A N N U A L R E P O R T 2 0 2 0 EUROZ LIM ITED E U R O Z I S A D I V E R S I F I E D F I N A N C I A L S E R V I C E S C O M P A N Y ANNUAL RE PORT 2020 1 F I N A N C I A L Y E A R 2 0 2 0 H I G H L I G H T S GROUP FUM MARKET CAPITALISATION DIVIDENDS FULLY FRANKED DIVIDENDS IN 20 YEARS CASH & INVESTMENTS NET LOSS AFTER TAX 1. As at 30 June 2020 $1.55b $166.58m 7.75cps $235m $111m -$1.35m 2 EUROZ LIM ITED CONTENTS PAGE CORPORATE DIRECTORY Corporate Directory Executive Chairman’s Report Euroz Limited Board Of Directors Euroz Group Structure 3 4 8 10 Euroz Securities Limited – Managing Director’s Report 12 Corporate Transactions Euroz Securities Limited – Director Profiles Entrust Wealth Management Westoz Funds Management Euroz Charitable Foundation Financial Report Additional Information Euroz Limited Contact Details 13 14 17 18 20 23 84 86 REGISTERED OFFICE AND PRICIPAL PLACE OF BUSINESS Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 Telephone: Facsimile: Email: +61 8 9488 1400 +61 8 9488 1477 info@euroz.com SHARE REGISTRY Computershare Investor Services Pty Ltd Level 11 172 St Georges Terrace PERTH WA 6000 Telephone: 1300 787 575 AUDITORS PKF Perth Chartered Accountants Level 4 35 Havelock Street WEST PERTH WA 6005 Telephone: +61 8 9426 8999 BANKERS Westpac Banking Corporation 109 St George’s Terrace PERTH WA 6000 SECURITIES EXCHANGE LISTINGS Euroz Limited shares are listed on the Australian Securities Exchange (ASX: EZL) WEBSITE ADDRESS www.euroz.com CORPORATE GOVERNANCE STATEMENT www.euroz.com/investor-relations/corporate-governance BOARD OF DIRECTORS Andrew McKenzie Executive Chairman Jay Hughes Executive Director Greg Chessell Executive Director Russell Kane Executive Director Simon Yeo Executive Director Anthony Brittain Executive Director Robert Black Executive Director COMPANY SECRETARY Anthony Hewett ANNUAL RE PORT 2020 3 C H A I R M A N ’ S R E P O R T OUR IMPENDING MERGER WITH HARTLEYS WILL DELIVER POSITIVE OUTCOMES FOR SHAREHOLDERS AND CLIENTS ALIKE. Our established Euroz Securities, Entrust Wealth Management and Westoz Funds Management businesses performed well in a volatile market and contributed to solid underlying profitability of $6.5 million. Our headline profitability can be summarised as follows: Underlying “cash” profits of approximately $6.5 million plus $0.3 million “non-cash” after tax profits from the mark-to- market of investments were offset by -$8.2 million “non-cash” after tax losses (mostly relating to Prodigy closure costs) resulting in a $1.35 million net loss after tax attributable to members. Solid underlying cash profitability and the realisation of some of our fund investments enabled your Directors to declare and pay a final fully franked dividend of 6 cents per share (cps) which combined with the interim dividend of 1.75 cps brings the full year dividend to 7.75 cps (previous year 6.75 cps). 4 EUROZ LIM ITED “ Solid underlying cash profitability and the realisation of some of our fund investments enabled your Directors to declare and pay a final fully franked dividend of 6 cents per share (cps). “ The emergence of COVID-19 saw a shift in how Euroz and its businesses approached their activities. Whilst the implementation of travel restrictions and social distancing meant a shift to remote working arrangements and virtual client and investor interactions, our strong culture of remote working and ability to respond quickly to changing circumstances meant that overall engagement remained high and the services we provided to our clients did not change. Volatility in markets saw Euroz Securities record improved brokerage through March and April as investors sought to take advantage of the change in conditions. Group Funds Under Management (FUM) remained steady at $1.55 billion ($1.58 billion last year). FUM growth was impacted to a degree by the emerging COVID-19 pandemic and the removal of approximately $119 million of Prodigy related FUM. The closure of the Prodigy businesses was completed in June 2020 and all of the funds were either closed or transferred to new managers. Overall, COVID-19 had minimal impact on the services offered by Euroz other than how we delivered them to our clients. Declines in markets during the early months of the second half of FY20 saw a logical decrease in the market value of our FUM and impacted revenues in Entrust Wealth Management and Westoz Funds Management in the short term, however a resurgent market in the last quarter saw these drivers recover to more normalised levels. On 19 June 2020, Euroz announced that it had entered into an agreement to acquire 100% of the issued capital in Hartleys Limited (Hartleys). Since that date, the takeover bid process has been completed and the process of merging Euroz Securities and Hartleys Limited (renamed Euroz Hartleys Limited) is well underway. The merger of the two businesses will create a significantly stronger company with a solid balance sheet, critical scale, sustainable revenues and significant cost and operational synergies. We strongly believe the merger will deliver positive outcomes for clients and shareholders alike and positions the combined business well for the future. Andrew McKenzie Executive Chairman ANNUAL RE PORT 2020 5 E U R O Z L I M I T E D P R O F I T B E F O R E T A X & N E T P R O F I T A F T E R T A X YEAR Profit before tax Net profit after tax attributable to members E U R O Z L I M I T E D D I V I D E N D H I S T O R Y YEAR 1H Dividend per share 2H Dividend per share EUROZ LIM ITED N O I L L I M $ E R A H S R E P S T N E C 6 -20.0-10.00.010.020.030.040.050.060.0Profit Before TaxNet Profit After Tax1920181716151413121110090807060504030201$ million$ MILLIONCENTS PER SHARECENTS PER SHAREYEAR1H Dividend per shareYEARProfit before tax0.05.010.015.020.025.030.02H Dividend Per Share1H Dividend Per Share19201817161514131211100908070605040302010.020.040.060.080.0100.0Cents Per Share1920181716151413121110090807060504030201Cents Per ShareEuroz Limited NTA Per ShareYEAREntrust ($969m)OZG ($71m)WIC ($143m)Euroz ($370m)$1.55 billion in FUM in Funds and Wealth ManagementNote 1. PFM ($24m) Precision Funds Management removed from 01/07/2017 as no longer a corporate authorised representativeNote 2. Removal of Flinders Investment Partners, Dalton Street Capital and Equus Point Capital FUMEUROZ LIMITED PROFIT BEFORE TAX & NET PROFIT AFTER TAXEUROZ LIMITED DIVIDEND HISTORYEUROZ LIMITED NTA PER SHAREFUM (A$m)YEAREuroz Securities Wealth Management ($370m)Entrust Wealth Management ($969m)Funds Management ($214m)DEC 15JUN 16DEC 16JUN 17DEC 17JUN 18DEC 18DEC 19JUN 19JUN 201,2001,4001,6002004006008001,000Net profit after tax attributable to members2H Dividend per shareEUROZ GROUP FUNDS UNDER MANAGEMENT ANNUAL REPORT 2020 1110 EUROZ LIMITED-20.0-10.00.010.020.030.040.050.060.0Profit Before TaxNet Profit After Tax1920181716151413121110090807060504030201$ million$ MILLIONCENTS PER SHARECENTS PER SHAREYEAR1H Dividend per shareYEARProfit before tax0.05.010.015.020.025.030.02H Dividend Per Share1H Dividend Per Share19201817161514131211100908070605040302010.020.040.060.080.0100.0Cents Per Share1920181716151413121110090807060504030201Cents Per ShareEuroz Limited NTA Per ShareYEAREntrust ($969m)OZG ($71m)WIC ($143m)Euroz ($370m)$1.55 billion in FUM in Funds and Wealth ManagementNote 1. PFM ($24m) Precision Funds Management removed from 01/07/2017 as no longer a corporate authorised representativeNote 2. Removal of Flinders Investment Partners, Dalton Street Capital and Equus Point Capital FUMEUROZ LIMITED PROFIT BEFORE TAX & NET PROFIT AFTER TAXEUROZ LIMITED DIVIDEND HISTORYEUROZ LIMITED NTA PER SHAREFUM (A$m)YEAREuroz Securities Wealth Management ($370m)Entrust Wealth Management ($969m)Funds Management ($214m)DEC 15JUN 16DEC 16JUN 17DEC 17JUN 18DEC 18DEC 19JUN 19JUN 201,2001,4001,6002004006008001,000Net profit after tax attributable to members2H Dividend per shareEUROZ GROUP FUNDS UNDER MANAGEMENT ANNUAL REPORT 2020 1110 EUROZ LIMITED E U R O Z L I M I T E D N T A P E R S H A R E E R A H S R E P S T N E C ) m $ A ( M U F YEAR E U R O Z G R O U P F U N D S U N D E R M A N A G E M E N T $1.55 billion in FUM in Funds and Wealth Management 1,600 1,400 1,200 1,000 800 600 400 200 Funds Management ($214m) Euroz Securities ($370m) Entrust Wealth Management ($969m) DEC 15 JUN 16 DEC 16 JUN 17 DEC 17 JUN 18 DEC 18 JUN 19 DEC 19 JUN 20 Note 1. PFM ($24m) Precision Funds Management removed from 01/07/2017 as no longer a corporate authorised representative Note 2. Removal of Flinders Investment Partners, Dalton Street Capital and Equus Point Capital FUM YEAR WIC ($143m) Euroz ($370m) OZG ($71m) Entrust ($969m) ANNUAL RE PORT 2020 7 -20.0-10.00.010.020.030.040.050.060.0Profit Before TaxNet Profit After Tax1920181716151413121110090807060504030201$ million$ MILLIONCENTS PER SHARECENTS PER SHAREYEAR1H Dividend per shareYEARProfit before tax0.05.010.015.020.025.030.02H Dividend Per Share1H Dividend Per Share19201817161514131211100908070605040302010.020.040.060.080.0100.0Cents Per Share1920181716151413121110090807060504030201Cents Per ShareEuroz Limited NTA Per ShareYEAREntrust ($969m)OZG ($71m)WIC ($143m)Euroz ($370m)$1.55 billion in FUM in Funds and Wealth ManagementNote 1. PFM ($24m) Precision Funds Management removed from 01/07/2017 as no longer a corporate authorised representativeNote 2. Removal of Flinders Investment Partners, Dalton Street Capital and Equus Point Capital FUMEUROZ LIMITED PROFIT BEFORE TAX & NET PROFIT AFTER TAXEUROZ LIMITED DIVIDEND HISTORYEUROZ LIMITED NTA PER SHAREFUM (A$m)YEAREuroz Securities Wealth Management ($370m)Entrust Wealth Management ($969m)Funds Management ($214m)DEC 15JUN 16DEC 16JUN 17DEC 17JUN 18DEC 18DEC 19JUN 19JUN 201,2001,4001,6002004006008001,000Net profit after tax attributable to members2H Dividend per shareEUROZ GROUP FUNDS UNDER MANAGEMENT ANNUAL REPORT 2020 1110 EUROZ LIMITED B O A R D O F D I R E C T O R S EUROZ LIMITED DIRECTORS PROFILES AN D REW M C K ENZ IE EXECU TIV E CHAIRMA N JAY HUGH ES EXECUTIVE DIRECTOR Andrew is Executive Chairman of Euroz Limited, Euroz Securities Limited and the Euroz Charitable Foundation Pty Ltd. Andrew is an Executive Director of Prodigy Investment Partners Limited and a board member of the PLC Foundation and the Perth Children’s Hospital Foundation. He is a former board member of Westoz Funds Management Pty Ltd, Dalton Street Capital Pty Ltd, Flinders Investment Partners Pty Ltd, Equus Point Capital Pty Ltd and the Stockbrokers and Financial Advisers Association of Australia (SAFAA) and a former PLC Council member. Andrew holds a Bachelor of Economics from the University of Western Australia (UWA) and is an individual member (MSAFAA) of SAFAA. Jay has worked in stockbroking since 1986, starting his career on the trading floor. He is Non-Executive Chairman of Westoz Funds Management Pty Ltd, Westoz Investment Company Limited and Ozgrowth Limited and an Executive Director of Euroz Securities Limited and Prodigy Investment Partners Limited. He is an Institutional Adviser 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 is an individual member (MSAFAA) of SAFAA. S IM O N YEO EXECU TIV E DIRECTOR R OB ERT BLACK EXECUTIVE DIRECTOR 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. 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 a member of our Institutional Sales division and is responsible for servicing domestic and international institutions. Rob is a Director of Entrust Wealth Management. Rob holds a Bachelor of Business in Finance and Accounting from Edith Cowan University and is a Graduate of the Australian Institute of Company Directors (AICD). 8 EUROZ LIM ITED RUSSE LL KAN E E X EC UTIVE D IR E CTOR A NT HON Y BR IT TAI N EXECUTIVE DIRECTOR Anthony is the Chief Operating and Financial Officer and an Executive Director of Euroz Limited, Euroz Securities Limited, Entrust Wealth Management Pty Ltd and Prodigy Investment Partners Limited. He is a former board member of Dalton Street Capital Pty Ltd, Flinders Investment Partners Pty Ltd and Equus Point Capital Pty Ltd. Prior to joining Euroz, Anthony spent 7 years with Hartleys Limited and JDV. Anthony started his career with KPMG (and antecedent firm Touche Ross) and then worked in London and Singapore for 7 years with a UK fund manager, Newton Investment Management during which it was acquired by BNY Mellon. 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 an individual member (MSAFAA) of SAFAA. Anthony is a member of the Audit and Risk Committee. Anthony is a member of the professional conduct tribunal of the SAFAA and is a panel member of the Markets Disciplinary Panel (MDP) of the Australian Securities and Investment Commission (ASIC). 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. GREG CHESSEL L E X EC UTIVE D IR E CTOR Greg is a Director in the Corporate Finance Team of Euroz Securities, a role he has performed for three years. Greg was previously Head of Research at Euroz, a position he held since Euroz Securities commenced operations in 2000. Greg worked as geologist in WA for 10 years 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. ANNUAL RE PORT 2020 9 E U R O Z G R O U P S T R U C T U R E E U R O Z L I M I T E D ASX CODE: EZL S T O C K B R O K I N G , C O R P O R A T E F I N A N C E A N D W E A LT H M A N A G E M E N T F U N D S M A N A G E M E N T EUROZ SE CUR ITIES 100% E NTRU ST WE ALTH M ANAG EM ENT 100% WESTOZ FU N DS MAN AGEMEN T 100% MANAGER OZG ROWTH LIMITE D ASX CODE: OZG 40.58% Equity Stake WESTOZ IN VE STMENT COMPA NY LIMITED ASX CODE: WIC 26.25% Equity Stake 10 EUROZ LIM ITED ANNUAL RE PORT 2020 11 EUROZ SECURITIES LIMITED M A N A G I N G D I R E C T O R ’ S R E P O R T THE 2020 YEAR WAS AT TIMES A VOLATILE YEAR FOR EUROZ SECURITIES. OUR TEAM DELIVERED A NET PROFIT AFTER TAX OF APPROXIMATELY $6.5 MILLION, SIGNIFICANTLY UP ON THE PREVIOUS YEAR’S RESULT OF $4.7 MILLION. This was on the back of an increase in brokerage revenues of over 30%, an increase in Funds Under Management (FUM) to $370 million, and Equity Capital Market (ECM) fees generated on the back of over $1 billion of new equity raised for clients over the year (vs $469 million raised during the year before). This capital raising figure was a result of a number of high calibre clients entrusting Euroz Securities with their equity financing requirements, including Carnarvon Petroleum, Orecorp, Omni Bridgeway, Mincor Resources, NRW Holdings, Saltlake Potash, Emerald Resources, Cosol Ltd, AFG, Chalice Gold Mines, Legend Mining, and Aeris Resources. Like every other business globally, the Covid 19 pandemic bought incredible challenges for both our business, our staff members and their families. As a testament to all our staff, and in particular our operations team, many of us seamlessly evolved to remote working conditions as required, where we continued to operate as normal and provide sound advice to all our clients over an incredibly tumultuous period in global equity markets. These results can only be generated through the diligent and ongoing efforts of our talented 67 staff members across our 4 primary departments of Private Wealth Management, Research, Corporate Finance, Institutional Sales, and Operations. The whole team lifted over the year and the services provided to our clients and the subsequent financial results delivered are a pleasing measure of this, and I genuinely thank and congratulate all staff for what was achieved during the year. The upcoming merger of Euroz Securities with Hartleys is a step change for our business going forward. This exciting development, which continues a consolidation theme following our earlier mergers with Blackswan Equities and Entrust Private Wealth Management, will see Euroz Hartleys Limited become the most significant and dominant Stockbroking, Wealth Management and Corporate Finance firm in the state. All clients will benefit from an increased and more diversified service offering, and shareholders will benefit from the combined synergies and earnings potential from the new group. I look forward to reporting on the progress of the merged group in the periods to come. Rob Black Managing Director 12 EUROZ LIM ITED EUROZ SECURITIES LIMITED C O R P O R A T E T R A N S A C T I O N S SUPPORTING OUR CLIENTS ON MAJOR TRANSACTIONS DURING FY2020. P L A C E M E N T $79 MILLION J O I N T L E A D M A N A G E R Euroz Securities Ltd JUL 19 P L A C E M E N T $13.3 MILLION L E A D M A N A G E R & B O O K R U N N E R P L A C E M E N T & A N R E O $139 MILLION J O I N T L E A D M A N A G E R T W O - T R A N C H E P L A C E M E N T $17 MILLION C O - L E A D M A N A G E R & J O I N T B O O K R U N N E R Euroz Securities Ltd Euroz Securities Ltd Euroz Securities Ltd AUG 19 OCT 19 NOV 19 P L A C E M E N T P L A C E M E N T $30 MILLION J O I N T L E A D M A N A G E R & J O I N T B O O K R U N N E R $120 MILLION C O - M A N A G E R T W O - T R A N C H E P L A C E M E N T $23.5 MILLION J O I N T L E A D M A N A G E R T W O - T R A N C H E P L A C E M E N T $75 MILLION L E A D M A N A G E R & B O O K R U N N E R Euroz Securities Ltd Euroz Securities Ltd Euroz Securities Ltd Euroz Securities Ltd NOV 19 NOV 19 DEC 19 JAN 20 I P O $12 MILLION L E A D M A N A G E R & U N D E R W R I T E R Euroz Securities Ltd T W O - T R A N C H E P L A C E M E N T $20 MILLION J O I N T L E A D M A N A G E R P L A C E M E N T & A N R E O $60 MILLION C O - L E A D M A N A G E R P L A C E M E N T $30 MILLION J O I N T L E A D M A N A G E R & B O O K R U N N E R Euroz Securities Ltd Euroz Securities Ltd Euroz Securities Ltd JAN 20 APR 20 MAY 20 MAY 20 P L A C E M E N T P L A C E M E N T $13.5 MILLION L E A D M A N A G E R & B O O K R U N N E R $20 MILLION L E A D M A N A G E R Euroz Securities Ltd Euroz Securities Ltd P L A C E M E N T & A N R E O $40 MILLION J O I N T L E A D M A N A G E R , B O O K R U N N E R & U N D E R W R I T E R Euroz Securities Ltd T W O - T R A N C H E P L A C E M E N T & S P P $60 MILLION L E A D M A N A G E R & U N D E R W R I T E R Euroz Securities Ltd MAY 20 JUN 20 JUN 20 JUN 20 ANNUAL RE PORT 2020 13 E U R O Z S E C U R I T I E S DIRECTORS PROFILES ANDR EW CLAYTON BR IA N B ERESFO R D CA MER ON MUR R AY EXEC UTIV E DIR E CTOR EXEC UTIVE DIRECTOR EXECUTIVE DIRECTOR Andrew is a Research Analyst specialising in resource companies. He worked as a geologist for six years in both exploration and mine roles in a variety of commodities including gold and graphite. He has been in the stockbroking industry since 1995. Andrew holds a Bachelor of Science (Hons) in Geology from Melbourne University as well as a Diploma in Finance from FINSIA. HEAD OF CORPORATE FINANCE 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. Cameron has over 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. Cameron is an accredited Designated Trading Representative (DTR) and Responsible Executive (RE) of Euroz Securities. Cameron has completed and successfully passed the FASEA professional qualifications required to act as a financial adviser. BRIAN BATES BE N STATHA M CH RI S WEB STER EXEC UTIV E DIR E CTOR EXEC UTIVE DIRECTOR Brian has over 20 years of experience in stockbroking, investment and superannuation management. Brian holds a Bachelor of Commerce from UWA, and was previously a chartered accountant before moving in to investment management. Brian is a senior member of the Private Client Division and offers a comprehensive wealth management service to high net worth individuals. 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 in Applied Finance and Investment from FINSIA. EXECUTIVE DIRECTOR HEAD OF PRIVATE CLIENTS 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 Managing Director of Entrust Wealth Management and a Director of the Euroz Charitable Foundation. Chris holds a Bachelor of Commerce from UWA, a Graduate Diploma of Applied Finance and a Graduate Diploma of Applied Corporate Governance. Chris is an individual member (MSAFAA) of SAFAA. Chris has completed and successfully passed the FASEA professional qualifications required to act as a financial adviser. 14 EUROZ LIM ITED DAVI D RI LEY JA MES MACK IE N ICK MCGLEW E X EC UTIVE D IR E CTOR EXEC UTIVE DIRECTOR EXECUTIVE DIRECTOR David has worked in the Euroz Corporate Finance team since 2012. Prior to joining Euroz, David was a senior consultant at Ernst & Young. David is a member of the Chartered Accountants Australia and New Zealand (CA) and holds a Graduate Diploma of Applied Finance through Kaplan Professional Education. David has also completed a Graduate Diploma of Mineral Exploration Geoscience from the Curtin University School of Mines and also holds a Bachelor of Commerce/Science from the University of Western Australia. 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 in Applied Finance and Investment from FINSIA. Nick has over 25 years’ experience in mergers, acquisitions, equity raisings, 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 (First Class Honours) and a Master of Laws from New York University. Nick is a senior member of our Corporate Finance Division. GAVI N ALLEN E X EC UTIVE D IR E CTOR Gavin is a Research Analyst with 16 years experience specialising in detailed analysis and research of mid cap industrial companies. Prior to joining Euroz, Gavin held a senior position 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. JO N B ISHO P EXEC UTIVE DIRECTOR HEAD OF RESEARCH PE TER SC HWAR ZB AC H EXECUTIVE DIRECTOR CO-HEAD OF INSITUTIONAL SALES Jon is the Head of Euroz’ Research Department. His role as an analyst is focused on the mining, renewable energy and oil and gas sectors. He has more than 10 years technical and commercial experience within the petroleum and minerals industries and over 13 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. Peter is the Co-Head of the Institutional Sales Division and has been working in the stockbroking industry since 2006. Peter has completed a Bachelor of Commerce from the University of Western Australia along with a Graduate Diploma in Applied Finance and Investment from FINSIA. Peter is also a member of the Institute of Chartered Accountants Australia and New Zealand and prior to joining Euroz was a senior accountant at a Perth Chartered Accounting firm. ANNUAL RE PORT 2020 15 E U R O Z S E C U R I T I E S DIRECTORS PROFILES PAUL COOPER TI M BU NNEY EXEC UTIV E DIR E CTOR EXEC UTIVE DIRECTOR Paul has background in both stockbroking and investment banking. Prior to equities dealing he spent time based in Sydney and Singapore providing structured debt financing to resource companies. Paul holds a Bachelor of Commerce, as well as furthering his education through the Chartered Financial Analyst program and Chinese language studies. CO -HEAD OF INS ITUT IONAL SALE S 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. RYAN STEWA RT EXECUTIVE DIRECTOR Ryan has worked in the broking industry for 19 years and is a Senior Private Client Advisor. He commenced at Euroz in 2003 and in that time has built a predominantly high net worth private client base. TIM LYONS EXEC UTIV E DIR E CTOR 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 acquired by Macquarie Bank. 16 EUROZ LIM ITED E N T R U S T W E A L T H M A N A G E M E N T D I R E C T O R S ENTRUST DIRECTORS ENTRUST WEALTH MANAGEMENT PTY LTD (ENTRUST) WAS FOUNDED IN 2002. ENTRUST WAS ACQUIRED BY EUROZ LIMITED IN JULY 2015 AND PROVIDES HIGH NET WORTH, FAMILY OFFICE, NOT- FOR-PROFIT & SMSF CLIENTS WITH TAILORED STRATEGIC FINANCIAL PLANNING & INVESTMENT ADVICE. ENTRUST HAS CLIENT FUNDS UNDER MANAGEMENT (FUM) OF $969M AT 30 JUNE 2020. During the 2020 financial year (FY20) the management teams focus was on growing the FUM and we are pleased to report growth in FUM of 9.9% for the financial year despite a significant disruption to markets from Covid-19. Through a combination of revenue growth and strong focus on cost reduction, Entrust reported an improvement in profitability versus the prior year. 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. We continue to pursue bolt on acquisitions and have evaluated numerous adviser acquisition opportunities during the period. AN D REW F RY EXECUTIVE DIRECTOR B RA D GO RDO N EXECUTIVE DIRECTOR Andrew joined Entrust Wealth Management Pty Ltd in January 2003 and has previously served as Managing Director and Executive Chairman. He holds a Bachelor of Commerce from Murdoch University and was admitted as a Chartered Accountant by the Chartered Accountants Australia and New Zealand (CA) in 1996. Brad joined Entrust 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 over 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 JONES E X EC UTIVE D IR E CTOR D UNCA N MACK IN TOSH EXECUTIVE DIRECTOR PH IL GEOR GE EXECUTIVE DIRECTOR Rowan joined Entrust 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 from FINSIA and he is a Self Managed Superannuation Fund Specialist adviser 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. Rowan has completed and successfully passed the FASEA professional qualifications required to act as a financial adviser. Duncan joined Entrust Wealth Management Pty Ltd in July 2015 and brings over 20 years of experience in the industry. Duncan performed the role of Chief Investment Officer for Entrust before stepping down to focus on his client base. He is a CFA Charterholder and holds a Bachelor of Commerce from the University of Western Australia. Duncan has also completed a Graduate Diploma of Applied Finance and a Diploma of Financial Planning. After 10 years with Macquarie Bank, Phil joined with Entrust Wealth Management Pty Ltd in 2014. He holds a Bachelor of Science from University of Western Australia (UWA) and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia (SIA). ANNUAL RE PORT 2020 17 F U N D S M A N A G E M E N T D I R E C T O R S WESTOZ DIRECTORS WESTOZ FUNDS MANAGEMENT PTY LTD (WFM) WAS ESTABLISHED IN 2005 AND IS RESPONSIBLE FOR $215 MILLION OF FUNDS UNDER MANAGEMENT AT 30 JUNE 2020. WFM manages the portfolios of two listed investment companies, Westoz Investment Company Limited (WIC) and Ozgrowth Limited (OZG). WIC commenced its investment activities in 2005 and OZG commenced in 2008. Each company’s objective is to generate a positive return over the medium to long- term, regardless of the movements of the broader share market, from an actively managed portfolio of small to mid-cap ASX listed investments and provide shareholders with a consistent stream of dividends. Stocks selected within the portfolios are generally outside the Top 100 and will typically have a connection to Western Australia whether it be through their assets, operations and/or management. WIC and OZG have paid $167 million in fully franked dividends to shareholders since inception. DERMOT WOODS EXEC UTIV E DIR E CTOR P HI LL I P REES NON-EXECUTIVE DIRECTOR Mr Dermot Woods is an Executive Director of Westoz Funds Management Pty Ltd and oversees the construction of its investment portfolios. 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. In August 2018 Mr Philip Rees transitioned to a Non-Executive Director role. Prior to this, Mr Philip Rees was an Executive Director of Westoz Funds Management Pty Ltd and was responsible for the operation and development of the manager’s business. Mr Rees has worked in a range of roles focused on Australian investment markets for the last 30 years. He has previously managed large institutional investment portfolios and developed several early stage investment opportunities until he joined Westoz in April 2005. Mr Rees remains actively engaged within WFM and is on the Investment Committee. 18 EUROZ LIM ITED ANNUAL RE PORT 2020 19 E U R O Z C H A R I T A B L E F O U N D A T I O N 20 EUROZ LIM ITED IN 2006, THE EUROZ CHARITABLE FOUNDATION WAS FORMED IN A PRIVATE ANCILLARY FUND STRUCTURE THROUGH WHICH EUROZ AND ITS STAFF COULD MAKE DONATIONS, INVEST THESE FUNDS, MAKE DISTRIBUTIONS TO WORTHY CHARITIES AND CONTRIBUTE TO OUR BROADER COMMUNITY. SINCE ITS INCEPTION, THE FOUNDATION HAS DONATED IN EXCESS OF $2 MILLION TO OVER 100 INDIVIDUAL CHARITIES AND WORHTY CAUSES. In mid-February Euroz Securities donated $221,949 to the Foundation after holding its second and very successful Commission for a Cause Day. The Foundation donated an additional $3,051 towards the total amount to bring the final figure to $225,000. This amount was divided equally between Perth Children’s Hospital Foundation (PCHF), Street Connect and the Minderoo Foundation – Fire Fund who all received a total of $75,000 each. Perth Children’s Hospital Foundation are deploying their funds to support medical research into the early intervention to prevent respiratory illness in children. PCHF continues to strive to make a positive impact on the enormous burden of childhood respiratory disease in Australia. Street Connect was able to successfully secure a replacement bus for their homeless outreach program. Street Connect is a program that aims to make connections with marginalised young people who gather regularly in public places and engage them in positive life changes. Minderoo Foundation – Fire Fund have continued to support the rebuilding of communities ravaged by the 2019/2020 bushfires. Minderoo have deployed temporary accommodation units on the ground across Kangaroo Island and NSW and have funded over 300 volunteers to help with clean-up activities across NSW, Victoria and South Australia. The emergence of the COVID-19 pandemic in Australia had an almost immediate effect on the operations of charities within Western Australia. The controls put in place by the State government also meant the cancellation of a number of key events around Perth including the Euroz Big Walk for the Perth Children’s Hospital Foundation. It is likely that the impact of the COVID-19 pandemic within the charitable space will be felt for a significant period of time and our Foundation will continue to support worthy local charities during these difficult times. The Euroz Charitable Foundation has been delighted to support the following charities in recent years: ANNUAL RE PORT 2020 21 22 EUROZ LIM ITED 2 0 2 0 F I N A N C I A L R E P O R T For the year ended 30 June 2020 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 PAGE 24 38 39 41 42 43 44 79 80 ANNUAL R EPORT 2020 ANNUAL RE PORT 2020 23 23 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2020 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 2020. 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 Greg Chessell Russell Kane Simon Yeo Anthony Brittain Robert Black COMPANY SECRETARY Anthony Hewett continues in his role as Company Secretary. Mr Hewett is a Chartered Secretary and holds a Master of Business Law (MBusLaw) from Curtin University and a Graduate Diploma in Applied Corporate Governance (GradDipACG) from the Governance Institute of Australia. Mr Hewett is a Fellow of the Institute of Chartered Secretaries and Administrators (FCSA), a Fellow of the Governance Institute of Australia (FGIA), a Master Member (MSAFAA) of the Stockbrokers and Financial Advisers Association of Australia (SAFAA) and a member of the Australian Institute of Company Directors (AICD). PRINCIPAL ACTIVITIES During the year the principal activities of Euroz consisted of: (a) Stockbroking & Corporate Finance; (b) Funds Management; (c) Wealth Management; and (d) Investing. REVIEW OF RESULTS The consolidated entity reports a modest -$1.4 million net loss for the financial year ended 30 June 2020 (2019: net loss $0.1 million). This result represents basic loss per share of $0.87cents (2019: loss per share of $0.07 cents). The major factor in this headline loss is the previously reported and mostly “non cash” write downs associated with the closure of the Prodigy business. The Group’s headline profitability can be summarised as follows: Underlying “cash” profits of $6.5 million plus $0.3 million “non cash” after tax profits from mark-to-market of investments were offset by -$8.2 million “non-cash” after tax losses (mostly relating to Prodigy closure costs) resulting in a -$1.4 million net loss after tax attributable to members. Solid underlying cash profitability and the realisation of some of our fund investments enables your Directors to declare and pay a final fully franked dividend of 6 cents per share (“cps”) which combined with the interim dividend of 1.75 cps brings the full year dividend to 7.75 cps (2019: 6.75 cps). REVIEW OF OPERATIONS (INCLUDES DISCONTINUED OPERATION) Stockbroking & Corporate Finance Principal Trading Funds Management Wealth Management Investment Income Segment revenues 2020 $ 34,475,737 17,983,641 4,119,374 9,087,234 3,655,774 2019 $ 29,564,518 16,148,035 4,038,405 8,801,676 2,972,469 Segment results 2020 $ 2019 $ 5,796,529 (1,477,852) 9,262,456 1,830,264 (11,060,947) 4,074,625 1,940,445 (2,763,869) 2,249,613 (7,510,414) 69,321,760 61,525,103 4,350,450 (2,009,600) 24 EUROZ LIM ITED REVIEW OF OPERATIONS (CONT’D) Group Funds Under Management (“FUM”) remained steady at $1.55 billion ($1.58 billion last year). FUM growth was impacted by the removal of approximately $119 million of Prodigy related FUM and to a degree by the emerging COVID-19 pandemic. Our Euroz Securities Limited (“Euroz Securities”) business raised $1.05 billion of new equity this financial year for our corporate clients versus $469 million in the prior period. 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, business strategies and prospects for future financial years. This information complements and supports the report presented herein. DISCLOSURE OF OPERATIONS The consolidated group is principally involved in the following activities: (a) Stockbroking & Corporate Finance; (b) Funds Management; (c) Wealth Management; and (d) Investing. Our operations are conducted over several locations with Perth, Western Australia (WA) being our main office. In March 2020, the Group concluded a strategic review of the investment in Prodigy which resulted in the decision to discontinue the Funds Management operations in Sydney, New South Wales and Melbourne, Victoria. Details of our operations are outlined below: (a) Stockbroking & Corporate Finance 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: - - - - Company Reports: Detailed analysis on companies as opportunities emerge 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 companies in book format 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 Western Australia’s geographic isolation makes it difficult for institutional investors to maintain close contact with companies based here - investors can rely on our “on the ground” information Institutional dealing team “highly focused” on providing the following services: - - - - - Quality advice and idea generation Efficient execution Regular company contact Site visits Roadshows ANNUAL RE PORT 2020 25 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 DISCLOSURE OF OPERATIONS (CONT’D) (a) Stockbroking & Corporate Finance (cont’d) iii. Private Clients • • • • • • • Significant capacity to support new issues and construct quality retail share registers Substantial “high net worth” client base (s.708 compliant investors) Exposure to high net worth clients via in-house conferences and one-on-one presentations Team of highly experienced and qualified private client advisers providing a broader investment offering for clients of Euroz. Our wealth management service provides strategic investment advice, superannuation advice, investment management and portfolio administration service Funds Under Management “FUM” of $370 million (2019: $357 million) with the majority on our in-house portfolio administration service Extensive research support - high quality research on WA based resource and industrial companies enable our advisers to provide quality investment and trading advice Specialised broking allows: - - Close interaction between research analysts and private client advisers Timely communication of ideas with clients • Sophisticated investors are able to participate in many of our corporate capital raisings iv. Corporate Finance • • The corporate finance team is focused on developing strong, long term relationships with our clients Clients are provided with specialised Corporate Advisory services in: - - - - Equity Capital Raisings and Underwriting Mergers and Acquisitions Strategic Planning and Reviews Privatisation and Reconstructions • Established track record in raising equity capital via: - - - Initial Public Offerings (IPO) Placements Rights Issues (b) Funds Management Westoz Funds Management Pty Ltd (“WFM”) is responsible for managing FUM of $215 million (2019: $227 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. In the past 15 years, WIC and OZG have returned $167 million in fully franked dividends to their shareholders. Prodigy Investment Partners Limited (“Prodigy”) was a funds management partnership with Euroz owning 80% and Mr Steve Tucker, Executive Chairman, owning 20%. In March 2020, the Group concluded a strategic review of the investment in Prodigy which resulted in the decision to discontinue the following operations: • • • FIP Management Services Pty Ltd (formerly Flinders Investment Partners Pty Ltd) (“Flinders”) DSC Investment Management Pty Ltd (formerly Dalton Street Capital Pty Ltd) (“Dalton”) EPC Investment Management Pty Ltd (formerly Equus Point Capital Pty Ltd) (“Equus”) Industry headwinds, increasing barriers to entry and an inability to achieve sufficient scale all had a major influence on this decision. (c) Wealth Management In July 2015, Euroz acquired Entrust Wealth Management Pty Ltd (“Entrust”) which has a 17-year track record as a leading wealth management business. The strategy in acquiring Entrust is 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 a modest improvement in funds under management in line with our growth strategy. Entrust has a significant high net worth client base with FUM of $969 million (2019: $881 million). 26 EUROZ LIM ITED DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 DISCLOSURE OF OPERATIONS (CONT’D) (d) Investing Euroz Limited owns significant shareholdings of 26.25% in WIC and 40.58% in OZG. The investment focus of these funds is on small to mid-cap ASX securities with a general connection to Western Australia. DISCLOSURE OF OPERATIONS – PROFIT Net loss after tax attributable to members was -$1.4 million compared to -$0.1 million in the 2019 financial year. Underlying “cash” profits of approximately $6.5 million plus $0.3 million “non-cash” after tax profits from the mark-to-market of investments were offset by -$8.2 million “non-cash” after tax losses (mostly relating to Prodigy closure costs) resulting in a -$1.4 million net loss after tax attributable to members. DISCLOSURE OF OPERATIONS – SALES Revenue has increased by 12.67% to $69.3 million from $61.5 million (inclusive of revenue from discontinued operations). We would categorise this year’s underlying profitability as a reasonable result in somewhat challenging markets. (a) Stockbroking & Corporate Finance Stockbroking and Corporate Finance revenue was up by 16.61% to $34.5 million from $29.6 million. Euroz Securities managed 36 (2019:18) Equity Capital Market (“ECM”) transactions this year raising $1.05 billion (2019: $469 million). FUM growth in our private client business continues to make progress and was up 3.5% to $369.7 million. (b) Principal Trading Revenue from Principal Trading increased by 11.4% to $18 million from $16.1 million. (c) Funds Management Revenue from Funds Management increased by 2% to $4.1 million from $4.0 million in the prior year. Revenue predominantly included management fees received from WFM managed funds. Westoz Investment Company Limited (“WIC”) and Ozgrowth Limited (“OZG”) have performed well in challenging and volatile markets. Their respective gross investment performance of -1.7% and 7.0% for the financial year compares to -7.2% for the All Ordinaries Accumulation Index and 1.8% for the Small Resources Accumulation Index for the same period. Whilst there was no performance fee income to the manager during this period we remain optimistic on resources and Western Australia in general and the opportunity for outperformance in the coming year. (d) Wealth Management Wealth Management revenue increased slightly by 3.2% to $9.1 million from $8.8 million. Entrust reported a pleasing improvement in FUM of 10%. We are pleased with the quality and stability of the Entrust offering at a time of significant change in the Wealth Management landscape. Entrust is well positioned for continued growth. (e) Investment Income Investment income increased by 23% to $3.65 million (2019: $3 million). DISCLOSURE OF BUSINESS STRATEGIES AND PROSPECTS - GROWTH Our aim is to build real diversification of revenues into our overall business. We are cognisant that we need to significantly grow our wealth management FUM. Group FUM remained steady at $1.55 billion (2019: $1.58 billion) however, FUM growth was impacted by the removal of approximately $119 million of Prodigy related FUM and to a degree by the emerging COVID-19 pandemic. In March 2020, the Group concluded a strategic review of the investment in Prodigy which resulted in the decision to discontinue the following operations: • • • FIP Management Services Pty Ltd (formerly Flinders Investment Partners Pty Ltd) (“Flinders”) DSC Investment Management Pty Ltd (formerly Dalton Street Capital Pty Ltd) (“Dalton”) EPC Investment Management Pty Ltd (formerly Equus Point Capital Pty Ltd) (“Equus”) These funds managed by these boutiques have either been wound up or transferred to other managers. On 17 July 2020, Euroz announced it has entered into a binding bid implementation agreement for an off-market takeover of 100% of Hartleys Limited (“Hartley”). The transaction is expected to be completed by October 2020 following which Hartleys will be renamed “Euroz Hartleys Limited”. The merger of Euroz Securities into Euroz Hartleys will create a financial services company with a strong balance sheet, critical scale, strong operational synergies with solid recurring and transactional revenues delivering a positive outcome for clients and shareholders alike. 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 management businesses whilst still retaining the transaction-based upside of our traditional stockbroking business and performance fee upside from our funds management business. ANNUAL RE PORT 2020 27 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 DISCLOSURE OF BUSINESS STRATEGIES AND PROSPECTS - MATERIAL BUSINESS RISKS Due to the impact of Coronavirus (COVID-19) pandemic, the past year continues the trend of extremely volatile trading conditions. Like many businesses we adapted quickly to remote working and our continued provision of key client services and operations. We have experienced record trading months with the volatility of the markets. However significant economic concerns remain within the community. 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 have decreased to $114.3 million at 30 June 2020 from $117.8 million at 30 June 2019. 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 $31.9 million at 30 June 2020 (30 June 2019: $25.1 million). During the past twelve 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 WFM 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 $111 million (including the Pershing security deposit of $5 million) as at 30 June 2020. We have a Net Tangible Assets (NTA) of 64¢ per share and no debt. Euroz has a proud history of consistent profits and dividends having paid a total of $235 million in fully franked dividends over the past 20 years. The Directors believe the Company is in a strong and stable financial position to expand and grow its current operations. Loss per share Basic loss per share Diluted loss per share DIVIDENDS – EUROZ LIMITED Dividends paid or provided for during the financial year were as follows: Interim ordinary dividend of 1.75 cents (2019: 1.75 cents) per fully paid ordinary share was paid on 21 February 2020. Provision for final ordinary dividend for 30 June 2020 of 6 cents (2019: 5 cents) per fully paid ordinary share paid on 7 August 2020. 2020 Cents (0.87) (0.84) 2019 Cents (0.07) (0.07) 2020 $ 2019 $ 2,838,449 2,817,314 9,751,095 8,049,469 12,589,544 10,866,783 Of the total dividends paid during the year, $4,140 (2019: $7,816) was paid to the Euroz Share Trust and is undistributed. Therefore, it has been eliminated on consolidation. STATE OF AFFAIRS There have been no significant changes in the state of affairs of the consolidated group during the year other than the discontinuance of fund management’s operations of Flinders, Dalton and Equus as well as the acquisition of 1,940,740 treasury shares on-market and the vesting of 1,075,630 shares under the Performance Rights Plan. SHARE OPTIONS There were no options on issue at 30 June 2020 and 30 June 2019. ENVIRONMENTAL REGULATION The consolidated group is not subject to significant environmental regulation in respect of its operations. EVENTS AFTER REPORTING DATE On 17 July 2020, Euroz and Hartleys entered into a binding bid implementation agreement whereby Euroz has agreed to make an off-market takeover offer to acquire 100% of the issued capital in Hartleys (Offers). 28 EUROZ LIM ITED DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 EVENTS AFTER REPORTING DATE (CONT’D) Under the Offers, holders of Hartleys shares will be entitled to receive 3.3033304 new Euroz shares (rounded up) for every Hartleys share accepted into the Offers. This equates to the issue of approximately 33 million Euroz shares as consideration for the acquisition of 100% Hartleys, with Hartleys shareholders to own up to approximately 17% of the combined group. The transaction is expected to be completed by October 2020 with the integration of the two business to commence shortly thereafter. The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has not significantly impacted the Group up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. The Directors are not aware of any other matter or circumstance subsequent to 30 June 2020 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 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. Information on Directors Director A McKenzie Executive Chairman Experience Mr McKenzie has worked in the stockbroking industry since 1991. J Hughes Director Mr Hughes has worked in the stockbroking industry since 1986. G Chessell Director Mr Chessell has worked in the stockbroking industry since 1996. Particulars of Directors’ interests in shares of Euroz Limited Ordinary shares* 13,036,008 Special responsibilities and qualifications Executive Chairman of Euroz Limited and Euroz Securities Executive Director of Prodigy Investment Partners, FIP Management Services Pty Ltd, DSC Investment Management Pty Ltd and EPC Investment Management Pty Ltd 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”) and is a Master Member (MSAFAA) of SAFAA Executive Director of Euroz Limited, Euroz Securities, Westoz Funds Management and Prodigy Investment Partners 13,128,317 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 Master Member (MSAFAA) of SAFAA Executive Director of Euroz Limited and Euroz Securities 5,067,695 Member of Euroz Limited Audit & Risk Committee Established the Research Division of Euroz Securities which he headed up until October 2017 before moving to Corporate Finance team Holds a Bachelor of Applied Science in Geology and a Graduate Diploma in Business ANNUAL RE PORT 2020 29 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 LIKELY DEVELOPMENTS (CONT’D) Information on Directors Director R Kane Director Experience Mr Kane has worked in the stockbroking industry since 1994. Special responsibilities and qualifications Executive Director of Euroz Limited and Euroz Securities Member of Euroz Securities Underwriting Committee Particulars of Directors’ interests in shares of Euroz Limited Ordinary shares* 3,501,647 S Yeo Director Mr Yeo has worked in the stockbroking industry since 1993. A Brittain Director Mr Brittain has worked in the funds management and stockbroking industry since 1992. 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 (ECU) Executive Director of Euroz Limited and Euroz Securities 4,921,463 643,633 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 Executive Director of Euroz Limited, Euroz Securities, Entrust Wealth Management, Prodigy Investment Partners, FIP Management Services Pty Ltd, DSC Investment Management Pty Ltd and EPC Investment Management Pty Ltd Chief Operating and Financial Officer Member of Euroz Limited Audit and Risk Committee Member of Euroz Securities and Entrust Wealth Management Compliance Committee Member of Prodigy Investment Partners Risk and 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 (GAICD) of AICD and a Master Member (MSAFAA) of SAFAA R Black Director Mr Black has worked in stockbroking industry since 1993. Executive Director of Euroz Limited, Euroz Securities and Entrust Wealth Management 4,643,646 Managing Director of Euroz Securities Member of Euroz Limited Remuneration Committee Member of Euroz Securities Underwriting Committee Member of Euroz Securities Compliance Committee Holds a Bachelor of Business Degree from ECU and is a Graduate member (GAICD) of AICD *Balance as at the date of signing the report and total shares includes shares allocated under the Performance Rights Plan. 30 EUROZ LIM ITED DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 MEETINGS OF DIRECTORS The numbers of meetings of the Company’s Board of Directors held during the year ended 30 June 2020 and the numbers of meetings attended by each Director were: Director Directors Meetings Committee Meetings Andrew McKenzie Jay Hughes Greg Chessell Russell Kane Simon Yeo Anthony Brittain Robert Black Number eligible to attend 22 Number attended 22 Number eligible to attend - Number attended - Number eligible to attend 2 Number attended 2 Audit Remuneration 22 22 22 22 22 22 22 22 20 22 22 22 - 3 - 3 3 - - 3 - 3 3 - 2 - - - - 2 2 - - - - 2 REMUNERATION REPORT (AUDITED) 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 Company, as well as the share price at the end of the respective financial years. 2016 $ 2017 $ 2018 $ 2019 $ 2020 $ Revenue (including gains on fair value movements in investment entities and discontinued operations) 41,924,867 70,372,892 92,087,944 47,548,618 70,908,770 Net profit / (loss) after tax attributable to members 3,560,417 19,371,167 31,263,812 (107,685) (1,354,726) Share price at year end Dividends paid or recommended 0.79 1.08 1.25 1.25 1.03 6,438,992 11,671,730 17,708,832 10,866,783 12,589,544 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 Directors’ fees 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. ANNUAL RE PORT 2020 31 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 REMUNERATION REPORT (CONT’D) 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. Base pay is also reviewed upon promotion or additional responsibilities. There is no guarantee of base pay increases fixed in any senior executive or Directors contracts. Executives are offered a competitive salary that comprises of a base salary inclusive of superannuation and a combination of some of the following short term incentives, dependant on the terms of the individual employment contract: • • • Participation in the profit share pool Commission Discretionary bonus Profit share pool – 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. Discretionary bonus Executives and other staff members who do not participate in the profit share pool are paid a discretionary bonus based on the profitability of the Company. Similar to the profit share pool, the distribution of the discretionary bonus is also leveraged to the individual’s performance and is made as a combination of cash (75%) and equity (25%) as detailed below in “Equity based payments”. Equity based payments The 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 based payments. The shares issued will only vest to the employee after 3 years subsequent service following the initial year of service. 32 EUROZ LIM ITED DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 REMUNERATION REPORT (CONT’D) 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. Short-term Profit Share/bonus Base salary $ $ 246,092 250,000 253,997 253,997 253,997 250,000 250,000 225,000 337,500 337,500 210,000 187,500 187,500 337,500 157,500 172,500 Post- Employment Share Based Payment Other benefits Superannuation Performance Rights $ 23,569 25,708 19,384 19,557 22,279 18,508 20,491 10,551 $ 25,000 25,000 21,003 21,004 21,003 25,000 25,000 25,000 133,438 133,438 65,000 95,000 71,250 114,063 50,313 63,438 Total $ 765,599 771,646 569,384 577,058 556,029 745,071 503,304 496,489 Performance related 62% 61% 48% 49% 47% 61% 41% 48% 2020 Andrew McKenzie Jay Hughes Greg Chessell Russell Kane Simon Yeo Robert Black Anthony Brittain Dermot Woods Total 1,983,083 1,927,500 160,047 188,010 725,940 4,984,580 Current Directors did not receive any Directors fees. Short-term Profit Share/bonus Base salary $ $ 243,149 250,000 254,469 250,000 254,469 254,469 250,000 225,000 234,308 281,250 281,250 127,500 180,000 142,500 270,000 93,750 120,000 - Post- Employment Share Based Payment Other benefits Superannuation Performance Rights $ 21,922 25,461 17,961 18,022 20,167 17,085 18,755 9,153 8,975 $ 25,000 25,000 20,531 25,000 20,531 20,531 25,000 25,000 9,688 120,313 120,313 57,500 91,250 65,625 99,063 43,438 54,063 105,625 Total $ 691,634 702,024 477,961 564,272 503,292 661,148 430,943 433,216 358,596 Performance related 58% 57% 39% 48% 41% 56% 32% 40% 29% 2019 Andrew McKenzie Jay Hughes Greg Chessell Russell Kane Simon Yeo Robert Black Anthony Brittain Dermot Woods Phil Rees* Total 2,215,864 1,496,250 157,501 196,281 757,190 4,823,086 *Retired and ceased to be a KMP on 31 August 2018 after which he received a Director’s fee as a Non-Executive Director of WFM. All other current Directors did not receive any Directors fees. ANNUAL RE PORT 2020 33 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 REMUNERATION REPORT (CONT’D) SERVICE AGREEMENTS 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 Base salary, inclusive of superannuation for the year ended 30 June 2020 of $275,000 (2019 - $275,000) plus profit share 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 Base salary, inclusive of superannuation for the year ended 30 June 2020 of $275,000 (2019 - $275,000) plus profit share 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 2020 of $275,000 (2019 - $275,000) 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 2020 of $275,000 (2019 - $275,000) plus profit share Payment on termination of employment by the employer, other than for gross misconduct three months’ salary Simon Yeo, Director • • • Term of contract – ongoing employment contract Base salary, inclusive of superannuation for the year ended 30 June 2020 of $275,000 (2019 - $275,000) 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 2020 of $275,000 (2019 - $275,000) plus bonus Payment on termination of employment by the employer, other than for gross misconduct – three months’ salary Robert Black, Director • • • Term of contract – ongoing employment contract Base salary, inclusive of superannuation for the year ended 30 June 2020 of $275,000 (2019 - $275,000) plus profit share Payment on termination of employment by the employer, other than for gross misconduct – three months’ salary Dermot Woods, Director Westoz Funds Management Pty Ltd Term of contract – ongoing employment contract Base salary, inclusive of superannuation for the year ended 30 June 2020 of $250,000 (2019 - $250,000) plus bonus Payment on termination of employment by the employer, other than for gross misconduct – three months’ salary • • • 34 EUROZ LIM ITED DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 REMUNERATION REPORT (CONT’D) 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: 2020 Ordinary shares A McKenzie J Hughes G Chessell R Kane S Yeo R Black A Brittain D Woods 2019 Ordinary shares A McKenzie J Hughes G Chessell R Kane S Yeo R Black A Brittain P Rees D Woods Balance at 1 July 2019 Received via PRP (i) Net change other * Bought & (sold)** Balance at 30 June 2020 12,680,051 12,690,912 4,740,280 3,353,006 4,609,197 4,275,630 590,062 818,275 114,795 114,795 71,428 63,775 63,775 114,795 53,571 58,673 43,757,413 655,607 - - - - - - - - - 50,000 149,969 141,216 84,866 120,000 187,643 - - 12,844,846 12,955,676 4,952,924 3,501,647 4,792,972 4,578,068 643,633 876,948 733,694 45,146,714 Balance at 1 July 2018 Received via PRP (i) Net change other * Bought & (sold)** Balance at 30 June 2019 12,501,269 12,512,130 4,636,160 3,252,586 4,421,281 3,773,306 563,801 1,474,907 - 78,782 78,782 35,714 50,420 39,916 75,630 26,261 - - - - - - - - - - 818,275 100,000 100,000 68,406 50,000 148,000 426,694 - (474,906) - 12,680,051 12,690,912 4,740,280 3,353,006 4,609,197 4,275,630 590,062 1,000,001 818,275 43,135,440 385,505 818,275 418,194 44,757,414 * Net change reflects commencement or cessation as a KMP. ** Inclusive of shares allocated in Dividend Reinvestment Plan (DRP). (i) These shares are held by the Euroz Share Trust and are currently vesting in accordance with the Euroz Performance Rights Plan (PRP). ANNUAL RE PORT 2020 35 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 REMUNERATION REPORT (CONT’D) 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: 2020 Performance Rights A McKenzie J Hughes G Chessell R Kane S Yeo R Black A Brittain D Woods 2019 Performance Rights A McKenzie J Hughes G Chessell R Kane S Yeo R Black A Brittain D Woods Granted as remuneration Vested 1 1 1 1 1 1 1 1 8 (1) (1) (1) (1) (1) (1) (1) (1) (8) Granted as remuneration Vested 1 1 1 1 1 1 1 1 8 (1) (1) (1) (1) (1) (1) (1) (1) (8) 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 to KMPs in the year amounts to $725,940 (2019: $757,190). 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 36 EUROZ LIM ITED DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS Euroz Limited has a Deed of Indemnity for all the Directors and Officers of the Company against all losses or liabilities incurred by each Director and Officer in their capacities as Directors and Officers of the Company. The Company agreed to indemnify and keep indemnified the Directors and Officers against all liabilities by the Directors and Officers as a Director and Officer of the Company to the extent permitted under the Corporations Act 2001. During the financial year, Euroz Securities Limited paid a premium on behalf of the Group to insure the Directors and Officers of the Company. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the Directors and Officers in their capacity as Directors and Officers of the Company. INDEMNIFICATION OF AUDITORS The Company has not indemnified the auditor and has not paid an insurance premium to insure 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 Perth. 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 Perth 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 The lead auditor’s independence declaration for the year ended 30 June 2020 has been received and follows the Directors’ report. This report is made in accordance with a resolution of the Directors. $ 48,400 Andrew McKenzie Executive Chairman Date: 20 August 2020 Robert Black Executive Director ANNUAL RE PORT 2020 37 DIRECTORS’ REPORT (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 AUDITOR’S INDEPENDENCE DECLARATION FOR THE YEAR ENDED 30 JUNE 2020 PKF Perth TO THE DIRECTORS OF EUROZ LIMITED In relation to our audit of the financial report of Euroz Limited for the year ended 30 June 2020, 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. This declaration is in respect of Euroz Limited and the entities it controlled during the financial year. PKF PERTH SIMON FERMANIS AUDIT PARTNER 20 AUGUST 2020 WEST PERTH WESTERN AUSTRALIA Level 4, 35 Havelock Street, West Perth, WA 6005 PO Box 609, West Perth, WA 6872 T: +61 8 9426 8999 F: +61 8 9426 8900 www.pkfperth.com.au PKF Perth is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Liability limited by a scheme approved under Professional Standards Legislation. 38 EUROZ LIM ITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Revenue from continuing operations 4 67,545,324 59,952,695 Notes 2020 $ 2019 $ Gain / (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 Stockbroking expenses Communication expenses Impairment expenses Carrying amount of principal trading securities sold Other expenses Profit / (Loss) before income tax expense from continuing operations Income tax benefit Profit / (Loss) after income tax expense for the year from continuing operations Loss after income tax expense for the year from discontinued operations 5 6 7 1,587,010 (27,444,866) (1,331,240) (423,714) (859,283) (670,544) (3,911,055) (266,796) (3,130,000) (21,036,260) (4,066,366) 5,992,210 1,979,426 7,971,636 (13,976,485) (23,126,714) (340,598) (484,050) (443,995) (839,162) (3,193,983) (223,449) - (13,107,836) (4,701,295) (484,872) 95,922 (388,950) (3,621,186) (1,620,650) Profit / (Loss) after income tax expense for the year 4,350,450 (2,009,600) Other comprehensive income Other comprehensive income net of tax Total comprehensive income / (loss) for the year Profit / (Loss) for the year is attributable to: Non-controlling interest Owners of Euroz Limited Total comprehensive income / (loss) for the year is attributable to: Continuing operations Discontinued operations Non-controlling interest Continuing operations Discontinued operations Owners of Euroz Limited - - 4,350,450 (2,009,600) 5,705,176 (1,354,726) (1,901,915) (107,685) 4,350,450 (2,009,600) (220,563) 5,925,739 5,705,176 8,192,199 (9,546,925) (1,354,726) (20,898) (1,881,017) (1,901,915) (368,052) 260,367 (107,685) 4,350,450 (2,009,600) ANNUAL RE PORT 2020 39 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (CONT’D) FOR THE YEAR ENDED 30 JUNE 2020 Earnings / (loss) per share for profit / (loss) from continuing operations attributable to the owners of Euroz Limited Basic (loss) / earnings per share (cents) Diluted (loss) / earnings per share (cents) Earnings / (loss) per share for profit / (loss) from discontinued operations attributable to the owners of Euroz Limited Basic (loss) / earnings per share (cents) Diluted (loss) / earnings per share (cents) Earnings / (loss) per share for profit / (loss) attributable to the owners of Euroz Limited Basic loss per share (cents) Diluted loss per share (cents) Notes 35 35 35 35 35 35 2020 $ 5.26 5.09 (6.13) (5.93) (0.87) (0.84) 2019 $ (0.24) (0.23) 0.17 0.16 (0.07) (0.07) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. v 40 EUROZ LIM ITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets Current tax receivable Total current assets NON-CURRENT ASSETS Financial assets Investments Investment entities at fair value Plant and equipment Deferred tax assets Intangible assets Rights of use asset Total non-current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Current tax liabilities Short term provisions Lease liability Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Long term provisions Lease liability Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings Equity attributable to the owners of Euroz Limited Non-controlling interest TOTAL EQUITY Notes 8 9 10 11 19 12 13 14 15 16 17 21 18 19 20 21 22 23 21 2020 $ 41,106,390 2,368,924 7,164,665 1,418,940 - 2019 $ 27,383,046 1,934,887 7,430,215 1,379,065 217,140 52,058,919 38,344,353 5,216,699 599,790 56,998,090 472,987 9,464,820 9,798,785 4,556,400 5,000,000 13,136,978 58,016,264 715,152 6,960,607 10,178,785 - 87,107,571 94,007,786 139,166,490 132,352,139 3,639,785 2,548,489 13,090,873 879,398 1,772,881 - 11,446,094 - 20,158,545 13,218,975 946,875 72,656 3,653,897 1,313,068 24,680 - 4,673,428 1,337,748 24,831,973 14,556,723 114,334,517 117,795,416 24 (a) 24 (g) 102,167,440 4,869,667 7,267,597 114,304,704 101,333,244 3,846,281 18,503,754 123,683,279 29,813 (5,887,863) 114,334,517 117,795,416 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. ANNUAL RE PORT 2020 41 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Balance at 1 July 2018 102,343,793 2,646,774 29,470,406 (3,985,948) 130,475,025 Issued Capital $ Share Based Payment Reserve $ Retained Earnings $ Non-Controlling Interest $ Total $ (107,685) (1,901,915) (2,009,600) (107,685) (1,901,915) (2,009,600) Loss for the period Total comprehensive loss for the period Transactions with owners, recorded directly in equity Shares issued during the period Vested shares under employee share plan Treasury shares Share issue cost Share based payments Dividends to equity holders Total contributions by and distributions to owners - - - 494,685 (1,494,734) (10,500) - - - - - (494,685) - - 1,694,192 - (10,858,967) (1,010,549) 1,199,507 (10,858,967) - - - - - - - - - - - - - - (1,494,734) (10,500) 1,694,192 (10,858,967) (10,670,009) Balance at 30 June 2019 101,333,244 3,846,281 18,503,754 (5,887,863) 117,795,416 Balance at 1 July 2019 Adjustment for change in accounting policy (Note 1) 101,333,244 3,846,281 18,503,754 (5,887,863) 117,795,416 Balance 1 July 2019 - restated - - (46,036) - (46,036) 101,333,244 3,846,281 18,457,718 (5,887,863) 117,749,380 Loss for the period Total comprehensive loss for the period - - Transactions with owners, recorded directly in equity Shares issued during the period 1,639,362 (1,354,726) 5,705,176 4,350,450 (1,354,726) 5,705,176 4,350,450 - 212,500 1,851,862 Reclassification of subsidiary share capital Vested shares under employee share plan Treasury shares Share issue cost Share based payments Dividends to equity holders Total contributions by and distributions to owners - 902,234 (1,707,400) - - - 2,749,999 - - - - - (12,585,394) - - - - - - 2,749,999 - (1,707,400) - 1,925,620 (12,585,394) 834,196 1,023,386 (9,835,395) 212,500 (7,765,313) - - - - (902,234) - - 1,925,620 Balance at 30 June 2020 102,167,440 4,869,667 7,267,597 29,813 114,334,517 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 42 EUROZ LIM ITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 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 Notes 2020 $ 2019 $ 46,627,655 (37,160,919) 9,466,736 265,238 6,505,285 195,551 (4,152,186) 44,555,436 (37,920,386) 6,635,050 572,511 16,092,302 (8,350,953) (11,196,545) Net cash flows from operating activities 33 12,280,624 3,752,365 CASH FLOWS FROM INVESTING ACTIVITIES Payments for investment in WIC & OZG Payments for management investment schemes Receipts from disposal of management investment schemes Dividends and trust distributions received Transfer to financial assets Payments for plant and equipment (164,750) (250,020) 11,452,043 2,975,099 (216,699) (159,049) - (2,000,000) 2,876,534 2,934,506 - (364,281) Net cash flows from investing activities 13,636,624 3,446,759 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Payments for treasury shares Repayment of lease liabilities Interest paid on lease liabilities Proceeds from share issue Share issue cost Net cash flows used in financing activities (10,883,769) (1,707,400) (1,076,592) (165,505) 1,639,362 (17,701,016) (1,494,731) - - - - (10,500) (12,193,904) (19,206,247) Net increase / (decrease) in cash and cash equivalents 13,723,344 (12,007,123) Cash and cash equivalents at 1 July 27,383,046 39,390,169 Cash and cash equivalents at 30 June 8 41,106,390 27,383,046 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. ANNUAL RE PORT 2020 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 CONTENTS PAGE NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES NOTE 2: SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS NOTE 3: SEGMENT INFORMATION NOTE 4: REVENUE NOTE 5: PROFIT / (LOSS) BEFORE INCOME TAX EXPENSE FROM CONTINUING OPERATIONS NOTE 6: INCOME TAX NOTE 7: DISCONTINUED OPERATIONS NOTE 8: CASH AND CASH EQUIVALENTS NOTE 9: TRADE AND OTHER RECEIVABLES NOTE 10: INVENTORIES NOTE 11: OTHER CURRENT ASSETS NOTE 12: FINANCIAL ASSETS NOTE 13: INVESTMENTS NOTE 14: INVESTMENT ENTITIES AT FAIR VALUE NOTE 15: PLANT AND EQUIPMENT NOTE 16: DEFERRED TAX ASSETS NOTE 17: INTANGIBLE ASSETS NOTE 18: TRADE AND OTHER PAYABLES NOTE 19: CURRENT TAX ASSETS AND LIABILITIES NOTE 20: SHORT TERM PROVISIONS NOTE 21: RIGHTS OF USE ASSET AND LEASE LIABILITY NOTE 22: DEFERRED TAX LIABILITIES NOTE 23: LONG TERM PROVISIONS NOTE 24: CONTRIBUTED EQUITY NOTE 25: DIVIDENDS NOTE 26: FINANCIAL INSTRUMENTS NOTE 27: REMUNERATION OF AUDITORS NOTE 28: CONTINGENT LIABILITIES NOTE 29: COMMITMENTS FOR EXPENDITURE NOTE 30: RELATED PARTIES NOTE 31: INVESTMENTS IN CONTROLLED ENTITIES NOTE 32: EVENTS SUBSEQUENT TO REPORTING DATE NOTE 33: RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES NOTE 34: NON-CASH INVESTING AND FINANCING ACTIVITIES NOTE 35: (LOSS) / EARNINGS PER SHARE NOTE 36: PARENT ENTITY DISCLOSURES NOTE 37: COMPANY DETAILS 45 56 57 59 60 60 62 63 63 63 63 63 64 64 64 65 65 66 66 66 67 67 67 67 69 69 72 72 73 73 75 76 76 77 77 78 78 44 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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 20 August 2020. 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 and Chi - X, 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 2020 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. ANNUAL RE PORT 2020 45 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (b) Income tax (cont’d) 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. 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 from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability. Brokerage revenue Brokerage revenue from share trading is considered to be derived from a single obligation being the completion of a share trading transaction. Accordingly, at the completion of the transaction the revenue is recognised. External trail commission classified as brokerage is also considered a distinct service and does not involve other promised goods or services. Therefore, revenue is recognised at the completion of the service. 46 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (d) Revenue recognition (cont’d) Underwriting, placement fees and corporate retainers Corporate retainers relate to the service fee for work performed such as corporate advisory services. This service is considered a distinct performance obligation and accordingly revenue is recognised as the service is completed in accordance with the engagement mandate. Placement fees are fees charged on raising capital for clients. This is determined to be the single performance obligation and revenue is recognised as the service is completed in accordance with the engagement mandate. Underwriting fees are derived upon the satisfactory completion of the engagement criteria which may be the execution of a capital raising or the sale of a pre-determined number of shares for a client. The performance obligation is determined to be the completion of the capital raise or sale of the shares and revenue is recognised as the service is completed in accordance with the engagement mandate. The payment terms in relation to this source of revenue is 7 days. Performance and management fees Performance fee income is derived from investment management agreements based on the performance of an underlying fund over a contracted period of time. If the fund performance exceeds a specified threshold the performance fee payable is determined and recorded as revenue at the conclusion of the performance period. The performance obligation is determined to be singular being to achieve a certain performance target over a specified period. Management fee income is derived from investment management agreements whereby a monthly management fee is payable based on the fund value. The performance obligation is the monthly management of the fund and revenue is recorded monthly following the completion of the month. The payment terms in relation to this source of revenue is 7 days. Wealth management fees Wealth management fee income is typically derived from agreements with clients individually whereby a monthly management fee is payable based on the portfolio value or some other agreed fee for service. The performance obligation is the monthly management of the portfolio and revenue is recorded monthly following the completion of the month. Proceeds from the sale of investments Share trading revenue from the sale of stocks in the jobbing account is recognised on the day the security is traded. Revenue comprises the gross proceeds on sale of the security. The single performance obligation is the sale of the security. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. (e) Receivables Trade receivables are recognised as current receivables as they are generally settled within 30 days from the date of recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. 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. (f) Inventories Inventories are stocks held in the operating (house) account at year end. All inventory is held at fair value. Refer to Note 1(v) financial assets at fair value through profit or loss. ANNUAL RE PORT 2020 47 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (g) 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. 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 Leasehold improvements Plant and equipment Depreciation Rate 25% 25 – 33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to the asset are transferred to retained earnings. (h) Leasehold improvements 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. (i) Leases 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. (j) Trade and other payables Trade and other payables 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 payables 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. (k) 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. (l) 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. (m) Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. (n) Provisions Provisions are recognised when the Company has a present (legal or constructive) obligation as a result of a past event, it is probable the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. 48 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (o) Employee benefits (i) Wages, salaries and annual leave Liabilities for wages, salaries and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Employee benefits payable later than one year Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. There have been no changes to the method used to calculate this liability. (iii) Superannuation Contributions are made by the consolidated group to superannuation funds as stipulated by statutory requirements and are charged as expenses when incurred. (iv) Employee benefit on costs Employee benefit on costs, including payroll tax, are recognised and included in employee benefits liabilities and costs when the employee benefits to which they relate are recognised as liabilities. (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 is 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 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. (q) Earnings per share (i) Basic earnings per share Basic earnings per share is determined by dividing the net profit after income tax attributable to members of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. The potential impact of issuing treasury shares externally is considered when calculating diluted earnings per share. ANNUAL RE PORT 2020 49 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (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. 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) Investments and Other Financial Assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. 50 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (v) Investments and Other Financial Assets (cont’d) Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Impairment of financial assets The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in 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. 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) 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. ANNUAL RE PORT 2020 51 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (z) 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. (aa) Discontinued operations In March 2020, the Group have concluded a strategic review of the investment in Prodigy which has resulted in the decision to discontinue the operations of the three subsidiaries, as follows: • • • FIP Management Services Pty Ltd (Note 31) DSC Investment Management Pty Ltd (Note 31) EPC Investment Pty Ltd (Note 31) The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income. 52 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (aa) Discontinued operations (cont’d) Impact of discontinued operations As required under AASB 5, the financial performance of the above subsidiaries have been reclassed in the Statement of Profit or Loss and Other Comprehensive Income as discontinued operations as follows: As reported in prior year Reclassification 2019 $ Reclassed balance 2019 $ $ Revenue from continuing operations 61,525,103 (1,572,408) 59,952,695 Gain / (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 Stockbroking expenses Communication expenses Impairment expenses Carrying amount of principal trading securities sold Other expenses (13,976,485) - (13,976,485) (24,978,245) 1,851,531 (23,126,714) (385,708) (496,958) (668,851) (932,955) (4,159,110) (393,054) - (13,107,836) (5,254,427) 45,110 12,908 224,856 93,792 965,127 169,606 - - 553,132 (340,598) (484,050) (443,995) (839,162) (3,193,983) (223,449) - (13,107,836) (4,701,295) Profit / (Loss) before income tax expense from continuing operations Income tax benefit (2,828,526) 2,343,654 (484,872) 818,926 (723,004) 95,922 Profit / (Loss) after income tax expense for the year from continuing operations (2,009,600) 1,620,650 (388,950) Profit/ (Loss) after income tax expense for the year from discontinued operations - (1,620,650) (1,620,650) Profit / (Loss) after income tax expense for the year (2,009,600) Other comprehensive income Other comprehensive income net of tax Total comprehensive income / (loss) for the year Profit / (Loss) the year is attributable to: Non-controlling interest Owners of Euroz Limited - (2,009,600) (1,901,915) (107,685) (2,009,600) - - - - - - (2,009,600) - (2,009,600) (1,901,915) (107,685) (2,009,600) Total comprehensive income / (loss) for the year is attributable to: Continuing operations Discontinued operations Non-controlling interest Continuing operations Discontinued operations Owners of Euroz Limited (1,901,915) - (1,901,915) 1,881,017 (1,881,017) - (20,898) (1,881,017) (1,901,915) (107,685) (260,367) (368,052) - 260,367 (107,685) (2,009,600) - - 260,367 (107,685) (2,009,600) ANNUAL RE PORT 2020 53 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (ab) Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The consolidated group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. (ac) Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. (ad) New standards and interpretations The consolidated group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to the ir operations and effective for the current year. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following new Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 16 Leases The consolidated entity has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. 54 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) Accounting policies (cont’d) (ad) New standards and interpretations (cont’d) Impact of adoption AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not been restated. The impact of adoption on opening retained profits as at 1 July 2019 was as follows: Operating lease commitments as at 1 July 2019 (AASB 117) Finance lease commitments as at 1 July 2019 (AASB 117) Operating lease commitments discount based on the weighted average incremental borrowing rate of 3.5% (AASB 16) Short-term leases not recognised as a right-of-use asset (AASB 16) Right-of-use assets (AASB 16) Lease liabilities - current (AASB 16) Lease liabilities - non-current (AASB 16) Reduction in opening retained profits as at 1 July 2019 1 July 2019 $ 6,131,095 - (567,242) - 5,563,853 (1,076,737) (4,533,152) (46,036) New Accounting Standards and Interpretations not yet mandatory or early adopted 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 AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contributions of Assets between an Investor and its Associate or Joint Venture AASB 2018-6 AASB 2018-7 AASB 2019-1 AASB 2019-2 AASB 2019-3 AASB 2019-5 AASB 2020-1 AASB 2020-2 Amendments to Australian Accounting Standards – Definition of a Business Amendments to Australian Accounting Standards – Definition of Material Amendments to Australian Accounting Standards – References to the Conceptual Framework Amendments to Australian Accounting Standards – Implementation of AASB 1059 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities Application date of standard Issue date 1 January 2022 December 2014 1 January 2020 December 2018 1 January 2020 December 2018 1 January 2020 May 2019 1 January 2020 September 2019 1 January 2020 October 2019 1 January 2020 November 2019 1 January 2022 March 2020 1 July 2021 March 2020 AASB 2020-3 AASB 2020-4 Amendments to Australian Accounting Standards – Annual Improvements 2018 – 2020 and Other Amendment Amendments to Australian Accounting Standards – Covid-19 Related Rent Concessions AASB 17 Insurance Contracts AASB 1059 Service Concession Arrangements: Grantors AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (Appendix C) 1 January 2022 June 2020 1 June 2020 June 2020 1 January 2021 1 January 2020 July 2017 July 2017 1 July 2021 March 2020 ANNUAL RE PORT 2020 55 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 2. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements incorporated in the financial statements are based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Key estimates and judgments (i) Impairment At each reporting date, the consolidated group compares the carrying values and market values of 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. (ii) Classification of inventories The consolidated group has decided to classify investments in listed securities at fair value through profit and loss. 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 2020, goodwill totalling $2,803,345 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 2020 amounted to 9.66%. The Board have assessed that there is no indication the goodwill is impaired. 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 2020 amounted to 9.66 %. The Board have assessed that there is no indication the goodwill is impaired. (v) Intangible assets Upon acquisition of Entrust, Euroz acquired $1,356,240 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 2020 amounted to 9.66%. The Board have assessed that there is an impairment of $380,000 on Client portfolio C. (vi) Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the consolidated entity estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. (vii) Coronavirus (COVID-19 pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the consolidated entity based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the consolidated entity operates. 56 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 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 Stockbroking business offering trading of Australian and international securities, post trade reporting, corporate finance and advisory services and the 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. Wealth Management The consolidated group provides wealth management services including the portfolio administration of funds under management. Investments The consolidated group invests in listed and unlisted securities from which it derives dividends. 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. ANNUAL RE PORT 2020 57 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 3. SEGMENT INFORMATION (CONT’D) Segment performance 2020 Sales and other fees Interest revenue Other revenues Stockbroking & Corporate Finance Principal Trading Funds Management Wealth Management Investment Income $ $ $ $ 34,128,828 17,957,327 4,094,441 9,065,151 $ - 185,974 160,935 1,120 25,194 24,933 - 16,357 5,726 44,296 3,611,478 Total $ 65,245,747 272,680 3,803,333 Total segment revenue 34,475,737 17,983,641 4,119,374 9,087,234 3,655,774 69,321,760 Segment net operating profit / (loss) after tax 5,796,529 (1,477,852) 9,262,456 1,830,264 (11,060,947) 4,350,450 Depreciation and amortisation 1,070,587 - 296,017 9,680 - 1,376,284 Gain/(Loss) on fair value of investments Impairment expense - - 3,951,099 - - - - (2,364,089) 1,587,010 380,000 2,750,000 3,130,000 Segment assets 33,934,693 7,164,665 3,236,770 5,315,150 89,515,212 139,166,490 Fair value of investments - 7,164,665 - - 57,597,880 64,762,545 Segment liabilities 9,124,303 69,150 1,250,792 1,124,048 13,263,680 24,831,973 Stockbroking & Corporate Finance Principal Trading Funds Management Wealth Management Investment Income 2019 Sales and other fees Interest revenue Other revenues $ $ $ $ 29,000,464 16,092,302 3,982,476 8,776,753 404,885 159,169 5,873 49,860 55,929 - 20,938 3,985 $ - 86,694 Total $ 57,851,995 574,319 2,885,775 3,098,789 Total segment revenue 29,564,518 16,148,035 4,038,405 8,801,676 2,972,469 61,525,103 Segment net operating profit / (loss) after tax 4,074,625 1,940,445 (2,763,869) 2,249,613 (7,510,414) (2,009,600) Depreciation and amortisation 303,069 - Loss on fair value of investments - (3,899,611) 73,535 - 9,104 - 385,708 - (10,076,874) (13,976,485) Segment assets 29,470,073 7,430,215 5,485,763 5,275,809 84,690,279 132,352,139 Fair value of investments - 7,430,215 - - 71,153,242 78,583,457 Segment liabilities 3,406,613 83,359 851,012 904,311 9,311,428 14,556,723 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 2020, approximately 7.49% (2019: 8.53%) of the consolidated group’s external revenue was derived from management fees and dividends from Ozgrowth Limited and Westoz Investment Company Limited. 58 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 4. REVENUE Revenue from continuing operations Revenue from discontinued operations Disaggregation of revenue The disaggregation of revenue is as follows: 30 June 2020 Brokerage Stockbroking & Corporate Finance $ 17,382,349 Underwriting and placement fees 11,526,967 Performance and management fees Wealth management fees Proceeds on sale of principal trading shares 4,443,210 - - Corporate retainers 776,302 2020 $ 67,545,324 1,776,436 2019 $ 59,952,695 1,572,408 69,321,760 61,525,103 Principal Trading Funds Management Wealth Management Investment $ - - - - 17,957,326 - $ - - 4,094,441 - - - $ 1,020,528 365,460 - 7,679,163 - - $ - - - - - - Total $ 18,402,877 11,892,427 8,537,651 7,679,163 17,957,326 776,302 Other income Interest received Other revenue Dividends and trust distributions received 185,974 160,935 1,120 133 - 25,062 24,933 - - 16,357 5,726 44,296 461 272,680 167,255 - 3,611,017 3,636,079 34,475,737 17,983,641 4,119,374 9,087,234 3,655,774 69,321,760 30 June 2019 Brokerage Stockbroking & Corporate Finance $ 13,345,982 Underwriting and placement fees 11,259,626 Performance and management fees Wealth management fees Proceeds on sale of principal trading shares 1,889,943 - - Principal Trading Funds Management Wealth Management Investment $ - - - - 16,092,302 $ - - 3,982,476 - - - $ 829,640 534,199 - 7,412,914 - - $ - - - - - - Total $ 14,175,622 11,793,825 5,872,419 7,412,914 16,092,302 2,504,914 Corporate retainers 2,504,914 - Other income Interest received Other revenue Dividends and trust distributions received 404,884 158,419 5,873 1,129 750 48,731 55,929 - - 20,939 3,984 86,694 - 574,319 163,532 - 2,885,775 2,935,256 29,564,518 16,148,035 4,038,405 8,801,676 2,972,469 61,525,103 ANNUAL RE PORT 2020 59 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 5. PROFIT / (LOSS) BEFORE INCOME TAX EXPENSE FROM CONTINUING OPERATIONS Profit / (loss) before income tax is determined after accounting for the following specific expenses: Plant and equipment – depreciation Leasehold improvements – amortisation Rights of use asset – amortisation Less depreciation and amortisation from discontinued operations 2020 $ 2019 $ 242,655 126,176 1,007,453 (45,044) 1,331,240 228,581 157,127 - (45,110) 340,598 Finance costs Interest and finance charges paid/payable on lease liabilities 165,505 - Leases Total rental expense relating to operating leases Variable lease payment Short term lease payments Low value assets lease payments Superannuation expense Share based payments – PRP Impairment expenses Impairment – investment Impairment – intangible asset 6. INCOME TAX The components of tax benefit / expense comprise: Current tax Other (i) Deferred tax Income tax benefit / expense is attributable to: Expense / (benefit) from continuing operations Expense / (benefit) from discontinued operations Numerical reconciliation between tax expense and pre-tax accounting (loss) / profit Profit / (loss) before income tax expense from continuing operations Profit / (loss) before income tax expense from discontinued operations - 34,249 770 - 1,813,452 - - - 1,058,927 1,180,700 1,900,220 1,682,575 2,750,000 380,000 - - 2,570,078 - (2,870,406) 3,663,983 (605,427) (3,877,482) (300,328) (818,926) (1,979,426) 1,679,098 (95,922) (723,004) (300,328) (818,926) 5,992,210 (1,942,088) 4,050,122 (484,872) (2,343,654) (2,828,526) Income tax using company’s tax rate of 30% (2019: 30%) 1,215,037 (848,558) Add tax effect of: - deferred tax not recognised on temporary differences - other non-allowable items (246,127) 82,333 1,051,243 344,557 1,187,664 683,663 60 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 6. INCOME TAX (CONT’D) Less tax effect of: - franked dividends received Income tax benefit attributable to entity 2020 $ 2019 $ 1,351,571 1,502,589 (300,328) (818,926) (i) During the 2019 year, the Company has amended prior year tax returns for the years 2015 – 2018 in relation to the deductions claimed for its contributions to the Employee Share Trust (EST). Previously, the Company had claimed these deductions as the shares vested to the employees. The Company has changed this basis of deduction, to claiming it at the time of providing the funding to EST by Euroz Limited. Accordingly, this has resulted in an additional taxation refund over these years and the recognition of a deferred tax liability. Reconciliations i. Gross movements The overall movement in the deferred tax account is as follows: Balance at 1 July Recognised in statement of profit or loss Balance at 30 June ii. Deferred tax liability Movement in temporary differences during the year: Fair value gain adjustments Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June Other Balance at 1 July Recognised in the statement of profit or loss Balance at 30 June 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 Recognised in the statement of profit or loss Balance at 30 June 2020 $ 2019 $ 5,647,539 2,870,406 8,517,945 1,770,057 3,877,482 5,647,539 446,308 (411,096) 35,212 866,760 44,903 911,663 2,073,457 (1,627,149) 446,308 584,144 282,616 866,760 946,875 1,313,068 3,150,224 (857,532) 2,292,692 2,617,564 (1,528,846) 1,088,718 243,156 2,907,068 3,150,224 1,123,263 1,494,301 2,617,564 1,192,819 4,890,591 6,083,410 3,061,239 (1,868,420) 1,192,819 9,464,820 6,960,607 ANNUAL RE PORT 2020 61 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 6. INCOME TAX (CONT’D) Tax consolidation legislation Euroz Limited and its wholly-owned Australian subsidiaries implemented the tax consolidation legislation as of 1 July 2003. The accounting policy on implementation of the legislation is set out in Note 1(b). The impact on the income tax expense for the year is disclosed in the tax reconciliation above. The entities have also entered into a tax sharing and funding agreement. Under the terms of this agreement, the wholly-owned entities reimburse Euroz Limited for any current income tax payable by Euroz Limited arising in respect of their activities. The reimbursements are payable at the same time as the associated income tax liability falls due and have therefore been recognised as a current tax-related receivable by Euroz Limited. In the opinion of the Directors, the tax sharing agreement is also a valid agreement under the tax consolidation legislation and limits the joint and several liability of the wholly-owned entities in the case of a default by Euroz Limited. 7. DISCONTINUED OPERATIONS In March 2020, the Group have concluded a strategic review of the investment in Prodigy which has resulted in the decision to discontinue the operations of the three subsidiaries, as follows: • • • FIP Management Services Pty Ltd (Note 31) DSC Investment Management Pty Ltd (Note 31) EPC Investment Management Pty Ltd (Note 31) The results of the subsidiaries operations for the year are presented below: Financial performance information Revenue Employee benefits expense Depreciation and amortisation expenses Regulatory expenses Legal, professional and consultancy expenses Conference and seminar expenses Stockbroking & Portfolio management expenses Communication expenses Other expenses from ordinary activities 2020 $ 2019 $ 1,776,436 1,572,408 (2,023,635) (45,044) (20,481) (101,101) (36,689) (1,138,152) (107,776) (245,646) (1,851,531) (45,110) (12,908) (224,856) (93,792) (965,127) (169,606) (553,132) Loss before income tax (1,942,088) (2,343,654) Income tax benefit / (expense) (1,679,098) 723,004 Loss after income tax expense from discontinued operations (3,621,186) (1,620,650) Assets Cash Other current assets Plant and equipment Deferred tax asset Liabilities Trade and other payables Short term provisions Deferred tax liability Other non-current liabilities Net assets (liabilities) directly associated to the subsidiaries classified as discontinued 6 - - - 6 - - - - - 6 34,403 218,857 72,094 1,679,383 2,004,737 417,525 200,348 283 11,262,805 11,880,961 (9,876,224) 62 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 7. DISCONTINUED OPERATIONS (CONT’D) Cash flow information Net cash from / (used in) operating activities Net cash used in investing activities Net cash from / (used in) investing activities Net decrease in cash and cash equivalents from discontinued operations 8. CASH AND CASH EQUIVALENTS Cash at bank and on hand 9. TRADE AND OTHER RECEIVABLES 2020 $ 2019 $ 1,126,637 (1,245,879) (1,100) (1,159,934) (34,397) (12,583) 1,238,667 (19,795) 41,106,390 27,383,046 Trade receivables 2,368,924 1,934,887 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. 10. INVENTORIES Securities in unlisted companies (at cost) (i) Trading securities in listed companies (at cost) (i) Fair value adjustments (ii) Total (i) These securities are held at fair value through profit or loss. (ii) The fair value adjustment is based on the closing price of each investment at year end. 11. OTHER CURRENT ASSETS Prepayments Accrued income Total 12. FINANCIAL ASSETS Security deposit Financial guarantee – term deposit 345,733 4,586,992 2,231,940 785,965 8,363,410 (1,719,160) 7,164,665 7,430,215 1,043,453 375,487 1,004,599 374,466 1,418,940 1,379,065 5,000,000 216,699 5,000,000 - 5,216,699 5,000,000 Security deposit is held by Pershing Securities (Australia) Pty Ltd (clearing participant on behalf of Euroz Securities Limited). ANNUAL RE PORT 2020 63 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 13. 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. 14. INVESTMENT ENTITIES AT FAIR VALUE 2020 $ 2019 $ 500,040 99,750 11,856,063 1,280,915 599,790 13,136,978 2020 $ 2019 $ Listed ordinary shares in investment entities at fair value through profit or loss 56,998,090 58,016,264 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) Closing fair value 58,016,264 67,586,696 164,750 (1,182,924) - (9,570,432) 56,998,090 58,016,264 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. 15. 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 2020 $ 2019 $ 413,396 (321,264) 92,132 283,238 (212,301) 70,937 697,265 (469,005) 228,260 105,437 (23,779) 81,658 679,101 (430,938) 248,163 276,548 (136,324) 140,224 586,881 (344,747) 242,134 107,433 (22,802) 84,631 472,987 715,152 64 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 15. PLANT AND EQUIPMENT (CONT’D) Reconciliations Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the current and previous financial years are set out below: 2020 Carrying amount at 1 July 2019 Additions Disposal Depreciation / amortisation expense Leasehold improvements $ Plant and equipment $ 248,163 - (29,855) (126,176) 466,989 159,049 (2,528) (242,655) Total $ 715,152 159,049 (32,383) (368,831) Carrying amount at 30 June 2020 92,132 380,855 472,987 2019 Carrying amount at 1 July 2018 Additions Depreciation / amortisation expense 266,804 138,486 (157,127) 469,775 225,795 (228,581) 736,579 364,281 (385,708) Carrying amount at 30 June 2019 248,163 466,989 715,152 16. DEFERRED TAX ASSETS Deferred tax asset (Note 6) 9,464,820 6,960,607 Deferred tax assets are recognised only to the extent that it is probable that future taxable profits can be generated. 2020 $ 2019 $ 17. INTANGIBLE ASSETS Goodwill (refer (a) below) Other intangible assets (refer (b) below) (a) Split of goodwill: Goodwill on acquisition of Blackswan Goodwill on acquisition of Entrust 2020 $ 2019 $ 8,442,545 1,356,240 8,442,545 1,736,240 9,798,785 10,178,785 2,803,345 5,639,200 2,803,345 5,639,200 8,442,545 8,442,545 Both goodwill balances are deemed to have an indefinite useful life and accordingly an impairment test was performed at reporting date. Based on this assessment at 30 June 2020, no impairment was considered necessary. Note 2 (iv) contains additional information on this assessment. While the Blackswan group of companies were deregistered in the prior period, the Blackswan operating unit was integrated into Euroz Securities Limited upon the initial acquisition and therefore, this deregistration had an insignificant impact on the goodwill balance. ANNUAL RE PORT 2020 65 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 17. INTANGIBLE ASSETS (CONT’D) (b) Other intangible assets 1,356,240 1,736,240 2020 $ 2019 $ Split of other intangible assets: Client portfolio A Client portfolio B Client portfolio C (i) 500,000 80,000 776,240 500,000 80,000 1,156,240 1,356,240 1,736,240 (i) The carrying value of all 3 assets was assessed at reporting date for impairment and an impairment of $380,000 was noted for Client portfolio C. Note 2(v) contains further information on this impairment assessment. 18. TRADE AND OTHER PAYABLES 2020 $ 2019 $ Other payables and accruals 3,639,785 1,772,881 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. 19. CURRENT TAX ASSETS AND LIABILITIES Tax receivable Provision for taxation 20. SHORT TERM PROVISIONS Dividends Employee benefits (annual leave) Employee benefits (long service leave) Total Dividends 2020 $ - 2,548,489 2020 $ 9,751,095 1,483,615 1,856,163 2019 $ 217,140 - 2019 $ 8,049,469 1,476,971 1,919,654 13,090,873 11,446,094 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 Carrying amount at 30 June 2020 $ 8,049,469 12,589,545 (10,887,919) 2019 $ 14,891,518 10,866,783 (17,708,832) 9,751,095 8,049,469 66 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 21. RIGHTS OF USE ASSET AND LEASE LIABILITY Leased building Accumulated amortisation Rights of use asset Lease liability – current Lease liability – non current Reconciliation of right of use asset: Balance as at 1 July Adoption of AASB 16 Disposals Amortisation expense Balance as at 30 June 2020 $ 5,974,870 (1,418,470) 4,556,400 879,398 3,653,897 2020 $ - 5,563,853 - (1,007,453) 4,556,400 2019 $ - - - - - 2019 $ - - - - - The above rights of use asset and lease liability relates to: • • • The lease on the premises at Level 18 Alluvion, 58 Mounts Bay Road is for the period of 15 years commencing 2 July 2010 and expiring on 1 July 2025. The licence on the premises at Level 9, 20 Bond Street, Sydney NSW is for the period of 5 years commencing 15 December 2018 and expiring on 14 December 2023. The licence on the premises at Level 15, 385 Bourke Street, Melbourne is for the period of 8 years commencing 1 June 2015 and expiring on 31 May 2022. 22. DEFERRED TAX LIABILITIES Deferred tax liability (Note 6) 23. LONG TERM PROVISIONS Employee benefits (long service leave) 24. CONTRIBUTED EQUITY (a) Share capital 2020 $ 2019 $ 946,875 1,313,068 2020 $ 2019 $ 72,656 24,680 Ordinary shares Issued and paid up capital consisting of ordinary shares (net of Treasury shares) 154,147,541 155,012,651 102,167,440 101,333,244 2020 Shares 2019 Shares 2020 $ 2019 $ ANNUAL RE PORT 2020 67 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 24. CONTRIBUTED EQUITY (CONT’D) (b) Movements in ordinary share capital At the beginning of the reporting period Acquisition of Treasury shares Vested shares under Performance Rights Plan At the end of the year (c) Movements in ordinary share capital At the beginning of the reporting period Shares issued during the period Acquisition of Treasury shares Vested shares under Performance Rights Plan Share issue cost At the end of the year (d) Treasury shares 2020 Shares 2019 Shares 155,012,651 (1,940,740) 1,075,630 155,879,961 (1,265,500) 398,190 154,147,541 155,012,651 2020 $ 2019 $ 101,333,244 1,639,362 (1,707,400) 902,234 - 102,343,793 - (1,494,734) 494,685 (10,500) 102,167,440 101,333,244 2020 Shares 2019 Shares 2020 $ 2019 $ Balance of Treasury shares at the end of the reporting period (6,841,841) (5,976,731) 7,137,510 6,328,138 Treasury shares were acquired by the 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 2020 (30 June 2019: Nil). (g) Share based payments reserve The reserve records items recognised as expenses on valuation of share based payments. The movement in the current period totalling $1,925,620 (2019: $1,694,192) 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 Vested shares under Performance Rights Plan 2020 $ 3,846,281 1,925,620 (902,234) 2019 $ 2,646,774 1,694,192 (494,685) Balance on share based payments reserve at 30 June 4,869,667 3,846,281 68 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 24. CONTRIBUTED EQUITY (CONT’D) (h) Capital management 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 throughout the year. 25. DIVIDENDS Ordinary shares Interim dividend for the half year ended 31 December 2019 of 1.75 cents (2019 – 1.75 cents) per fully paid ordinary share paid on 21 February 2020. Fully franked based on tax paid @ 30% Final dividend declared and provided for at 30 June 2020 of 6 cents (2019 – 5 cents) per fully paid ordinary share paid on 7 August 2020. Fully franked based on tax paid @ 30% Total dividends provided for or paid 2020 $ 2019 $ 2,838,449 2,817,314 9,751,095 8,049,469 12,589,544 10,866,783 Of the total dividends paid during the year, $4,140 (2019: $7,816) 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 2020 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 2020. 2020 $ 2019 $ Franking credits available for subsequent financial years based on a tax rate of 30% (2019: 30%) 12,258,670 16,473,643 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. 26. FINANCIAL INSTRUMENTS (a) Financial risk management The group’s financial instruments consist of deposits with banks, trade receivables and payables, short term investments and long term 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. ANNUAL RE PORT 2020 69 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 26. FINANCIAL INSTRUMENTS (CONT’D) (b) Financial risk exposure and management (cont’d) (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 2020 $ 2019 $ 3,639,785 1,772,881 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 2020. 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 (2019: Nil). Carrying Amount 2020 $ 2019 $ 41,106,390 2,368,924 5,216,699 27,383,046 1,934,887 5,000,000 48,692,013 34,317,933 70 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 26. FINANCIAL INSTRUMENTS (CONT’D) (b) Financial risk exposure and management (cont’d) (iv) Financial instruments composition and maturity analysis FINANCIAL ASSETS Cash and cash equivalents Trade and other receivables Financial assets held for trading Financial assets at fair value through profit and loss Other investments Long term deposit Weighted Average Effective Interest Rate 2019 % 2020 % Floating Interest Rate Non-Interest Bearing 2020 $ 2019 $ 2020 $ 2019 $ 0.57 1.39 41,106,390 27,383,046 - - - - - 2,368,924 7,164,665 - 1,934,887 7,430,215 0.08 0.75 - - - 56,998,090 58,016,264 13,136,978 - - 5,216,699 5,000,000 599,790 - Total financial assets 46,323,089 32,383,046 67,131,469 80,518,344 FINANCIAL LIABILITIES Trade and other payables Lease liability (v) Fair value hierarchy 3.5 - 4,533,295 4,533,295 - - - 3,639,785 - 1,772,881 - 3,639,785 1,772,881 The following table details the consolidated group’s 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 liabilities that are not based on observable market data (unobservable inputs). 2020 Assets Level 1 $ Investments and Inventories 63,653,255 1,109,290 Level 2 Level 3 $ $ - - Total $ 64,762,545 64,762,545 63,653,255 1,109,290 Level 1 Level 2 Level 3 Total Total Assets 2019 Assets Investments and Inventories 77,611,380 972,077 Total Assets 77,611,380 972,077 - - 78,583,457 78,583,457 ANNUAL RE PORT 2020 71 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 26. FINANCIAL INSTRUMENTS (CONT’D) (b) Financial risk exposure and management (cont’d) (vi) 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% 2020 $ 324,262 (324,262) 2019 $ 226,681 (226,681) 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% 27. REMUNERATION OF AUDITORS Audit services Audit and review of financial reports for the Group Fees paid to PKF Perth firm Other services Tax compliance services Other services 28. CONTINGENT LIABILITIES The parent entity and consolidated group had contingent liabilities at 30 June as follows: Secured guarantees in respect of: Operating lease of a controlled group entity 2020 $ 2,266,689 (2,266,689) 2019 $ 2,750,421 (2,750,421) 2020 $ 2019 $ 187,500 173,000 41,700 6,700 32,105 8,580 48,400 40,685 2020 $ 2019 $ 1,013,514 1,013,514 As detailed in note 12 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 (2019: $5,000,000). The Group has no contingent assets at reporting date (2019: Nil). 72 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 29. COMMITMENTS FOR EXPENDITURE Operating leases Commitments for minimum lease payments in relation to noncancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Commitments not recognised in the financial statements 2020 $ 2019 $ - - - - 1,196,175 4,934,920 - 6,131,095 The lease on the premises at Level 18 Alluvion, 58 Mounts Bay Road is for the period of 15 years commencing 2 July 2010 and expiring on 1 July 2025. The licence on the premises at Level 9, 20 Bond Street, Sydney NSW is for the period of 5 years commencing 15 December 2018 and expiring on 14 December 2023. The licence on the premises at Level 15, 385 Bourke Street, Melbourne is for the period of 8 years commencing 1 June 2015 and expiring on 31 May 2022. The lease commitment has been included as part of lease liabilities for the year ended 30 June 2020. Refer to note 21. 30. RELATED PARTIES (a) Key Management Personnel compensation Short-term employee benefits Post-employment benefits Share based payments Total compensation 2020 $ 4,070,630 188,010 725,940 2019 $ 3,869,615 196,281 757,190 4,984,580 4,823,086 (b) Individual Key Management Personnel (KMP) 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 81 employees (2019: 86 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. ANNUAL RE PORT 2020 73 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 30. RELATED PARTIES (CONT’D) (e) Wholly-owned group transactions Whollyowned group The whollyowned group consists of Euroz Limited and its whollyowned controlled entities. See Note 31. 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 Impairment of intercompany loan by Euroz Limited to subsidiaries Impairment of intercompany loan 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 Ownership interests in related parties Interests held in controlled entities are set out in note 31. Other transactions with Directors and specified Executives 2020 $ 2019 $ 3,351,937 7,575,000 1,761,454 2,174,607 15,696,648 15,641,791 17,714,442 8,850,000 1,599,705 1,514,379 - - 2,912,157 2,836,800 3,304,512 3,898,806 734 849 83,668 During the year ended 30 June 2020 the Directors and KMP transacted share business through Euroz Securities Limited on normal terms and conditions. Aggregate amounts of the above transactions with Directors and KMP of the consolidated group: Amounts recognised as revenue Brokerage earned on Key Management Personnel accounts 2020 $ 2019 $ 33,602 29,504 74 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 31. INVESTMENTS IN CONTROLLED ENTITIES Name of entity Country of incorporation Class of shares Euroz Securities Limited Detail Nominees Pty Ltd Zero Nominees Pty Ltd (i) Westoz Funds Management Pty Ltd Euroz Employee Share Trust Ozgrowth Limited* Westoz Investment Company Limited* Prodigy Investment Partners Limited FIP Management Services Pty Ltd (formerly Flinders Investment Partners Pty Ltd) (ii) DSC Investment Management Pty Ltd (formerly Dalton Street Capital Pty Ltd) (ii) EPC Investment Management Pty Ltd (formerly Equus Point Capital Pty Ltd) (ii) WIM WA Resources Limited WIM Small Cap Limited Entrust Wealth Management Pty Ltd Prodigy Flinders Pty Ltd (ii) Prodigy Corporate Pty Ltd (ii) Prodigy DSC Pty Ltd (ii) Prodigy EPC Pty Ltd (ii) Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Australia Ordinary Australia Ordinary Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity holding 2020 % 2019 % 100 100 100 100 - 100 100 100 100 - 40.58 26.25 40.58 27.30 80 50 50 50 100 100 100 100 100 100 100 80 50 50 50 100 100 100 100 100 100 100 Cost of parent entity’s investment 2020 $ 2019 $ 25,000,000 - - 25,000,000 - - 1,450,000 1,450,000 - - - - 2 2 2 1 1 - - - 1,900,000 2 2 2 1 1 7,800,000 7,800,000 2 2 1 1 2 2 1 1 * 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. 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. (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) Entrust Wealth Management Pty Ltd – Wealth management business providing advice in relation to wealth management and strategic financial planning support for the entire Euroz Group. (h) Prodigy Investment Partners Limited – 80/20 joint venture with Mr Steve Tucker to create a multi boutique funds management business. Prodigy had partnerships with three separate boutique funds, Flinders, Dalton and Equus. In March 2020, the Company announced the closure of Prodigy operations, including the partnership with the three separate boutiques. (i) (j) FIP Management Services Pty Ltd (formerly Flinders Investment Partners Pty Ltd) – Boutique fund manager launched in August 2015 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. In March 2020, the Company announced the closure of Prodigy operations, including the partnership with Flinders Investment Partners boutique fund. DSC Investment Management Pty Ltd (formerly Dalton Street Capital Pty Ltd) – Boutique fund manager launched in May 2016 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. In March 2020, the Company announced the closure of Prodigy operations, including the partnership with Dalton Street Capital Pty Ltd boutique fund. ANNUAL RE PORT 2020 75 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 31. INVESTMENTS IN CONTROLLED ENTITIES (CONT’D) (k) EPC Investment Management Pty Ltd (formerly Equus Point Capital Pty Ltd) – Boutique fund manager launched in August 2018 specialising in a systematic market neutral strategy. Prodigy Investment Partners Limited, the controlling parent entered into a profit share arrangement with a trust resulting in a minority interest. In March 2020, the Company announced the closure of Prodigy operations, including the partnership with Equus Point Capital Pty Ltd boutique fund. 32. EVENTS SUBSEQUENT TO REPORTING DATE On 17 July 2020, Euroz and Hartleys entered into a binding bid implementation agreement whereby Euroz has agreed to make an off-market takeover offer to acquire 100% of the issued capital in Hartleys. Under the agreement, holders of Hartleys shares will be entitled to receive 3.3033304 new Euroz shares (rounded up) for every Hartleys share accepted into the offer. This equates to the issue of approximately 33 million Euroz shares as consideration for the acquisition of 100% Hartleys, with Hartleys shareholders to own up to approximately 17% of the combined group. The transaction is expected to be completed by October 2020 with the integration of the two business to commence shortly thereafter. The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has not significantly impacted the Group up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. Other than the above, the Directors are not aware of any matter or circumstance subsequent to 30 June 2020 that has significantly affected, or may significantly affect: (a) (b) (c) the consolidated group’s operations in future financial years; or the results of those operations in future financial years; or the consolidated group’s state of affairs in future financial years. 33. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Profit / (Loss) for the year Adjustments for: Depreciation and amortisation Impairment expenses Share based payments Unrealised loss / (gain) arising from investing activity investments Loss on disposal of property, plant and equipment Loss on sale of investment in managed investment schemes Interest paid on lease liabilities Distributions received from investing activity investments Distributions received in lieu of units 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) 2020 $ 2019 $ 4,350,450 (2,009,600) 1,376,284 3,130,000 2,138,120 2,364,089 32,381 790,380 165,505 (2,975,099) (636,379) (434,038) (39,875) 265,550 (2,504,213) 1,866,904 2,765,628 (366,193) (8,870) 385,708 - 1,694,192 10,076,872 - - - (2,934,506) - 246,174 2,724,170 5,424,872 (2,532,949) (2,864,370) (5,292,397) (1,344,533) 178,732 Net cash from operating activities 12,280,624 3,752,365 76 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 34. NON-CASH INVESTING AND FINANCING ACTIVITIES Share issued under employee share plan Addition to the right-of-use assets Conversion of debt to equity 35. (LOSS) / EARNINGS PER SHARE Earnings / (loss) per share for profit / (loss) from continuing operations attributable to the owners of Euroz Limited Basic (loss) / earnings per share (cents) Diluted (loss) / earnings per share (cents) Earnings / (loss) per share for profit / (loss) from discontinued operations attributable to the owners of Euroz Limited Basic (loss) / earnings per share (cents) Diluted (loss) / earnings per share (cents) Earnings / (loss) per share for profit / (loss) attributable to the owners of Euroz Limited Basic loss per share (cents) Diluted loss per share (cents) 2020 $ 1,925,620 5,563,853 212,500 2019 $ 1,694,192 - - 7,701,973 1,694,192 2020 Cents 5.26 5.09 (6.13) (5.93) (0.87) (0.84) 2020 Number 2019 Cents (0.24) (0.23) 0.17 0.16 (0.07) (0.07) 2019 Number Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic loss / earnings per share. 155,685,590 155,865,028 Weighted average number of ordinary shares and potential ordinary shares (including treasury shares) used as the denominator in calculating diluted loss / earnings per share. 160,989,382 160,989,382 The (loss) / profit after tax figures used to calculate the loss / earnings per share for both the basic and diluted calculations was the same as the profit figure from Consolidated Statement of Profit and Loss. ANNUAL RE PORT 2020 77 NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 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 Share based payment reserve Total equity Financial performance Profit for the year Total comprehensive income 2020 $ 2019 $ 23,853,677 24,771,887 100,172,204 124,025,881 110,928,938 135,700,825 12,507,794 940,930 13,448,724 8,049,827 1,261,600 9,311,427 102,083,528 3,686,355 101,387,434 21,213,709 4,807,274 110,577,157 3,788,255 126,389,398 (4,788,391) 3,508,376 (4,788,391) 3,508,376 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity and some of its subsidiaries are party to a deed of cross guarantee under which each company guarantees the debts of the others. No deficiencies of assets exist in any of these subsidiaries. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 and 30 June 2019. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: • • • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity. 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 78 EUROZ LIM ITED NOTES TO THE FINANCIAL STATEMENTS (CONT’D)FOR THE YEAR ENDED 30 JUNE 2020 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2020 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 2020 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 Executive Chairman 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. This declaration is made in accordance with a resolution of the Board of Directors. Andrew McKenzie Executive Chairman Date: 20 August 2020 Robert Black Executive Director ANNUAL RE PORT 2020 79 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROZ LIMITED FOR THE YEAR ENDED 30 JUNE 2020 PKF Perth 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 2020, 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 direc year. In our opinion the financial report of Euroz Limited is in accordance with the Corporations Act 2001, including: i) ii) and of its performance for the year ended on that date; and Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those 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 auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matter A key audit matter 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 audit opinion on this matter. Our description of how our audit addressed the matter is provided in that context. Level 4, 35 Havelock Street, West Perth, WA 6005 PO Box 609, West Perth, WA 6872 T: +61 8 9426 8999 F: +61 8 9426 8900 www.pkfperth.com.au PKF Perth is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Liability limited by a scheme approved under Professional Standards Legislation. 80 EUROZ LIM ITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROZ LIMITED FOR THE YEAR ENDED 30 JUNE 2020 PKF Perth Carrying 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 $9,798,785 as disclosed in Note 17. In assessing this key audit matter, our audit procedures included; determining the carrying amount of intangible assets by comparing the value in use model with generally accepted valuation methodology and accounting standard requirements. Challenging the key assumptions used in - assessing the reasonableness of the anticipated future inflows from each cash generating unit; - evaluating the adequacy of the discount rate set by management. Conducting sensitivity analysis on key assumptions. Assessing related disclosures. the appropriateness of the respect of intangibles is outlined in Notes 1 (y) and (z). As disclosed intangibles including goodwill have an indefinite useful life. The carrying amount of intangible assets is a key audit matter due to the level of judgement applied key determining impairment. As outlined in Notes 2(iv) and 2(v), management assessed the carrying amount of intangible assets through impairment testing utilising a value in use model in which significant judgements are applied in assumptions. These assumptions include the assessment of future earnings before interest and tax, growth expected to be achieved, as well as applying an appropriate discount in determining the underlying assumptions in the model have a significant impact on the carrying amount of intangible assets and accordingly the amount of any impairment charge to be recorded in the current financial year. judgements made factor. The Other Information Those charged with governance are responsible for the other information. The other information comprises not include the financial report and our Our opinion on the financial report does not cover the other information and accordingly we do not express 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 and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. ANNUAL RE PORT 2020 81 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROZ LIMITED (CONT’D) FOR THE YEAR ENDED 30 JUNE 2020 PKF Perth The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the c continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, wh 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. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our future events or conditions may cause the consolidated entity to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the group financial report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. 82 EUROZ LIM ITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EUROZ LIMITED (CONT’D) FOR THE YEAR ENDED 30 JUNE 2020 PKF Perth We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe 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 In our opinion, the Remuneration Report of Euroz Limited for the year ended 30 June 2020 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 PERTH SIMON FERMANIS AUDIT PARTNER 20 AUGUST 2020 WEST PERTH WESTERN AUSTRALIA ANNUAL RE PORT 2020 83 ASX ADDITIONAL INFORMATION AS AT 20 AUGUST 2020 A) DISTRIBUTION OF SHAREHOLDERS Analysis of number of shareholders by size of holding. Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Total Number of holders holding less than a marketable parcel: 210 at $1.12 per unit B) TOP HOLDERS The twenty largest holders of ordinary fully paid shares are listed below. Holders 346 416 250 575 162 Units 137,147 1,229,193 1,988,340 19,224,539 139,939,023 1,749 162,518,242 Ordinary Shares Rank Name 1 2 3 4 5 6 7 8 9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CPU SHARE PLANS PTY LTDMR JAY EVAN DALE HUGHES MRS CATHERINE PATRICIA MCKENZIE MR ANDREW MCKENZIE + MRS CATHERINE MCKENZIE BNP PARIBAS NOMINEES PTY LTD ICE COLD INVESTMENTS PTY LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD ICE COLD INVESTMENTS PTY LTD 10 MR JAY HUGHES + MRS LINDA HUGHES 11 12 13 14 15 16 17 18 19 CITICORP NOMINEES PTY LIMITED MR ROBERT HIRZEL BLACK MR SIMON DAVID YEO + MRS JENNIFER DALE YEO ICE COLD INVESTMENTS PTY LTD MRS CATHERINE ELIZABETH KANE MR SIMON DAVID YEO + MRS JENNIFER DALE YEO MR GREGORY CHESSELL + MRS MELANIE CHESSELL MRS MELANIE JANE CHESSELL BNM HOLDINGS PTY LTD 20 WESTRADE RESOURCES PTY LTD Total Remainder GRAND TOTAL Units 13,193,300 7,829,285 7,600,000 5,950,000 4,693,554 4,322,542 4,316,539 4,252,826 4,002,510 3,222,641 3,009,174 2,865,000 2,398,491 2,300,000 2,264,866 2,150,000 2,142,393 2,070,272 2,020,100 2,000,000 82,603,493 79,914,749 162,518,242 % 8.12 4.82 4.68 3.66 2.89 2.66 2.66 2.62 2.46 1.98 1.85 1.76 1.48 1.42 1.39 1.32 1.32 1.27 1.24 1.23 50.83 49.17 100 84 EUROZ LIM ITED ADDITIONAL INFORMATION (CONT’D) AS AT 20 AUGUST 2020 C) SHAREHOLDERS WITH GREATER THAN 5% As at 20 August 2020, the Company had 3 shareholders with greater than 5% of the issued ordinary share capital: Shareholder Jay Evan Dale Hughes Andrew William McKenzie Ice Cold Investments Pty Ltd D) ON-MARKET BUY-BACK The company has a current on-market buy-back. Units 13,145,676 13,036,008 10,619,049 % 8.09% 8.02% 6.53% E) VOTING RIGHTS The voting rights for each class of security on issue as at 20 August 2020 are: Ordinary fully paid shares Each ordinary shareholder is entitled to one vote for each ordinary fully paid share held. F) WORKPLACE GENDER EQUALITY REPORT The Company’s Workplace Gender Equality Agency report for FY20 is available on its website. ANNUAL RE PORT 2020 85 EUROZ LIMITED CONTACT DETAILS FOR THE YEAR ENDED 30 JUNE 2020 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 and Chi-X 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 ENTRUST WEALTH MANAGEMENT PTY LTD T: +61 8 9476 3900 F: +61 8 9321 6333 Level 18 Alluvion 58 Mounts Bay Road PERTH WA 6000 PO Box Z5034 Perth 6831 Western Australia E: info@entrustwealth.com.au entrustwealth.com.au Entrust Wealth Management Pty Ltd ACN 100 088 168 AFSL 222152 86 EUROZ LIM ITED ANNUAL RE PORT 2020 3 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 B L A C K B O X D E S G N 1 4 1 9 2 I