite positive performance, the slightly lower share prices of WIC and OZG affected our Group profitability by $4.8 million. Investors should be reminded of the potential performance fees these funds can generate and that increases in the share prices of WIC and OZG can also have a very positive effect on our profitability. Prodigy Investment Partners Prodigy Investment Partners (“PIP”) was established In July 2014 as a platform to create a multi boutique funds management business. – Retain our core team of experienced staff so we can enjoy the excellent transactional upside all our businesses experience in strong commodities and equities markets. The first of these boutique partnerships, Flinders Investment Partners was launched in July 2015. This specialist small companies manager is headed by Andrew Mouchacca and Richard Macdougall. – Establish and grow our recurring revenues in wealth and funds management which will not only protect us during inevitable downturns in our markets but create significant shareholder value over time. This diversification strategy has been funded and launched during very difficult times and being able to pay modest dividends of 4 cents per share fully franked for this past financial year is a reflection of the underlying strength of our businesses. Stockbroking Euroz Securities Our Euroz Securities business experienced a solid uplift in profitability versus the previous year driven by an improvement in corporate revenues. Our team delivered Equity Capital Market (“ECM”) raisings of $306.6 million versus $143 million in the previous year. Broking volumes and ECM activity in our markets over the past year were still well below normal long term averages but we can report an improved pipeline of activity in the new financial year with initial public offerings and mergers and acquisition mandates in both the resources and industrial sectors. A number of these larger raisings did not settle until July 2016 which has given us an excellent start to the new financial year. We are pleased the Flinders Emerging Companies Fund has been approved by Zenith and Lonsec and most importantly returned 23.9% from inception (31 August 2015) to 30 June 2016. These independent research approvals, establishment of the fund on a number of wrap platforms, excellent first year performance by the fund and the overwhelmingly positive feedback our distribution team are receiving from the market are significant milestones. It takes time to establish a brand and track record and we are confident funds will steadily flow into this product. The second partnership, Dalton Street Capital, was launched in May 2016. Dalton Street is headed by former senior Credit Suisse executives Alan Sheen and Nick Selvaratnam. We believe the strong growth in alternative asset classes will continue and this absolute return fund has the track record and credentials to capitalise on this trend. Our Prodigy strategy has the potential to add significant value to our Group and whilst it will take time and patience to evolve we have absolute confidence in the first class team that will deliver on our objectives. Wealth Management Entrust Private Wealth Management Entrust was acquired in July 2016 to provide a wealth management platform for our business. We aim to grow this business organically and believe we have an excellent offering to attract quality advisers. EUROZ LIMITED ANNUAL REPORT 2016 EUROZ LIMITED ANNUAL REPORT 2016 3 3 EUROZ LIMITED ASX CODE: EZL A diversified financial services company STOCKBROKING AND CORPORATE FINANCE FUNDS MANAGEMENT WEALTH MANAGEMENT 100% 80% 100% 100% Euroz Securities Prodigy Investment Partners Westoz Funds Management Entrust Private Wealth Management Manager Manager Dalton Street Capital Flinders Investment Partners Future Investment Partner Ozgrowth Limited Westoz Investment Company Limited ASX CODE: OZG ASX CODE: WIC DALTON STREET CAPITAL ? (38.8% Equity Stake) (26.2% Equity Stake) I would like to thank our staff, clients and shareholders for their patience and support in building a Company with an increasing base of underlying revenues whilst still retaining transaction based upside across a wider variety of diversified businesses. ANDREW MCKENZIE Executive Chairman We are excited by the wealth management expertise Entrust has bought to the firm and in particular the opportunity to offer professional and sophisticated advice to clients across all of our businesses. During the year we have integrated the operations of Entrust with our wider business and achieved a number of forecast business synergies. Entrust has a significant high net worth client base with FUM of $581 million at 30 June 2016 which combined with existing Euroz Securities FUM creates a business currently managing $762 million for clients. Summary The Directors are pleased with the progress achieved to transform our business over the past year. We have managed to maintain profitability and pay dividends whilst we build a number of new businesses, all in a Western Australian market which on balance is still relatively subdued. As we evolve, growing our total funds under management (FUM) across all of our businesses is a key objective and will be an important measure of our future success. Total group FUM as at 30 June 2016 was $962 million. Our strong staff ownership of 42% has been critical in our past success and remains the foundation for our team approach to all of our businesses. 4 EUROZ LIMITED ANNUAL REPORT 2016 Euroz Limited profit before tax & net profit after tax 60 50 40 30 20 10 0 n o i l l i m $ -10 -20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Profit before tax Net profit after tax Euroz Limited dividend history e r a h s r e p s t n e C 30 25 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2H Dividend per share 1H Dividend per share Euroz Limited NTA per share 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cents per share n o i l l i m $ EUROZ LIMITED ANNUAL REPORT 2016 5 Euroz Group Funds Under Management (FUM)* $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 ) m A $ ( M U F *As at 30 June 2016 Ozgrowth $58m Westoz Investment Company $122m Flinders Investment Partners $8m Dalton Street Capital $2m Entrust $581m Euroz Securities $191m Total $962 MILLION FUM 6 EUROZ LIMITED ANNUAL REPORT 2016 Board of Directors Andrew McKenzie Executive Chairman Jay Hughes Executive Director Doug Young Executive Director Andrew is Executive Chairman of Euroz Limited and Euroz Securities, an Executive Director of Westoz Funds Management, Prodigy Investment Partners, Flinders Investment Partners, and Dalton Street Capital. He is a board member of the Stockbrokers Association of Australia (SAA) and the PLC Foundation, as well as a PLC Council member. Andrew holds a Bachelor of Economics from the University of Western Australia (UWA), is a member (Master Stockbroking) of the Stockbrokers Association of Australia and was previously an Associate of the Financial Services Institute of Australasia (FINSIA) and the Australian Institute of Company Directors (AICD). Jay has worked in stockbroking since 1986, starting his career on the trading floor. He is Executive Chairman of Westoz Investment Company and Ozgrowth and an Executive Director of Westoz Funds Management, Euroz Securities and Prodigy Investment Partners. He is an Institutional Dealer specialising in promoting Australian stocks to international clients. Jay holds a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australasia (FINSIA). He was recognised as an affiliate of the ASX in December 2000 and was admitted in May 2004 as a Practitioner Member (Master Stockbroking) of the Stockbrokers Association of Australia (SAA). Doug has over 30 years of corporate finance experience, covering mergers and acquisitions, debt and equity raisings in domestic and international financial markets, corporate restructuring and other corporate finance transactions. Doug is an Executive Director of Euroz Limited and Euroz Securities. He holds a Bachelor of Commerce from the University of Western Australia (UWA) and is a fellow and graduate of the Financial Services Institute of Australasia (FINSIA). Doug is Chairman of the Audit Committee. Greg Chessell Executive Director Greg is the Head of Research at Euroz Securities and is our senior resources analyst. He spent 10 years working as a geologist in WA prior to entering the stockbroking industry in 1995. Greg is an Executive Director of Euroz Limited and Euroz Securities. Greg holds a Bachelor of Applied Science in Geology from the University of Technology, Sydney (UTS) and a Graduate Diploma in Business from Curtin University. Greg is a member of the Audit Committee. EUROZ LIMITED ANNUAL REPORT 2016 7 Board of Directors Russell Kane Executive Director Simon Yeo Executive Director Anthony Brittain Executive Director Russell has worked in the stockbroking industry since 1994, and joined Euroz Securities in 2001. Russell is a Director of Euroz Limited and Euroz Securities. He holds a Bachelor of Business from Edith Cowan University and is responsible for servicing both domestic institutions and high net worth clients, with a particular emphasis on WA based resources and industrials stocks. Russell is a Responsible Executive of Euroz Securities. Simon has worked in the Stockbroking industry since 1993. In November 2000 he established the Private Client Division of Euroz Securities before moving to a specialised role within our Institutional Sales team in 2013. Simon is an Executive Director of Euroz Limited and Euroz Securities. Simon holds a Bachelor of Commerce from the University of Western Australia (UWA) and was previously a chartered accountant and Member of the Institute of Chartered Accountants (CA). He is also on the board of The Australian Chamber Orchestra (ACO). Simon is a member of the Audit Committee. Anthony is the Chief Operating and Financial Officer and an Executive Director of Euroz Limited, Euroz Securities, Entrust Private Wealth Management, Prodigy Investment Partners, Flinders Investment Partners and Dalton Street Capital. Prior to joining Euroz, Anthony spent 7 years at a WA stockbroker and 7 years in London and Singapore with a UK fund manager. Anthony holds a Bachelor of Commerce from the University of Western Australia (UWA), is a member of the Institute of Chartered Accountants (CA), holds a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australasia (FINSIA), is a Graduate of the Australian Institute of Company Directors and is a member (Master Stockbroking) of the Stockbrokers Association of Australia (SAA). 8 EUROZ LIMITED ANNUAL REPORT 2016 Stockbroking and Corporate Finance Whilst this renewed sentiment in our investment world is clearly well received and looks to continue for the foreseeable period, Euroz Securities is actively seeking to smooth out our earnings profile by growing recurring base revenue streams, while still maintaining our proven and significant leverage to Western Australian transactional business. The integration of Entrust Private Wealth Management has been an important component in growing our wealth management business. Our Private Client Advisers now have access to all the tools and knowledge to offer their clients a full suite of professional financial services. A Euroz Securities Private Client Adviser can offer their clients a quality suite of the best in class wealth management offerings and direct access to our in-house core WA focussed research and corporate products. Our research team has again been at the forefront of bringing in new, profitable, investment ideas to the group, with coverage on 23 new stocks being initiated over the period. The institutional sales team has witnessed a renewed interest in resources and mining related stocks seeing clients returning to the sector. Corporate revenues were also stronger in the second half of the financial year. Euroz Securities raised over $300 million of new equity for some 20 companies in FY’16 versus $142 million the previous year. In summary, the core Euroz Securities team has remained in place over what has been a relatively tough period. That team is now poised and ready to execute significant transactions coming into what looks like an improving macro environment in our core areas of focus. ROB BLACK Managing Director Managing Director’s Report The 2016 Financial Year is best described as a story of two halves for Euroz Securities. The first half saw a continuation of the previous year’s theme of low commodity prices, a depressed Western Australian economy and continued overall poor sentiment which weighed heavily on our trading and corporate activity. Since January, driven by higher gold and base metal prices, we have witnessed a significant and sustained turnaround in our core area of the market, resulting in greatly improved corporate activity and an improvement in trading activity. For the year, Euroz Securities recorded a Net Profit after Tax of $3.5 million versus the 2015 contribution of $1.8 million. EUROZ LIMITED ANNUAL REPORT 2016 9 Stockbroking and Corporate Finance Euroz Securities Operating Divisions Research Corporate Finance – Team of seven experienced analysts with access to the – Our corporate business is focused on developing strong, latest online news and financial information long term relationships with our clients – Based on fundamental analysis, strict financial – Clients are provided with specialised Corporate modelling and regular company contact – Goal: Identify and maximise equity investment opportunities for our clients – Approach: Intimate knowledge of the companies we cover – Coverage: Broad cross section of mostly WA connected industrial and resource companies – Research Products » Morningnote: Overnight market updates » Company Reports: Detailed analysis on companies as opportunities emerge » Weekly Informer: Compilation of all company reports throughout the preceding week » Quarterly and/or Semiannual Review: Regular coverage on midcap companies in book format Advisory services in: » Capital Raisings » Mergers and Acquisitions » Strategic Planning and Reviews » Privatisation and Reconstructions – Established track record in raising equity capital via: » Initial Public Offerings (IPO) » Placements » Rights Issues Private Client Dealing Institutional Sales – Team of highly experienced and qualified private client – Largest institutional dealing desk based in Western advisers Australia – Extensive research support - high quality research on WA based resource and industrial companies enable our advisers to provide quality investment and trading advice – Access to highly rated, independent blue chip, international and macro research. – Specialised broking allows » Close interaction between research analysts and private client advisers » Timely communication of ideas with clients – Sophisticated investors are able to participate in many of our corporate capital raisings – We pride ourselves on offering a tailored service to our clients based on: » Quality research » Personalised service » Wealth creation – Client services » Exclusive web based research » Web based access to market leading IRESS products » Portfolio Admnistration Services – Team of nine institutional dealers with an extensive client base of Australian and International investors – Distribution network strength - long standing relationships with major institutional investors in the small to mid cap market – Western Australia’s geographic isolation makes it difficult for institutional investors to maintain close contact with companies based here - investors can rely on our “on the ground” information – Institutional dealing team “highly focused” on providing the following services: » Quality advice and idea generation » Efficient execution » Regular company contact » Site visits » Roadshows 10 EUROZ LIMITED ANNUAL REPORT 2016 Stockbroking and Corporate Finance Euroz Securities Director’s Profiles Rob Black Managing Director Andrew Clayton Executive Director Ben Laird Executive Director Rob has been working in the stockbroking industry since 1995 and has spent time based in Sydney, Melbourne and London. Rob is Head of Institutional Sales and is responsible for servicing domestic and international institutions. He is also a Director of Entrust Private Wealth Management. Rob holds a Bachelor of Business in Finance and Accounting, and is a graduate of the Australian Institute of Company Directors (AICD). Andrew is a research analyst specialising in resource companies. He has worked in the stockbroking industry since 1994. Andrew holds a Bachelor of Science (Hons) in Geology from Melbourne University, as well as a Diploma in Finance from the Financial Services Institute of Australia (FINSIA). Ben has worked in the stockbroking industry since 2001. He is a research analyst responsible for covering industrial companies. He holds a Bachelor of Science, a Post Graduate Diploma in Finance from the Financial Services Institute of Australasia (FINSIA) and a Chartered Financial Analyst (CFA) designation. Brian Bates Executive Director Brian Beresford Executive Director Chris Webster Executive Director Brian has over 16 years experience in stockbroking, investment and superannuation management. Brian is a qualified Chartered Accountant, which he attained during employment with Ernst and Young, and holds a Bachelor of Commerce. Brian is a senior member of our Private Client Division and offers a comprehensive wealth management service to high net worth individuals. Brian is the Head of Corporate Finance. Prior to joining Euroz in 2011, Brian was a Partner at PwC where he led the Corporate Finance and M&A practice in Western Australia. He has provided corporate advice to clients across the resources, mining services, engineering and technology sectors for over 20 years. Brian holds a Masters in Finance from London Business School, and a Bachelor of Commerce and Bachelor of Laws from the University of Western Australia (UWA). Chris is the Head of Private Clients, and also a Director of Entrust Private Wealth Management. Chris has worked in the Financial Services Industry since 2003 holding a variety of positions in Sales, Operations, Risk and Compliance with Euroz in Perth and Deutsche Bank in London. Chris holds a Bachelor of Commerce from the University of Western Australia (UWA), a Graduate Diploma of Applied Finance and a Graduate Diploma of Applied Corporate Governance. Chris is a Master Practitioner of the Stockbrokers Association of Australia (MSAA) and an Associate of the Governance Institute of Australia (ACIS). EUROZ LIMITED ANNUAL REPORT 2016 11 Stockbroking and Corporate Finance Euroz Securities Director’s profiles (continued) Gavin Allen Executive Director Jamie Mackie Executive Director Jon Bishop Executive Director Gavin is a senior research analyst with 12 years experience specialising in detailed analysis of mid cap industrial stocks. Prior to joining Euroz, Gavin was a senior manager in the Corporate Finance division of a major accounting firm, specialising in the financial analysis of mergers and acquisitions. Gavin holds a Bachelor of Commerce, is a member of the Institute of Chartered Accountants in Australia (CA) and holds a Chartered Financial Analyst (CFA) designation.. Jamie has been working in the stockbroking industry since 1998. Jamie is a senior member of our Private Client Division and services high net worth investors. He holds a Bachelor of Commerce from Curtin University and a Graduate Diploma from the Financial Services Institute of Australasia (FINSIA). Jon is a resource analyst focused upon both the mining and oil and gas sectors. He has more than 10 years technical and commercial experience within the petroleum and minerals industries. Jon has 10 years experience in the finance industry. Jon holds a Bachelor of Science (Hons) in Geology from the University of Western Australia (UWA), as well as a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australia (FINSIA). Lucas Robinson Executive Director Nick McGlew Executive Director Peter Schwarzbach Executive Director Lucas has been advising in the stockbroking industry since 1998. Lucas is a senior member of our Private Client Division and manages a variety of clients including high net worth investors. He holds a Bachelor of Commerce from the University of Western Australia (UWA) with a double major in Finance and Marketing and a minor in Business Law. Nick has over 15 years experience in mergers, acquisitions, corporate and commercial law and corporate finance with major firms in Australia and the United States. He holds a Bachelor of Economics from the University of Western Australia (UWA), a Bachelor of Laws from Bond University and a Master of Laws from New York University (NYU). Nick is a senior member of our Corporate Finance Department. Peter has been working in the stockbroking industry since 2006 and is a member of our Institutional Sales Department. He holds a Bachelor of Commerce from the University of Western Australia (UWA) and has completed a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australia (FINSIA). Peter is also a Chartered Accountant and prior to joining Euroz was a senior accountant at a Perth chartered accounting firm. 12 EUROZ LIMITED ANNUAL REPORT 2016 Stockbroking and Corporate Finance Euroz Securities Director’s profiles (continued) Tony Kenny Executive Director Tim Weir Executive Director Tim Lyons Executive Director Tony has worked in stockbroking since 1996, starting his career at Porter Western Limited and served as a partner of the business until it was aquired by Macquarie Bank. Prior to joining Euroz Tony was a founding partner and an Executive Director of Blackswan Equities. Tony is a senior member of our Private Client Division. Tony is also a Director of Precision Funds Management Pty Ltd and the Precision Opportunities Fund Ltd. Tim has completed a Bachelor of Business in Economics and Finance. He began his stockbroking career with Porter Western Limited in 1993 as a Private Client Adviser and served as a partner of the business until it was acquired by Macquarie Bank in 1999. Tim is a senior member of our Private Client Division. He manages a high net worth client base and served as an Executive Director at Blackswan Equities Ltd prior to joining Euroz. Tim is also a Director of Precision Funds Management Pty Ltd and the Precision Opportunities Fund Ltd. Tim has worked in the stockbroking industry for over 25 years and is a senior member of our Private Client Division. Tim was previously Executive Chairman of Blackswan Equities where his role included maintaining the firm’s corporate relationships and servicing his high net worth private client base. Tim was also a partner at Porter Western Limited until it was aquired by Macquarie Bank. The Directors of Euroz Limited are also Directors of Euroz Securities Limited. EUROZ LIMITED ANNUAL REPORT 2016 13 Funds Management Westoz Funds Management Westoz Funds Management Pty Ltd (“WFM”) is responsible for $180 million of funds under management as at 30 June 2016. It manages funds under mandate from two listed investment companies; Westoz Investment Company Limited (“WIC”) and Ozgrowth Limited (“OZG”). WIC commenced its investment activities in May 2005, with OZG commencing in January 2008. Both investment mandates focus on the generation of positive portfolio returns from investment in small to mid cap ASX listed securities, generally with a connection to Western Australia. Both portfolio’s have produced returns in excess of comparable equity benchmarks. WIC and OZG have now paid $128 million in fully franked dividends to shareholders since inception. Phil Rees Executive Director Dermot Woods Executive Director Phil is an Executive Director of the manager and is responsible for the operation and development of the manager’s business. Phil has worked in a range of roles focused on Australian investment markets for the last 28 years. He has previously managed large institutional investment portfolios and developed several early stage investment opportunities until he joined Westoz in April 2005. Dermot is an Executive Director of the manager and oversees the construction of its investment portfolios. Dermot joined Westoz Funds Management in 2007. He has previously worked as an industrial analyst for Euroz Securities and prior to this role, as a fund manager specialising in European equities. 14 EUROZ LIMITED ANNUAL REPORT 2016 Funds Management Prodigy Investment Partners Prodigy Investment Partners Limited (Prodigy) is a multi- boutique investment management business. Prodigy is an 80/20 partnership between Euroz and Mr Steve Tucker. Prodigy looks to partner with talented investment management executives in an innovative partnership business model. Prodigy’s focus is on creating boutiques that employ limited capacity, high value adding strategies. We believe these strategies are increasingly attractive to the market, and with limited capacity, allow us to include a performance based component in the pricing. Prodigy has two partner boutique managers: Flinders Investment Partners and Dalton Street Capital. Prodigy Investment Partners Flinders is a specialist Small Companies investment manager, with principals Andrew Mouchacca, Richard Macdougall and Naheed Rahman. The Flinders Emerging Companies Fund has posted excellent returns versus the market and its competitors since it began in August 2015. Significant progress has been made in positioning Flinders to gain market share in specific retail and institutional markets over the past year. Dalton Street Capital is a specialist Absolute Return investment manager, established in May 2016. Its principals are Alan Sheen and Nick Selvaratnam, who were colleagues at Credit Suisse. Dalton Street’s approach is predominantly quantitatively based. Alan has successfully run this strategy for over 10 years, delivering strong absolute returns, with low correlation to traditional asset classes. We believe that this is an attractive strategy in the high net wealth and retiree markets. Steve Tucker Executive Chairman Lewis Bearman Chief Operating Officer Steve has over 25 years’ experience in financial services. Steve started his career with MLC, and worked in superannuation, ran MLC’s advice networks, led MLC Investments and finally took over as CEO in 2004. Steve was appointed to the Group Executive of NAB in 2009, responsible for MLC and NAB Wealth. Most recently Steve founded Prodigy Investment Partners, where he is Executive Chairman as well as Chariman of Flinders Investment Partners and Dalton Street Capital. Steve is also Independent Chairman of Koda Capital, and a Non Executive Director of The Banking and Finance oath. Lewis brings over 30 years of financial services experience. He held senior roles at Perennial Investment Partners (2003 to 2014), including Chief Operating Officer and Chief Executive Officer. Lewis spent 17 years with County Investment Management (later becoming INVESCO), where he held senior positions in their operations, funds management, fixed income and foreign exchange teams. Lewis joined Prodigy Investment Partners in 2015 as Chief Operating Officer, and is a Director of Prodigy and Flinders Investment Partners. Andrew Bruce Sales and Marketing Director Andrew has over 30 years’ industry experience. He has held senior roles with Prudential Group and National Australia Bank’s investment management business, where he was responsible for Sales and Marketing. Andrew moved to boutique manager Perennial Investment Partners in 2002 as one of the original partners, responsible for global institutional sales and client management. In 2015, he joined Prodigy as Sales and Marketing Director. Guy Ballard Director of Distribution Guy has worked in Financial Services for over 15 years. In this time he held senior distribution roles with both BT Financial Group (2001 – 2005) and MLC (2006 – 2016) where his key focus was developing and executing the sales strategy for the asset management, platform and margin lending businesses targeting the Independent Financial Advice market. Guy joined Prodigy in 2016 as Director of Distribution and is responsible for FUM growth across our boutiques. EUROZ LIMITED ANNUAL REPORT 2016 15 Funds Management Flinders Investment Partners Andrew Mouchacca Partner and Portfolio Manager Richard Macdougall Partner and Portfolio Manager Naheed Rahman Partner and Deputy Portfolio Manager Flinders Investment Partners Flinders Investment Partners Flinders Investment Partners Andrew began his career in investment management in 1999. Before establishing Flinders, Andrew was Senior Investment Manager with the institutional focused fund manager Contango Asset Management (1999- 2014). He was the Portfolio Manager of the Small Companies Fund (2009 – 2014) and specialised in the analytical coverage of a range of sectors. His analytical experience has focused on the emerging companies through his involvement in dedicated products in both the small and microcap universe. Richard began his career in investment management in 1985. Before establishing Flinders, Richard was a Partner and Portfolio Manager with the Australian Equities boutique Perennial Growth (2005 to 2015). Prior to this, Richard was a founding executive of Contango Asset Management and a Director of Salomon Smith Barney Australia. He has spent time offshore including roles as Head of Research at ANZ Securities New Zealand and Managing Director of ANZ Securities UK. Naheed began his career in investment management in 2006. Prior to Flinders, Naheed was an Investment Analyst at Contango Asset Management for over seven years, working closely with Andrew Mouchacca, where he covered several sectors primarily with an emerging companies focus. He began his career at Warakirri Asset Management as a Portfolio Analyst, conducting fund manager research as well as the dealing of securities. Dalton Street Capital Alan Sheen Partner and Portfolio Manager Nick Selvaratnam Partner and Portfolio Manager Dalton Street Capital Dalton Street Capital Alan is a co-founder of Dalton Street Capital. Most recently, Alan was Head of Proprietary Trading for Credit Suisse Australia managing systematic investing and trading across the Asia Pacific region. Alan’s previous roles included Portfolio Manager at AMP Capital Investors, Chief Investment Officer at Challenger Ltd and Chief Investment Officer and Managing Director at Austock Asset Management. In these roles Alan has been responsible for managing very large portfolios and businesses. Alan commenced trading equities, futures and options in 1996. Nick is a co-founder of Dalton Street Capital. Nick is a highly awarded equities analyst and business manager, most recently Managing Director and Head of Equities with Credit Suisse. Nick has over 24 years of direct experience in investment banking across equities research, sales, trading and equity capital markets as well as managing successful top-tier teams across cash equities (research, sales & trading), derivatives, prime services and capital markets. Nick’s experience prior to investment banking includes 8 years as a Chartered Accountant in England and Australia. 16 EUROZ LIMITED ANNUAL REPORT 2016 Wealth Management Entrust Private Wealth Management Entrust Private Wealth Management Pty Ltd (Entrust) commenced in 2002 and provides its clients with financial planning and tailored investment advice. Entrust has client funds under management of $581m at 30 June 2016. Entrust was acquired by Euroz Limited in July 2015. Entrust employs 26 staff, including 11 advisers, 4 para-planners and a portfolio administration team. During the 2016 financial year (FY16) the management team focus was on maintaining operational performance, delivering cost synergies through integration with Euroz, rolling out a private wealth offering across Euroz Securities, evaluating adviser acquisition opportunities and progressing organic growth opportunities. We are pleased to report the integration with Euroz has been seamless and a significant part of the cost synergies have been realised with the balance to be realised in 2017 financial year. Euroz now provide IT, compliance and finance functions to Entrust which allows our team to focus on client service delivery and important growth initiatives. The Entrust result for FY16 was impacted by various one off costs associated with the merger. Entrust’s primary focus is to continue organic growth opportunities in the HNW and Not for Profit sector and leverage the existing capability in the SMSF sector, the fastest growing component of the Australian superannuation system. Entrust can also see substantial scope for value adding adviser acquisition opportunities that complement the existing business by utilising the strength of the Euroz balance sheet and brand in the Perth market. Graeme Yukich Executive Chairman Andrew Fry Managing Director Brad Gordon Director Graeme has been advising clients on their financial needs for over 22 years. He graduated from the University of Western Australia (UWA) in 1984, completed his professional year while working for Ernst and Whinney. Graeme was admitted as a Chartered Accountant by the Institute of Chartered Accountants (CA) in 1988. In 1990, he completed a Diploma in Financial Planning from Deakin University. Andrew joined Entrust in January 2003 and was appointed a Director in November of that year. He holds a Bachelor of Commerce and was admitted as a Chartered Accountant by the Institute of Chartered Accountants (CA) in 1996. Andrew has over 20 years experience in stockbroking and wealth management. Brad joined Entrust as a Senior Investment Adviser in January 2003 and was appointed a Director in November of that year. He has over 23 years experience in the financial services industry, stockbroking, financial planning and trustee services. Brad is a Senior Associate of the Financial Services Institute of Australasia (FINSIA), a member of the Financial Planning Association (FPA) and also a member of the Australian Institute of Company Directors (AICD). EUROZ LIMITED ANNUAL REPORT 2016 17 Euroz Community Activities Euroz Charitable Foundation Euroz are proudly West Australian focused and we believe we have an obligation to give back to Western Australian charities in need. In 2007, the Euroz Charitable Foundation was formed in a Private Ancillary Fund (PAF) structure through which Euroz could make donations, invest these funds and make distributions to worthy charities and contribute to the broader community. The businesses within Euroz and many of our staff members have made consistent donations to the Foundation. The funds of the Foundation continue to contribute and make a difference to Western Australian charities. During the past 9 years the Euroz Charitable Foundation has donated in excess of $830,000 to a broad range of charities in Western Australia. In addition to financial support, employees of the Euroz Group are encouraged to volunteer their time to charities in and around their communities. The Euroz Charitable Foundation has been delighted to support the following charities, amongst others, during the past financial year: f o r k i ds at PMH and Rotary pro j e c t s 18 EUROZ LIMITED ANNUAL REPORT 2016 EUROZ LIMITED ANNUAL REPORT 2016 19 Annual Report 2016 Financial Report For the year ending 30 June CONTENTS Directors' Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income 20 33 34 Consolidated Statement of Financial Position 35 Consolidated Statement of Changes In Equity 36 Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 37 38 71 72 20 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report The Directors present their report on the consolidated group consisting of Euroz Limited and the entities it controlled at the end of, or during the year ended 30 June 2016. The following persons were Directors of Euroz Limited (“Euroz”) at any time during or since the end of the financial year and up to the date of this report: Executive Chairman Andrew McKenzie – Executive Chairman Executive Directors Jay Hughes – Director Doug Young – Director Greg Chessell – Director Russell Kane – Director Simon Yeo – Director Anthony Brittain – Director (appointed 27 November 2015) Company Secretary Chris Webster held the position of Company Secretary at the end of the financial year. Chris was appointed Company Secretary in January 2013. Chris has worked in the Financial Services Industry since 2003 holding a variety of positions in Sales, Operations, Risk and Compliance with Euroz in Perth and Deutsche Bank in London. Review of operations Principal activities During the year the principal activities of Euroz consisted of: (a) Stockbroking; (b) Funds Management; (c) Investing; and (d) Wealth Management. Review of results The consolidated group has incurred a consolidated pre-tax profit of $2.1 million (2015 loss: $12.2 million) for the year ended 30 June 2016. The consolidated net profit after tax was $2.6 million compared with the 2015 year consolidated net loss after tax of $7.1 million. This result represents basic earnings per share of 1.61 cents versus loss of 4.66 cents in the 2015 year. The Directors have declared a final dividend of 2.25 cents per share fully franked which, combined with the interim dividend of 1.75 cents per share, represents a total dividend of 4.0 cents per share fully franked. Stockbroking & Corporate Activities Principal Trading Funds Management Investment Income Wealth Management Segment revenues Segment results 2016 $ 25,191,033 4,470,979 1,840,837 4,342,621 6,079,397 2015 $ 25,787,206 3,882,298 3,440,074 5,789,203 - 41,924,867 38,898,781 2016 $ 3,323,044 1,058,429 (1,852,145) (592,331) 624,021 2,561,018 2016 $ 723,910 (112,170) 1,634,124 (9,376,516) - (7,130,652) These results have been achieved through modest contributions from most divisions of the business in difficult market conditions. EUROZ LIMITED ANNUAL REPORT 2016 21 Directors’ Report Operating and financial review ii. Institutional Sales The purpose of this review is to set out information that shareholders may require to assess Euroz’s operations, financial position, and business strategies and prospects for future financial years. This information complements and supports the report presented herein. Disclosure of operations The consolidated group is principally involved in the following activities: (a) Stockbroking & Corporate Activities; (b) Funds Management; (c) Investing; and (d) Wealth Management Our operations are conducted over several locations with Perth, Western Australia being our main office. Other offices are in Sydney, New South Wales and Melbourne, Victoria focusing on Funds Management opportunities. Details of our operations are outlined below: (a) Stockbroking & Corporate Activities Our stockbroking operation comprises 4 main divisions as follows: i. Equities Research • Highly rated research from market leading research team of 7 analysts • Our views are highly regarded by Australian and international institutional investors • Access to the latest online news and financial information • Based on fundamental analysis, strict financial modelling and regular company contact – Goal: Identify and maximise equity investment opportunities for our clients – Approach: Intimate knowledge of the companies we cover – Coverage: Broad cross section of mostly WA based industrial & resource companies • Research Products: – Morning Note: Overnight market updates – Company Reports: Detailed analysis on companies as opportunities emerge – Weekly Informer: Compilation of all company reports throughout the preceding week – Quarterly and / or Semi-annual Review: Regular coverage on mid-cap companies in book format • One of the largest institutional small to mid-cap dealing desks in the Australian market • Extensive client base of Australian and International institutional investors with strong relationships with small company fund managers • Distribution network strength - long standing relationships with major institutional investors in the small to mid-cap market • Western Australia’s geographic isolation makes it difficult for institutional investors to maintain close contact with companies based here - investors can rely on our “on the ground” information • Institutional dealing team “highly focused” on providing the following services: – Quality advice and idea generation – Efficient execution – Regular company contact – Site visits – Roadshows iii. Private Clients • A unique and predominantly “high net worth” client base (s.708 compliant investors) • • • • • Significant capacity to support new issues and construct quality retail share registers Exposure to high net worth clients via in-house conferences and one-on-one presentations Team of highly experienced and qualified private client advisers providing a broader investment offering for clients of Euroz. With a wealth management service which provides, strategic investment advice, superannuation advice, investment management and portfolio administration service Funds Under Management (FUM) of $191 million with the majority on our in-house portfolio administration service Extensive research support - high quality research on WA based resource and industrial companies enable our advisers to provide quality investment and trading advice • Specialised broking allows: – Close interaction between research analysts and private client advisers – Timely communication of ideas with clients • Sophisticated investors are able to participate in many of our corporate capital raisings 22 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report Operating and financial review (continued) (d) Wealth Management iv. Corporate Finance • Our corporate finance business is focused on developing strong, long term relationships with our clients. • Clients are provided with specialised Corporate Advisory services in: – Equity Capital Raisings and Underwriting – Mergers and Acquisitions – Strategic Planning and Reviews – Privatisation and Reconstructions • Established track record in raising equity capital via: – Initial Public Offerings (IPO) – Placements – Rights Issues (b) Funds Management Westoz Funds Management Pty Ltd (“WFM”) is responsible for $180 million of FUM at 30 June 2016. It manages funds under mandate from two listed investment companies; Westoz Investment Company Limited (“WIC”) and Ozgrowth Limited (“OZG”). Both companies have enjoyed competitive portfolio returns since inception. WIC commenced its investment activities in May 2005, with OZG commencing in January 2008. Both investment mandates focus on the generation of the target level of returns from investment in small to mid-cap ASX listed securities, generally with a connection to Western Australia. Both portfolios have produced returns in excess of comparable equity benchmarks. WIC and OZG have now paid $128.3 million in dividends to shareholders since inception. Prodigy Investment Partners Limited (“Prodigy”) (formerly Westoz Investment Management Limited) is a funds management partnership formed with Euroz owning 80% and Mr Steve Tucker, Executive Chairman, owning 20%. The first boutique funds management partnership, Flinders Investment Partners Pty Ltd (“Flinders”) was launched in August 2015 via the Flinders Emerging Companies Funds. The second boutique, Dalton Street Capital Pty Ltd (“Dalton”) was launched in May 2016 via the Dalton Street Absolute Return Fund. (c) Investing Euroz Limited owns significant shareholdings in Westoz Investment Company Limited (WIC.ASX) totalling 26.41% and Ozgrowth Limited. (OZG.ASX) totalling 38.81%. The investment focus of these funds is on small to mid-cap ASX listed securities, generally with a connection to Western Australia. Euroz Limited has seed investment positions with Flinders Emerging Companies Fund and Dalton Street Absolute Return Fund. On 13 July 2015, Euroz Limited completed the acquisition of 100% of the ordinary shares of Entrust Private Wealth Management Pty Ltd (“Entrust”) for a consideration of 5,450,000 Euroz shares, fair valued to $5,450,000 and cash consideration totalling $2,350,000, giving a total consideration of $7,800,000. Entrust has a 13 year track record as a leading wealth management business. The past year has seen the integration of these operations with the rest of our businesses to realise operational synergies and develop strong links with our stockbroking operations. Disclosure of operations — Profit Net profit after tax for Financial Year (FY) 2016 was $2.6 million up from a loss of $7.1 million in FY 2015. The Directors are pleased that our Euroz Securities and Westoz Funds Management divisions remained modestly profitable despite difficult market conditions in our Western Australian and resource related markets. The market value of our investments in the WIC and OZG can have a material impact on our reported profitability. Shareholders should be aware that non-cash fluctuations in these investments at each reporting date do not affect our underlying profitability, cash generation or ability to pay dividends. Disclosure of operations — Sales Revenue has increased by 7.7% from $38.9 million to $41.9 million predominantly driven by the acquisition of Entrust, second half of the year improvement in Euroz Securities Limited and a rebound in our resource related markets. Stockbroking & corporate activities Stockbroking and corporate activities revenue was down by 2.3% from $25.8 million in FY2015 to $25.2 million in FY 2016 as result of lower brokerage volumes. Reduced brokerage in equities trading reflects the depressed equities market volumes in small to mid-cap equities. The decrease was however offset by an increase in the Equity Capital Market (“ECM”) raisings in our Corporate Finance division. Euroz Securities was involved in 22 (2015: 7) ECM transactions this year raising $306.6 million (2015: $143 million). (a) Principal Trading Revenue from Principal Trading increased by 15.2% from $3.9 million in FY 2015 to $4.5 million in FY 2016. (b) Funds Management Revenue from Funds Management decreased by 46.5% from $3.4 million in FY 2015 to $1.8 million in FY 2016, reflecting lower FUM and higher cash allocations. (c) Investment Income Investment income decreased by 25.0% from $5.8 million in FY 2015 to $4.3 million in FY 2016 due to the decrease in market values in WIC and OZG. EUROZ LIMITED ANNUAL REPORT 2016 23 Directors’ Report Stockbroking & corporate activities (continued) (d) Wealth Management Wealth management income since the acquisition of Entrust was $6.1 million. Disclosure of business strategies and prospects — Growth This year’s result was achieved in particularly challenging market conditions in the first half and the Directors are pleased that we were still able to generate underlying profits before fair value movements on investments and pay 4 cents per share in fully franked dividends for the year. Entrust as a platform for our future wealth management ambitions. Our Company remains in an extremely sound financial position with cash and investments of $100.2 million (including the security deposit of $5 million) as at 30 June 2016. We have Net Tangible Assets (NTA) of 65 cents per share and no debt. Euroz has a proud history of consistent profits and dividends having paid $181.7 million in fully franked dividends in the last 16 years. The Directors believe the Company is in a strong and stable financial position to expand and grow its current operations. With effect from 13 July 2015, Euroz acquired Entrust. This was a major growth initiative that seeks to leverage an established wealth management business with long term ongoing revenues as a platform for further acquisitions and organic growth. Earnings per share Basic earnings per share Diluted earnings per share 2016 Cents 1.61 1.61 2015 Cents (4.66) (4.66) Prodigy launched two separate boutique funds Flinders Investment Partners and Dalton Street Capital for both retail and wholesale investors. The long term strategy for these, is to provide a steady base of diverse ongoing management fee revenues with potential performance fee upside. The Directors believe that Euroz has now laid the foundations for our strategy to build a more consistent base of underlying recurring revenues through our growing wealth and funds management businesses whilst still retaining the transaction based upside of our traditional stockbroking business. Disclosure of business strategies and prospects—Material business risks The past year continues the trend of extremely volatile trading conditions. Like many businesses we have experienced solid trading months which are often then undermined by any combination of uncertainties. These may take the form of economic concerns, political instability, inflation and growth concerns, and / or alternating commodity price movements. Given this backdrop and the increasingly competitive landscape it has created, we are pleased with our overall results for the financial year. Our entire team has worked hard to manage our costs and generate profits and dividends for shareholders. Financial position The net assets of the consolidated group has increased from $111.3 million at 30 June 2015 to $113.8 million at 30 June 2016. The Company and consolidated group’s financial performance has enabled it to continue to pay dividends to shareholders during the year while maintaining a healthy working capital ratio. The consolidated group’s working capital, being current assets less current liabilities, has decreased from $44.8 million in 2015 to $35.5 million in 2016. During the past eight years the Company has invested in expanding each of its business units to secure its long term success. In particular it has increased its strategic investments in the investment products of Westoz Funds Management Pty Ltd, launched the multi boutique Prodigy model and acquired Dividends – Euroz Limited Dividends paid or provided for during the financial year were as follows: Interim ordinary dividend of 1.75 cents (2015: 1.75 cents) per fully paid ordinary share was paid on 15 January 2016. Provision for final ordinary dividend for 30 June 2016 of 2.25 cents (2015: 3.25 cents) per fully paid ordinary share paid on 5 August 2016. 2016 $ 2015 $ 2,816,281 2,694,038 3,622,711 5,192,129 6,438,992 7,886,167 Of the total dividends paid during the year, $6,129 (2015: $9,458) was paid to the Euroz Share Trust (in relation to the Euroz Performance Rights Plan) and is undistributed. Therefore, it has been eliminated on consolidation. Significant changes in the state of affairs On 13 July 2015, Euroz Limited completed the acquisition of 100% of the ordinary shares of Entrust Private Wealth Management for a consideration of 5,450,000 Euroz shares, fair valued to $5,450,000 and cash consideration totalling $2,350,000, giving a total consideration of $7,800,000. Share options There were no options on issue at 30 June 2016 and 30 June 2015. Environmental regulation The consolidated group is not subject to significant environmental regulation in respect of its operations. 24 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report Events after reporting date The Directors are not aware of any matter or circumstance subsequent to 30 June 2016 that has significantly affected, or may significantly affect: (a) the consolidated group’s operations in future financial years; or (b) the results of those operations in future financial years; or (c) the consolidated group’s state of affairs in future financial years. Likely developments and expected results of operations The Directors are confident that a strong statement of financial position and established business platforms will support the Company in increasingly volatile market conditions. Further information on likely developments in the operations of the consolidated group and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the consolidated group. EUROZ LIMITED ANNUAL REPORT 2016 25 Directors’ Report Information on Directors Particulars of Directors’ interests in shares of Euroz Limited Director Experience Special responsibilities and qualifications Ordinary shares* Mr Chessell has worked in the stockbroking industry since 1996. Member of Audit & Risk Committee Head of Research of our 100% owned subsidiary Euroz Securities and is our senior resources analyst. Holds a Bachelor of Applied Science in geology and a Graduate Diploma Business qualification. A McKenzie Executive Chairman Mr McKenzie has worked in the stockbroking industry since 1991. J Hughes Director D Young Director G Chessell Director R Kane Director S Yeo Director Mr Hughes has worked in the stockbroking industry since 1986. Mr Young has worked in corporate finance since 1984. Mr Kane has worked in the stockbroking industry since 1994. Mr Yeo has worked in the stockbroking industry since 1993. A Brittain Director (appointed 27 Nov 2015) Mr Brittain has worked in the funds management and stockbroking industries since 1992. Member of Remuneration Committee Member of Underwriting Committee Holds a Bachelor of Economics Degree, is a member (Master Stockbroking) of the Stockbrokers Association of Australia and Fellow of the Australian Institute of Company Directors. Chairman of Remuneration Committee Member of Underwriting Committee Holds a Graduate Diploma in Applied Finance and Investment from FINSIA and is a member (Master Stockbroking) of the Stockbrokers Association of Australia. Chairman of Audit & Risk Committee Member of Underwriting Committee Holds a Bachelor of Commerce degree from the University of Western Australia and a Graduate Diploma in Applied Finance from FINSIA, is a Fellow of FINSIA and a Fellow of the Australian Society of Certified Practising Accountants. Member of Underwriting Committee Institutional Dealer in our 100% owned subsidiary, Euroz Securities responsible for servicing both domestic institutions and high net worth clients. Holds a Bachelor of Business from Edith Cowan University. Member of Audit & Risk Committee Established the Private Client division of our 100% owned subsidiary, Euroz Securities, which he headed up until October 2013 before moving to a specialised role within the Institutional Dealing team. Holds a Bachelor of Commerce degree from UWA. Member of Compliance Committee Member of Underwriting Committee Chief Operating and Financial Officer Holds a Bachelor of Commerce degree from the University of Western Australia, is a member of the Chartered Accountants Australia and New Zealand (CA), holds a Graduate Diploma in Applied Finance and Investment from FINSIA, is a Graduate of the Australian Institute of Company Directors and is a member (Master Stockbroking) of the Stockbrokers Association of Australia (SAA). *Total shares includes shares granted under the Performance Rights Plan 11,973,458 12,148,319 4,632,043 4,464,905 2,982,155 4,113,192 459,585 26 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report Meetings of Directors The numbers of meetings of the Company's Board of Directors held during the year ended 30 June 2016, and the numbers of meetings attended by each Director were: Director Directors Meetings Committee Meetings Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Audit Remuneration 25 25 25 25 25 25 13 25 22 21 22 23 23 13 - - 2 2 - 2 - - - 2 2 - 2 - 2 2 - - - - - 2 2 - - - - - Andrew McKenzie Jay Hughes Doug Young Greg Chessell Russell Kane Simon Yeo Anthony Brittain (appointed 27 Nov 2015) Remuneration Report (audited) This Remuneration Report outlines the Key Management Personnel (KMP) remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its regulations. For the purposes of this report KMP of Euroz are defined as those persons having authority for the strategic management and direction of the group including any Director (whether executive or otherwise) of the parent company. Key Management Personnel Remuneration Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the consolidated entity’s operations. The board undertakes regular reviews of its performance and the performance of the board against expectations made at the start of the year. Performance related bonuses are available to KMP based on their performance and that of the Company. Remuneration Policy The remuneration policy has been designed to align the interests of shareholders, Directors and executives. Euroz remunerates its Directors, executives and other employees by way of a fixed base salary, commission and a combination of short and long term incentives. The Company believes this policy to have been effective in increasing shareholder wealth since inception. The following table shows the gross revenue, profits and dividends for the last five years for the listed entity, as well as the share price at the end of the respective financial years. 2012 $ 2013 $ 2014 $ 2015 $ 2016 $ Revenue (including gains on fair value movements in investment entities) 97,609,657 45,979,616 78,176,940 38,898,781 41,924,867 Net profit / (loss) after tax Share price at year end 11,760,189 11,122,304 26,547,100 (7,130,652) 2,561,018 1.15 1.00 1.30 1.00 0.79 Dividends paid or recommended 11,895,469 9,352,340 16,261,272 7,886,167 6,438,992 The objective of the Company’s remuneration framework is to ensure reward for performance is competitive and appropriate to the results delivered. The Board / Remuneration Committee ensure that executive rewards satisfy the following key criteria for good reward governance practices: – competitiveness and reasonableness – acceptability to shareholders – performance linked – transparency – capital management EUROZ LIMITED ANNUAL REPORT 2016 27 Directors’ Report Directors’ fees Commission Private Client Advisers are paid a commission on top of a base salary and superannuation. This is calculated on a sliding scale. Eligible Private Client Advisers are also invited to participate in the Performance Rights Plan based on certain performance hurdles set out in the employment contract. Discretionary bonus Executives and other staff members who do not participate in the profit share pool are paid a discretionary bonus based on the profitability of the Company. Similar to the profit share pool, the distribution of the discretionary bonus is also leveraged to the individual’s performance and is made as a combination of cash (75%) and equity (25%) in the Performance Rights Plan as detailed below in Equity Based Payments. Equity based payments A Performance Rights Plan was established in 2014 as a long term incentive to assist in the reward, retention and motivation of Directors, executives and staff members. Eligible employees are invited to participate in this plan and are awarded a Performance right at the beginning of the year. There are three separate long term incentives depending on the individual employment contract as below: – Profit share – Discretionary bonus – Commission The Performance Right represents a right to be issued a number of ordinary shares in Euroz to reflect 25% of the profit share or the discretionary bonus that is paid to the participant. Private Client Advisers who are paid a commission may also be paid 5% of their total monthly brokerage and/or Portfolio Administration Revenue or 25% of any corporate referral fee in equity. The shares issued will only vest to the employee after 3 years subsequent service following the initial year of service. No Directors fees are paid to Executive Directors. Non-Executive Directors are paid a fixed base salary and superannuation for their role on the Board. Base pay All Directors and executives are offered a competitive base salary and superannuation. Base pay for senior executives is reviewed semi annually by the Remuneration Committee to ensure it is competitive with the market, and is also reviewed upon promotion or additional responsibilities. There is no guarantee of base pay increases fixed in any senior executive or Directors contracts. Executives are offered a competitive salary that comprises of a base salary inclusive of superannuation and a combination of some of the following short term incentives, dependant on the terms of the individual employment contract: – Participation in the profit share pool – Commission – Discretionary Bonus Profit share pool Directors and executives of Euroz Securities are invited to participate in the profit share pool. The Remuneration Committee determines the allocation of up to 40% pre tax profit on an ongoing basis. In consultation with relevant Department Heads, the Committee uses the following informal criteria to assist in the allocation: – Ability to perform individual tasks within the relevant department – Ability to add value and innovate beyond the job standard specifications – Development of new and existing client relationships – Ability to interact with other relevant departments as part of a larger team approach – Relevant industry salary benchmarking – General requirements to attract and retain staff. The profit share payment is made as a combination of cash (75%) and equity (25%) in the Performance Rights Plan as detailed below in Equity Based Payments. The three executives on the Remuneration Committee (Andrew McKenzie, Jay Hughes and Robert Black, Executive Directors of Euroz Securities) are also entitled to participate in the profit share pool. In these circumstances two members assess the performance of the third member. 28 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report Details of remuneration Details of the nature and amount of each element of the emoluments of each KMP of Euroz are set out in the following tables. Total 1,695,481 1,146,567 154,710 255,450 276,875 3,529,083 30,000 18,750 309,858 2016 Short-term Base salary $ Profit Share/ bonus $ Other benefits $ Andrew McKenzie 195,000 Jay Hughes Doug Young Greg Chessell Russell Kane Simon Yeo Robert Black Phil Rees Anthony Brittain 190,000 190,000 190,000 205,692 205,692 182,648 166,138 170,311 180,000 180,000 112,500 120,000 142,500 120,000 157,189 59,689 74,689 21,507 20,402 23,386 16,189 15,697 17,043 15,036 9,342 16,108 Current Directors did not receive any Directors fees. 2015 Short-term Base salary $ Profit Share/ bonus $ Other benefits $ Andrew McKenzie 234,904 Jay Hughes Doug Young Greg Chessell Russell Kane Simon Yeo Robert Black Phil Rees Anthony Brittain 234,904 230,120 230,120 246,120 246,120 240,228 214,946 213,627 90,000 90,000 60,000 52,500 75,000 75,000 82,500 45,000 52,500 25,495 18,659 26,088 14,432 14,852 17,692 14,245 12,788 15,781 Post Employment Share Based Payment Superannuation Performance Rights Total $ Performance related % $ 30,000 35,000 35,000 35,000 19,308 19,308 17,662 34,172 $ 30,000 30,000 34,783 34,783 18,783 18,783 18,783 34,450 30,000 41,250 41,250 26,875 26,875 33,750 28,750 467,757 466,652 387,761 388,064 416,947 390,793 35,000 407,535 24,375 293,716 47% 47% 36% 38% 42% 38% 47% 29% 30% Total $ Performance related % 26,250 406,649 26,250 399,813 17,500 16,875 21,875 18,750 21,875 19,375 368,491 348,710 376,630 376,345 377,631 326,559 12,500 324,408 22% 23% 16% 15% 20% 20% 22% 14% 16% Post Employment Share Based Payment Superannuation Performance Rights Total 2,091,089 622,500 160,032 250,365 181,250 3,305,236 Current Directors did not receive any Directors fees. EUROZ LIMITED ANNUAL REPORT 2016 29 Directors’ Report Service agreements Russell Kane, Director Remuneration and other terms of employment for the Key Management Personnel are formalised in service agreements. Each of these agreements provide for the provision of performance related cash bonuses and other benefits. Notwithstanding the agreed salary in the service agreement, the base salary may be reduced or increased based on trading conditions. Other major provisions of the agreements relating to remuneration are set out below. • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $225,000 (2015 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. Andrew McKenzie, Executive Chairman Simon Yeo, Director • Term of contract - ongoing employment contract, • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $225,000 (2015- $225,000) plus profit share, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $225,000 (2015 - $225,000) plus profit share, • Payment on termination of employment by the • Payment on termination of employment by the employer, other than for gross misconduct - three months’ salary. employer, other than for gross misconduct - three months’ salary. Jay Hughes, Director • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $225,000 (2015 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct - three months’ salary. Doug Young, Director Anthony Brittain, Director • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $200,000 (2015 - $200,000) plus bonus, • Payment on termination of employment by the employer, other than for gross misconduct - three months’ salary. Rob Black, Director Euroz Securities, Entrust Private Wealth Management • Term of contract - ongoing employment contract, • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 $225,000 (2015 - $225,000) plus profit share, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $200,000 (2015 - $200,000) plus profit share, • Payment on termination of employment by the • Payment on termination of employment by the employer, other than for gross misconduct - three months’ salary. employer, other than for gross misconduct - three months’ salary. Greg Chessell, Director • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $225,000 (2015 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct - three months’ salary. Phil Rees, Director Westoz Funds Management • Term of contract – ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2016 of $200,000 (2015 - $200,000) plus bonus, • Payment on termination of employment by the employer, other than for gross misconduct – three months’ salary. 30 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report Shareholdings of Key Management Personnel The movement during the reporting year in the number of shares in Euroz Limited held, directly, indirectly or beneficially, by each member of KMP, including related parties, is as follows: 2016 Ordinary shares A McKenzie J Hughes D Young G Chessell R Kane S Yeo R Black P Rees A Brittain 2015 Ordinary shares A McKenzie J Hughes D Young G Chessell R Kane S Yeo R Black P Rees A Brittain Balance at 1 July 2015 Received via PRP (i) Granted as remuneration Bought & (sold) Balance at 30 June 2016 11,083,823 11,083,823 4,524,647 4,035,468 2,756,911 3,883,289 3,033,446 1,264,674 427,214 74,855 74,855 46,954 50,176 59,294 49,903 66,010 25,224 31,394 42,093,295 478,665 - - - - - - - - - - 754,780 989,641 60,442 379,261 155,950 180,000 250,000 28,861 977 11,913,458 12,148,319 4,632,043 4,464,905 2,972,155 4,113,192 3,349,456 1,318,759 459,585 2,799,912 45,371,872 Balance at 1 July 2014 Received via PRP (i) Granted as remuneration Bought & (sold) Balance at 30 June 2015 10,500,000 10,500,000 4,350,000 3,580,000 2,623,000 3,750,000 2,600,000 1,200,000 383,400 87,433 87,433 58,289 55,789 72,861 63,289 73,446 62,861 42,388 39,486,400 603,789 - - - - - - - - - - 496,390 496,390 116,358 399,679 61,050 70,000 360,000 1,813 1,426 11,083,823 11,083,823 4,524,647 4,035,468 2,756,911 3,833,289 3,033,446 1,264,674 427,214 2,003,106 42,093,295 (i) These shares are held by the Euroz Share Trust and are currently vesting in accordance with the Euroz Performance Rights Plan (PRP). EUROZ LIMITED ANNUAL REPORT 2016 31 Directors’ Report Performance Rights held by Key Management Personnel The movement during the reporting period in performance rights in Euroz Limited held, directly, indirectly or beneficially, by each KMP, including related parties, is as follows: 2016 Performance Rights A McKenzie J Hughes D Young G Chessell R Kane S Yeo R Black P Rees A Brittain 2015 Performance Rights A McKenzie J Hughes D Young G Chessell R Kane S Yeo R Black P Rees A Brittain Granted as remuneration Vested 1 1 1 1 1 1 1 1 1 9 (1) (1) (1) (1) (1) (1) (1) (1) (1) (9) Granted as remuneration Vested 1 1 1 1 1 1 1 1 1 9 (1) (1) (1) (1) (1) (1) (1) (1) (1) (9) These performance rights were issued in accordance with the Performance Rights Plan. Share based compensation A performance right was issued to KMPs as part of their annual bonus / profit share plan. The fair value of each right is calculated as 25% of each member’s bonus entitlement. The performance rights (and subsequent shares) are subject to a 4 year vesting period. Total fair values of performance rights issued in the year amounts to $501,189 (2015: $391,197). Loans Key Management Personnel No loans were made to Directors of Euroz Limited and the KMPs of the consolidated group, including their personally related entities during the year. Remuneration Report - end. 32 EUROZ LIMITED ANNUAL REPORT 2016 Directors’ Report Indemnifying officers and auditor During the financial year, Euroz Limited paid a premium of $388,421 to insure the Directors and secretaries of the Company and its Australian based controlled entities. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated group. Euroz has not indemnified the auditor or paid any insurance premium on behalf of the auditor. Proceedings on behalf of the 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 such proceedings during the year. Non-audit services The following non-audit services were provided by the group’s auditor, PKF Mack. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. PKF Mack received or is due to receive the following amounts for the provision of non-audit services: Tax Compliance and other services $ 45,450 Auditor’s independence declaration The lead auditor’s independence declaration for the year ended 30 June 2016 has been received and follows the Directors’ Report. This report is made in accordance with a resolution of the Directors. ANDREW MCKENZIE Executive Chairman DOUG YOUNG Director Date: 25 August 2016 EUROZ LIMITED ANNUAL REPORT 2016 33 Auditor’s Independence Declaration AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF EUROZ LIMITED In relation to our audit of the financial report of Euroz Limited for the year ended 30 June 2016, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. PKF MACK SIMON FERMANIS PARTNER 25 AUGUST 2016 WEST PERTH, WESTERN AUSTRALIA Page | 16 34 EUROZ LIMITED ANNUAL REPORT 2016 Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenue Loss on fair value movement on investments Employee benefits expense Depreciation and amortisation expenses Regulatory expenses Consultancy expenses Conference and seminar expenses Brokerage and underwriting expense Communication expenses Carrying amount of principal trading securities sold Other expenses Note 2016 $ 2015 $ 4 41,924,867 38,898,781 (5,247,301) (21,136,859) (19,603,342) (15,371,583) (165,793) (199,375) (116,253) (273,781) (905,619) (1,630,230) (731,882) (802,157) (4,724,972) (3,749,935) (296,672) (236,640) (3,480,060) (3,826,809) (4,481,274) (3,973,477) Profit / (Loss) before income tax expense Income tax (expense) / benefit 5 6 2,088,577 (12,218,943) 472,441 5,088,291 Profit / (Loss) after income tax expense for the year 2,561,018 (7,130,652) Other comprehensive income Other comprehensive income net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit / (Loss) for the year is attributable to: Non-controlling interest Owners of Euroz Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Euroz Limited Basic earnings per share Diluted earnings per share - - 2,561,018 (7,130,652) (999,399) (91,257) 3,560,417 (7,039,395) 2,561,018 (7,130,652) (999,399) (91,257) 3,560,417 (7,039,395) 2,561,018 (7,130,652) 34 34 1.61 1.61 (4.66) (4.66) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. EUROZ LIMITED ANNUAL REPORT 2016 35 Consolidated Statement of Financial Position Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Long term receivable Investments Investment entities at fair value Plant and equipment Deferred tax assets Intangible assets Total non-current assets Total Assets Current liabilities Trade and other payables Current tax liabilities Short term provisions Total current liabilities Non-current liabilities Deferred tax liabilities Long term provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Equity attributable to the owners of Euroz Limited Non-controlling interest Total equity Note 2016 $ 2015 $ 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 22 34,202,416 45,041,470 1,549,678 5,826,554 1,148,305 1,384,626 5,582,420 1,029,116 42,726,953 53,037,632 5,000,000 5,000,000 8,050,076 - 47,121,275 53,769,308 485,863 8,575,166 10,152,312 317,822 5,096,470 2,833,112 79,384,692 67,016,712 122,111,645 120,054,344 1,204,171 444,699 5,541,116 7,189,986 815,465 276,344 1,091,809 8,281,795 1,525,486 - 6,552,049 8,077,535 397,177 322,220 719,397 8,796,932 113,829,850 111,257,412 105,226,509 99,533,415 1,159,364 8,159,633 658,175 11,032,079 114,545,506 111,223,669 (715,656) 33,743 113,829,850 111,257,412 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 36 EUROZ LIMITED ANNUAL REPORT 2016 Consolidated Statement of Changes in Equity Balance at 1 July 2014 90,924,294 266,978 25,948,183 - 117,139,455 Issued capital $ Share based payment reserve $ Retained earnings $ Non- controlling interest $ Total $ Loss for the period Total comprehensive income for the period Transactions with owners, recorded directly in equity Shares issued during the period Treasury shares Share based payments Dividends to equity holders Total contributions by and distributions to owners - - 9,034,366 (425,245) - - - - - - 391,197 (7,039,395) (91,257) (7,130,652) (7,039,395) (91,257) (7,130,652) 125,000 9,159,366 - - - (425,245) 391,197 (7,876,709) - (7,876,709) 8,609,121 391,197 (7,876,709) 125,000 1,248,609 Balance at 30 June 2015 99,533,415 658,175 11,032,079 33,743 111,257,412 Balance at 1 July 2015 99,533,415 658,175 11,032,079 33,743 111,257,412 Profit for the period Total comprehensive income for the period Transactions with owners, recorded directly in equity Shares issued during the period Treasury shares Share buy back Share based payments Dividends to equity holders - - 6,870,312 (933,008) - - - - (244,210) - 501,189 - - - (6,432,863) 3,560,417 (999,399) 2,561,018 3,560,417 (999,399) 2,561,018 250,000 7,120,312 - - - - (933,008) (244,210) 501,189 (6,432,863) Total contributions by and distributions to owners 5,693,094 501,189 (6,432,863) 250,000 11,420 Balance at 30 June 2016 105,226,509 1,159,364 8,159,633 (715,656) 113,829,850 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. - - - - - - - EUROZ LIMITED ANNUAL REPORT 2016 37 Consolidated Statement of Cash Flows Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) 33,061,485 28,725,358 Payments to suppliers and employees (inclusive of goods and services tax) (31,613,563) (27,221,891) Note 2016 $ 2015 $ Interest received Proceeds from sale of trading shares Income taxes (paid) Payments for trading shares 1,447,922 1,503,467 784,177 4,470,767 1,674,775 3,842,298 (1,664,629) (4,037,828) (3,047,431) (6,959,128) Net cash flows (used in) / from operating activities 33 1,990,807 (3,976,416) Cash flows from investing activities Payments for investment in WIC & OZG Payments for managed investment schemes Dividends received Payments for plant and equipment Proceeds for plant and equipment Payments for treasury shares Cash acquired on the acquisition of a business Net cash flows from / (used in) investing activities Cash flows from financing activities Dividends paid Share buy-back Payments of financial liabilities Net cash flows from / (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 July (215,102) (648,477) (7,000,000) - 4,008,239 5,191,190 (383,812) (223,226) 49,978 - (933,007) (1,529,978) (6,003,682) (425,245) 5,824,004 9,718,246 (6,581,969) (13,957,051) (244,210) - - (2,131,781) (6,826,179) (16,088,832) (10,839,053) (10,347,002) 45,041,470 55,388,472 Cash and cash equivalents at 30 June 7 34,202,416 45,041,470 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 38 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements CONTENTS Note 1. Statement of significant accounting policies Note 2. Significant accounting estimates and judgements Note 3. Segment information Note 4. Revenue Note 5. Profit/(Loss) before income tax expense Note 6. Income tax Note 7. Cash and cash equivalents Note 8. Trade and other receivables Note 9. Inventories Note 10. Other current assets Note 11. Long term receivable Note 12. Investments Note 13. Investment entities at fair value Note 14. Plant and equipment Note 15. Deferred tax assets Note 16. Intangible assets Note 17. Trade and other payables Note 18. Current tax liabilities Note 19. Short term provisions Note 20. Deferred tax liabilities Note 21. Long term provisions Note 22. Contributed equity Note 23. Dividends Note 24. Financial instruments Note 25. Remuneration of auditors Note 26. Contingent liabilities Note 27. Commitments for expenditure Note 28. Employee benefits Note 29. Related parties Note 30. Investments in controlled entities Note 31. Business combination Note 32. Events subsequent to reporting date Note 33. Reconciliation of cash flows from operating activities Note 34. Earnings per share Note 35. Deed of cross guarantee Note 36. Parent entity disclosures Note 37. Company details 39 46 46 49 49 49 51 51 52 52 52 52 53 53 54 54 55 55 56 56 56 56 58 59 61 61 62 62 62 64 65 66 66 66 67 70 70 EUROZ LIMITED ANNUAL REPORT 2016 39 Notes to the Financial Statements Note 1. Statement of significant accounting policies The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements as issued by the Australian Accounting Standards Board and the Corporations Act 2001 as appropriate for “for-profit” oriented entities. This financial report has been authorised by the Directors to be issued on 25 August 2016. The Directors have the power to amend and reissue the financial statements. Euroz Limited is a listed public company, trading on the Australian Securities Exchange, limited by shares, incorporated and domiciled in Australia. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the consolidated group. A change in ownership interest without the loss of control is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated group. All controlled entities have a 30 June financial year end. The financial report of Euroz Limited and controlled entities (the group or consolidated group), complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Separate financial information of the parent company has been included in Note 36 as permitted by amendments to the Corporations Act 2001. The financial report is presented in Australian dollars which is the group’s functional and presentation currency. Amounts are rounded to the nearest dollar in accordance with Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191. The following is a summary of the material accounting policies adopted by the consolidated group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Basis of preparation Reporting basis and conventions The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Accounting policies (a) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Euroz Limited ('Company' or 'parent entity') as at 30 June 2016 and the results of all controlled entities for the year then ended. Euroz Limited and its controlled entities together are referred to in this financial report as the consolidated group. Subsidiaries are all those entities over which the consolidated group has control. The consolidated group controls an entity when the consolidated group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated group. They are de-consolidated from the date that control ceases. (b) Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: – When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or – When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entity’s which intend to settle simultaneously. 40 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) Euroz Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation Regime. The group formed an income tax consolidated group to apply from 1 July 2003. The tax consolidated group has entered a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group. (c) Business combinations – Brokerage revenue earned from share trading on behalf of clients is recognised on completion of the transactions. That is, the day the security is traded, not the day of settlement. – Underwriting, management fees and corporate retainers are brought to account when the fee in respect of the services provided is receivable. – Share trading revenue from the sale of stocks in the jobbing account is recognised on the day the security is traded. Revenue comprises the gross proceeds on sale of the security. The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. – Interest income is recognised as it accrues. – Dividend revenue is recognised when the right to receive a dividend has been established. The consideration transferred is the sum of the acquisition- date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’ s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition- date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. (d) Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognised: All revenue is stated net of the amount of goods and services tax (GST), where applicable. (e) Receivables Trade receivables are recognised as current receivables as they are generally settled within 30 days from the date of recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment is raised when some doubt as to collection exists. All trade receivables relating to brokerage and principal trading have been transferred to Pershing Securities Australia Pty Ltd (“Pershing”) who provides a trust account facility as part of the clearing and settlement service. (f) Inventories Inventories are stocks held in the operating (jobbing) account at year end. All inventory is held at fair value. Refer to Note 1 (u) (i) financial assets at fair value through profit or loss. (g) Investments Controlled entities are accounted for in the consolidated financial statements as set out in Note 1 (a), excluding investment entities (which are deemed to be controlled) which are accounted for at fair value at reporting date. Other securities are accounted for at fair value at reporting date. Unrealised gains/losses on securities held for short term investment are accounted for as set out in Note 1 (u) (i) financial assets at fair value through profit or loss. Unrealised gains/losses on securities held for long term investment are accounted for as set out in Note 1 (u) (iii) available-for-sale financial assets. (h) Plant and equipment Each class of plant and equipment is carried at cost as indicated less, where applicable, any accumulated depreciation and impairment losses. The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. EUROZ LIMITED ANNUAL REPORT 2016 41 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (h) Plant and equipment (continued) Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets is depreciated on a straight line basis over their useful lives to the residual values commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Leasehold improvements Plant and equipment 25% 25 – 33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to the asset are transferred to retained earnings. (m) Options The fair value of options in the shares of the Company issued to Directors and other parties is recognised as an expense in the financial statements in relation to the granting of these options. (n) Employee benefits i. Wages, salaries and annual leave Liabilities for wages, salaries and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. ii. Employee benefits payable later than one year Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. There have been no changes to the method used to calculate this liability. iii. Superannuation Contributions are made by the consolidated group to superannuation funds as stipulated by statutory requirements and are charged as expenses when incurred. iv. Employee benefit on costs Employee benefit on costs, including payroll tax, are recognised and included in employee benefits liabilities and costs when the employee benefits to which they relate are recognised as liabilities. (i) Leasehold improvements v. Options/performance rights The cost of improvements to or on leasehold properties are amortised over the unexpired period of the lease or the estimated useful life of the improvement to the consolidated group, whichever is the shorter. (j) Leases Other operating lease payments are charged to the statement of profit or loss in the periods in which they are incurred, as this represents the pattern of benefits derived from the leased assets. (k) Trade and other creditors Trade and other creditors also include other liabilities for goods and services provided to the consolidated group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. All trade creditors relating to brokerage and principal trading have been transferred to Pershing who provides a trust account facility as part of the clearing and settlement service. (l) Dividends Provision is made for the amount of any dividend declared and authorised by the Directors on or before the end of the financial year, but not distributed at reporting date. The fair value of options/performance rights granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date. The fair value of options at grant date is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of performance rights are estimated at grant date based on expectations of the bonus that will be paid at year end to eligible employees. Each performance right is subject to a 4 year vesting condition. vi. Profit-sharing The consolidated group recognises a liability and an expense for profit-sharing based on a formula that takes into consideration the profit attributable to the Company’s employees after certain adjustments. 42 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (n) Employee benefits (continued) vii. Termination benefits The consolidated group recognises a liability and an expense when the group demonstrates a commitment to either terminate the employee before the normal retirement date or provide termination benefits as a result of an offer made to the employee prior to retirement date. (o) Cash and cash equivalents For purposes of the statement of cash flows, cash and cash equivalents includes deposits at call which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. (p) Earnings per share i. Basic earnings per share Basic earnings per share is determined by dividing the net profit after income tax attributable to members of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. ii. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (q) Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principle market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. (r) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available- for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the consolidated group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The consolidated group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the consolidated group for similar financial instruments. (s) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST 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. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (t) Treasury Shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in share-based payments reserve. EUROZ LIMITED ANNUAL REPORT 2016 43 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (u) Financial instruments The consolidated group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. Initial recognition and measurement Financial assets and financial liabilities are recognised when the consolidated group becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the consolidated group commits itself to either the purchase or sale of the asset (i.e.: trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately. i. Financial assets at fair value through profit or loss This category has two sub-categories; financial assets held for trading, and those designated at fair value through profit or loss on initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. The policy of management is to designate a financial asset if there exists the possibility it will be sold in the short term and the asset is subject to frequent changes in fair value. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the reporting date. ii. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the consolidated group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non- current assets. Loans and receivables are included in receivables in the statement of financial position. Classification and subsequent measurement iii. Available-for-sale financial assets Financial instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Amortised cost is calculated as: – the amount at which the financial asset or financial liability is measured at initial recognition; – less principal repayments; – plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and – less any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through 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 value with a consequential recognition of an income or expense in profit or loss. The consolidated group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non- current assets. Purchases and sales of investments are recognised on trade-date being the date on which the consolidated group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated group has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the statement of profit or loss in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale investments revaluation reserve are recognised in equity in the “available for sale revaluation reserve”. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the statement of profit or loss as gains and losses from investment securities. 44 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (u) Financial instruments (continued) The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the consolidated group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing methods refined to reflect the issuer’s specific circumstances. iv. Impairment of financial assets The consolidated group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss, is removed from equity and recognised in the statement of profit or loss. Impairment losses recognised in the statement of profit or loss on equity instruments are not reversed through the statement of profit or loss. (v) Current / non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within twelve months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within twelve months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. (w) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. (x) Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash- generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. (y) Intangible asset 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. Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. (z) New standards and interpretations The AASB has issued the following new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The group has decided against the early adoption of any of these standards, and has not yet determined the potential impact on the financial statements from the adoption of these standards and interpretations. The consolidated group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have a significant impact on the financial performance or position of the consolidated group. EUROZ LIMITED ANNUAL REPORT 2016 45 Notes to the Financial Statements (z) New standards and interpretations (continued) AASB No. Title AASB 9 Financial Instruments AASB 2010-7 Amendments arising from Accounting Standards arising from AASB 9 (December 2010) Issue date Application date of standard $ 1 January 2018 December 2014 1 January 2018 September 2012 AASB 2014-1 Amendments to Australian Accounting Standards Part D - Consequential Amendments arising from AASB 14 Regulatory Deferral Accounts Part E - Financial Instruments Part D - 1 January 2016 Part E - 1 January 2018 June 2014 AASB 2014-3 Amendments to Australian Accounting Standard – Accounting for Acquisition of Interest in Joint Operations [AASB 1 & AASB 11] 1 January 2016 August 2014 AASB 2014-4 Amendments to Australian Accounting Standard - Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) 1 January 2016 August 2014 AASB 2014-5 Amendments to Australian Accounting Standard Arising From AASB 15 1 January 2018 December 2014 AASB 2014-7 Amendments to Australian Accounting Standard Arising From AASB 9 (December 2014) AASB 2014-9 Amendments to Australian Accounting Standard - Equity Method in Separate Financial Statements 1 January 2018 December 2014 1 January 2016 December 2014 AASB 2014- 10 Amendments to Australian Accounting Standard - Sale of Contribution of Assets Between Investors and its Associates or Joint Venture 1 January 2018 December 2014 AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle 1 January 2016 January 2015 AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 AASB 2015-5 Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception AASB 2015-6 Amendments to Australian Accounting Standards – Extending Related Party Disclosures to NFP Public Sector Entities AASB 2015-7 Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public Sector Entities 1 January 2016 January 2015 1 January 2016 January 2015 1 July 2016 March 2015 1 July 2016 July 2015 AASB 2015-8 Amendments to Australian Accounting Standards – Effective Date of AASB 15 1 January 2018 October 2015 AASB 2015-9 Amendments to Australian Accounting Standards – Scope and Application Paragraphs 1 January 2016 November 2015 AASB 2015- 10 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128. 1 January 2018 December 2015 AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 1 January 2017 February 2016 1 January 2017 March 2016 AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 1 January 2018 May 2016 AASB 2016-4 Amendments to Australian Accounting Standards – Recoverable Amount of a Non-Cash Generating Specialised Assets of Not-for-Profit Entities AASB 14 AASB 15 AASB 16 Regulatory Deferral Account Revenues from Contracts with Customers Leases AASB 1056 Superannuation Entities AASB 1057 Application of Australian Accounting Standards 1 January 2017 June 2016 1 January 2016 June 2014 1 January 2018 October 2015 1 January 2019 February 2016 1 July 2016 June 2014 1 January 2016 November 2015 46 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 2. Significant accounting estimates and judgements Estimates and judgements incorporated in the financial statements are based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Key estimates and judgments i. Impairment At each reporting date, the consolidated group compares the carrying values and market values of investment entities to determine whether there is any indication of impairment. If impairment indicators exist, any excess of the investment entity’s carrying value over the recoverable amount is expensed to the statement of profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated group estimates the recoverable amount of the cash- generating unit to which the asset belongs. ii. Classification of inventories The consolidated group has decided to classify investments in listed securities as held for trading. These securities are accounted for at fair value. Any increments or decrements in their value at year end are charged or credited to the statement of profit or loss. iii. Taxation Judgement is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from temporary differences and tax losses, are recognised only where it is considered more likely than not they will be recovered, which is dependent on the generation of sufficient future taxable profits. Deferred tax liabilities arising from temporary differences are recognised to the extent that there are future profits. In addition, the goodwill on the acquisition of Entrust totalling $5,597,365 has been allocated to the performance of this company as a whole. The assumptions used for determining the recoverable amount are based on past experience and expectations for the future. Projected cash flows for each cash- generated unit are discounted using an appropriate discount rate and a value in use is determined over a 5 year life. The discount rate deemed applicable at 30 June 2016 amounted to 9.81%. The Board have assessed that there is no indication the goodwill is impaired. v. Intangible assets Upon acquisition of Entrust, Euroz acquired $1,721,835 in other intangible assets consisting 3 separate assets. These assets were tested for impairment. The assumptions used for determining the recoverable amount was based on past experience and expectations for the future. Projected cash flows for each cash-generated unit were discounted using an appropriate discount rate and a value in use was determined over a 5 year life. The discount rate deemed applicable at 30 June 2016 amounted to 9.81%. The Board have assessed that there is no indication these assets goodwill are impaired. Note 3. Segment information Identification of reportable segments The consolidated group has identified its operating segments based on the internal reports that are reviewed and used by the executive team (the chief operating decision makers) in assessing performance and in allocating resources. Types of products and services Stockbroking & Corporate Activities Stockbroking business offering trading of Australian securities, corporate finance and the provision of company research. Principal trading Principal trading relates to the purchase and sale of securities by the consolidated group. iv. Goodwill Funds management Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. For the purpose of impairment testing, the goodwill on acquisition of Blackswan Equities Limited is allocated to private client broking cash-generating unit which represents the lowest level at which it is monitored for internal management purposes. At 30 June 2016, goodwill totalling $2,833,112 has been allocated to the private client broking cash-generated unit. The assumptions used for determining the recoverable amount are based on past experience and expectations for the future. Projected cash flows for each cash-generated unit are discounted using an appropriate discount rate and a value in use is determined over a 5 year life. The discount rate deemed applicable at 30 June 2016 amounted to 9.81%. The Board have assessed that there is no indication the goodwill is impaired. The consolidated group provides advice and the execution of mandates in relation to funds management. Investments The consolidated group invests in listed and unlisted securities from which it derives dividends. Wealth Management The consolidated group provides wealth management services including the administration of funds under management. Basis of accounting for purpose of reporting by operating segments The accounting policies used by the consolidated group in reporting segments internally are consistent with those adopted in the financial statements of the consolidated group, unless otherwise stated. EUROZ LIMITED ANNUAL REPORT 2016 47 Notes to the Financial Statements Note 3. Segment information (continued) Segment assets and liabilities Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic value from that asset. Liabilities are allocated to segments where there is a direct nexus between the liability and the operations of the segment. Stockbroking & Corporate Activities $ Principal Trading Funds Management Investment Income Wealth Management Unallocated Total $ $ $ $ $ $ - 6,026,121 2,591 50,685 2016 Sales and other fees 24,742,067 4,470,767 1,796,959 Interest revenue 448,066 Other revenues 900 212 - 43,878 323,958 - 4,018,663 Total segment revenue Segment net operating profit/(loss) after tax Depreciation and amortisation Gain/(Loss) on fair value of investments 25,191,033 4,470,979 1,840,837 4,342,621 6,079,397 3,323,044 1,058,429 (1,852,145) (592,331) 624,021 155,541 - 10,252 - - 565,758 - (5,813,059) - - Segment assets 31,240,962 5,826,554 4,064,447 77,673,140 3,306,541 - 5,826,554 383,812 - - - - - 55,171,351 - 2,723,922 114,551 445,541 4,374,091 623,690 - - - - - - - - - - - 37,035,914 818,705 4,070,248 41,924,867 2,561,018 165,793 (5,217,301) 122,111,645 60,997,905 - 8,281,795 1,784,369 1,423,336 (1,840,918) - 624,021 - 1,990,808 (383,812) 16,195 49,978 (5,686,044) - - - - - - - (6,003,683) (6,826,179) (6,826,179) Fair value of investments Capital expenditure Segment liabilities Cash flow information Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities 48 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 3. Segment information (continued) Segment performance Stockbroking & Corporate Activities $ Principal Trading Funds Management Investment Income Unallocated Total $ $ 2015 Sales and other fees 25,074,027 3,842,298 3,380,405 Interest revenue 713,179 - 59,669 - 40,000 - $ - 638,013 5,151,190 Segment assets 34,462,677 5,582,420 3,059,467 76,949,780 25,787,206 3,882,298 3,440,074 5,789,203 723,910 (112,170) 1,634,124 (9,376,516) 113,149 - 3,104 - - (1,025,513) - (20,111,346) - 142,666 3,192,734 - - - - 53,769,308 80,560 - 360,307 5,243,891 (859,586) (3,116,830) - - Other revenues Total segment revenue Segment net operating profit/(loss) after tax Depreciation and amortisation Gain/(Loss) on fair value of investments Fair value of investments Capital expenditure Segment liabilities Cash flow information Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities 5,681,338 40,000 (80,560) 4,502,713 (425,245) 9,718,246 - - - - (16,088,832) (16,088,832) Entity-wide disclosures The consolidated group predominately operates with in the geographical region of Australia. Therefore, the total revenue and non-current assets are reflected on the face of the financial statements. During the year ended 30 June 2016 approximately 14% (2015: 19%) of the consolidated group’s external revenue was derived from management fees and dividends from Ozgrowth Limited and Westoz Investment Company Limited. $ $ - - - - - - - - - - - - 32,296,730 1,410,861 5,191,190 38,898,781 (7,130,652) 116,253 (21,136,859) 120,054,344 53,769,308 223,226 8,796,932 (3,976,416) EUROZ LIMITED ANNUAL REPORT 2016 49 Notes to the Financial Statements Note 4. Revenue Revenue from operating activities Brokerage Underwriting and management fees Wealth Management fees Proceeds on sale of principal trading shares Corporate retainers Other income Interest received Other revenue Dividend received Total Revenue Note 5. Profit before income tax expense Rental expenses relating to operating lease Superannuation expense Share based payments – PRP Share based payments – Other Write-off of fixed assets Write-off of investment Note 6. Income tax The components of tax expense comprise: Current tax Deferred tax 2016 $ 14,344,812 11,260,910 5,153,627 4,454,572 1,752,399 2015 $ 16,626,934 11,005,474 - 3,842,298 822,023 36,966,320 32,296,729 818,705 131,603 4,008,239 4,958,547 41,924,867 2016 $ 1,992,946 1,054,437 501,189 250,000 - - 1,410,862 - 5,191,190 6,602,052 38,898,781 2015 $ 1,837,796 797,118 391,197 125,000 131,977 15,000 2016 $ 2015 $ 1,632,285 1,691,318 (2,104,726) (6,779,609) (472,441) (5,088,291) 50 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 6. Income tax (continued) Numerical reconciliation between tax expense and pre-tax accounting profit Income tax using company’s tax rate of 30% (2015: 30%) 626,573 (3,665,683) 2016 $ 2015 $ Add tax effect of: - other non-allowable items - other Less tax effect of: - other - franked dividends received 145,725 - 121,703 13,046 772,298 (3,530,934) 57,153 1,187,586 (472,441) - 1,557,357 (5,088,291) The applicable weighted average effective tax rates are as follows: (22.62%) (41.64%) Reconciliations i. Gross movements The overall movement in the deferred tax account is as follows: Balance at 1 July Recognised in statement of profit or loss Balance at 30 June ii. Deferred tax liability Movement in temporary differences during the year Fair value gain adjustments Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June Other Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June 4,699,929 3,059,772 7,759,701 (2,079,680) 6,779,609 4,699,929 (26,700) 402,194 375,494 2,907,263 (2,933,963) (26,700) 423,877 16,064 439,971 815,465 134,199 289,678 423,877 397,177 EUROZ LIMITED ANNUAL REPORT 2016 51 Notes to the Financial Statements Note 6. Income tax (continued) iii. Deferred tax assets Movement in temporary differences during the year Fair value gain adjustments Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June Provisions Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June Other Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June 2016 $ 2015 $ 3,795,921 1,996,710 5,792,631 549,958 152,332 702,290 750,591 1,329,654 2,080,245 8,575,166 - 3,795,921 3,795,921 961,782 (411,824) 549,958 - 750,591 750,591 5,096,470 Tax consolidation legislation Euroz Limited and its wholly-owned Australian subsidiaries implemented the tax consolidation legislation as of 1 July 2003. The accounting policy on implementation of the legislation is set out in Note 1(b). The impact on the income tax expense for the year is disclosed in the tax reconciliation above. The entities have also entered into a tax sharing and funding agreement. Under the terms of this agreement, the wholly-owned entities reimburse Euroz Limited for any current income tax payable by Euroz Limited arising in respect of their activities. The reimbursements are payable at the same time as the associated income tax liability falls due and have therefore been recognised as a current tax-related receivable by Euroz Limited. In the opinion of the Directors, the tax sharing agreement is also a valid agreement under the tax consolidation legislation and limits the joint and several liability of the wholly owned entities in the case of a default by Euroz Limited. Note 7. Cash and cash equivalents Cash at bank and on hand Note 8. Trade and other receivables Trade receivables 2016 $ 2015 $ 34,202,416 45,041,470 2016 $ 1,549,678 2015 $ 1,384,626 All trade receivables relating to brokerage and principal trading have been transferred to Pershing Securities Australia Pty Ltd (clearing participant on behalf of Euroz Securities Limited) who provides a trust account facility as part of the clearing and settlement service. 52 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 9. Inventories Securities in unlisted companies (at cost) (i) Trading securities in listed companies (at cost) (i) Fair value adjustments (ii) Total (i ) These securities are held for trade purposes. (ii) The fair value adjustment is based on the closing price of each investment at year end. Note 10. Other current assets Prepayments Accrued income Current tax asset Total Note 11. Long term receivable 2016 $ 527,000 6,430,656 (1,131,102) 5,826,554 2015 $ 527,000 6,699,270 (1,643,850) 5,582,420 2016 $ 952,541 195,764 - 1,148,305 2016 $ 2015 $ 642,814 161,237 225,065 1,029,116 2015 $ Security deposit 5,000,000 5,000,000 Deposit held by Pershing Securities Australia Pty Ltd (clearing participant on behalf of Euroz Securities Limited). Note 12. Investments Cost of investment in managed investment scheme Fair value adjustments (i) Total (i) The fair value adjustment is based on the closing unit value of the scheme. 2016 $ 7,000,000 1,050,076 8,050,076 2015 $ - - - EUROZ LIMITED ANNUAL REPORT 2016 53 Notes to the Financial Statements Note 13. Investment entities at fair value Listed ordinary shares in investment entities at fair value through profit or loss 47,121,275 53,769,308 Reconciliation Reconciliation of the fair values at the beginning and end of the current financial year are set out below: 2016 $ 2015 $ Opening fair value Additions Revaluation increments / (decrements) Closing fair value Note 14. Plant and equipment Leasehold improvements At cost Less: Accumulated amortisation Software At cost Less: Accumulated depreciation Office equipment At cost Less: Accumulated depreciation Furniture, fixtures and fittings At cost Less: Accumulated depreciation Total 53,769,308 215,102 (6,863,135) 47,121,275 73,232,177 648,477 (20,111,346) 53,769,308 2016 $ 241,607 (44,643) 196,964 62,246 (24,168) 38,078 242,171 (113,959) 128,212 196,424 (73,815) 122,609 485,863 2015 $ 103,421 (26,817) 76,604 43,392 (26,001) 17,391 193,586 (109,601) 83,985 176,912 (37,070) 139,842 317,822 54 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 14. Plant and equipment (continued) Reconciliations Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the current and previous financial years are set out below: 2016 Carrying amount at 1 July 2015 Additions Disposals Assets written-off Depreciation / amortisation expense Carrying amount at 30 June 2016 2015 Carrying amount at 1 July 2014 Additions Acquired from a business combination Assets written-off Depreciation / amortisation expense Carrying amount at 30 June 2015 Note 15. Deferred tax assets Leasehold improvements $ Plant and equipment $ 76,604 215,560 (49,978) (40) (45,182) 196,964 6,493 77,609 - - (7,498) 76,604 241,218 168,252 - (4,565) (116,006) 288,899 191,599 143,748 146,603 (131,977) (108,755) 241,218 Total $ 317,822 383,812 (49,978) (4,605) (161,188) 485,863 198,092 221,357 146,603 (131,977) (116,253) 317,822 Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the current and previous financial years are set out below: Deferred tax asset (Note 6) Note 16. Intangible assets Goodwill (refer (a) below) Other intangible assets (refer (b) below) (a) Goodwill Opening balance Acquired on the acquisition of business (refer to note 31) Amortisation Balance 2016 $ 8,575,166 2016 $ 8,430,477 1,721,835 10,152,312 2,833,112 5,597,365 - 2015 $ 5,096,470 2015 $ 2,833,112 - 2,833,112 - 2,833,112 - 8,430,477 2,833,112 EUROZ LIMITED ANNUAL REPORT 2016 55 Notes to the Financial Statements Note 16. Intangible assets (continued) As referred to in note 31, Euroz Limited acquired $5,597,365 in goodwill on the acquisition of a business during the period. The Directors deem this to be an indefinite life intangible asset and accordingly perform an impairment assessment at reporting date. Based on this assessment at 30 June 2016, no impairment was considered necessary. Note 2 (iv) contains additional information on this assessment. (b) Other intangible assets Opening balance Acquired on the acquisition of business (refer to note 31) Amortisation Balance 2016 $ - 1,721,835 - 1,721,835 2015 $ - - - - In addition, Euroz Limited acquired $1,721,835 in other intangible assets on the acquisition of a business during the period. These intangibles consist of 3 separate assets as follows: Client portfolio A Client portfolio B Client portfolio C $ 500,000 80,000 1,141,835 1,721,835 Upon acquisition, Client portfolio A pre-acquisition had been impaired by $358,053 (gross value - $858,053). The carrying value of all 3 assets was assessed at reporting date for impairment and no impairment was considered necessary. Note 2 (v) contains further information on this impairment assessment. Note 17. Trade and other payables Other payables and accruals 2016 $ 1,204,171 2015 $ 1,525,486 All trade creditors relating to brokerage and principal trading have been transferred to Pershing Securities Australia Pty Ltd who provides a trust account facility as part of the clearing and settlement service. Note 18. Current tax liabilities Provision for taxation 2016 $ 444,699 2015 $ - 56 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 19. Short term provisions Dividends Employee entitlements (annual leave) Employee entitlements (long service leave) Total Dividends 2016 $ 3,622,711 1,024,576 893,829 5,541,116 2015 $ 5,192,129 707,050 652,870 6,552,049 This provision represents the dividend declared by the board before the reporting date and to be paid out to shareholders subsequent to year end. Movements in each class of provisions, other than employee benefits, are set out below: Carrying amount at 1 July Additional provisions recognised Amounts paid out (including through dividend reinvestments) Carrying amount at 30 June Note 20. Deferred tax liabilities Deferred tax liability (Note 6) Note 21. Long term provisions Employee entitlements (long service leave) Note 22. Contributed equity (a) Share Capital Ordinary shares Issued and paid up capital consisting of ordinary shares (net of treasury shares) 2016 $ 5,192,129 6,438,992 2015 $ 13,702,841 7,886,167 (8,008,410) (16,396,879) 3,622,711 5,192,129 2016 $ 815,465 2016 $ 276,344 2015 $ 397,177 2015 $ 322,220 2016 Shares 2015 Shares 2016 $ 2015 $ 158,574,382 152,997,812 105,226,509 99,533,415 EUROZ LIMITED ANNUAL REPORT 2016 57 Notes to the Financial Statements Note 22. Contributed equity (continued) (b) Movements in ordinary share capital At the beginning of the reporting period Acquisition of Treasury shares Shares issued as consideration to acquire Entrust Private Wealth Management Pty Ltd Shares issued as consideration to acquire Blackswan Equities Limited Shares issued through dividend reinvestment scheme Shares bought back At the end of the reporting period (c) Movements in ordinary share capital At the beginning of the reporting period Acquisition of Treasury shares Shares issued as consideration to acquire Entrust Private Wealth Management Pty Ltd Shares issued as consideration to acquire Blackswan Equities Limited Shares issued through dividend reinvestment scheme Shares bought back At the end of the reporting period 2016 Shares 2015 Shares 152,997,812 (1,125,000) 5,450,000 - 1,586,570 (335,000) 146,153,785 (410,000) - 5,200,000 2,054,027 - 158,574,382 152,997,812 2016 Shares 2015 Shares 99,533,415 (933,008) 5,450,000 - 1,420,312 (244,210) 90,924,294 (425,245) - 6,604,000 2,430,366 - 105,226,509 99,533,415 2016 Shares 2015 Shares 2016 $ 2015 $ (d) Treasury shares Balance of treasury shares at the end of the reporting period (2,435,000) (1,310,000) (2,500,958) (1,567,950) Treasury shares were acquired by Employee Share Trust at various times during the year. The acquisition of Treasury shares forms part of the Performance Right Plan. (e) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Ordinary shares have no par value. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (f) Options There were no options on issue at 30 June 2016 (30 June 2015: NIL). 58 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 22. Contributed equity (continued) (g) Share based payments reserve The reserve records items recognised as expenses on valuation of share based payments. The movement in the current period totalling $501,189 (2015: $391,197) relates to the vesting expense related to the fair value of performance rights issued in the prior year and the current year in connection with the Performance Rights Plan. Balance on share based payment reserve at 1 July Recognised during the year Balance on share based payments reserve at 30 June (h) Capital management 2016 $ 658,175 501,189 1,159,364 2015 $ 266,978 391,197 658,175 The Directors primary objective is to maintain a capital structure that ensures the lowest cost of capital available to the group. At reporting date, the group has no external borrowings and significant cash reserves. As the holder of AFSLs and as a participant of the ASX the group is exposed to externally imposed capital requirements, which have been complied with at year end and throughout the year. Note 23. Dividends Ordinary shares Interim dividend for the half year ended 31 December 2015 of 1.75 cents (2015 – 1.75 cents) per fully paid ordinary share paid on 15 January 2016. Fully franked based on tax paid @ 30% Final dividend declared and provided for at 30 June 2016 of 2.25 cents (2015 – 3.25 cents) per fully paid ordinary share paid on 5 August 2016. Fully franked based on tax paid @ 30% 2016 $ 2015 $ 2,816,281 2,694,038 3,622,711 5,192,129 Total dividends provided for or paid 6,438,992 7,886,167 Of the total dividends paid during the year, $6,129 (2015: $9,458) was paid to the Euroz Share Trust (related to the Euroz Performance Rights Plan) and is undistributed. Therefore, it has been eliminated on consolidation. Franked dividends The franked portions of the dividends recommended after 30 June 2016 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2016. Franking credits available for subsequent financial years based on a tax rate of 30% (2015: 30%) 2016 $ 2015 $ 15,193,768 11,279,279 These dividends are fully-franked and therefore, there are no income tax consequences for the owners of Euroz Limited. The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) franking credits that will arise from the payment of the current tax liability (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and (d) franking credits that may be prevented from being distributed in subsequent financial years. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of controlled entities were paid as dividends. EUROZ LIMITED ANNUAL REPORT 2016 59 Notes to the Financial Statements Note 24. Financial instruments (a) Financial risk management The group’s financial instruments consist of deposits with banks, trade receivables and payables, short term investments and available for sale investments. Derivative financial instruments are not used by the group. Senior executives meet regularly to analyse and monitor the financial risk associated with the financial instruments used by the group. (b) Financial risk exposure and management i. Interest rate risk The group has no borrowings and therefore is not exposed to interest rate risk associated with debt. The group has significant cash reserves and the interest income earned from these cash reserves will be affected by movements in the interest rate. A sensitivity analysis has been provided in the note to illustrate the effect of interest rate movements on interest income earned. ii. Liquidity risk The group manages liquidity risk using forward cash flow projections, maintaining cash reserves and having no borrowings or debt. Trade and other payables are expected to be paid as follows: Less than 1 month iii. Credit risk 2016 $ 1,204,171 2015 $ 1,525,486 The maximum exposure to credit risk, excluding the value of any collateral or security, at reporting date is the carrying amount of the financial assets disclosed in the statement of financial position. There is no collateral or security held for those assets at 30 June 2016. Credit risk arises from exposure to customers and deposits with banks. Senior management monitors its exposure to customers on a regular basis to ensure recovery and repayment of outstanding amounts. Cash deposits are only made with Australian based banks. All trade debtors relating to brokerage and principal trading have been transferred to Pershing who provides a trust account facility as part of the clearing and settlement service. Trade receivables are usually paid within 30 days. The carrying amount of the consolidated entity’s financial assets represents the maximum credit exposure. The consolidated entity’s maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Receivables Long term deposit 2016 $ 2015 $ 34,202,416 45,041,470 1,549,678 1,384,626 5,000,000 40,752,094 5,000,000 51,426,096 60 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 24. Financial instruments (continued) Impairment losses None of the consolidated group’s receivables are past due date (2015: Nil). iv. Financial instruments composition and maturity analysis Weighted Average Effective Interest Rate 2016 % 2015 % Floating Interest Rate Non-Interest Bearing 2016 $ 2015 $ 2016 $ 2015 $ 1.77 2.19 34,202,416 45,041,470 - - - - - - - - - - - - - - - - - - 1,549,678 1,384,626 5,826,554 5,582,420 47,121,275 53,769,308 8,050,076 - - - Financial Assets Cash and cash equivalents Trade and other Receivables Financial assets held for trading Financial assets at fair value through profit and loss Other investments Long term deposit 1.0 1.25 5,000,000 5,000,000 Total financial assets Financial Liabilities Trade and other payables 39,202,416 50,041,470 62,547,583 60,736,354 - - - - 1,204,171 1,525,486 The following table details the consolidated entities fair value of financial instruments categorised by the following levels: Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) Level 3: Inputs for the assets or liability that are not based on observable market data (unobservable inputs) Level 1 Level 2 Level 3 Total 2016 Assets Investments Total Assets 2015 Assets Investments Total Assets 60,707,290 60,707,290 290,615 290,615 59,061,113 59,061,113 290,615 290,615 - - - - 60,997,905 60,997,905 59,351,728 59,351,728 EUROZ LIMITED ANNUAL REPORT 2016 61 Notes to the Financial Statements Note 24. Financial instruments (continued) v. Sensitivity analysis Assuming all variables remain constant and the interest rate fluctuated by 1% at year end the effect on the consolidated group’s equity and profit as follows: Increase by 1% Decrease by 1% 2016 $ 274,417 2015 $ 350,290 (274,417) (350,290) Assuming all variables remain constant and the equity market fluctuated by 5% at year end the effect on the group’s equity and profit is as follows: Increase by 5% Decrease by 5% Note 25. Remuneration of auditors 2016 $ 2015 $ 3,049,895 2,967,586 (3,049,895) (2,967,586) 2016 $ 2015 $ Audit services Audit and review of financial reports for the Group Fees paid to PKF Mack firm 162,000 136,000 Other services Tax compliance services Other services Note 26. Contingent liabilities The parent entity and consolidated group had contingent liabilities at 30 June 2016 as follows: Secured guarantees in respect of: Operating lease of a controlled group entity 32,950 12,500 45,450 24,500 10,000 34,500 2016 $ 2015 $ 790,180 1,321,126 As detailed in note 11 the consolidated group has a deposit with Pershing as part of Euroz Securities Limited third party clearing arrangements. This deposit totalled $5,000,000 at reporting date (2015: $5,000,000). Legal proceedings were filed on 22 January 2016 in the Supreme Court of Western Australia on behalf of two former clients of Euroz Securities Limited. Euroz Securities Limited and Entrust Private Wealth Management Pty Ltd are two of four Australian Financial Services Licence (AFSL) holders jointly named in the Writ of Summons. The total value of the claim is $2,400,000. At this point in time it is not clear what the gross and net contingent liability of this action is to Euroz Securities Limited and Entrust Private Wealth Management Pty Ltd. 62 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 27. Commitments for expenditure (a) Operating leases Commitments for minimum lease payments in relation to non cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 2016 $ 2015 $ 1,284,348 4,243,421 127,218 1,232,415 5,393,288 261,699 Commitments not recognised in the financial statements 5,654,987 6,887,402 The lease on the premises at Level 18, 54-58 Mounts Bay Road is for the period of 10 years commencing 2 July 2010 and expiring on 1 July 2020. The licence on the premises at Level 23, Goldfields House, 1 Alfred Street, Sydney NSW is for the period of 5 years commencing 13 June 2014 and expiring on 31 October 2019. The licence on the premises at Level 16, 385 Bourke Street, Melbourne is for the period of 8 years commencing 1 June 2015 and expiring on 31 May 2022. Note 28. Employee benefits Employee benefit and related on-costs liabilities Provision for employee entitlements Aggregate employee benefit and related on costs liabilities Note 29. Related parties (a) Key Management Personnel compensation Short-term employee benefits Post-employment benefits Share based payments 2016 $ 2,194,749 2,194,749 2015 $ 1,682,140 1,682,140 2016 $ 2015 $ 2,996,758 2,873,621 255,450 276,875 250,365 181,250 3,529,083 3,305,236 (b) Individual Key Management Personnel compensation disclosure Information regarding individual KMP compensation and some equity instruments disclosures as required by Corporations Regulation is provided in the remuneration report section of the Directors’ Report. Apart from the details disclosed in this note, no KMP has entered into a material contract with the group since the end of the previous financial year and there were no material contracts involving KMP interest existing at year end. (c) Parent entity The ultimate parent entity within the group is Euroz Limited. EUROZ LIMITED ANNUAL REPORT 2016 63 Notes to the Financial Statements Note 29. Related parties (continued) (d) Share-based payments During the year a performance right was issued to 72 employees (2015: 76 employees). This performance right entitles the holder to a number of shares in Euroz Limited calculated as 25% of their bonus entitlement for the year. At point of issue, these performance rights are subject to a 4 year vesting period. The fair value of each performance right is calculated as 25% of the individual’s bonus entitlement. (e) Wholly-owned group transactions Wholly owned group The wholly owned group consists of Euroz Limited and its wholly owned controlled entities. See Note 30. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. 2016 $ 2015 $ Transactions with related parties consisting of: vi. Subsidiaries – Loans advanced by Euroz Limited to subsidiaries – Payments of dividends to Euroz Limited by subsidiaries 6,089,701 8,495,488 3,450,000 1,750,000 – Payments of dividends to Euroz Securities Limited by subsidiaries – Loans advanced by Prodigy Investment Partners Limited to subsidiary – Loans advanced by WIM WA Resources Limited to subsidiary – Management fees charged by Euroz Securities Limited to subsidiaries – Management fees charged by Prodigy Investment Partners Limited to subsidiaries ii. Other - - 19,007 1,685,229 381,654 80,000 47,819 - - - – Dividends received by Euroz Limited from investment entities – Management fee received by the Euroz Group from investment entities – Performance fee received by the Euroz Group from investment entities 3,947,426 1,736,952 6,609 5,151,190 2,210,600 - Ownership interests in related parties Interests held in the following classes of related parties are set out in note 30. Other transactions with Directors and specified Executives During the year ended 30 June 2016 the Directors and KMP transacted share business through Euroz Securities Limited on normal terms and conditions. Aggregate amounts of the above transactions with Directors and KMP of the consolidated group: Amounts recognised as revenue Brokerage earned on Key Management Personnel accounts 41,442 50,922 2016 $ 2015 $ 64 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 30. Investments in controlled entities Name of entity Country of incorporation Class of shares Equity holding Cost of parent entity’s investment 2016 % 2015 % 2016 $ 2015 $ Euroz Securities Limited Detail Nominees Pty Ltd Zero Nominees Pty Ltd (i) Westoz Funds Management Pty Ltd Euroz Employee Share Trust Ozgrowth Limited Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Westoz Investment Company Limited Australia Ordinary Prodigy Investment Partners Limited Blackswan Equities Limited (i) Australia Ordinary Australia Ordinary Flinders Investment Partners Pty Ltd (ii) Australia Ordinary Dalton Street Capital Pty Ltd (ii) Blackswan Corporate Pty Ltd (i) Australia Ordinary Australia Ordinary Blackswan Wealth Management Pty Ltd (i) Australia Ordinary WIM WA Resources Ltd WIM Small Cap Ltd Australia Ordinary Australia Ordinary Entrust Private Wealth Management Pty Ltd Australia Ordinary Prodigy Flinders Pty Ltd (ii) Prodigy Corporate Pty Ltd (ii) Prodigy DSC Pty Ltd (ii) Australia Ordinary Australia Ordinary Australia Ordinary The ultimate parent entity in the wholly owned group is Euroz Limited. (i) Owned by Euroz Securities Limited (ii) Owned by Prodigy Investment Partners Limited 100 25,000,000 25,000,000 100 100 100 100 - 100 100 100 - 38.81 26.41 38.77 26.21 80 100 50 50 100 100 100 100 100 100 100 100 80 100 100 - 100 100 100 100 - - - - - - - - 1,450,000 1,450,000 - - - - - - 1,500,000 500,000 6,604,000 6,604,000 2 2 - - 1 1 7,800,000 2 2 2 2 - - - 1 1 - - - - A brief description of each entity (unless inactive and dormant) is as follows:- (a) Euroz Limited – Group holding company listed on the Australian Securities Exchange. Euroz Limited manages cash and investments including significant positions in Ozgrowth Limited and Westoz Investment Company Limited. (b) Euroz Securities Limited – Financial Services company providing stockbroking services with a focus on Western Australian companies. (c) Westoz Funds Management Pty Ltd – Manages the mandates for two listed investment companies, Ozgrowth Limited and Westoz Investment Company Limited with a focus on investing in opportunities with a Western Australian connection. (d) Zero Nominees – Custodian company holding shares on behalf of clients of Euroz Securities Limited. (e) Detail Nominees - Dormant company that was previously used to for settlement obligation in relation to Euroz Securities. (f) Euroz Employee Share Trust vehicle established to acquire treasury shares on-market for distribution to eligible employees in connection with the Euroz Performance Rights Plan. (g) Prodigy Investment Partners Limited – A 80/20 joint venture with Mr Steve Tucker to create a multi boutique funds management business. The first boutique funds management partnership was launched in August 2015 with Flinders Investment Partners Pty Ltd. The second boutique, Dalton Street Capital Pty Ltd was launched in May 2016. (h) Blackswan Equities Limited – The activities of the Blackswan group of entities were transferred over to Euroz Securities Limited in the last financial year. (i) Blackswan Corporate Pty Ltd – The activities of the Blackswan group of entities were transferred over to Euroz Securities Limited in the last financial year. EUROZ LIMITED ANNUAL REPORT 2016 65 Notes to the Financial Statements Note 30. Investments in controlled entities (continued) (j) Blackswan Wealth Management Pty Ltd - The activities of the Blackswan group of entities were transferred over to Euroz Securities Limited in the last financial year. (k) Flinders Investment Partners Pty Ltd - Boutique fund manager specialising in investing in emerging companies. (l) Entrust Private Wealth Management Pty Ltd - Wealth management business providing wealth management and strategic financial planning advice to clients. (m) Dalton Street Capital Pty Ltd - Boutique fund manager specialising in alternative investment strategies. (n) Prodigy Flinders Pty Ltd – Entity to facilitate profit sharing arrangements with Flinders Investment Partners. (o) Prodigy DSC Pty Ltd – Entity to facilitate profit sharing arrangements with Dalton Street Capital. (p) Prodigy Corporate Pty Ltd – Entity to facilitate profit sharing arrangement with boutique entities. *Although Ozgrowth Limited and Westoz Investment Company Limited are controlled entities, exemption from consolidation was derived from the adoption of AASB 2013-5 Investment Entities. Note 31. Business combination On 13 July 2015, Euroz Limited completed the acquisition of Entrust to further enhance its wealth management capabilities. Details of the acquisition are as follows: Assets Cash and cash equivalents Receivables and other current assets Deferred tax assets Intangibles (refer note 16 (b)) Goodwill on acquisition (refer note 16 (a)) Liabilities Trade and other current liabilities Current tax liabilities Provisions Fair value of net assets acquired Representing: Cash Shares issued Fair value of consideration paid to vendors Fair value $ 820,022 710,396 314,176 1,721,835 3,566,429 5,597,365 9,163,794 776,807 60,601 526,386 1,363,794 7,800,000 2,350,000 5,450,000 7,800,000 66 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 31. Business combination (continued) Net cash paid for subsidiary: Cash consideration paid Less: net cash acquired 2,350,000 (820,022) 1,529,978 The fair values in relation to the acquisition have been finalised. The consideration paid consists of 5,450,000 shares in Euroz Limited fair valued to $5,450,000 and cash totaling $2,350,000. Note 32. Events subsequent to reporting date The Directors are not aware of any matter or circumstance subsequent to 30 June 2016 that has significantly affected, or may significantly affect: (a) the consolidated group’s operations in future financial years: or (b) the results of those operations in future financial years: or (c) the consolidated group’s state of affairs in future financial years. Note 33. Reconciliation of cash flows from operating activities Profit / (Loss) for the period Adjustments for: Depreciation and amortisation Share based payments Unrealised loss / (gain) arising from fair value of investment entities Dividends received from investment entities (investing activity) Write-off of fixed assets Write-off of investments Other non-cash item Changes in assets and liabilities Decrease / (increase) in trade and other receivables Decrease / (increase) in other current assets Decrease / (Increase) in inventories Decrease / (Increase) in deferred tax assets Increase / (decrease) in trade and other payables Increase / (decrease) in current tax liabilities Increase / (decrease) in deferred tax liabilities Increase / (decrease) in provisions (excluding dividends) Net cash from / (used in) operating activities 2016 $ 2,561,018 165,793 501,189 5,813,059 (3,992,044) 4,605 - (110,023) (165,052) (119,189) 2015 $ (7,130,652) 116,253 391,197 20,111,346 (5,151,190) 131,977 15,000 - (461,664) 112,833 (244,134) (2,583,844) (3,478,696) (4,134,688) (321,315) 444,699 418,288 512,609 (333,128) (2,542,551) (2,644,285) 126,980 1,990,807 (3,976,416) EUROZ LIMITED ANNUAL REPORT 2016 67 Notes to the Financial Statements Note 34. Earnings per share Basic earnings per share Diluted earnings per share Weighted average number of shares used as the denominator 2016 Cents 1.61 1.61 2015 Cents (4.66) (4.66) Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share. 159,130,663 152,973,466 Weighted average number of ordinary shares and potential ordinary shares (including treasury shares) used as the denominator in calculating diluted earnings per share. 159,473,115 153,077,010 The profit after tax figures used to calculate the earnings per share for both the basic and diluted calculations was the same as the profit figure from statement of profit or loss. Note 35. Deed of cross guarantee The following entities are party to a deed of cross guarantee entered into on 19 June 2015 under which each company guarantees the debts of the others: Euroz Limited Blackswan Equities Ltd By entering into the deed, the wholly-owned entity has been relieved from the requirement to prepare financial statements and Directors’ Report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission (‘ASIC’). The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Euroz Limited, they also represent the ‘Extended Closed Group’. Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of the ‘Closed Group’. 68 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 35. Deed of cross guarantee (continued) CLOSED GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Unrealised loss on investments Employee benefits expense Depreciation and amortisation expenses Regulatory expenses Consultancy expenses Conference and seminar expenses Brokerage and underwriting expense Communication expenses Carrying amount of principal trading securities sold Other expenses 2016 $ 9,474,137 2015 $ 8,308,822 (5,345,571) (20,872,520) 18,852 (1,123) (74,664) (129,478) - - - (1,030,813) (620,012) (423,276) (2,759) (165,034) (151,158) (7,391) (46,196) (6,470) (65,800) (114,993) Profit / (loss) before income tax expense Income tax benefit 2,291,328 (13,546,775) 1,236,982 5,994,854 Profit / (loss) after income tax expense for the year 3,528,310 (7,551,921) Other comprehensive income Other comprehensive income, net of tax Total comprehensive income for the year - - 3,528,310 (7,551,921) EUROZ LIMITED ANNUAL REPORT 2016 69 Notes to the Financial Statements Note 35. Deed of cross guarantee (continued) CLOSED GROUP STATEMENT OF FINANCIAL POSITION Current assets Cash and cash equivalents Inventories Other current assets Total current assets Non current assets Plant and equipment Investments in subsidiaries Other investments Financial assets Deferred tax assets Total non current assets Total assets Current liabilities Trade and other payables Current tax liabilities Short term provisions Total current liabilities Non-current liabilities Deferred tax liabilities Total non current assets Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2016 $ 14,447,816 2,447,646 69,526 2015 $ 22,819,524 2,527,149 42,288 16,964,988 25,388,961 8,876 9,998 32,250,002 32,250,002 56,171,351 44,969,307 6,070,694 6,002,396 8,495,488 3,872,562 100,503,319 89,597,357 117,468,307 114,986,318 171,007 396,787 3,622,711 167,561 - 5,192,129 4,190,505 5,359,690 396,352 396,352 - - 4,586,857 5,359,690 112,881,450 109,626,628 105,184,245 99,510,043 1,144,960 6,552,245 653,657 9,462,928 112,881,450 109,626,628 70 EUROZ LIMITED ANNUAL REPORT 2016 Notes to the Financial Statements Note 36. Parent entity disclosures Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued capital Retained earnings Reserves 2016 $ 2015 $ 13,144,250 21,682,004 103,807,345 92,915,425 116,951,595 114,597,429 4,027,587 353,774 4,381,361 5,218,054 - 5,218,054 105,184,246 99,324,043 6,241,028 9,401,675 Share Based Payment Reserve 1,144,960 653,657 Total equity 112,570,234 109,379,375 Financial performance Profit / (loss) for the year Other comprehensive income 3,464,347 (7,609,174) - - Total comprehensive income 3,464,347 (7,609,174) Note 37. Company details The registered office and principal place of business address of the Company is: Euroz Limited Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 EUROZ LIMITED ANNUAL REPORT 2016 71 Directors’ Declaration The Directors declare that: 1. The financial statements, notes and additional disclosures included in the Directors’ Report and designated as audited, are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and Corporations Regulations 2001; (b) give a true and fair view of the Company's and consolidated group's financial position as at 30 June 2016 and of their performance for the year ended on that date; (c) the financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 to the financial statements. 2. The Chief Executive Officer and Chief Financial Officer have declared in accordance with section 295A of the Corporations Act 2001 that: (a) the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; (b) the financial statements and notes for the financial year comply with Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view; 3. 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. 4. At the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 35. This declaration is made in accordance with a resolution of the Board of Directors. ANDREW MCKENZIE Executive Chairman DOUG YOUNG Director Date: 25 August 2016 72 EUROZ LIMITED ANNUAL REPORT 2016 Independent Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROZ LIMITED Report on the Financial Report We have audited the accompanying financial report of Euroz Limited (the company) and it’s controlled entities (the consolidated entity), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view 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 company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Page | 56 EUROZ LIMITED ANNUAL REPORT 2016 73 Independent Auditor’s Report Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Opinion In our opinion: (a) the financial report of Euroz Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. . Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Euroz Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. PKF MACK SIMON FERMANIS PARTNER 25 AUGUST 2016 WEST PERTH, WESTERN AUSTRALIA Page | 57 74 EUROZ LIMITED ANNUAL REPORT 2016 EUROZ LIMITED ANNUAL REPORT 2016 75 Shareholder Information Ordinary shares at 31 August 2016 a) Distribution of shareholders Ordinary fully paid shares: Range 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 TOTAL Holders b) Top holders Total holders Units % of issued capital 310 459 273 718 179 127,711 1,366,491 2,178,151 24,920,613 132,396,416 0.08 0.85 1.35 15.48 82.24 1,939 160,989,382 100.00 The twenty largest holders of ordinary fully paid shares are listed below: No Shareholder 1 2 3 4 5 7 6 8 9 10 11 12 13 14 15 16 17 18 19 20 ZERO NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MRS CATHERINE PATRICIA MCKENZIE J P MORGAN NOMINEES AUSTRALIA LIMITED ICE COLD INVESTMENTS PTY LTD MR ANDREW MCKENZIE + MRS CATHERINE MCKENZIE ICE COLD INVESTMENTS PTY LTD MR SIMON DAVID YEO + MRS JENNIFER DALE YEO MR ROBERT HIRZEL BLACK ICON HOLDINGS PTY LTD CPU SHARE PLANS PTY LTD WESTRADE RESOURCES PTY LTD MRS MELANIE JANE CHESSELL BNM HOLDINGS PTY LTD ICE COLD INVESTMENTS PTY LTD MRS CATHERINE ELIZABETH KANE REEF INVESTMENTS PTY LTD MRS FRANCES ELIZABETH YUKICH MRS JODI CLAYTON MR GREGORY CHESSELL + MRS MELANIE CHESSELL Total Remaining holders balance Shares 20,465,090 7,750,642 5,950,000 4,012,478 4,000,000 3,624,392 3,202,500 3,000,000 2,865,000 2,480,151 2,248,406 2,157,269 2,070,272 2,020,100 2,000,000 2,000,000 1,920,954 1,869,124 1,850,000 1,777,350 77,263,728 83,725,654 % 12.71 4.81 3.70 2.49 2.48 2.25 1.99 1.86 1.78 1.54 1.40 1.34 1.29 1.25 1.24 1.24 1.19 1.16 1.15 1.10 47.99 52.01 76 EUROZ LIMITED ANNUAL REPORT 2016 Contents Euroz Limited Contact Details EUROZ LIMITED ANNUAL REPORT 2016 EUROZ LIMITED ANNUAL REPORT 2016 77 Corporate Directory Funds Management Executive Chairman’s Report Westoz Funds Management Organisational Chart Board of Directors Prodigy Investment Partners Wealth Management Stockbroking and Corporate Finance Entrust Private Wealth Management Managing Director’s Report Euroz Community Activities Euroz Securities Operating Divisions Financial Report Euroz Securities Director’s Profiles 1 2 3 6 8 8 9 10 13 13 14 16 16 17 19 EUROZ SECURITIES LIMITED Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5036 St Georges Terrace Perth 6831 Western Australia T: +61 8 9488 1400 F: +61 8 9488 1477 eurozsecurities.com Euroz Securities Limited ACN 089 314 983 AFSL 243302 Participant of the ASX Group WESTOZ FUNDS MANAGEMENT PTY LTD Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5036 St Georges Terrace Perth 6831 Western Australia T: +61 8 9321 7877 F: +61 8 9321 8288 westozfunds.com.au Westoz Funds Management Pty Ltd ACN 106 677 721 AFSL 285607 OZGROWTH LIMITED Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5036 St Georges Terrace Perth 6831 Western Australia T: +61 8 9321 7877 F: +61 8 9321 8288 ozgrowth.com.au Ozgrowth Limited ACN 126 450 271 WESTOZ INVESTMENT COMPANY LIMITED Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5036 St Georges Terrace Perth 6831 Western Australia T: +61 8 9321 7877 F: +61 8 9321 8288 westoz.com.au Westoz Investment Company Limited ACN 113 332 942 PRODIGY INVESTMENT PARTNERS LIMITED Level 23 Goldfields House 1 Alfred Street SYDNEY NSW 2000 FLINDERS INVESTMENT PARTNERS PTY LTD Level 15 385 Bourke Street MELBOURNE VIC 3000 DALTON STREET CAPITAL PTY LTD Level 23 Goldfields House 1 Alfred Street SYDNEY NSW 2000 T: +61 2 8651 3490 prodigyinvest.com.au Prodigy Investment Partners Limited ACN 600 471 430 AFSL 466173 T: +61 3 9909 2690 flindersinvest.com.au Flinders Investment Partners Pty Ltd ACN 604 121 271 AFSL 466173 Flinders Investment Partners Pty Ltd is a Corporate Authorised Representative of Prodigy Investment Partners Limited. T: +61 2 8651 3490 daltonstreetcapital.com Dalton Street Capital Pty Ltd ACN 609 114 034 AFSL 466173 Dalton Street Capital Pty Ltd is a Corporate Authorised Representative of Prodigy Investment Partners Limited. ENTRUST PRIVATE WEALTH MANAGEMENT PTY LTD Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5034 Perth 6831 Western Australia T: +61 8 9476 3900 F: +61 8 9321 6333 E: info@entrustpwm.com.au entrustpwm.com.au Entrust Private Wealth Management Pty Ltd ACN 100 088 168 AFSL 222152 EUR 10966 - EUROZ Annual Report 2016 COVER.indd 2 6/10/2016 4:08 PM Euroz Limited 2016 Annual Report 2 0 1 6 A n n u a l R e p o r t E U R O Z L I M I T E D B L A C K B O X D E S G N 1 0 9 6 6 I Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5036 St Georges Terrace Perth 6831 Western Australia T: +61 8 9488 1400 F: +61 8 9488 1477 euroz.com Euroz Limited ACN 000 364 465 EUR 10966 - EUROZ Annual Report 2016 COVER.indd 1 6/10/2016 4:08 PM

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