Euroz Limited
Annual Report 2017

Plain-text annual report

EUROZ ANNUAL REPORT 2017 Euroz Limited 001 2017 Annual Report 002 CORPORATE DIRECTORY EUROZ ANNUAL REPORT 2017 REGISTERED OFFICE Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 Telephone: Facsimile: Email: Website: (08) 9488 1400 (08) 9488 1477 info@euroz.com 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 Level 11 172 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 (Retired) Executive Director Rob Black Executive Director COMPANY SECRETARY Anthony Hewett Greg Chessell Executive Director Russell Kane Executive Director Simon Yeo Executive Director Anthony Brittain Executive Director 001 CONTENTS EUROZ ANNUAL REPORT 2017 EXECUTIVE CHAIRMAN’S REPORT ORGANISATIONAL CHART BOARD OF DIRECTORS STOCKBROKING AND CORPORATE FINANCE MANAGING DIRECTOR’S REPORT EUROZ SECURITIES DIRECTOR’S PROFILES FUNDS MANAGEMENT WESTOZ FUNDS MANAGEMENT PRODIGY INVESTMENT PARTNERS FLINDERS INVESTMENT PARTNERS WEALTH MANAGEMENT ENTRUST PRIVATE WEALTH MANAGEMENT EUROZ COMMUNITY ACTIVITIES FINANCIAL REPORT 002 003 006 008 008 010 013 013 014 015 016 016 017 018 Euroz Limited is a diversified financial services company 002 EUROZ ANNUAL REPORT 2017 Executive Chairman’s Report Euroz Limited is a diversified financial services company. Euroz Limited has reported a solid improvement in profitability over the past year with a net profit after tax of $17.9 million. The Directors have declared a final fully franked dividend of 5.5 cents per share. When combined with the interim dividend of 1.75 cents this amounts to a total of 7.25 cents per share fully franked for the full year. This result was driven by a strong Equity Capital Markets (“ECM”) contribution from Euroz Securities Limited (“Euroz Securities”) which raised $865 million for our corporate clients this financial year. We are proud that in our 17 year history we have generated significant cash returns and paid over $193 million in fully franked dividends to our shareholders. Shareholders are aware that during the past few years we have sought to incrementally diversify our business by building our funds and wealth management businesses. Developing these businesses has required capital, time and patience but if successful we remain confident we will transform our overall business into a much stronger, more diversified and valuable Company. Our diversification strategy has been twofold: 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. 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. Stockbroking Euroz Securities Euroz Securities contributed the bulk of our cash profitability this year. Euroz Securities has been recognised as the leading ECM issuer in the Western Australian market place this financial year and this major market position in our capital markets holds us in good stead for the future. This transactional upside in Euroz Securities remains a very important lever for our overall business and we were reassured to see it performing strongly this year. ASX broking volumes during the past year were volatile and only marginally up for the year, still well below normal long term averages. This reflects our view that Western Australia and commodity prices are only in a modest early cycle recovery at this stage. Funds Management Westoz Funds Management The Listed Investment Companies Westoz Investment Company Limited (“WIC”) and Ozgrowth Limited (“OZG”) continue to be interlinked with their investment universe of Western Australia and Western Australian connected companies. WIC and OZG reported gross investment returns of 20.1% and 19.4% respectively for the financial year. This is particularly pleasing when compared to the Accumulation Index performance over the same period which increased only 3.6%. 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 the higher share prices of WIC and OZG contributed to our Group profitability (on a non cash basis) by $5.7 million. Prodigy Investment Partners Prodigy Investment Partners Limited (“Prodigy”) was established In July 2014 as a platform to create a quality, multi boutique funds management business. The first of these boutique partnerships, Flinders Investment Partners Pty Ltd (“Flinders”) was launched in July 2015. The Flinders team has delivered positive absolute performance in a difficult market, however performance relative to competitors has been challenging in the short term. The second partnership, Dalton Street Capital Pty Ltd (“Dalton Street”), was launched in July 2016. Dalton Street is headed by former senior Credit Suisse executives Alan Sheen and Nick Selvaratnam. We are very pleased to see solid returns of 8.7% in their first year, significantly ahead of all of their competitors. We are optimistic that their acceptance on a number of investment platforms, strong investor interest in alternative investments and solid recent returns will provide good inflows to the fund. Our Prodigy strategy is requiring significant time and patience and requires a confluence of factors (time, consistency, performance and sectoral interest) to come together to achieve the fund inflows our first class team has been tasked to produce. Wealth Management Entrust Private Wealth Management Entrust Private Wealth Management Pty Ltd (“Entrust”) was acquired in July 2015 to provide a wealth management platform for all of our businesses. We aim to grow this business organically but also believe we have an excellent wealth offering to acquire other wealth management businesses and also attract wealth advisers from competitors. We are excited by the expertise in wealth management Entrust has bought to the firm and it was only four months ago that our Entrust wealth managers were co-located alongside our Euroz brokers. We believe that both businesses can now better cross pollinate their strengths and grow recurring revenue together. Entrust has a significant high net worth client base with Funds Under Management (“FUM”) of $712 million at financial year end which combined with our Euroz Securities FUM creates a business currently managing $950 million for clients EUROZ ANNUAL REPORT 2017 003 Summary We are pleased that our Western Australian markets have improved modestly to enable us to report a solid increase in profits and dividends while we implement our diversification strategy. Growing our 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 2017 was $1.2 billion, an increase of 24.7% from the previous year. Staff ownership has increased to 48% over the course of the year and as always is a very good indicator of the commitment of our team who remain your company’s greatest asset. I would like to again 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 Organisational Chart EUROZ LIMITED ASX CODE: EZL STOCKBROKING AND CORPORATE FINANCE 100% Euroz Securities FUNDS MANAGEMENT 80% 100% Prodigy Investment Partners Westoz Funds Management WEALTH MANAGEMENT 100% 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 ? (40.5% Equity Stake) (27.2% Equity Stake) 004 EUROZ ANNUAL REPORT 2017 Euroz Limited Profit Before Tax & Net Profit After Tax 60 50 40 30 20 10 0 -10 -20 n o i l l i m $ 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Profit before tax Net profit after tax Year Euroz Limited Dividend History 0 3 5 2 0 2 5 1 0 1 5 0 e r a h s r e p s t n e c 30 25 20 15 10 5 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 2H Dividend per share 1H Dividend per share Year 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 EUROZ ANNUAL REPORT 2017 005 Euroz Limited NTA per share e r a h s r e p s t n e c 100 80 60 40 20 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Cents per share Year Euroz Group Funds Under Management (FUM)* ) m $ A ( M U F $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Total $1,143m Total $1,205m Total $923m Total $962m 31/12/15 30/6/16 31/12/16 30/6/17 Funds Management ($255m) Entrust Wealth Management ($713m) WIC ($136m) OZG ($67m) PFM ($24m) Flinders ($12m) Dalton St ($16m) Entrust ($713m) Euroz ($237m) Euroz Securities Wealth Management ($237m) 006 EUROZ ANNUAL REPORT 2017 Board of Directors Euroz Limited Directors Profiles ANDREW MCKENZIE EXECUTIVE CHAIRMAN JAY HUGHES EXECUTIVE DIRECTOR DOUG YOUNG EXECUTIVE DIRECTOR Andrew is Executive Chairman of Euroz Limited and Euroz Securities Limited and is an Executive Director of Westoz Funds Management, Dalton Street Capital, Prodigy Investment Partners and Flinders Investment Partners. Andrew is also a board member of the Stockbrokers and Financial Advisors Association of Australia (SAFAA) 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 an individual member (MSAFAA) of SAFAA and the Australian Institute of Company Directors (AICD). Jay has worked in stockbroking since 1986, starting his career on the trading floor. He is Non-Executive Chairman of Westoz Investment Company and Ozgrowth Limited and an Executive Director of Westoz Funds Management, Euroz Securities Limited and Prodigy Investment Partners. He is an Institutional Advisor 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 member (MSAFAA) of SAFAA. 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 was an Executive Director of Euroz Limited and Euroz Securities Limited. He holds a Bachelor of Commerce from UWA and is a Fellow and Graduate of FINSIA. Doug was formerly the Chairman of the Audit and Risk Committee. Retired on 1 July 2017 RUSSELL KANE EXECUTIVE DIRECTOR SIMON YEO EXECUTIVE DIRECTOR GREG CHESSELL EXECUTIVE DIRECTOR Russell has worked in the stockbroking industry since 1994 and joined Euroz Securities in 2001. Russell is an Executive Director of Euroz Limited and Euroz Securities Limited. 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. Simon has worked in the Stockbroking industry since 1993. In November 2000 he established the Private Client Division of Euroz Securities Limited before moving to a specialised role within our Institutional Sales division in 2013. Simon is an Executive Director of Euroz Limited and Euroz Securities Limited. Simon holds a Bachelor of Commerce from UWA and was previously a chartered accountant. He is also on the board of The Australian Chamber Orchestra (ACO). Simon is the Chairman of the Audit and Risk Committee. Greg is the Head of Research at Euroz Securities Limited 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 Limited. 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 and Risk Committee. EUROZ ANNUAL REPORT 2017 007 ANTHONY BRITTAIN EXECUTIVE DIRECTOR ROB BLACK EXECUTIVE DIRECTOR Rob has been working in the stockbroking industry since 1995 and has spent time based in Sydney, Melbourne and London. Rob is the Managing Director of Euroz Securities and Head of our Institutional Sales division and is responsible for servicing domestic and international institutions. Rob is a Director of Entrust Private Wealth Management Pty Ltd. Rob holds a Bachelor of Business in Finance and Accounting and is a Graduate of AICD. Anthony is the Chief Operating and Financial Officer and an Executive Director of Euroz Limited, Euroz Securities Limited, Entrust Private Wealth Management, Prodigy Investment Partners, Flinders Investment Partners and Dalton Street Capital. Prior to joining Euroz, Anthony spent 7 years with a WA based stockbroker. Anthony started his career with KPMG (and antecedent firm Touche Ross) with transfers to Guam and Singapore. He then worked in London and Singapore for 7 years with a UK fund manager. Anthony holds a Bachelor of Commerce from UWA, is a member of Chartered Accountants Australia and New Zealand (CA), holds a Graduate Diploma in Applied Finance and Investment from FINSIA, is a Graduate of AICD and is a member (MSAFAA) of SAFAA. Anthony is a member of the Audit and Risk Committee. 008 008 EUROZ ANNUAL REPORT 2017 EUROZ ANNUAL REPORT 2017 Stockbroking and Corporate Finance Managing Director’s Report The 2016/17 Financial Year was a stellar year for Euroz Securities Euroz Securities Limited (“Euroz Securities”) reported a Net Profit after Tax to the group of approximately $9.2 million, significantly higher than the previous year’s contribution of $3.5 million. This was achieved on the back of a solid increase in the level of corporate activity with our team raising $865 million of new capital for our corporate clients from over 20 major transactions. This outstanding result was reflected in our league rankings over the period, with Euroz Securities being ranked number 1 in terms of ECM transactions for WA based companies (WA Business news iQ FY17). Brokerage levels were slightly subdued reflecting what was a generally softer overall sentiment and market in our investment universe during the year. Our private client advisors are seeing continued benefits flowing on from the integration of Entrust Private Wealth Management Pty Ltd (“Entrust”), allowing them to offer full wealth and financial services across our client base whilst retaining our core competency in small to mid-cap, predominately Western Australian based stocks. Euroz Securities and Entrust are now co- located on the same dealing room floor. Pleasingly the core Euroz Securities Funds Under Management (“FUM”) grew by over 24% during the year, and we look forward to reporting future FUM growth over coming periods. Combined with Entrust, Euroz Securities continues its progression to be able to offer the pre-eminent wealth advisory service in Western Australia. Our institutional dealing division saw increased levels of turnover during the year and the team continues to leverage off its long term, trusted client relationships in providing sales and execution services to our domestic and overseas institutional clients. All our efforts and corresponding successes are a result of our core research division where we remain fortunate to have a team of long serving, highly rated research professionals. Post balance sheet date, we have witnessed an encouraging pickup in commodity and base metals prices, fuelling a renewed positive investment sentiment. With these continued tailwinds in place, and leveraging off our highly talented and aligned staff, I am confident we will be in a position to report continued success in coming periods. Rob Black Managing Director EUROZ ANNUAL REPORT 2017 009 Supporting our clients on major transactions during FY17 Ranked #1 in WA based equity capital raisings1 Off-market takeover offer $50 million Financial Advisor Euroz Securities Ltd Oct 16 Cash takeover by Nomura Research Institute $349 million Corporate Broker Euroz Securities Ltd Dec 16 Placement $80 million Joint Lead Manager Euroz Securities Ltd Jul 16 IPO & Placement $130 million Lead Manager Euroz Securities Ltd Jul 16, Apr 17 Placement $250 million Co Lead Manager Euroz Securities Ltd Aug 16 Placement $10.9 million Joint Lead Manager Euroz Securities Ltd Aug 16 Placement $40 million Lead Manager Euroz Securities Ltd Sep 16 TROY RESOURCES LIMITED Placement & ANREO $40.7 million Joint Lead Manager Euroz Securities Ltd Sep 16 Placement $20 million Joint Lead Manager Euroz Securities Ltd Sep 16 IPO $25 million Lead Manager & Underwriter Euroz Securities Ltd Oct 16 Entitlement Issue Placement & ANREOs $6.1 million Lead Manager & Underwriter Euroz Securities Ltd Oct 16 $213.8 million Joint Lead Manager & Joint Underwriter Euroz Securities Ltd Nov 16, Apr 17 Placement $12 million Lead Manager Euroz Securities Ltd Nov 16 Placement $6.8 million Joint Lead Manager Euroz Securities Ltd Jan 17 IPO $5.1 million Lead Manager Euroz Securities Ltd Feb 17 Placement $16 million Lead Manager Euroz Securities Ltd Mar 17 Placement $20.6 million Lead Manager Euroz Securities Ltd Apr 17 Placement $9.3 million Lead Manager Euroz Securities Ltd Apr 17 IPO $25 million Lead Manager & Underwriter Euroz Securities Ltd Apr 17 Placement $4.9 million Lead Manager Euroz Securities Ltd May 17 1. Source: WA Business News iQ FY17 010 EUROZ ANNUAL REPORT 2017 Stockbroking and Corporate Finance Euroz Securities Limited Director’s Profiles GAVIN ALLEN EXECUTIVE DIRECTOR BRIAN BATES EXECUTIVE DIRECTOR BRIAN BERESFORD EXECUTIVE DIRECTOR Gavin is a Research Analyst with 13 years experience specialising in detailed analysis and research of mid cap industrial companies. 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 Chartered Accountants Australia and New Zealand (CA) and holds a Chartered Financial Analyst (CFA) designation. Brian has over 19 years of experience in stockbroking, investment and superannuation management. Brian holds a Bachelor of Commerce from UWA, and was previously a chartered accountant. Brian is a senior member of the Private Client Division and offers a comprehensive wealth management service to high net worth individuals. Brian is the Head of our Corporate Finance Division. 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, a Bachelor of Commerce and Bachelor of Laws from UWA. JON BISHOP EXECUTIVE DIRECTOR TIM BUNNEY EXECUTIVE DIRECTOR ANDREW CLAYTON EXECUTIVE DIRECTOR Jon is a Research Analyst focused on both the mining and oil and gas sectors. He has more than 10 years technical and commercial experience within the petroleum and minerals industries and a further 10 years experience in the financial services industry. Jon holds a Bachelor of Science (Hons) in Geology from UWA, as well as a Graduate Diploma in Applied Finance and Investment from FINSIA. Tim has been working in the stockbroking industry since 2010 and is a member of our Institutional Sales Division. He holds a Bachelor of Commerce from Curtin University majoring in finance and management. He is currently undertaking post graduate study in geology and finance. Tim is a member of SAFAA institutional broking committee. 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 FINSIA. EUROZ ANNUAL REPORT 2017 011 TONY KENNY EXECUTIVE DIRECTOR BEN LAIRD 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 acquired by Macquarie Bank. Prior to joining Euroz, Tony was a founding partner and an Executive Director of Blackswan Equities. Tony was a senior member of our Private Client Division. Tony is also a Director of Precision Funds Management Pty Ltd and Precision Opportunities Fund Ltd. Resigned 30 June 2017 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 FINSIA and a Chartered Financial Analyst (CFA) designation. 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. JAMES MACKIE EXECUTIVE DIRECTOR NICK MCGLEW EXECUTIVE DIRECTOR CAMERON MURRAY EXECUTIVE DIRECTOR James has been working in the stockbroking industry since 1998. James services high net worth investors and is a senior member of our Private Client Division. He holds a Bachelor of Commerce from Curtin University and a Graduate Diploma from FINSIA. 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 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 Division. Cameron has 20 years-experience in financial services and is a senior member of our Private Client Division. Having graduated from Curtin University with a Bachelor of Commerce majoring in Accounting and Finance he has been at Euroz since 2003. He has continued his studies through FINSIA and has completed a Graduate Diploma in Applied Finance and Investment. 012 EUROZ ANNUAL REPORT 2017 Stockbroking and Corporate Finance Euroz Securities Limited Director’s Profiles continued... LUCAS ROBINSON EXECUTIVE DIRECTOR PETER SCHWARZBACH EXECUTIVE DIRECTOR BEN STATHAM 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 UWA with a double major in Finance and Marketing and a minor in Business Law. Peter has been working in the stockbroking industry since 2006 and is a member of our Institutional Sales Division. He holds a Bachelor of Commerce from UWA and has completed a Graduate Diploma in Applied Finance and Investment from FINSIA. Peter is also a Chartered Accountant and prior to joining Euroz was a senior accountant at a Perth chartered accounting firm. Ben completed a Bachelor of Economics from UWA before commencing employment with Macquarie Bank in 2000 where he left for Euroz in 2009 as one of their top advisors. Ben is a senior member of our Private Client Division and services high net worth families. Ben holds a Graduate Diploma from FINSIA. RYAN STEWART EXECUTIVE DIRECTOR CHRIS WEBSTER EXECUTIVE DIRECTOR TIM WEIR EXECUTIVE DIRECTOR Ryan has worked in the stockbroking industry for over 17 years and is a senior member of our Private Client Division, He started his career in Finance at BankWest as a member of the Equipment Finance Division servicing predominantly resource companies. His first broking role started in 2000 at D J Carmichael and he commenced at Euroz in 2003. His role includes servicing his high net worth private client base and also actively participating in the Euroz Charitable Foundation. Chris is the Head of our Private Client Division. Chris has worked in financial services since 2003 holding a variety of positions in sales, operations, risk and compliance both in Perth and London. Chris is a Director of Entrust Private Wealth Management Pty Ltd. Chris holds a Bachelor of Commerce from UWA, a Graduate Diploma of Applied Finance and a Graduate Diploma of Applied Corporate Governance. Chris is a member (MSAFAA) of SAFAA and an Associate of the Governance Institute of Australia (ACIS). 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 was a senior member of our Private Client Division. He managed 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. Resigned 30 June 2017 The Directors of Euroz Limited are also Directors of Euroz Securities Limited. EUROZ ANNUAL REPORT 2017 013 Funds Management Westoz Funds Management Pty Ltd Westoz Funds Management Pty Ltd (“WFM”) is responsible for $202 million of funds under management at 30 June 2017. 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 the target level of 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 paid $138 million in dividends to shareholders since inception. PHILLIP REES EXECUTIVE DIRECTOR DERMOT WOODS EXECUTIVE DIRECTOR Mr Philip Rees is an Executive Director of Westoz Funds Management Pty Ltd and is responsible for the operation and development of the manager’s business. Mr Dermot Woods is an Executive Director of Westoz Funds Management Pty Ltd and oversees the construction of its investment portfolios. Mr Rees has worked in a range of roles focused on Australian investment markets for the last 29 years. He has previously managed large institutional investment portfolios and developed several early stage investment opportunities until he joined Westoz in April 2005. Mr Woods joined Westoz Funds Management Pty Ltd in 2007. He has previously worked as an industrial analyst for Euroz Securities Limited and prior to this role, as a fund manager specialising in European equities. 014 EUROZ ANNUAL REPORT 2017 Funds Management Prodigy Investment Partners Prodigy Investment Partners Limited (“Prodigy”) is a multi-boutique investment management business. Prodigy is an 80/20 partnership between the Euroz Group 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 Pty Ltd (“Flinders”) and Dalton Street Capital Pty Ltd (“Dalton Street”). Flinders is a specialist Small Companies investment manager, with principals Dr Andrew Mouchacca, Richard Macdougall and Naheed Rahman. Significant progress has been made in positioning Flinders to gain market share in specific retail and institutional markets over the past year. Dalton Street is a specialist Absolute Return investment manager, established in June 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. STEPHEN TUCKER EXECUTIVE CHAIRMAN LEWIS BEARMAN CHIEF OPERATING OFFICER Steve has over 25 years’ experience in financial services. Steve started his career with MLC, 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, where he is Executive Chairman. 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). Lewis has held senior positions in operations, funds management, and various other teams. Lewis joined Prodigy Investment Partners Limited (“Prodigy”) in 2015 as Chief Operating Officer and is a Director of Prodigy. AMAN KASHYAP WHOLESALE SALES DIRECTOR GUY BALLARD DIRECTOR OF DISTRIBUTION Aman brings over 16 years of financial services experience specialising in asset management sales. During this time, he has held senior positions in distribution at Ophir Asset Management, NAB Asset Management and ANZ Wealth where his key focus was developing and executing the sales strategy for asset management in the institutional, HNW and retail investment markets. Aman joined Prodigy Investment Partners Limited (“Prodigy”) in early 2017 as Wholesale Sales Director and is responsible for fund raising efforts in the Institutional, Private Wealth and Family Office markets for Prodigy boutique partners. Guy has worked in financial services for over 16 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 Investment Partners Limited in 2016 as Director of Distribution and is responsible for funds under management growth across our boutiques. EUROZ ANNUAL REPORT 2017 015 Funds Management Flinders Investment Partners ANDREW MOUCHACCA PARTNER AND PORTFOLIO MANAGER RICHARD MACDOUGALL PARTNER AND PORTFOLIO MANAGER NAHEED RAHMAN PARTNER AND DEPUTY PORTFOLIO MANAGER Andrew began his career in investment management in 1999. Before establishing Flinders Investment Partners Pty Ltd, Andrew was Senior Investment Manager with the institutional focused fund manager Contango Asset Partners (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 Investment Partners Pty Ltd, 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 joining Flinders Investment Partners Pty Ltd, 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 Alan is a co-founder of Dalton Street Capital Pty Ltd. 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 Pty Ltd. Nick was previously Managing Director and Head of Equities, most recently with investment bank Credit Suisse. Nick has over 26 years 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. He graduated as a Civil Engineer. 016 EUROZ ANNUAL REPORT 2017 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 (“FUM”) of $712m at 30 June 2017. Entrust was acquired by Euroz Limited in July 2015. Entrust employs 23 staff, including 11 advisers, 3 para-planners and a portfolio administration team. During the 2017 financial year (FY17) the management team focus was on growing the FUM and we are pleased to report growth in FUM of 22.5% for the financial year. We have been progressing the roll out of our private wealth offering across Euroz Securities Limited (“Euroz Securities”), evaluating advisor acquisition opportunities and progressing organic growth opportunities in the High Net Worth (“HNW”), Not-for-Profit and Self Managed Super Fund (“SMSF”) sector. We are pleased to report the final phases of all trading integration with Euroz Securities has been seamless and the cost synergies have been realised in 2017 financial year. Euroz Securities now provide all trading IT, compliance and finance functions to Entrust which allows our team to focus on client service delivery and important growth initiatives. Entrust reported a net profit after tax for FY17. 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 Securities balance sheet and brand in the Perth market. GRAEME YUCKICH EXECUTIVE CHAIRMAN ANDREW FRY MANAGING DIRECTOR Andrew joined Entrust Private Wealth Management Pty Ltd in January 2003 and was appointed Managing Director in July 2014. He holds a Bachelor of Commerce and was admitted as a Chartered Accountant by the Chartered Accountants Australia and New Zealand (CA) in 1996. Graeme has been advising clients on their financial needs for 29 years. He graduated from UWA in 1984, completed his professional year while working for Ernst and Whinney, and was admitted as a Chartered Accountant by the Chartered Accountants Australia and New Zealand (CA) in 1988. In 1990, he completed a Diploma in Financial Planning from Deakin University. Graeme established Entrust Private Wealth Management Pty Ltd in August 2002. The goal was to combine the knowledge and strategy of financial planning with direct investment ownership and portfolio management. CHRISTIAN GOLDING EXECUTIVE DIRECTOR BRAD GORDON EXECUTIVE DIRECTOR ROWAN JONES EXECUTIVE DIRECTOR Christian has worked in a variety of advice and senior management roles since 1999 and is currently responsible for the group’s adviser business strategy. He is a Certified Financial Planner, holds a Postgraduate Diploma in Applied Finance and Investment (FINSIA) and a Bachelor of Economics from UWA. Brad joined Entrust Private Wealth Management Pty Ltd as a Senior Investment Adviser in January 2003 and was appointed an Executive Director in November of that year. He has almost 30 years experience in the financial services industry; in financial planning, stockbroking and trustee services. Brad is a Senior Associate of FINSIA, a member of the Financial Planning Association (DipFP FPA) and also a member of AICD. Brad is also a recognised Self-Managed Superannuation Fund Specialist and a Tax (financial) adviser under the Tax Practitioners Board. Rowan joined Entrust Private Wealth Management Pty Ltd in January 2008 and was appointed an Executive Director in September 2016. He holds a Bachelor of Commerce from Curtin University, a Graduate Diploma of Applied Finance and Investment (FINSIA) and he is a Self Managed Superannuation Fund Specialist advisor through the SMSF Association. Prior to joining Entrust, Rowan spent ten years as a professional sportsperson in the AFL with the West Coast Eagles Football Club. EUROZ ANNUAL REPORT 2017 017 Euroz Community Activities Euroz Charitable Foundation Euroz are proudly West Australian focused and 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 10 years the Euroz Charitable Foundation has donated in excess of $955,000 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: 018 EUROZ ANNUAL REPORT 2017 EUROZ ANNUAL REPORT 2017 2017 Financial Report For the year ended 30 June 2017 019 CONTENTS DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT 020 033 034 035 036 037 038 067 068 020 EUROZ ANNUAL REPORT 2017 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 2017. 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 DIRECTORS Jay Hughes Doug Young (retired 1 July 2017) Greg Chessell Russell Kane Simon Yeo Anthony Brittain Robert Black (appointed 1 August 2017) Company Secretary Anthony Hewett was appointed Company Secretary on 19 June 2017 replacing Tracey Everitt who held the position since 15 December 2016. Prior to this, the position was held by Chris Webster. Mr Hewett holds a Master of Business Law, a Graduate Diploma in Applied Corporate Governance and is a Fellow of both the Institute of Chartered Secretaries and Administrators and the Governance Institute of Australia and a member (MSAFAA) of the Stockbrokers and Financial Advisers Association of Australia. Review of operations Principal activities During the year the principal activities of the Euroz Group consisted of: (a) Stockbroking (including Corporate Finance); (b) Funds Management; (c) Investing; and (d) Wealth Management. Review of results The consolidated group has a consolidated pre tax profit of $24.1 million (2016: $2.1 million) for the year ended 30 June 2017. The consolidated net profit after tax was $17.9 million compared with the 2016 year consolidated net profit after tax of $2.6 million. This result represents basic earnings per share of 12.30 cents (2016: 1.61 cents). The Directors have declared a final dividend of 5.5 cents per share fully franked which combined with the interim dividend of 1.75 cents per share, represents a total dividend of 7.25 cents per share fully franked. Stockbroking & Corporate Finance Activities Principal Trading Funds Management Investment Income Wealth Management Segment revenues Segment results 2017 $ 40,189,022 8,126,664 3,406,028 3,208,618 6,849,394 2016 $ 25,191,033 4,470,979 1,840,837 4,342,621 6,079,397 2017 $ 9,018,228 548,044 2016 $ 3,323,044 1,058,429 (1,817,750) (1,852,145) 9,322,250 860,590 (592,331) 624,021 61,779,726 41,924,867 17,931,362 2,561,018 The major driver of this improved result was a strong Equity Capital Markets (“ECM”) contribution from our Euroz Securities Limited (“Euroz Securities”) business which raised $865 million of new equity this financial year. Westoz Investment Company Limited and Ozgrowth Limited have reported gross investment performance for the year of 20.1% and 19.4% respectively. The mark to market share prices of these companies can have a major accounting effect on our reported profits and this year has contributed approximately $5.7 million to our headline profitability. Entrust Private Wealth Management Pty Ltd (“Entrust”) reported 22.5% growth in Funds Under Management (“FUM”) with FUM of $712 million at year-end. EUROZ ANNUAL REPORT 2017 021 Directors’ Report Operating and Financial Review 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. • 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: Disclosure of operations The consolidated group is principally involved in the following activities: (a) Stockbroking & Corporate Finance Activities; (b) Funds Management; (c) Investing; and (d) Wealth Management. Our operations are conducted over several locations with Perth, Western Australia (WA) 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 Finance Activities The Euroz Securities stockbroking operation comprises 4 main divisions as follows: i. Equities Research • Highly rated research from market leading research team of 6 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 - 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 Company Reports: Detailed analysis on companies as opportunities emerge ii. Institutional Dealing • 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 - - - - - 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 advisors 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 $237 million (2016: $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 advisors to provide quality investment and trading advice • Specialised broking allows: - - Close interaction between research analysts and private client advisors Timely communication of ideas with clients • Sophisticated investors are able to participate in many of our corporate capital raisings iv. Corporate Finance • • The Euroz Securities 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 022 EUROZ ANNUAL REPORT 2017 Directors’ Report (b) Funds Management Stockbroking & Corporate Finance Activities Westoz Funds Management Pty Ltd (“WFM”) is responsible for FUM of $202 million (2016: $180 million). 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 $137.8 million in dividends to shareholders since inception. Prodigy Investment Partners Limited (“Prodigy”) 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 2015 via the Flinders Emerging Companies Fund. The second boutique, Dalton Street Capital Pty Ltd (“Dalton”) was launched in 2016 via the Dalton Street Absolute Return Fund. (c) Investing Euroz Limited owns significant shareholdings in Westoz Investment Company Limited (WIC.ASX) totalling 27.2% and Ozgrowth Limited (OZG.ASX) totalling 40.5%. 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 also invested in the Flinders Emerging Companies Fund and Dalton Street Absolute Return Fund. (d) Wealth Management In July 2015, Euroz Limited acquired Entrust Private Wealth Management Pty Ltd (“Entrust”) which has a 14 year track record as a leading wealth management business. The strategy in acquiring Entrust was to leverage an established wealth management business with long term ongoing revenues as a platform for further acquisitions and organic growth. The past year has seen further integration of these operations with the rest of our businesses to realise operational synergies and develop strong links with our stockbroking operations. Entrust has a significant high net worth client base with FUM of $712 million (2016: $581 million). Disclosure of operations — Profit Net profit after tax for Financial Year (FY) 2017 was $17.9 million up from $2.6 million in FY 2016. Disclosure of operations - Sales Revenue has increased by 47.5% to $61.8 million from $41.9 million predominantly driven by strong ECM contribution from Euroz Securities Limited business and a modest early cycle recovery in our Western Australian and commodity related markets. Stockbroking and corporate finance activities revenue was up by 59.5% to $40.2 million from $25.2 million. The increase was mainly driven by increase in the ECM raisings in our Corporate Finance division. Euroz Securities was involved in 22 (2016:22) ECM transactions this year raising $865 million (2016: $307 million). (a) Principal Trading Revenue from Principal Trading increased by 80.0% to $8.1 million from to $4.5 million. (b) Funds Management Revenue from Funds Management increased by 88.9% to $3.4 million from $1.8 million predominantly as a result of a performance fee received from Westoz managed funds and also in line with increase in FUM. (c) Investment Income Investment income decreased by 25.6% to $3.2 million from $4.3 million mainly due to reduction in dividends from WIC and OZG. (d) Wealth Management Revenue from Entrust increased by 11.5% to $6.8 million from $6.1 million. This increase is due to increasing FUM. Disclosure of business strategies and prospects - Growth Euroz Securities has enjoyed the modest recovery in the resources cycle with significant growth in ECM activity raising $865 million. Westoz Funds Management has provided solid investment returns for its two listed investment company mandates to generate improved management and performance fees. In July 2015, Euroz acquired Entrust which has now been fully integrated alongside Euroz Securities Private Client operations and we believe that both businesses will continue to cross–pollinate their strengths and grow recurring revenue. Prodigy has partnerships with two separate boutique funds, Flinders and Dalton for both retail and wholesale investors. Their long term strategy is to provide a steady base of diverse ongoing management fee revenues with potential performance fee upside. Flinders has received upgraded research ratings for its Flinders Emerging Companies Fund but a more challenging small cap market this year has hindered FUM growth in the short term. Dalton Street Capital aims to deliver absolute returns in all market conditions and can report solid returns of 8.7% to 30 June 2017. We are encouraged that Dalton Street Capital has been accepted on several investment platforms and is gaining significant support in the private client market due to its ability to deliver uncorrelated investment returns. We continue to implement our modest diversification strategy and are pleased our Western Australian markets have improved sufficiently to enable us to declare a solid increase in dividends to our shareholders and pay 7.25 cents per share in fully franked dividends for the year. The Directors believe that Euroz Group has 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. EUROZ ANNUAL REPORT 2017 023 Of the total dividends paid during the year, $34,246 (2016: $6,129) was paid to the Euroz Share Trust and is undistributed. Therefore, it has been eliminated on consolidation. Significant changes in the state of affairs There have been no significant changes in the state of affairs of the consolidated group during the year other than the acquisition of 1,900,000 treasury shares on-market. Share options There were no options on issue at 30 June 2017 and 30 June 2016. Environmental regulation The consolidated group is not subject to significant environmental regulation in respect of its operations. Events after reporting date The Directors are not aware of any matter or circumstance subsequent to 30 June 2017 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. Directors’ Report 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 to $119 million at 30 June 2017 from $114 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, is $31 million at 30 June 2017 compared to $35 million at 30 June 2016. During the past nine 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, our multi boutique Prodigy business and Entrust as a platform for our future wealth management ambitions. Our group remains in an extremely sound financial position with cash and investments of $117 million (including the Pershing security deposit of $5 million) as at 30 June 2017. We have a pre final dividend Net Tangible Assets (NTA) of 75¢ per share and no debt. Euroz has a proud history of consistent profits and dividends having paid $193 million in fully franked dividends in every consecutive half year for the past 17 years. The Directors believe the Company is in a strong and stable financial position to expand and grow its current operations. Earning per share Basic earnings per share Diluted earnings per share Dividends – Euroz Limited 2017 cents 12.30 12.03 2016 cents 1.61 1.61 Dividends paid or provided for during the financial year were as follows: Interim ordinary dividend of 1.75 cents (2016: 1.75 cents) per fully paid ordinary share was paid on 25 January 2017. Provision for final ordinary dividend for 30 June 2017 of 5.5 cents (2016: 2.25 cents) per fully paid ordinary share paid on 28 July 2017. 2017 $ 2016 $ 2,817,314 2,816,281 8,854,416 3,622,711 11,671,730 6,438,992 024 EUROZ ANNUAL REPORT 2017 Directors’ Report Information on Directors Particulars of Directors’ interests in shares of Euroz Limited Director Experience Special responsibilities and qualifications Ordinary shares* A McKenzie Executive Chairman Mr McKenzie has worked in the stockbroking industry since 1991. J Hughes Director Mr Hughes has worked in the stockbroking industry since 1986. D Young Director (retired 1 July 2017) Mr Young has worked in corporate finance since 1984. G Chessell Director Mr Chessell has worked in the stockbroking industry since 1996. R Kane Director S Yeo Director Mr Kane has worked in the stockbroking industry since 1994. Mr Yeo has worked in the stockbroking industry since 1993. Executive Chairman of Euroz Limited and Euroz Securities 12,286,971 Executive Director of Westoz Funds Management, Prodigy Investment Partners, Flinders Investment Partners and Dalton Street Capital Member of Euroz Limited Remuneration Committee Member of Euroz Securities Underwriting Committee Holds a Bachelor of Economics Degree from the University of the Western Australia (“UWA”) Member (MSAFAA) of the Stockbrokers and Financial Advisers Association of Australia (SAFAA) Executive Director of Euroz Limited, Euroz Securities, Westoz Funds Management and Prodigy Investment Partners 12,377,832 Executive Chairman of Westoz Investment Company and Ozgrowth Limited Member of Euroz Limited Remuneration Committee Member of Euroz Securities Underwriting Committee Holds a Graduate Diploma in Applied Finance and Investment from FINSIA and is a member (MSAFAA) of SAFAA Executive Director of Euroz Limited and Euroz Securities Not applicable ** Chairman of Euroz Limited Audit & Risk Committee Member of Euroz Securities Underwriting Committee Holds a Bachelor of Commerce degree from UWA, a Graduate Diploma in Applied Finance from FINSIA, a Fellow of FINSIA and a Fellow of CPA Australia (FCPA) Executive Director of Euroz Limited and Euroz Securities 4,576,243 Member of Euroz Limited Audit & Risk Committee Head of Research at Euroz Securities and our senior resources analyst Holds a Bachelor of Applied Science in Geology and a Graduate Diploma in Business Executive Director of Euroz Limited and Euroz Securities 3,111,652 Member of Euroz Securities Underwriting Committee Institutional Dealer at Euroz Securities responsible for servicing both domestic institutions and high net worth clients Holds a Bachelor of Business from Edith Cowan University Executive Director of Euroz Limited and Euroz Securities 4,358,264 Member of Euroz Limited Audit & Risk Committee Established the Private Client division of 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 EUROZ ANNUAL REPORT 2017 025 Directors’ Report Information on Directors Particulars of Directors’ interests in shares of Euroz Limited Director Experience Special responsibilities and qualifications Ordinary shares* A Brittain Director Mr Brittain has worked in the funds management and stockbroking industry since 1992. R Black Director (appointed 1 August 2017) Mr Black has worked in stockbroking industry since 1993. Executive Director of Euroz Limited, Euroz Securities, Entrust Private Wealth Management, Prodigy Investment Partners, Flinders Investment Partners and Dalton Street Capital 517,313 Chief Operating and Financial Officer Member of Euroz Limited Audit and Risk Committee Member of Euroz Securities Compliance Committee Member of Euroz Securities Underwriting Committee Holds a Bachelor of Commerce degree from UWA, a member of the Chartered Accountants Australia and New Zealand (CA), holds a Graduate Diploma in Applied Finance and Investment from FINSIA, a Graduate member of the Australian Institute of Company Directors (AICD) and is a member (MSAFAA) of SAFAA Executive Director of Euroz Limited, Euroz Securities and Entrust Private Wealth Management 3,637,000 Managing Director of Euroz Securities Head of Euroz Securities Institutional Sales Member of Euroz Limited Remuneration Committee Member of Euroz Securities Underwriting Committee Member of Euroz Securities Compliance Committee Holds a Bachelor of Business Degree, and is a Graduate member of the AICD *Balance as at the date of signing the report and total shares includes shares allocated under the Performance Rights Plan. **Mr D Young retired on 1 July 2017; shareholding disclosure is not required as he is no longer a Director of Euroz Limited. 026 EUROZ ANNUAL REPORT 2017 Directors’ Report Meetings of Directors The number of meeting of the Company’s Board of Directors held during the year ended 30 June 2017 and the number of meetings attended by each Director were: Director Director Meetings Committee Meetings Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Audit Remuneration Andrew McKenzie Jay Hughes Doug Young (retired 1 July 2017) Greg Chessell Russell Kane Simon Yeo Anthony Brittain Remuneration Report (audited) 22 22 22 22 22 22 22 22 22 22 21 21 22 22 - - 3 3 - 2 2 - - 3 2 - 2 2 2 2 - - - - - 2 2 - - - - - This Remuneration Report outlines the Key Management Personnel (KMP) remuneration arrangements of the Company and the consolidated group in accordance with the requirements of the Corporations Act 2001 and its regulations. For the purposes of this report KMP of the consolidated group are defined as those persons having authority for the strategic management and direction of the consolidated 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 group’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. Revenue (including gains on fair value movements in investment entities) 2013 $ 2014 $ 2015 $ 2016 $ 2017 $ 45,979,616 78,176,940 38,898,781 41,924,867 70,652,849 Net profit / (loss) after tax Share price at year end 11,122,304 26,547,100 (7,130,652) 2,561,018 17,931,362 1.00 1.30 1.00 0.79 1.08 Dividends paid or recommended 9,352,340 16,261,272 7,886,167 6,438,992 11,671,730 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 ANNUAL REPORT 2017 027 Directors’ Report Directors’ fees Discretionary bonus 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: 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%) 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 Advisors who are paid a commission may also be paid 5% of their total monthly brokerage portfolio administration revenue or 25% of corporate finance introduction fees in equity. The shares issued will only vest to the employee after 3 years subsequent service following the initial year of service. • Participation in the profit share pool • Commission • Discretionary Bonus Profit share pool – Euroz Securities Directors and executives 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 Limited) are also entitled to participate in the profit share pool. In these circumstances two members assess the performance of the third member. Commission Private Client Advisors are paid a commission in addition to a base salary and superannuation. This is calculated on a sliding scale. Eligible Private Client Advisors are also invited to participate in the Performance Rights Plan based on certain performance hurdles set out in the employment contract. 028 EUROZ ANNUAL REPORT 2017 Directors’ Report Details of remuneration Details of the nature and amount of each element of the emoluments of each KMP of the Group are set out in the following tables. 2017 Andrew McKenzie Jay Hughes Doug Young (retired 1 July 2017) Greg Chessell Russell Kane Simon Yeo Robert Black Phil Rees Anthony Brittain Short-term Base salary Profit Share/bonus $ $ 244,658 231,496 244,998 259,998 259,998 259,998 259,643 220,341 250,203 495,000 495,000 326,250 225,000 326,250 296,250 386,250 198,750 183,750 Post- Employment Share Based Payment Superannuation Performance Rights $ 34,956 34,366 34,616 19,616 19,616 19,616 19,616 33,776 29,056 $ 82,500 82,500 54,063 45,625 60,938 53,438 67,188 40,938 34,063 Other benefits $ 27,951 19,572 20,347 11,183 16,212 18,356 15,454 14,526 16,580 Total $ 885,065 862,934 680,274 561,422 683,014 647,658 748,151 508,331 513,652 Performance related $ 65% 67% 56% 48% 57% 54% 61% 47% 42% Total 2,231,333 2,932,500 160,181 245,234 521,253 6,090,501 Current Directors did not receive any Directors fees. 2016 Andrew McKenzie Jay Hughes Doug Young Greg Chessell Russell Kane Simon Yeo Robert Black Phil Rees Anthony Brittain Short-term Base salary Profit Share/bonus $ $ 195,000 190,000 190,000 190,000 205,692 205,692 182,648 166,138 170,311 180,000 180,000 112,500 120,000 142,500 120,000 157,189 59,689 74,689 Post- Employment Share Based Payment Superannuation Performance Rights $ $ 30,000 35,000 35,000 35,000 19,308 19,308 17,662 34,172 30,000 41,250 41,250 26,875 26,875 33,750 28,750 35,000 24,375 18,750 Other benefits $ 21,507 20,402 23,386 16,189 15,697 17,043 15,036 9,342 16,108 Total $ 467,757 466,652 387,761 388,064 416,947 390,793 407,535 293,716 309,858 Performance related $ 47% 47% 36% 38% 42% 38% 47% 29% 30% Total 1,695,481 1,146,567 154,710 255,450 276,875 3,529,083 Current Directors did not receive any Directors fees. EUROZ ANNUAL REPORT 2017 029 Directors’ Report Service agreements Simon Yeo, 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. Andrew McKenzie, Executive Chairman • Term of contract - ongoing employment contract, • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $275,000 (2016 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. Anthony Brittain, Director • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $275,000 (2016 - $200,000) plus bonus, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $275,000 (2016 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. Jay Hughes, Director • Term of contract - ongoing employment contract, Robert Black, Director • Term of contract ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $275,000 (2016 - $200,000) plus profit share, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $275,000 (2016 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. Doug Young, Director (retired 1 July 2017) • Term of contract - ongoing employment contract, Phil Rees, Director Westoz Funds Management Pty Ltd • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $250,000 (2016 - $200,000) plus bonus, • Base salary, inclusive of superannuation for the year ended 30 June 2017 $275,000 (2016 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct – three months’ salary. • Payment on termination of employment by the 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 2017 of $275,000 (2016 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. Russell Kane, Director • Term of contract - ongoing employment contract, • Base salary, inclusive of superannuation for the year ended 30 June 2017 of $275,000 (2016 - $225,000) plus profit share, • Payment on termination of employment by the employer, other than for gross misconduct three months’ salary. 030 EUROZ ANNUAL REPORT 2017 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: 2017 Ordinary Shares A McKenzie J Hughes D Young (retired 1 July 2017) G Chessell R Kane S Yeo R Black P Rees A Brittain Total 2016 Ordinary Shares A McKenzie J Hughes D Young (retired 1 July 2017) G Chessell R Kane S Yeo R Black P Rees A Brittain Total Balance at 1 July 2016 Received via PRP (i) Granted as remuneration Bought & (sold) Balance at 30 June 2017 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 45,371,872 155,513 155,513 102,497 70,688 102,497 93,072 121,347 62,441 57,728 921,296 - - - - - - - - - - 70,000 - - 22,650 15,000 - 60,544 19,327 - 12,138,971 12,303,832 4,734,540 4,558,243 3,089,652 4,206,264 3,531,347 1,400,527 517,313 187,521 46,480,689 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 (i) These shares are held by the Euroz Share Trust and are currently vesting in accordance with the Euroz Performance Rights Plan (PRP). EUROZ ANNUAL REPORT 2017 031 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: 2017 Performance Rights A McKenzie J Hughes D Young (retired 1 July 2017) G Chessell R Kane S Yeo R Black P Rees A Brittain Total 2016 Performance Rights A McKenzie J Hughes D Young (retired 1 July 2017) G Chessell R Kane S Yeo R Black P Rees A Brittain Total 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 PRP. Rights are granted on 1 July each year and vest on 30 June. 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 are subject to a 4 year vesting period. Total fair values of performance rights issued in the year amounts to $1,058,057 (2016: $501,189). 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. 032 EUROZ ANNUAL REPORT 2017 Directors’ Report Indemnifying officers and auditor During the financial year, Euroz Limited paid a premium of $410,491 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 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 Auditor’s independence declaration $ 50,700 The lead auditor’s independence declaration for the year ended 30 June 2017 has been received and follows the Directors report. This report is made in accordance with a resolution of the Directors. Andrew McKenzie Executive Chairman Date: 31 August 2017 Jay Hughes Executive Director EUROZ ANNUAL REPORT 2017 033 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 2017, 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 31 AUGUST 2017 WEST PERTH Page | 16 034 EUROZ ANNUAL REPORT 2017 Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenue Profit / (loss) on fair value movement on investments Employee benefits expense Depreciation and amortisation expenses Regulatory expenses Legal, professional and consultancy expenses Conference and seminar expenses Brokerage and underwriting expense Communication expenses Carrying amount of principal trading securities sold Other expenses Notes 4 2017 $ 61,779,726 8,873,123 2016 $ 41,924,867 (5,247,301) (27,412,316) (19,603,342) (236,178) (193,657) (1,119,534) (950,209) (165,793) (199,375) (905,619) (731,882) (4,005,216) (4,724,972) (327,840) (296,672) (7,334,783) (3,480,060) (4,939,496) (4,481,274) Profit / (Loss) before income tax expense Income tax (expense) / benefit 5 6 24,133,620 (6,202,258) 2,088,577 472,441 Profit / (Loss) after income tax expense for the year 17,931,362 2,561,018 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 - - 17,931,362 2,561,018 (1,439,805) 19,371,167 17,931,362 (1,439,805) 19,371,167 17,931,362 12.30 12.03 (999,399) 3,560,417 2,561,018 (999,399) 3,560,417 2,561,018 1.61 1.61 34 34 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. EUROZ ANNUAL REPORT 2017 035 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 Notes 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 22 2017 $ 41,152,236 1,855,645 5,049,119 1,218,294 2016 $ 34,202,416 1,549,678 5,826,554 1,148,305 49,275,294 42,726,953 5,000,000 9,215,893 56,915,440 650,583 7,558,090 10,208,552 5,000,000 8,050,076 47,121,275 485,863 8,575,166 10,152,312 89,548,558 79,384,692 138,823,852 122,111,645 3,346,290 3,251,272 11,767,285 18,364,847 1,114,687 43,016 1,157,703 1,204,171 444,699 5,541,116 7,189,986 815,465 276,344 1,091,809 19,522,550 8,281,795 119,301,302 113,829,850 103,246,026 105,226,509 2,217,421 15,893,316 1,159,364 8,159,633 121,356,763 114,545,506 (2,055,461) (715,656) Total equity 119,301,302 113,829,850 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 036 EUROZ ANNUAL REPORT 2017 Consolidated Statement of Changes in Equity Balance at 1 July 2015 99,533,415 658,175 11,032,079 33,743 111,257,412 Issued capital Share based payment reserve Retained earnings Non- controlling interest Total $ $ $ $ $ 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 Balance at 1 July 2016 105,226,509 1,159,364 8,159,633 (715,656) 113,829,850 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 Total contributions by and distributions to owners 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 Total contributions by and distributions to owners - - 6,870,312 (933,008) (244,210) - - - - - (1,964,883) (15,600) - - - - - - - 501,189 - - - - - 1,058,057 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) - (6,432,863) 19,371,167 (1,439,805) 17,931,362 19,371,167 (1,439,805) 17,931,362 100,000 100,000 - - - - (1,964,883) (15,600) 1,058,057 (11,637,484) - (11,637,484) - - - - - - - - (1,980,483) 1,058,057 (11,637,484) 100,000 (12,459,910) Balance at 30 June 2017 103,246,026 2,217,421 15,893,316 (2,055,461) 119,301,302 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. EUROZ ANNUAL REPORT 2017 037 Consolidated Statement of Cash Flows Notes 2017 $ 2016 $ Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Proceeds from sale of trading shares Income taxes Payments for trading shares Net cash flows from operating activities 33 Cash flows from investing activities Payment of stamp duty on intangibles acquisition Payments for investment in WIC & OZG Payments for management 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 31 49,657,515 (34,800,663) 14,856,852 380,145 8,103,956 (2,079,389) (5,345,630) 15,915,934 33,061,485 (31,613,563) 1,447,922 784,177 4,470,767 (1,664,629) (3,047,431) 1,990,807 (56,238) (1,698,577) - (215,102) (1,600,000) (7,000,000) 3,075,861 (400,898) - (1,964,883) - 4,008,239 (383,812) 49,978 (933,007) (1,529,978) Net cash flows from / (used in) investing activities (2,644,735) (6,003,682) Cash flows from financing activities Dividends paid Share buy-back Proceeds from share issue in related entity (6,405,779) (15,600) 100,000 (6,581,969) (244,210) - Net cash flows from / (used in) financing activities (6,321,379) (6,826,179) Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 July 6,949,820 34,202,416 (10,839,053) 45,041,470 Cash and cash equivalents at 30 June 7 41,152,236 34,202,416 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. Notes to the financial statements 038 EUROZ ANNUAL REPORT 2017 CONTENTS NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES NOTE 2. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS NOTE 3. SEGMENT INFORMATION NOTE 4. REVENUE 039 045 046 048 NOTE 20. DEFERRED TAX LIABILITIES NOTE 21. LONG TERM PROVISIONS NOTE 22. CONTRIBUTED EQUITY NOTE 23. DIVIDENDS NOTE 5. PROFIT BEFORE INCOME TAX EXPENSE 048 NOTE 24. FINANCIAL INSTRUMENTS 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 048 050 050 051 051 051 051 NOTE 13. INVESTMENT ENTITIES AT FAIR VALUE 051 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 052 053 053 054 054 054 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 054 054 055 056 057 059 059 059 060 060 061 062 063 063 063 064 066 066 EUROZ ANNUAL REPORT 2017 039 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 31 August 2017. 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 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 2017 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. 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. (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. 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 The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. 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. 040 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (c) Business combinations (continued) (f) Inventories 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, and 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: • 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. • Interest income is recognised as it accrues. 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. 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. (i) 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. • Dividend revenue is recognised when the right to receive a dividend has been established. All revenue is stated net of the amount of Goods and Services Tax (GST), where applicable. 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. (e) Receivables (j) Leasehold improvements 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 who provides a trust account facility as part of the clearing and settlement service. 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. (k) 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. EUROZ ANNUAL REPORT 2017 041 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (l) 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 Securities (Australia) Pty Ltd who provides a trust account facility as part of the clearing and settlement service. (m) 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. (n) 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. converts to plan shares that are subject to a 3 year service condition. The Board may, at their discretion accelerate the vesting period. (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. (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. (p) 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. (o) Employee benefits (q) Earnings per share (i) Wages, salaries and annual leave (i) Basic earnings per share 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. (v) Options/performance rights 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. At the end of year 1, the performance right 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. The potential impact of issuing treasury shares externally is considered when calculating diluted earnings per share. (r) 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. 042 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (r) Fair value measuremnet (continued) Initial recognition and 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. (s) 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. (t) 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. (u) 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. (v) 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. 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. Classification and subsequent measurement 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. (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. Investments held as inventories are classified in this manner. 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. Investments in managed investment schemes are recognised at fair value through profit or loss on initial recognition. (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. EUROZ ANNUAL REPORT 2017 043 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) 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. (x) 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. (y) 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. (z) 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. (iii) Available-for-sale financial assets 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. 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. (w) 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. 044 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 1. Statement of significant accounting policies (continued) (aa) New standards and interpretations The Australian Accounting Standards Board (‘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. AASB No. Title Application date of standard Issue date AASB 9 Financial Instruments 1 January 2018 December 2014 AASB 2010-7 Amendments arising from Accounting Standards arising from AASB 9 1 January 2018 September 2012 (December 2010) AASB 2014-1 Amendments to Australian Accounting Standards Part E - Financial Instruments Part E - 1 January 2018 June 2014 AASB 2014-5 Amendments to Australian Accounting Standard Arising From AASB 1 January 2018 December 2014 15 AASB 2014-7 Amendments to Australian Accounting Standard Arising From AASB 1 January 2018 December 2014 9 (December 2014) AASB 2015-8 Amendments to Australian Accounting Standards – Effective Date of 1 January 2018 October 2015 AASB 15 AASB 2015-10 Amendments to Australian Accounting Standards – Effective Date of 1 January 2018 December 2015 Amendments to AASB 10 and AASB 128. AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] 1 January 2017 February 2016 AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure 1 January 2017 March 2016 Initiative: Amendments to AASB 107 AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to 1 January 2018 May 2016 AASB 15 AASB 2016-5 Amendments to Australian Accounting Standards – Classification and 1 January 2018 July 2016 Measurement of Share-based Payment Transactions [AASB 2] AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of 1 January 2018 February 2017 Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual 1 January 2017 February 2017 Improvements 2014-2016 Cycle AASB 15 Revenues from Contracts with Customers 1 January 2018 October 2015 AASB 16 Leases 1 January 2019 February 2016 IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019 June 2017 The consolidated group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the 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. The group has made an initial assessment of the impact on AASB 9 – Financial Instruments, AASB 15 – Revenue from Contracts with Customers and AASB 16 – Leases and does not expect material impact to the Group’s net profit and net assets. Additional disclosures will be expected in line with the new requirements. Several other amendments to standards and interpretations on or after 1 July 2017 have also not been applied and the Group does not expect material impact to the annual and half year consolidated financial statements. EUROZ ANNUAL REPORT 2017 045 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 In addition, the goodwill on the acquisition of Entrust totalling $5,639,200 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 2017 amounted to 8.85%. The Board have assessed that there is no indication the goodwill is impaired. (v) Intangible assets At each reporting date, the consolidated group compares the carrying values and market values of investments 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. Upon acquisition of Entrust, Euroz acquired $1,736,240 in other intangible assets consisting 3 separate client portfolios. 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 2017 amounted to 8.85%. The Board have assessed that there is no indication these assets are impaired. (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. (iv) Goodwill 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 2017, 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 2017 amounted to 8.85%. The Board have assessed that there is no indication the goodwill is impaired. 046 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements 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 Finance Activities Stockbroking business offering trading of Australian securities, post trade reporting, corporate finance opportunities, provision of company research. Principal Trading Principal trading relates to the purchase and sale of securities by the consolidated group. Funds Management The consolidated group provides funds management services. 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. 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.   EUROZ ANNUAL REPORT 2017 047 Notes to the Financial Statements Note 3. Segment information (continued) Segment Performance 2017 Stockbroking & Corporate Finance Activities Principal Trading Funds Management Investment Income Wealth Management Unallocated Total $ $ $ Sales and other fees 39,724,001 8,103,956 3,359,285 $ $ $ $ - Interest revenue Other revenues 424,413 40,608 1,072 21,636 46,743 154,222 - 3,054,396 6,783,667 9,979 55,748 Total segment revenue 40,189,022 8,126,664 3,406,028 3,208,618 6,849,394 Segment net operating profit/(loss) after tax Depreciation and amortisation Gain/(Loss) on fair value of investments 9,018,228 548,044 (1,817,750) 9,322,250 860,590 196,220 - 39,828 - - 1,223,040 - 7,661,404 130 - Segment assets 36,734,909 5,049,120 6,558,166 85,633,936 4,847,721 Fair value of investments - 5,049,120 - 66,131,333 Capital expenditure 396,779 - 1,516 - - 2,603 Segment liabilities 5,349,262 40,760 831,221 12,487,612 813,695 Sales and other fees 24,742,067 4,470,767 1,796,959 $ $ $ $ - Interest revenue Other revenues 448,066 900 212 - 43,878 323,958 - 4,018,663 6,026,121 2,591 50,685 Total segment revenue 25,191,033 4,470,979 1,840,837 4,342,621 6,079,397 Segment net operating profit/(loss) after tax Depreciation and amortisation Gain/(Loss) on fair value of investments 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 Fair value of investments - 5,826,554 Capital expenditure 383,812 - - - - - 55,171,351 - Segment liabilities 2,723,922 114,551 445,541 4,374,091 623,690 - - - - - - - - - - - 57,970,909 636,429 3,712,388 61,779,726 17,931,362 236,178 8,884,444 138,823,852 71,180,453 400,898 19,522,550 - - - - - - - - - - - 37,035,914 818,705 4,070,248 41,924,867 2,561,018 165,793 (5,217,301) 122,111,645 60,997,905 383,812 8,281,795 2016 Stockbroking & Corporate Finance Activities Principal Trading Funds Management Investment Income Wealth Management Unallocated Total $ $ $ 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 2017 approximately 9.3% (2016: 14%) of the consolidated group’s external revenue was derived from management fees, performance fees and dividends from Ozgrowth Limited and Westoz Investment Company Limited. 048 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 4. Revenue Revenue from operating activities Brokerage Underwriting and placement fees Performance and management fees Wealth management fees Proceeds on sale of principal trading shares Corporate retainers Other income Interest received Other revenue Dividend received 2017 $ 15,276,166 19,383,590 5,850,861 6,022,957 8,103,759 3,333,281 2016 $ 14,344,812 9,517,349 1,743,561 5,153,627 4,454,572 1,752,399 57,970,614 36,966,320 636,429 105,802 3,066,881 818,705 131,603 4,008,239 3,809,112 4,958,547 Total Revenue 61,779,726 41,924,867 Note 5. Profit before income tax expense Rental expenses relating to operating lease Superannuation expense Share based payments – PRP Share based payments – Other Note 6. Income tax The components of tax expense comprise: Current tax Deferred tax 2017 $ 1,854,769 1,133,418 1,058,057 - 2016 $ 1,992,946 1,054,437 501,189 250,000 2017 $ 2016 $ 4,220,734 1,981,524 1,632,285 (2,104,726) 6,202,258 (472,441) EUROZ ANNUAL REPORT 2017 049 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% (2016: 30%) 7,240,086 626,573 2017 $ 2016 $ Add tax effect of: - other non-allowable items Less tax effect of: - other - franked dividends received 2,074,715 145,725 9,314,801 772,298 12,403 3,100,140 57,153 1,187,586 Income tax attributable to entity 6,202,258 (472,441) The applicable weighted average effective tax rates are as follows: 25.70% (22.62%) 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 Charge to equity 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 7,759,701 (1,981,524) 665,226 6,443,403 4,699,929 2,329,272 730,500 7,759,701 375,494 55,928 431,422 439,971 243,294 683,265 1,114,687 (26,700) 402,194 375,494 423,877 16,064 439,971 815,465 050 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 6. Income tax (continued) iii. Deferred tax assets Movement in temporary difference 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 Charge to equity Recognised in the statement of profit or loss Balance at 30 June Tax consolidation legislation 2017 $ 2016 $ 5,792,631 (2,765,263) 3,027,368 702,290 225,177 927,467 2,080,245 665,226 857,784 3,603,255 7,558,090 3,795,921 1,996,710 5,792,631 549,958 152,332 702,290 750,591 730,500 599,154 2,080,245 8,575,166 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 2017 $ 2016 $ 41,152,236 34,202,416 2017 $ 2016 $ 1,855,645 1,549,678 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. EUROZ ANNUAL REPORT 2017 051 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) 2017 $ 527,000 4,244,220 277,899 2016 $ 527,000 6,430,656 (1,131,102) Total 5,049,119 5,826,554 (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 Total Note 11. Long term receivable Security deposit 2017 $ 766,246 452,048 2016 $ 952,541 195,764 1,218,294 1,148,305 2017 $ 2016 $ 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 schemes Fair value adjustments (i) Total (i) The fair value adjustment is based on the closing unit value of the scheme. Note 13. Investment entities at fair value 2017 $ 8,600,000 615,893 2016 $ 7,000,000 1,050,076 9,215,893 8,050,076 2017 $ 2016 $ Listed ordinary shares in investment entities at fair value through profit or loss 56,915,440 47,121,275 Reconciliation Reconciliation of the fair values at the beginning and end of the current financial year are set out below: Opening fair value Additions Revaluation increments / (decrements) 47,121,275 1,698,577 8,095,588 53,769,308 215,102 (6,863,135) Closing fair value 56,915,440 47,121,275 Investment entities encompass listed entities – Westoz Investment Company Limited and Ozgrowth Limited. While the consolidated group is deemed to control these entities, exemption from consolidation is obtained as the Company meets the definition of investment entity under AASB 2013-5 – Investment Entities. Accordingly, these investments are fair valued. 052 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements 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 Reconciliations 2017 $ 537,301 (138,655) 398,646 76,167 (26,929) 49,238 255,699 (148,192) 107,507 163,770 (68,579) 95,192 2016 $ 241,607 (44,643) 196,964 62,246 (24,168) 38,078 242,171 (113,959) 128,212 196,424 (73,815) 122,609 650,583 485,863 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: 2017 Carrying amount at 1 July 2016 Additions Depreciation / amortisation expense Leasehold improvements Plant and equipment $ 196,964 295,694 (94,012) $ 288,899 105,204 (142,166) Total $ 485,863 400,898 (236,178) Carrying amount at 30 June 2017 398,646 251,937 650,583 2016 Carrying amount at 1 July 2015 Additions Acquired from a business combination Assets written-off Depreciation / amortisation expense Leasehold improvements Plant and equipment $ 76,604 215,560 (49,978) (40) (45,182) $ 241,218 168,252 - (4,565) (116,006) Total $ 317,822 383,812 (49,978) (4,605) (161,188) Carrying amount at 30 June 2016 196,964 288,899 485,863 EUROZ ANNUAL REPORT 2017 053 Notes to the Financial Statements Note 15. Deferred tax assets Deferred tax asset (Note 6) 2017 $ 2016 $ 7,558,090 8,575,166 Deferred tax assets are recognised only to the extent that it is probable that future taxable profits can be generated. 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) Addition Balance 2017 $ 8,472,312 1,736,240 10,208,552 2017 $ 8,430,477 - 41,835 2016 $ 8,430,477 1,721,835 10,152,312 2016 $ 2,833,112 5,597,365 - 8,472,312 8,430,477 As referred to in note 31, in the financial year ended 30 June 2016 Euroz Limited acquired $5,597,365 in goodwill on the acquisition of a business. 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 2017, 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) Addition Balance 2017 $ 1,721,835 - 14,405 2016 $ - 1,721,835 - 1,736,240 1,721,835 In addition, in the financial year ended 30 June 2016 Euroz Limited acquired $1,736,240 in other intangible assets on the acquisition of a business. These intangibles consist of 3 separate assets as follows: Client portfolio A Client portfolio B Client portfolio C $ 500,000 80,000 1,156,240 1,736,240 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. 054 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 17. Trade and other payables Other payables and accruals 2017 $ 3,346,290 2016 $ 1,204,171 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 Note 19. Short term provisions Dividends Employee entitlements (annual leave) Employee entitlements (long service leave) Total Dividends 2017 $ 3,251,272 2017 $ 8,854,416 1,346,305 1,566,564 11,767,285 2016 $ 444,699 2016 $ 3,622,711 1,024,576 893,829 5,541,116 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 (i)) Carrying amount at 30 June (i) The dividend reinvestment scheme was not operated in financial year 2017. Note 20. Deferred tax liabilities Deferred tax liability (Note 6) Note 21. Long term provisions Employee entitlements (long service leave) 2017 $ 3,622,711 11,671,283 2016 $ 5,192,129 6,438,992 (6,439,578) (8,008,410) 8,854,416 3,622,711 2017 $ 1,114,687 2017 $ 43,016 2016 $ 815,465 2016 $ 276,344 EUROZ ANNUAL REPORT 2017 055 Notes to the Financial Statements Note 22. Contributed equity (a) Share capital Ordinary shares Issued and paid up capital consisting of ordinary shares (net of treasury shares) (b) Movements in ordinary share capital 2017 Shares 2016 Shares 2017 $ 2016 $ 156,654,382 158,574,382 103,246,026 105,226,509 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 through dividend reinvestment scheme Shares bought back At the end of the year (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 through dividend reinvestment scheme Shares bought back At the end of the year (d) Treasury shares 2017 Shares 158,574,382 (1,900,000) - - (20,000) 2016 Shares 152,997,812 (1,125,000) 5,450,000 1,586,570 (335,000) 156,654,382 158,574,382 2017 $ 105,226,509 (1,964,883) - - (15,600) 2016 $ 99,533,415 (933,008) 5,450,000 1,420,312 (244,210) 103,246,026 105,226,509 2017 Shares 2016 Shares 2017 $ 2016 $ Balance of treasury shares at the end of the reporting period (4,335,000) (2,435,000) (4,465,952) (2,500,958) 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 2017 (30 June 2016: NIL). 056 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 22. Contributed equity (continued) (g) Share based payment reserve The reserve records items recognised as expenses on valuation of share based payments. The movement in the current period totalling $1,058,057 (2016: $501,189) 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 2017 $ 1,159,364 1,058,057 2,217,421 2016 $ 658,175 501,189 1,159,364 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 various Australian Financial Services Licences and as a market participant of the Australian Securities Exchange 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 2017 $ 2016 $ Interim dividend for the half year ended 31 December 2016 of 1.75 cents (2016 – 1.75 cents) per fully paid ordinary share paid on 25 January 2017. Fully franked based on tax paid @ 30% 2,817,314 2,816,281 Final dividend declared and provided for at 30 June 2017 of 5.5 cents (2016 – 2.25 cents) per fully paid ordinary share paid on 28 July 2017. Fully franked based on tax paid @ 30% 8,854,416 3,622,711 Total dividends provided for or paid 11,671,730 6,438,992 Of the total dividends paid during the year, $34,246 (2016: $6,129) was paid to the Euroz Share Trust and is undistributed. Therefore, it has been eliminated on consolidation. Franked dividends The franked portions of the dividends recommended after 30 June 2017 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 2017. 2017 $ 2016 $ Franking credits available for subsequent financial years based on a tax rate of 30% (2016: 30%) 15,704,851 15,193,768 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 ANNUAL REPORT 2017 057 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 2017 $ 3,346,290 2016 $ 1,204,171 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 2017. 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 Securities (Australia) Pty Ltd 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 Impairment losses None of the consolidated group’s receivables are past due date (2016: Nil). Carrying Amount 2017 $ 41,152,236 1,855,645 5,000,000 48,007,881 2016 $ 34,202,416 1,549,678 5,000,000 40,752,094 058 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 24. Financial instruments (continued) (b) Financial risk exposure and management (continued) (iv) Financial instruments composition and maturity analysis Weighted Average Effective Interest Rate Floating Interest Rate Non-Interest Bearing 2017 % 2016 % 2017 $ 2016 $ 2017 $ 2016 $ FINANCIAL ASSETS Cash and cash equivalents 1.14 1.77 41,152,236 34,202,416 - - Trade and other Receivables Financial assets held for trading Financial assets at fair value through profit and loss Other investments Long term deposit Total financial assets FINANCIAL LIABILITIES Trade and other payables - - - - - - - - - - - - 1,855,645 1,549,678 5,049,119 5,826,554 56,915,440 47,121,275 9,215,893 8,050,076 0.75 1.0 5,000,000 5,000,000 - - 46,152,236 39,202,416 73,036,097 62,547,583 - - 3,346,290 1,204,171 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). 2017 Assets Investments Total Assets 2016 Assets Investments Total Assets Level 1 Level 2 Level 3 Total 71,035,145 71,035,145 145,307 145,307 - - 71,180,452 71,180,452 Level 1 Level 2 Level 3 Total 60,707,290 60,707,290 290,615 290,615 - - 60,997,905 60,997,905 (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% 2017 $ 2016 $ 323,066 274,417 (323,066) (274,417) 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% 2017 $ 2,491,315 (2,491,315) 2016 $ 2,134,927 (2,134,927) EUROZ ANNUAL REPORT 2017 059 Notes to the Financial Statements Note 25. Remuneration of auditors Audit services Audit and review of financial reports for the Group Fees paid to PKF Mack firm 168,000 162,000 2017 $ 2016 $ Other services Tax compliance services Other services Note 26. Contingent liabilities The parent entity and consolidated group had contingent liabilities at 30 June as follows: 36,200 14,500 50,700 32,950 12,500 45,450 2017 $ 2016 $ Secured guarantees in respect of: Operating lease of a controlled group entity 807,699 790,180 As detailed in note 11 the consolidated group has a deposit with Pershing Securities (Australia) Pty Ltd as part of Euroz Securities Limited third party clearing arrangements. This deposit totalled $5,000,000 at reporting date (2016: $5,000,000). The Group has no contingent assets at reporting date (2016: none). 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 2017 $ 2016 $ 1,357,195 3,205,972 - 1,284,348 4,243,421 127,218 Commitments not recognised in the financial statements 4,563,167 5,654,987 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 3, 20 Bond Street, Sydney NSW is for the period of 5 years commencing 1 December 2016 and expiring on 30 November 2021. 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. 060 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements 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 2017 $ 2,955,885 2,955,855 2017 $ 5,324,014 245,234 521,253 2016 $ 2,194,749 2,194,749 2016 $ 2,996,758 255,450 276,875 Total compensation 6,090,501 3,529,083 (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. (d) Share-based payments During the year a performance right was issued to 87 employees (2016: 72 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. Transactions with related parties consisting of: (i) Subsidiaries - Loans advanced by Euroz Limited to subsidiaries - Payments of dividends to Euroz Limited by subsidiaries - Management fees charged by Euroz Securities Limited to subsidiaries - Management fees charged by Prodigy Investment Partners Limited to subsidiaries (ii) Other - 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 2017 $ 2016 $ 12,610,616 10,300,000 1,651,790 731,262 2,768,925 2,062,232 920,000 6,089,701 3,450,000 1,685,229 381,654 3,947,426 1,736,952 6,609 EUROZ ANNUAL REPORT 2017 061 Notes to the Financial Statements Note 29. Related parties (continued) (e) Wholly-owned group transactions (continued) 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 2017 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: 2017 $ 2016 $ Amounts recognised as revenue Brokerage earned on Key Management Personnel accounts 38,259 41,442 Note 30. Investments in controlled entities Name of entity Country of incorporation Class of shares Equity holding Cost of parent entity’s investment 2017 % 2016 % 2017 $ 2016 $ Euroz Securities Limited Detail Nominees Pty Ltd Zero Nominees Pty Ltd (i) Westoz Funds Management Pty Ltd Euroz Employee Share Trust Ozgrowth Limited* Australia Australia Australia Australia Australia Australia Westoz Investment Company Limited* Australia Prodigy Investment Partners Limited Blackswan Equities Limited (i) Australia Australia Flinders Investment Partners Pty Ltd (ii) Australia Dalton Street Capital Pty Ltd (ii) Blackswan Corporate Pty Ltd (i) Australia Australia Blackswan Wealth Management Pty Ltd (i) Australia WIM WA Resources Limited WIM Small Cap Limited Australia Australia Entrust Private Wealth Management Pty Ltd Australia Prodigy Flinders Pty Ltd (ii) Prodigy Corporate Pty Ltd (ii) Prodigy DSC Pty Ltd (ii) Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 - 40.52 27.22 80 100 50 50 100 100 100 100 100 100 100 100 100 25,000,000 25,000,000 100 100 100 - 38.81 26.41 - - - - 1,450,000 1,450,000 - - - - - - 80 1,900,000 1,500,000 100 6,604,000 6,604,000 50 50 100 100 100 100 100 100 100 100 2 2 - - 1 1 2 2 - - 1 1 7,800,000 7,800,000 2 2 1 2 2 1 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 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 shares for the Group. 062 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements Note 30. Investments in controlled entities (continued) (f) Euroz Employee Share Trust - Vehicle established to acquire treasury shares on-market for distribution to eligible employees in connection with the Performance Rights Plan. (g) Prodigy Investment Partners Limited – 80/20 joint venture with former MLC CEO, 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. (i) Blackswan Corporate Pty Ltd – The activities of the Blackswan group of entities were transferred over to Euroz Securities Limited. (j) Blackswan Wealth Management Pty Ltd - The activities of the Blackswan group of entities were transferred over to Euroz Securities Limited. (k) Flinders Investment Partners Pty Ltd - Boutique fund manager specialising in investing in emerging companies. Prodigy Investment Partners Limited, the controlling parent entered into a profit share arrangement with a trust resulting in a minority interest. (l) Dalton Street Capital Pty Ltd - Boutique fund manager specialising in alternative investment strategies. Prodigy Investment Partners Limited, the controlling parent entered into a profit share arrangement with a trust resulting in a minority interest. (m) Entrust Private Wealth Management Pty Ltd - Wealth management business providing advice in relation to wealth management and strategic financial planning support for the entire Euroz Group. *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 In the prior year on 13 July 2015, Euroz Limited completed the acquisition of Entrust to further enhance its wealth management capabilities. Details of the acquisition is as follows: ASSETS Cash and cash equivalents Receivables and other current assets Deferred tax assets Intangibles Goodwill on acquisition 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 Net cash paid for subsidiary: Cash consideration paid Less: net cash acquired 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 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. EUROZ ANNUAL REPORT 2017 063 Notes to the Financial Statements Note 32. Events subsequent to reporting date The Directors are not aware of any matter or circumstance subsequent to 30 June 2017 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 for the year 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 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) 2017 $ 17,931,361 236,178 1,058,057 (7,661,408) (3,075,861) - - (305,964) (69,989) 777,434 1,017,076 2,142,119 2,806,573 299,222 761,136 2016 $ 2,561,018 165,793 501,189 5,813,059 (3,992,044) 4,605 (110,023) (165,052) (119,189) (244,134) (3,478,696) (321,315) 444,699 418,288 512,609 Net cash from / (used in) operating activities 15,915,934 1,990,807 Note 34. Earnings per share Basic earnings per share Diluted earnings per share Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share. 2017 cents 12.30 12.03 2017 number 2016 cents 1.61 1.61 2016 number 157,436,897 159,130,663 Weighted average number of ordinary shares and potential ordinary shares (including treasury shares) used as the denominator in calculating diluted earnings per share. 160,990,695 159,473,115 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. 064 EUROZ ANNUAL REPORT 2017 Notes to the Financial Statements 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 Limited 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 2016/785 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’. CLOSED GROUP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Unrealised gain / (loss) on investments Employee benefits expense Depreciation and amortisation expenses Regulatory expenses Legal, professional and consultancy expenses Communication expenses Carrying amount of principal trading securities sold Other expenses Profit before income tax expense Income tax benefit/(expense) 2017 $ 2016 $ 16,942,023 9,474,137 8,971,560 (5,345,571) - (245) (64,126) (117,845) (140) (3,364,794) (668,768) 21,697,665 (2,009,047) 18,852 (1,123) (74,664) (129,478) - (1,030,813) (620,012) 2,291,328 1,236,982 Profit after income tax expense for the year 19,688,618 3,528,310 Other comprehensive income Other comprehensive income, net of tax - - Total comprehensive income for the year 19,688,618 3,528,310 EUROZ ANNUAL REPORT 2017 065 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 2017 $ 10,047,865 2,656,698 890,398 13,594,961 2016 $ 14,447,816 2,447,646 69,526 16,964,988 - 8,876 33,650,199 32,250,002 65,131,136 12,610,616 3,793,328 56,171,351 6,002,396 6,070,694 115,185,279 100,503,319 128,780,240 117,468,307 63,703 3,251,272 8,854,416 12,169,391 171,007 396,787 3,622,711 4,190,505 396,517 396,517 396,352 396,352 12,565,908 4,586,857 116,214,332 112,881,450 103,258,624 105,184,245 2,186,787 10,768,921 1,144,960 6,552,245 116,214,332 112,881,450 066 EUROZ ANNUAL REPORT 2017 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 2017 $ 2016 $ 13,594,961 118,685,279 132,280,240 13,144,250 103,807,345 116,951,595 12,169,390 396,518 12,565,908 4,027,587 353,774 4,381,361 103,258,624 105,184,246 14,268,921 6,241,028 Share Based Payment Reserve 2,186,787 1,144,960 Total equity Financial performance Profit / (loss) for the year Other comprehensive income 119,714,332 112,570,234 19,699,176 3,464,347 - - Total comprehensive income 19,699,176 3,464,347 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 ANNUAL REPORT 2017 067 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 2017 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 Director Date: 31 August 2017 Jay Hughes Executive Director 068 EUROZ ANNUAL REPORT 2017 Independent Auditor’s Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROZ LIMITED Report on the Financial Report Opinion We have audited the accompanying financial report of Euroz Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2017, 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 and the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. In our opinion 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 2017 and of its performance for the year ended on that date; and ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion 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. Our responsibilities under those standards are further described in the Auditor’s Responsibility section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the consolidated entity in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matter Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. This matter was addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Our description of how our audit addressed the matter is provided in that context. Page | 56 EUROZ ANNUAL REPORT 2017 069 Independent Auditor’s Report Carry value and impairment of intangible assets Why significant How our audit addressed the key audit matter At reporting date, the consolidated entity has capitalised intangible assets including goodwill totalling $10,208,552 as disclosed in Note 16. Under Australian Accounting Standards, an entity shall assess whether at the end of the reporting period there is any indication that its intangible assets are impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. At year end, the consolidated entity has concluded that there were no impairment triggers. As a impairment was result no recognised during the year. The assumptions of indicators of impairment are highly judgemental and include modelling key assumptions and estimates based on past and current performance that may be impacted by future performance and economic conditions. judgements and estimates Key assumptions, used in the consolidated entity’s assessment of impairment of intangible assets are set out in the financial report in Note 2 (iv) and (v). We evaluated the assumptions, methodologies and conclusions used by the consolidated entity in particular, those relating to the determination of each Cash Generating Unit (“CGU”), forecast inflows and inputs used to formulate them. This included assessing the reasonableness of the significant assumptions the discount rates adopted in the consolidated entity’s models and performing sensitivity analysis on the consolidated entity’s inputs. including the We assessed anticipated future inflows from each CGU. reasonableness of the We also considered the adequacy of the financial report disclosures concerning judgemental nature of the consolidated entity’s assessment of impairment of these intangible assets. These key assumptions, judgements and estimates are set out in the financial report in Note 2 (iv) and (v). the Other Information Other information is financial and non-financial information in the annual report of the consolidated entity which is provided in addition to the Financial Report and the Auditor’s Report. The directors are responsible for Other Information in the annual report. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s report. The remaining Other Information is expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, the auditor does not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information in the Financial Report and based on the work we have performed on the Other Information that we obtained prior the date of this Auditor’s Report we have nothing to report. Directors’ Responsibilities 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 Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report complies with International Financial Reporting Standards. Page | 57 070 EUROZ ANNUAL REPORT 2017 Independent Auditor’s Report In preparing the financial report, the Directors are responsible for assessing the consolidated entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using a going concern basis of accounting unless the Directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our responsibility is to express an opinion on the financial report based on our audit. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. 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 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 entity’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 entity’s internal control. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 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 conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern. We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Page | 58 EUROZ ANNUAL REPORT 2017 071 Independent Auditor’s Report The Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Euroz Limited for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PKF MACK SIMON FERMANIS PARTNER 31 AUGUST 2017 WEST PERTH Page | 59 072 EUROZ ANNUAL REPORT 2017 Shareholder information Ordinary Shares at 31 August 2017 (a) Distribution of Shareholders Analysis of number of shareholders by size of holding: Range 1-1,000 1,001-5000 5,001-10,000 10,001-100,000 100,001 Over Rounding Total Holders 298 421 240 611 185 Units 115,853 1,262,458 1,915,673 21,032,283 136,663,115 % Units 0.07 0.78 1.19 13.06 84.89 0.01 1,755 160,989,382 100.00 (b) Top HOLDERS The twenty largest holders of ordinary fully paid shares are listed below: No Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 MR JAY EVAN DALE HUGHES HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MRS CATHERINE PATRICIA MCKENZIE J P MORGAN NOMINEES AUSTRALIA LIMITED ICE COLD INVESTMENTS Pty Ltd CPU SHARE PLANS Pty Ltd MR ANDREW MCKENZIE + MRS CATHERINE MCKENZIE ICE COLD INVESTMENTS Pty Ltd BNP PARIBAS NOMINEES Pty Ltd HUB24 CUSTODIAL SERV LTD DRP MR SIMON DAVID YEO + MRS JENNIFER DALE YEO MR JAY HUGHES + MRS LINDA HUGHES JEUNE Pty Ltd MR ROBERT HIRZEL BLACK ICON HOLDINGS Pty Ltd WESTRADE RESOURCES Pty Ltd MRS MELANIE JANE CHESSELL BNM HOLDINGS Pty Ltd ICE COLD INVESTMENTS Pty Ltd MRS CATHERINE ELIZABETH KANE 20 CITICORP NOMINEES PTY LIMITED Total Remaining Holders Balance Total Shares 7,560,000 6,869,042 5,950,000 5,825,660 4,000,000 3,955,265 3,772,392 3,202,500 3,169,000 3,000,000 2,950,031 2,900,000 2,865,000 2,480,151 2,147,269 2,070,272 2,020,100 2,000,000 2,000,000 1,984,883 % 4.70 4.27 3.70 3.62 2.48 2.46 2.34 1.99 1.97 1.86 1.83 1.80 1.78 1.54 1.33 1.29 1.25 1.24 1.24 1.23 70,721,565 43.93 90,267,817 56.07 160,989,382 100.00 EUROZ ANNUAL REPORT 2017 073 Euroz Limited Contact Details 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 3 20 Bond Street SYDNEY NSW 2000 FLINDERS INVESTMENT PARTNERS PTY LTD Level 15 385 Bourke Street MELBOURNE VIC 3000 DALTON STREET CAPITAL PTY LTD Level 3 20 Bond 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 074 EUROZ ANNUAL REPORT 2017 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 Limited euroz.com ACN 000 364 465