Fiducian Group
Annual Report 2012

Plain-text annual report

2012 ANNUAL REPORT FIDUCIAN PORTFOLIO SERVICES LIMITED ACN 073 845 931 i n t e g r i t y t r u s t e x p e rt i s e The name Fiducian is derived from the Latin word ‘Fiducia’. Over the years, persons of high integrity in positions of responsibility and who command trust and respect for their knowledge and expertise have been spoken of exercising their duties in a fiduciary capacity. The company logo of a lion symbolises Strength, Character and Security - characteristics which sit well with the Integrity, Trust and Expertise associated with the meaning of our name. It is therefore, within the ambit of working in a fiduciary manner and with high transparency, that we have built our services for the benefit of our clients, members, staff and shareholders. We pride ourselves as having a high level of integrity and in inspiring a similar level among all our group members. C O N T E N T S J O I N T R E P O R T O F T H E C H A I R M A N A N D T H E M A N A G I N G D I R E C T O R C O R P O R A T E D I R E C T O R Y D I R E C T O R S ’ R E P O R T A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N C O R P O R A T E G O V E R N A N C E S T A T E M E N T S H A R E H O L D E R I N F O R M A T I O N F I N A N C I A L R E P O R T S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E S T A T E M E N T S O F F I N A N C I A L P O S I T I O N S T A T E M E N T S O F C H A N G E S I N E Q U I T Y S T A T E M E N T S O F C A S H F L O W N O T E S T O T H E F I N A N C I A L S T A T E M E N T S D I R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S 2 8 9 2 2 2 3 3 0 3 3 3 4 3 5 3 6 3 7 3 8 7 8 7 9 A N N U A L R E P O R T 2 0 1 1 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 1  JOINT REPORT OF THE CHAIRMAN AND THE MANAGING DIRECTOR Dear Shareholders, On behalf of the directors, we jointly report on the consolidated operating performance of Fiducian Portfolio Services Limited and its controlled operating entities for the year ended 30 June 2012. P A G E 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 FINANCIAL INFORMATION Results for 2011-2012 The consolidated profit after income tax for the 2011-12 financial period was $2.21 million in comparison to $4.44 million for the prior year. The consequential EBITDA earnings before interest expense, tax, depreciation and amortisation was $3.88 million compared with $6.69 million for the same period last year. Revenue from ordinary activities decreased by 5.2% (2011: increase 4.6%). This has occurred predominantly as new revenue streams offset the consequence of falling market valuations and therefore lower fee earning on assets under administration. It has been an environment where global financial conditions have been difficult and many investors appear to prefer the Government guaranteed security of a bank deposit instead of continuing with financial market investments. Despite these headwinds, Fiducian has been and is continuing to be built to withstand external pressures and has significant capacity for further growth in revenue. During the year we embarked upon a number of major projects. One of these being the provision of tax accounting services for the first time. We also acquired two stand alone financial planning businesses in Western Australia and Queensland to give us national exposure and retain funds under advice and as well, acquired a client base for existing salaried advisers in Victoria. Our other major project was to improve our administration systems to deliver superior service and provide operational efficiencies for the benefit of our financial planners and investors. Importantly, these system improvements have helped us overcome costly and unnecessary delays and reliance on external providers who charged ongoing license fees and one off amendment fees as well as worked to their time schedules, rather than ours. In addition, we had to transition all our assets to National Asset Servicing from our previous custodian who decided to exit from our kind of business. This was an unexpected and costly event that required intense application and attention to detail. Needless to say, we have had an extremely busy year and covered much ground. As a consequence of our strategy of diversification and emphasis on self reliance through systems improvements, operating expenses increased by 19.3% (Employee expenses being 19.2% and all other operating expenses 0.1%) (2011: operating expenses increase 3.6%). These developments required us to increase supervisory inputs, double up on staff in instances for parallel processing runs that ensured accuracy, build or improve the presentation of regional financial planning offices, restructure operating processes and increase or replace manpower to ensure that our strategies were implemented. The bulk of these procedural and process changes are now in place and formalised. Expense reduction initiatives are already in place and we expect our operating expenses in the 2012-13 year to be contained to below 2011-12 expenses. Through this period, we have received the support of our employees who are our strength and as part of the ‘Fiducian Family’ have helped us through this difficult period. Without this cooperation, our costs might well have been higher. Fiducian follows a policy of training, building and retaining quality staff in good and poor economic times, so they can participate in the future expansion of the business. CAPITAL MANAGEMENT Final Dividend The Board remains cautious, but is confident that in spite of strong headwinds having been experienced over nearly five years or so, the future of the business in its present form is sound and likely to strengthen in an improving economic and financial market environment. As a result, a fully franked final dividend of 2.50 cents per share has been declared which will bring the total fully franked dividend declared for the 2012 financial year to 5.00 cents (2011: 10.00 cents). The final dividend will be paid on issued shares held on 7 September 2012 and be payable on 21 September 2012. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 3 J O I N T R E P O R T O F T H E C H A I R M A N A N D T H E M A N A G I N G D I R E C T O R C O N T I N U E D Cash Flow Net operating cash flows of $1.55 million were achieved (2011: $5.12 million). After payment for prior and current year business acquisitions ($1.39 million), share buy backs ($0.43 million), dividend outlays ($2.40 million), fixed assets ($0.09 million) and receipts from loan repayment from staff / advisers ($0.10) and investments ($0.18 million) net cash decreased by $2.48 million (2011: increase $0.67 million). Cash at year end was $7.7 million (2011: $10.1 million). An amount of $5.0 million is required for regulatory purposes. The business acquisitions should assist our future revenue and earning capacity. A key feature of the company is that it continues to remain debt free and exhibits a positive working capital and cash flow position. On Market Buy-Back During the year Fiducian bought 359,440 shares on market (2011: 258,229) for a total consideration, including brokerage, of $0.43 million (2011: $0.36 million) at an average price per share of $1.20 (2011: $1.39). There are 31.805 million shares on issue at year end (2011: 32.164 million). Acquisitions We have been analysing developments since the enactment of the Future of Financial Advice (FOFA) legislation and the inherent risks in making acquisitions at such a time. We therefore acquired three small financial planning client groups where there has been clarity in the quality of advice given and confirmation from clients that they wish to become part of the Fiducian family and its quality of advice and service. In all cases we have mandated clients acquired must not be disadvantaged. We have also concentrated efforts on acquiring accounting practices and books of clients through Fiducian Business Services. These appear to be at reasonable valuations once transitioned to our proven process and can quickly assimilate as well as add to our bottom line. Negotiations are at advanced stages for practices which could be linked in with our company owned financial planning offices in Victoria and Queensland and tucked in to our existing Sydney practice if finalised. Adviser, Staff and Director Options In accordance with the terms and conditions of the approved Adviser Share Option Plan, no options are proposed to be issued as the Plan was not extended. In accordance with the terms and conditions of the approved Employee and Director Share Option Plan, no options will be issued to employees or the Managing Director. FINANCIAL PLANNING The Distribution Network As stated earlier, the impact of the Global Financial Crisis has continued for around five years. We have therefore put in place marketing initiatives for Fiducian financial planners that explain the economic environment and encourage long- term investors to take advantage of current market weakness. As well, training and practice development strategies have concentrated on client retention, education and counselling to understand that portfolios have been structured and diversified to counter such unforseen economic developments. Increased frequency of client contact and communication by all Fiducian financial planners have been encouraged and have resulted in impressive client retention levels. However, financial market volatility, adverse media and political uncertainty has created fear and caused potential investors to defer long term diversified investment decisions and instead focus on cash holdings. Practice Development Managers based in Sydney, Melbourne and Brisbane continue to work hard to support and grow the planner network throughout Australia. Their mandate for the coming year is to increase financial planner specialisation in various segments that differentiate our financial planners from the marketplace and thereby deliver positive net inflows. P A G E 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 J O I N T R E P O R T O F T H E C H A I R M A N A N D T H E M A N A G I N G D I R E C T O R C O N T I N U E D Salaried Offices Company owned offices with salaried financial planners based in New South Wales, Victoria, Western Australia, Queensland and Tasmania have continued to contribute to overall results and numbers have increased. While some who have been with us for many years are planning retirement or reduced working hours, we are ensuring an orderly transition of clients to younger experienced financial planners so that there is no change in the Fiducian quality of care and service. Salaried offices now comprise 43% of funds under administration. Franchised Offices Fiducian expects the highest level of compliance and client service from its franchise network. Even though the generation of higher inflows is important, our commitment is to quality. As a consequence client retention has been extremely high and franchised offices now comprise 45% of our funds under administration. PLATFORM ADMINISTRATION Platform Administration offers portfolio wrap administration for superannuation and investment services to the planner market place. The hallmark of the Fiducian administration offering is quality in terms of daily processing, accuracy and customer service. Funds Under Administration Funds under administration decreased in total by 24% to $0.87 billion (2011 $1.15 billion). This, as explained below, was largely due to withdrawals by IFAs and declining financial market valuations. We believe that the rate of IFA withdrawals could slow as they now have reduced levels of funds and many are Fiducian clients that have been with us for a long time. We also expect some acquired client bases to gradually transition to Fiducian platforms if it is appropriate for the investors. Such investors could then enjoy the full benefit of our personalised service and quality investment strategies. Independent Planners In addition to providing administration services to Fiducian planners and badge arrangements, services are provided to some Independent Financial Planners (IFAs) who hold their own AFSL license. Funds under administration for IFAs reduced to 12% of total funds under administration and the bulk of our outflows were from this sector, some at near market lows. Also, some IFAs have sold their businesses to other Dealer Groups who have their own recommended product lists and arrangements with other platforms. Corporate Superannuation Corporate superannuation decreased by 1% (2011: 4%) during the year, but forms only a small portion of funds under administration. Fiducian has focussed on the small employer market so that all employees using our superannuation fund could receive the appropriate services of a financial planner. It compliments our core belief that proper financial planning advice is essential for all investors. INVESTMENT MANAGEMENT Fiducian is a multi asset, multi style investment manager. We design Funds that seek to deliver above average returns over the short to medium term, which by consistent averaging, tend to deliver superior returns, compared with their peers, over the longer term. Blending of underlying portfolios within asset sectors and tilts towards different manager’s styles, depending on the economic cycle, also has the potential to reduce volatility. The investment team and investment committee remain confident that the Fiducian philosophy of liquidity and transparency will also benefit investors. In investment performance surveys, our diversified funds remain regularly in or close to the top quartile positions over longer time frames. In spite of the above results, a wholesale mandate of $137 million was terminated by an institution which withdrew the funds upon the recommendation of an asset consultant who now manages those funds. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 5 J O I N T R E P O R T O F T H E C H A I R M A N A N D T H E M A N A G I N G D I R E C T O R C O N T I N U E D INFORMATION TECHNOLOGY The Fiducian Information Technology (FIT) team’s main focus last year was to replace the externally provided administration system with a superior internal system, to provide much greater control, efficiency and substantial cost savings and open up new business opportunities in the future. These improvements are now in place and dovetail to provide greater integration with our Online reporting and financial planning system FORCe. Administration efficiencies have already been observed. BUSINESS SERVICES Fiducian Business Services Pty Ltd (FBS) is our subsidiary that was established to provide support to accountants for bookkeeping, accounts preparation and self managed superannuation fund administration. Its proven process, in helping accountants to lift profitability through the use of our resourcing services, encouraged us to acquire, at the end of last year, an accounting practice which now operates as Fiducian Accountants & Business Advisers (FABA). It met its revenue targets and profit expectations in its first year, in spite of substantial changes to its operating procedures. We are in negotiations to expand this area of our business through acquisitions. Cross referrals of our financial planning clients needing accounting help and our accounting clients needing financial planning help further supports Fiducian’s value proposition of service to all our clients. A further development through FBS is the growth of an independent Self Managed Superannuation Fund administration facility, which aims to capture a share of this segment of the industry. Our established presence in India should provide a platform for growth and where feasible support other opportunities for cost rationalisation. FBS should also become a strong growth pillar for our business in future years. It can provide a stable recurring income stream and cushion any financial market earnings downturn, as its earnings are not directly related to the financial markets. HUMAN RESOURCES Management and Staff The Fiducian management team is focused on managing and building a successful company. The effective reporting processes enhance Board oversight of business activity and performance on a monthly basis. The retention of quality, loyal staff is important to Fiducian. However some changes have occurred due to retirement. The Head of Financial Planning retired after eight and a half years of service and he was replaced internally. After eleven years of service, our Financial Controller also retired and a new financial controller, with appropriate experience, has been recruited. Key performance indicators have been identified for management in each area of the business operations which are used to monitor performance at least on a quarterly basis. Advisers Council and IT User Groups The Adviser Council is drawn from our supporting financial planners and has again made a significant contribution to the company during the past year. It continues to fulfil its role as a sounding board for the company’s management and Board, and is a valuable resource and forum to allow financial planners to alert the company to issues that may need consideration. The IT User Group was formed two years ago and it deserves commendation for its contribution to the development of our financial planning and reporting systems. This year a Platform User Group was established. It is already providing valuable insight into our system improvements and client servicing needs. Board of Directors The Board of directors is working constructively to evaluate and support management’s recommendations for the company. The Business Plan for the year has adopted key measures for performance, one of which is a reduction in operating costs to lift profits. Future performance can also be influenced by a recovery in financial markets and decisive political leadership; as both can give confidence to our Mum and Dad clients who are our traditional target market, to invest again in properly diversified investments instead of cash. Management remains committed to achieving the goals and objectives set down in these plans. P A G E 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 J O I N T R E P O R T O F T H E C H A I R M A N A N D T H E M A N A G I N G D I R E C T O R C O N T I N U E D CURRENT ECONOMIC AND MARKET ENVIRONMENT Over the 2011-2012 financial year, the Australian and international share markets were buffeted repeatedly by positive and negative news. For the third year in succession, we saw a share market recovery at the start of the calendar year peter out on the back of more damaging exposure on the European economy. A weak and volatile share market for nearly five years and recurrent bad news from the global economic front has sapped a lot of energy from investors. Our house view is for share markets to trend sideways, but to pull through and eventually deliver positive returns once news from Europe begins to improve. Share markets are cheap by historical measures and there is a large amount of cash waiting on the sidelines to enter. Share markets could therefore rise strongly even on a hint that European policymakers are taking steps to support their currency and economy. As always, we recommend that investors should consult a Fiducian financial planner to develop an investment strategy that could help them achieve their financial goals. OUTLOOK The Board believes that expectations for our future should improve from the current low point. The Board also expects profits to continue in coming years as management focuses on expanding its range of business activities and on realizing the full potential of financial planning, platform administration, investment management, information technology and business/accounting services. Expenditure controls are a key priority for the current year. Fiducian has always insisted on fees being fully disclosed and charged for services provided. All our clients are expected to receive continuous advice and agree to their planner’s remuneration in writing and with full transparency. Our product disclosure documents specify that planner fees are negotiable between client and planner. We therefore do not expect any detrimental financial affect from the FOFA legislation. The business plan for 2013 financial year looks at expanding the revenue base by growing the existing Fiducian business model and by further expanding its accountancy resourcing services to the self managed superannuation fund market and accounting community. The cash management strategy for the next financial year is to utilize profits to pay dividends and to use any surplus to support meaningful acquisitions or make further share buy backs. We would like to thank all participants for their individual contributions to the growth and success of Fiducian in what has been a difficult and eventful year. Yours faithfully, Robert Bucknell Chairman 27 August 2012 Indy Singh Managing Director A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 7 C O R P O R A T E D I R E C T O R Y DI RECTOR S SHA RE REGI ST ER R Bucknell FCA Chairman I Singh CFP, BTech, MComm (Bus), ASIA, ASFA, Dip. FP Managing Director F Khouri B Bus, FCPA, FTIA C Stone B Comm, LLB, LLM, CA, ACIS SECRETARY I Singh CFP, BTech, MComm (Bus), ASIA, ASFA, Dip. FP NOTI CE O F A NN UA L GENERAL ME E TI NG The annual general meeting of Fiducian Portfolio Services Limited Will be held at Level 4, 1 York Street, Sydney Time Date 10:00am Tuesday 30 October 2012 PRINCI PAL R EGIS TE R E D OFFICE I N AUST RA LIA Level 4 1 York Street Sydney NSW 2000 (02) 8298 4600 WHOLLY OWN E D OPERA TING E N TI TIE S Fiducian Financial Services Pty Ltd Fiducian Business Services Pty Ltd Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 A UDIT OR PricewaterhouseCoopers Chartered Accountants Darling Park Tower 2 201 Sussex Street Sydney NSW 1171 B AN KERS Westpac Banking Corporation 341 George Street Sydney NSW 2000 ANZ Banking Group 55 Collins Street Melbourne VIC 3000 STOC K EXC HA NGE LIST ING Fiducian Portfolio Services Limited (FPS) shares are listed on the Australian Securities Exchange. WEB SIT E ADDRE SS www.fiducian.com.au P A G E 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Fiducian Portfolio Services Limited and its wholly owned operating entities throughout the year ended 30 June 2012. Directors The following persons were directors of Fiducian Portfolio Services Limited during the financial year and up to the date of this report. R Bucknell I Singh F Khouri C Stone Principal activities During the year the principal continuing activities of the Group consisted of: (a) The Operator of Fiducian Investment Service (b) The Trustee of Fiducian Superannuation Service (c) The Responsible Entity of Fiducian Funds; and (d) The Dealer for specialist financial planning services through its wholly owned operating entity, Fiducian Financial Services Pty Ltd (including the operations of Harold Bodinnar & Associates Pty Ltd and Money & Advice Pty Ltd). (e) The Provider of accountancy resource services through its wholly owned operating entity, Fiducian Business Services Pty Ltd Dividends - Fiducian Portfolio Services Limited Dividends paid to members during the financial year were as follows: Final ordinary franked dividend for the year ended 30 June 2011 of 5.00 cents (2010: Fully franked 4.75 cents) per share paid on 20 September 2011. Interim ordinary fully franked dividend for the year ended 30 June 2012 of 2.50 cents (2011: Fully franked 5.00 cents) per share paid on 21 March 2012. Total dividends in respect of the year 2012 $’000 2011 $’000 1,600 1,532 798 2,398 1,611 3,143 In addition to the above dividends, since the end of the financial year, the directors have declared the payment of a final fully franked dividend for the year ended 30 June 2012 of 2.5 cents per ordinary share held at 7 September 2012 and payable on 21 September 2012. Review of operations A summary of consolidated revenues and results by significant industry segments is set out below: SEGMENT REVENUES SEGMENT RESULTS Funds management and administration Financial planning Intersegment sales 2012 $’000 19,490 8,563 (4,848) 23,205 2011 $’000 21,562 8,225 (5,293) 24,494 Profit from ordinary activities before income tax expense Income tax expense Net profit attributable to members of Fiducian Portfolio Services Limited 2012 $’000 3,388 (56) - 3,332 (1,121) 2,211 2011 $’000 5,941 451 - 6,392 (1,956) 4,436 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 9 D I R E C T O R S ’ R E P O R T C O N T I N U E D Comments on operations and results Comments on the operations, business strategies, prospects and financial position are contained in the Joint Report of the Chairman and Managing Director. Shareholder returns As in the previous year the valuation of investment funds has remained subdued and impacted on the management fees received by Fiducian, as more fully detailed in the Joint Report of the Chairman and Managing Director. Despite this, Fiducian has maintained profit for the second half of this year and will distribute a dividend of 2.50 cents per share, bringing the full year dividend to 5.00 cents per share. Significant changes in the state of affairs Significant changes in the state of affairs of the Group during the financial year were as follows: During the financial year the Group acquired three portfolios of financal planning clients, which transferred to Fiducian Financial Services Pty Ltd progressively until the end of the financial year. During the financial year the group established an overseas company in India with a local partner with 90% stake for providing accounting and business resourcing services. The operations for the company are in its initial stages and not material in 2012. The profit contribution of the non-controlling interests are shown separately in the Statements of Comprehensive Income. Contributed equity has reduced by $431,845 (inclusive of brokerage) as a result of the buy back of 359,440 shares on the stock exchange at an average price of $1.20 per share during the year. Other than this, there were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Under the Rules of the Adviser Share Option Plan no options are being issued this year (2011: Nil) as the plan has not been extended. Under the same rules no options have expired to the date of this report (2011: 330). Under the Rules of the Employee and Director Share Option Plan the Directors have not granted any options to employees or Managing Director after year end (2011: Nil). To the date of this report 110,000 (2011: 95,375) employee options have lapsed and no options have lapsed or been exercised by the Managing Director. To the date of this report, 23,770 shares have been bought back on market at an average price of $0.93. Other than the above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the company, to affect significantly the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent years. Likely developments and expected results of operations The Chairman and Managing Director have commented on expected results of operations in their Joint Report. Other than this, the directors have excluded further information on likely developments in the operations of the Group and the expected results of those operations in future financial years, since, in the opinion of the directors, it would prejudice the interests of the Group if this information was included. Environmental regulation The Group is not subject to significant environmental regulations under a Commonwealth, State or Territory law. P A G E 1 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES (a) Directors The following persons were directors of Fiducian Portfolio Services Limited during the financial year: Chairman (non-executive) R Bucknell Executive director Non-executive directors I Singh – Managing Director F Khouri C Stone (b) Information on directors R E Bucknell FCA. Chairman – non executive. Experience and expertise Chairman since inception in 1996. Extensive experience in accounting and business management over the past 48 years as a Chartered Accountant in public practice. Other current directorships None Former directorships in the last 3 years None Special responsibilities Chairman of the Group, Remuneration and Internal Compliance Committees and member of Audit Committee. Interest in shares and options 900,000 ordinary shares in Fiducian Portfolio Services Limited. I Singh CFP, BTech, MComm (Bus), ASIA, ASFA, Dip. FP. Managing Director. Experience and expertise Founder and Managing Director since inception in 1996. General Management and hands-on experience in the investment of savings and superannuation funds over the past 23 years. Other current directorships None Former directorships in the last 3 years None Special responsibilities Managing Director, Member of Investment, Audit and Internal and External Compliance Committees as applicable. Interest in shares and options 10,012,415 ordinary shares in Fiducian Portfolio Services Limited. 155,000 options for ordinary shares in Fiducian Portfolio Services Limited. F G Khouri B Bus, FCPA, FTIA Independent non-executive director. Experience and expertise Appointed to the Board 6 July 2007. Public accountant, registered company auditor, financial planner and business adviser since 1976 to small and medium enterprises, currently as a partner in the firm HG Khouri & Associates. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 1 1 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O NT IN UED (b) Information on director (continued) Other current directorships None Former directorships in the last 3 years None Special responsibilities Chairman of the Board Audit Committee and member of Remuneration Committee. Interest in shares and options 226,373 ordinary shares in Fiducian Portfolio Services Limited. 6,200 options for ordinary shares in Fiducian Portfolio Services Limited. C H Stone B Comm/LLB, LLM, CA, ACIS Independent non-executive director. Experience and expertise Appointed to the Board 3 March 2010. Practicing lawyer, holding senior legal and/or legal compliance roles in local and global financial services organisations, with 22 years experience. Currently Head of Compliance of State Street Australia Limited, and has 8 years experience as a Chartered Accountant in taxation and superannuation matters. Other current directorships None Former directorships in the last 3 years None Special responsibilities Member of the Board Internal and External Compliance Committees. Interest in shares and options None (c) Company secretary The company secretary is Mr I Singh CFP, M Comm. (Bus), ASIA, ASFA, Dip. FP. Mr Singh has been the company secretary since inception in 1996, and is supported by legal counsel employed by Fiducian. P A G E 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O NT IN UED (d) Meeting of directors The numbers of meetings of the company’s board of directors and of each board committee held during the year ended 30 June 2012, and the numbers of meetings attended by each director were: FULL MEETINGS OF DIRECTORS MEETINGS OF COMMITTEES Corporate Trustee* Audit Internal Invest- Compliance ment Remun- ration A B A B 12 12 12 12 12 12 12 12 A 5 5 B 5 5 A 2 2 B 2 2 A B A B **** **** 1 1 12 12 **** **** 12 12 12 12 5 5 **** **** **** **** 1 1 12 12 12 12 **** **** 2 2 **** **** **** **** R E Bucknell I Singh** F Khouri C Stone*** A = Number of meetings attended. B = Number of meetings held during the time the director held office or was a member of the committee during the year. * = Meetings of the Board in its capacity as Trustee of the Fiducian Superannuation Service. ** = In addition, I Singh attended 5 of the 5 meetings held with the two independent members of the External Compliance and Risk Committee as attendee or member as applicable. *** = In addition, C Stone attended all 5 of the 5 meetings of the External Compliance and Risk Committee. ****= Not a member of the relevant committee at the time of meeting. (e) Other key management personnel The following person has authority for and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: Name Position I Singh Managing Director Employer Fiducian Portfolio Services Limited The above person was also the key management person during the year ended 30 June 2012. (f) Remuneration report The remuneration report is set out under the following main headings: A Principles used to determine the nature and the amount of remuneration B Details of remuneration C Service agreements D Share-based compensation E Additional information The information provided under headings A - D includes remuneration disclosures that are required under Accounting Standards AASB 124 Related Party Disclosures. These disclosures have been transferred from the Director’s report and have been audited. The disclosures in Section E are additional disclosures required by the Corporations Act 2001 and the Corporations Regulations 2001 which have not been audited. A - Principles used to determine the nature and the amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage / alignment of executive compensation • transparency • capital management. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 1 3 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O NT IN UED A - Principles used to determine the nature and the amount of remuneration (continued) (a) Non-executive directors Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Board. Non-executive directors are no longer entitled to options under the Employee and Director Share Option Plan. Directors’ fees The current base remuneration was last reviewed in August 2010. The Chairman and other external directors are paid a fixed fee plus a fee based on time spent on committees (Directors with earnings derived from business placed with the Group may also receive remuneration as financial planners). The Chairman’s fixed fee is higher than other non-executive directors based on comparative roles, time and fees in the external market. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum pool currently stands at $350,000 per annum and was approved by shareholders at the Annual General Meeting on 24 October 2007. No increase is being sought at the next Annual General Meeting. Retirement allowances for directors There are no retirement allowances for non-executive directors other than superannuation accumulation arising from any contributions made for them. (b) Executive Director Remuneration and other terms of employment for the Managing Director is formalised in a service agreement. The Managing Director’s agreement provides for the provision of performance based cash bonuses and, where eligible, participation in the Employee and Director Share Option Plan. Other major provisions of the agreement are set out below: I Singh, Managing Director • Term of agreement - until 30 June 2014 • Base salary, inclusive of superannuation and salary sacrifice benefits. • Death and TPD/Trauma cover. • Short term performance incentives. • Long term incentives through the Fiducian Portfolio Services Limited Employee and Director Share Option Plan, and • Retirement benefits. The combination of these comprises the executive’s total remuneration package. An external remuneration consultant advises the Remuneration Committee, at least every 3 years, to ensure that the Group has structured an executive remuneration package that is market competitive and complimentary to the reward strategy of the organisation. Their most recent review was in August 2010. Base salary Mr Singh receives a base pay that comprises the fixed component of pay and the potential for rewards, which reflects the market value for his role. The base salary is reviewed annually by the Remuneration Committee at the commencement of each financial year. There are no guaranteed base pay increases fixed in the executive’s contract. P A G E 1 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O NT IN UED A - Principles used to determine the nature and the amount of remuneration (continued) Benefits Executive benefits include death cover of $1 million and TPD/ Trauma insurance cover of $0.5 million. Short-term incentives Mr Singh is entitled to a discretionary cash performance bonus of up to 20% of his total package as assessed by the Remuneration Committee against performance indicators and objectives set by the Board. It is limited to being met within the budget or out of over-budget financial performance. As in previous years Mr Singh has declined to accept the entitlement that was due for the financial year. Long-term incentives Mr Singh is entitled to a discretionary performance bonus of up to 100,000 options per year determined as at 30 June each year, based on the following measures: • the company’s pre-tax profit OR • the 30 day average for June market value for ordinary shares in the company increasing by at least 15% over the previous year. The options are issued under the company’s ESOP at the rate of 5,000 options for each one percent increase in annual profit in excess of 15% and only after approval by shareholders in the company. Mr Singh is not entitled to receive options in respect of the year. Retirement benefits Retirement benefits are delivered under the Fiducian Superannuation Service. This fund provides accumulation benefits based on the SGC contributions by the specified executive, on commercial terms and conditions. Other retirement benefits may be provided directly by the Group only if approved by the shareholders. Payment of a termination benefit on early termination by the Managing Director or by mutual consent is equal to 6 months of the gross annual remuneration. B - Details of remuneration The key management personnel of the Group were the following executive and non-executive directors during the year: • R Bucknell – Chairman • • F Khouri – Non-executive Director • C Stone – Non-executive Director I Singh – Managing Director & Company Secretary Amounts of remuneration Details of the remuneration of the directors, including Mr Singh, the only key management personnel of Fiducian Portfolio Services Limited, are set out in the following tables. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 1 5 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O N TIN UED B - Details of remuneration (continued) Key management personnel of Fiducian Portfolio Services Limited and the Group 2012 NAME SHORT-TERM EMPLOYEE BENEFITS POST EMPLOYMENT BENEFITS SHARE-BASED PAYMENT CASH SALARY AND FEES (a) CASH BONUS NON-MONETARY BENEFITS SUPER- ANNUATION RETIREMENT BENEFITS OPTIONS TOTAL Non-executive directors R Bucknell (b) (Chairman) F Khouri (c)(d) C Stone Executive director I Singh (e) Totals $ 128,818 47,817 48,964 443,493 669,092 $ - - - - - $ $ $ $ $ - - - - - - 4,259 4,036 19,581 27,876 - - - - - - 128,818 - - - - 52,076 53,000 463,074 696,968 (a) Excludes GST if paid to another firm. (b) Including amounts paid to the director’s company only in respect to director’s duties. (c) This excludes gross remuneration of $222,928 for financial planning paid to companies in which the director has an interest. (d) No Adviser Options were issued during the year to a company, in which Mr Khouri is a shareholder and director in his capacity as a financial planner. (e) No options were issued to Mr Singh in respect of the 2012 financial year. 2011 NAME SHORT-TERM EMPLOYEE BENEFITS POST EMPLOYMENT BENEFITS SHARE-BASED PAYMENT CASH SALARY AND FEES (a) CASH BONUS NON-MONETARY BENEFITS SUPER- ANNUATION RETIREMENT BENEFITS OPTIONS TOTAL $ $ $ $ $ $ $ Non-executive directors R Bucknell (b) (Chairman) F Khouri (c)(d) C Stone Executive director I Singh (e) Totals 128,100 47,511 45,897 444,827 666,335 - - - - - - - - - - - 4,201 4,206 18,276 26,683 - - - - - - 128,100 - - - - 51,712 50,103 463,103 693,018 (a) Excludes GST if paid to another firm. (b) Including amounts paid to the director’s company only in respect to director’s duties. (c) Including amounts paid to the director’s firm only in respect of director’s duties. (d) This excludes gross remuneration of $238,295 for financial planning paid to companies in which the director has an interest. (e) No options were issued to Mr Singh in respect of the 2011 financial year. P A G E 1 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O NT IN UED C - Service Agreements and Induction Process The service agreement of the Executive Director is detailed in paragraph A(b) earlier. There are no service agreements with non-executive directors or employees In preparation for appointment to the Board, all non-executive directors undergo an induction program an receive an induction pack of documents necessary for them to understand Fiducian’s policies, procedures, culture and ethical values to enable new directors to carry out their duties in an effective and efficient manner. D - Share-based compensation (i) Option compensation and holdings Options over shares in Fiducian Portfolio Services Limited are granted under the Employee and Director Share Option Plan, which was approved by shareholders on 28 July 2000. The Plan is described under Note 25. The numbers of options for ordinary shares in the company held directly by directors of Fiducian Portfolio Services Limited and details of options for ordinary shares in the company provided as remuneration to the key management personnel of the Group, are set out below. 2012 NAME I Singh F Khouri* BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR AS REMUNERATION EXERCISED LAPSED DURING THE YEAR BALANCE AT THE END OF THE YEAR VESTED AND EXERCISABLE 155,000 - - - - - - - 155,000 155,000 - - * 6,200 Adviser options, issued in prior years, are held by an entity in which F Khouri has an interest. 2011 NAME I Singh F Khouri* BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR AS REMUNERATION EXERCISED LAPSED DURING THE YEAR BALANCE AT THE END OF THE YEAR VESTED AND EXERCISABLE 215,000 (100,000) 40,000 - - - - - 155,000 115,000 - - * 7,374 Adviser options, issued in prior years, are held by an entity in which F Khouri has an interest. Note: The assessed fair value at grant date of options granted to the individuals is detailed in Note 25. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 1 7 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O N TIN UED D - Share-based compensation (ii) Share holdings The numbers of shares in the company held by current directors of Fiducian Portfolio Services Limited, including their personally related and associated entities, are set out below. No shares were granted during the period as compensation. 2012 NAME I Singh R E Bucknell F Khouri C Stone 2011 NAME I Singh R E Bucknell F Khouri BALANCE AT THE START OF THE YEAR RECEIVED DURING THE YEAR ON THE EXERCISE OF OPTIONS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR 9,939,580 900,000 219,373 - - - - - 72,835 - 7,000 - 10,012,415 900,000 226,373 - BALANCE AT THE START OF THE YEAR RECEIVED DURING THE YEAR ON THE EXERCISE OF OPTIONS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR 9,764,580 1,000,000 194,373 100,000 - - 75,000 (100,000) 25,000 9,939,580 900,000 219,373 Shares provided on exercise of options No ordinary shares in the company were provided as a result of the exercise of remuneration options to a director of Fiducian Portfolio Services Limited and other key management personnel of the Group during the period (2011: 100,000). No amounts are unpaid on any shares issued on the exercise of options. E - Additional information Principles used to determine the nature and amount of remuneration: relationship between remuneration and company performance The overall level of executive reward takes into account the performance of the Group over a number of years, with greater emphasis given to the current and prior year. Other than a small increase of $10,000 in August 2010, there having been no other increases in base salary over the prior 3 years in these tougher economic times. Cash bonuses and entitlements have not been granted or paid in the past 3 financial years and the grant of options entitlements have been only in accordance with the incentive programs being 40,000 options in respect of the 2010 financial year only. Details of remuneration: cash bonuses and options There was no cash bonus or option granted, vested or forfeited in the financial year (2011: 40,000). No part of the bonus is payable in future years. There are no options which are yet to vest. P A G E 1 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O N TIN UED E - Additional information (continued) Directors’ superannuation Directors have superannuation monies invested in Fiducian Superannuation Service. These monies are invested subject to the normal terms and conditions applying to this superannuation fund. Loans to directors No loans were made to directors during the financial year (2011: Nil). Other transactions with key management personnel A director, Mr R E Bucknell, is a director and shareholder of Hunter Place Services Pty Ltd, a company which provides his services as a director to the company. A director, Mr F Khouri, is an authorised representative under the Fiducian Financial Services Pty Ltd Australian Financial Services Licence and is a director and shareholder of Hawkesbury Financial Services Pty Ltd, which is a franchisee of Fiducian Financial Services Pty Ltd. Hawkesbury Financial Services Pty Ltd places business with and receives remuneration from the company for financial planning services. All transactions are on normal commercial terms and conditions. Aggregate amounts of each of the above types of other transactions with directors of Fiducian Portfolio Services Limited: Amounts recognised as an expense Directors’ fees and committee fees Financial planning remuneration paid and payable CONSOLIDATED 2012 $ 2011 $ 233,894 222,928 456,822 229,915 238,295 468,210 Shares under option Unissued ordinary shares of Fiducian Portfolio Services Limited under option at the date of this report are disclosed in Note 25 of the Financial Report. No option holder has any right under the options to participate in any other share issue of the company or any other entity until after the exercise of the option. Shares issued on the exercise of options The details of ordinary shares of Fiducian Portfolio Services Limited issued during the year ended 30 June 2012 on the exercise of options granted under the Fiducian Portfolio Services Limited Employee & Director Share Option Plan and the Adviser Share Option Plan are disclosed under Note 25 to the Financial Report. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 1 9 D I R E C T O R S ’ R E P O R T C O N T I N U E D KEY MANAG EME N T PE R SON NEL D IS CL OSURES C O N TIN UED E - Additional information (continued) Adviser Share Option Plan are disclosed under Note 25 to the Financial Report. Indemnification and insurance of officers The Constitution of Fiducian Portfolio Services Limited provides the following indemnification of officers: (a) to indemnify officers of the company and related bodies corporate to the maximum extent permitted by law unless a liability arises out of conduct involving a lack of good faith. In the case of a related body corporate, the indemnification of officers does not extend to any proceedings for a liability incurred by the officer based upon events that occurred before that body corporate became a related body corporate. (b) to allow the company to pay a premium for a contract insuring directors, the secretary and executive officers of Fiducian Portfolio Services Limited and its related bodies corporate. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in the capacity as officers of the company or a related body corporate. No liability has arisen under these indemnities as at the date of this report. During the year Fiducian Portfolio Services Limited paid a premium under a combined policy of insurance for liability of officers of the company and related bodies corporate, professional indemnity and crime. In accordance with normal commercial practice, disclosure of the total amount of premium payable under, and the nature of the liabilities covered by, the insurance contract is prohibited by a confidentiality clause in the contract. The officers of the company covered by the insurance policy include the current and previous directors: R E Bucknell, I Singh, F Khouri, C Stone, other officers of Fiducian Portfolio Services Limited and independent members of the external Compliance and Investment Committees, J Evans, B Lacey and M Devlin. Proceedings on behalf of the company No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to 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 part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. P A G E 2 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 D I R E C T O R S ’ R E P O R T C O N T I N U E D Non-audit services The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or Group are important. The board of directors is satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • all non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor. none of the services undermine the general principles relating to auditor independence as set out in APES110 Code of Ethics for Professional Accountants. During the year the fees paid or payable for services provided by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non-related audit firms, are shown in Note 26 to the consolidated financial report. Auditor’s independence declaration A copy of the auditors’ independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 22. Rounding of amounts The company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the directors’ report. Amounts in the directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the directors. I Singh Director Sydney, 27 August 2012 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 2 1 A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N Auditor’s Independence Declaration As lead auditor for the audit of Fiducian Portfolio Services Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been: a) Auditor’s Independence Declaration no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. b) As lead auditor for the audit of Fiducian Portfolio Services Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been: This declaration is in respect of Fiducian Portfolio Services Limited and the entities it controlled during the period. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Fiducian Portfolio Services Limited and the entities it controlled during the period. Darren Ross Partner PricewaterhouseCoopers Darren Ross Partner PricewaterhouseCoopers Sydney 27 August 2012 Sydney 27 August 2012 PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au P A G E 2 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 Liability limited by a scheme approved under Professional Standards Legislation. PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Auditor’s Independence Declaration As lead auditor for the audit of Fiducian Portfolio Services Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been: a) Auditor’s Independence Declaration no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. As lead auditor for the audit of Fiducian Portfolio Services Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been: This declaration is in respect of Fiducian Portfolio Services Limited and the entities it controlled during the period. a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Fiducian Portfolio Services Limited and the entities it controlled during the period. Darren Ross Partner PricewaterhouseCoopers Darren Ross Partner PricewaterhouseCoopers Sydney 27 August 2012 Sydney 27 August 2012 PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. C O R P O R A T E G O V E R N A N C E S T A T E M E N T Fiducian Portfolio Services Limited (the Company) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board continues to review the framework and practices to ensure they meet the interests of shareholders. The company and its controlled entities together are referred to as the Group in this statement. A description of the company’s main corporate governance practices is set out below. All these practices, were in place for the entire year and comply with the August 2007 ASX Principles of Good Corporate Governance and Best Practice Recommendations, except where noted. Principle 1: Lay solid foundations for management and oversight The relationship between the Board and senior management is critical to the Group’s long term success. The directors are responsible to the shareholders for the performance of the Group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and to ensure that the Group is properly managed. The responsibilities of the Board include: • • providing strategic guidance to the Group including contributing to the development of and approving the corporate strategy. reviewing and approving business plans, the annual budget and financial plans, including available resources and capital expenditure initiatives. • overseeing and monitoring: • organisational performance and the achievement of the Group’s strategic goals and objectives. • compliance with the company’s Code of Conduct (see page 26). • progress of major capital expenditures and other significant corporate projects, including any acquisitions or divestments. • monitoring financial performance, including approval of the annual and half-year financial reports and liaison with the company’s auditors. • appointment, performance assessment and, if necessary, removal of the Managing Director • ratifying the appointment and /or removal and contributing to the performance assessment for the members of the senior management team. • ensuring there are effective management processes in place and approving major corporate initiatives. • enhancing and protecting the reputation of the organisation. • ensuring that adequate disaster recovery and business continuity plans are regularly monitored, tested and results reported. • overseeing the operation of the Group’s system for compliance and risk management reporting to shareholders. • balancing sometimes competing objectives in the best interests of the Group. Day to day management of the Group’s affairs and the implementation of the corporate strategies and policy initiatives are formally delegated by the Board to the Managing Director. Principle 2: Structure the Board to add value The Board operates in accordance with the broad principles set out in its charter which is also available on the company’s website at www.fiducian.com.au. The charter details the Board’s composition and responsibilities. Board members The following persons were directors of Fiducian Portfolio Services Limited during the financial year: Chairman (non-executive) Executive Managing Director Non-executive directors R Bucknell I Singh F Khouri C Stone Details of each director’s experience, expertise and qualifications are set out each year in the Directors’ Report of the Annual Report to Shareholders under the heading ‘Information on Directors’. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 2 3 C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O N T I N U E D Principle 2: Structure the Board to add value (continued) Board composition The charter states: • the Board is comprised of both an executive Director and a majority of non-executive directors, with a minimum of four directors. • non-executive directors bring a fresh perspective to the Board’s consideration of strategic, risk and performance matters. • in recognition of the importance of independent views and the Board’s role in supervising the activities of management, the majority of the Board must be independent of management and all directors are required to exercise independent judgement and review and constructively challenge the performance of management. • the Chairman is elected by the full Board and is required to meet regularly with the Managing Director. • the company is to maintain a mix of directors on the Board from different backgrounds with complimentary skills and experience. • the Board is required to undertake an annual Board performance review and consider the appropriate mix of skills required by the Board to maximise its effectiveness and its contribution to the Group. The Board seeks to ensure that: • at any point in time, its membership represents an appropriate balance between directors irrespective of gender with experience and knowledge of the Group and directors with an external or fresh perspective. • the size of the Board is conducive to effective discussion and efficient decision-making. Chairman and Managing Director The Board charter specifies that these are separate roles to be undertaken by separate people. • The Chairman is responsible for leading the Board, ensuring that Board activities are organised and efficiently conducted, and directors are properly briefed for meetings. • The Managing Director is responsible for implementing Group strategies and policies. Directors’ independence Directors are obliged to be independent in judgement and ensure that all reasonable steps and due care are taken by the Board to arrive at sound decisions. The Board has adopted specific guidelines in relation to directors’ independence. These state that when determining independence, a director must be a non-executive and: • not be a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company. • not have been employed in an executive capacity by the Group within three years before commencing to serve on the Board. • not have been, within the last three years, a principal of a material professional adviser or a material consultant to the Group, or an employee materially associated with the service provided. • not have been a material supplier or customer of the Group, or an officer of or otherwise associated directly or indirectly with a material supplier or customer. • not have a material contractual relationship with the Group, other than as a director of Fiducian. • not have been on the Board for a period which could, or could reasonably be perceived, to materially interfere with the director’s independent exercise of their judgement. Materiality for these purposes is determined on both quantitative and qualitative bases. With good cause, the Board may, at its discretion, determine that a director is independent, or has lost their independence, notwithstanding that all the above criteria are or are not satisfied. The Board assesses independence each year. To enable this process, the directors must provide all information that may be relevant to the assessment. Matters that could affect the independence of directors are detailed on the following page: P A G E 2 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O N T I N U E D Principle 2: Structure the Board to add value (continued) • Mr Bucknell and Mr Singh have both served on the Board since inception of the Group, being for more than ten years. Both bring a depth of experience and independent judgement to their roles as directors and remain vital to the growth of the Group. Mr. Bucknell is deemed by the Board to be an independent director. • Mr Khouri has business dealings with the Group as disclosed in the Annual Report at the end of each financial year. However, these are not of such a value or significance that adversely affect the director’s independence. He has declared his interests in those dealings with the company and takes no part in decisions relating to them. • Mr Stone has no business dealings with the Group either independently or through his employer. Independent professional advice Directors and members of Board committee have the right to obtain independent professional advice at the expense of the Group on matters arising in the course of their Board duties and responsibilities, with prior approval of the Board. Term of office The company’s Constitution specifies that all non-executive directors must retire from office no later than the third annual general meeting following their last election. A retiring director is eligible to stand for re-election. Induction The induction provided to new directors enables them to actively participate in Board decision-making as soon as possible. It ensures that they have a full understanding of the company’s financial position, strategies, operations and risk management policies. It also explains the respective rights, duties, responsibilities and roles of the Board. Performance assessment The Board undertakes an annual self assessment of its collective performance, the performance of the Chairman and of its committees. The assessment also considers the adequacy of induction and continuing education, access to information and the support provided by the Managing Director. The results and any action plans are documented together with specific performance goals which are agreed for the coming year. An assessment carried out in accordance with this process was undertaken during June, 2012. Board committees The board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of important aspects of the business and/or complex issues. Current committees of the board are the Remuneration, Internal Compliance, External Compliance and Risk, Investment and Audit Committees. They are comprised of a mix of executive and non-executives directors, and external specialists, the names and qualifications of whom are detailed in each Annual Report to Shareholders. Each committee has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. All of these charters are reviewed as required, but at least every three years. A Copy of each charter is available on the company’s website. Minutes of all committee meetings are tabled at the next Board meeting where any significant matters are addressed and resolutions or requests for further information are sent back to the relevant committee. Specific reporting by the committees to the Board are addressed in the charter of the individual committees. Nomination Committee The Board has considered recommendation 2.4 of the ASX Corporate Governance Principles and has taken the view that participation by the full board is more effective than a smaller Nomination Committee, particularly given the size of the board. There is therefore no Nomination Committee at present. Remuneration Committee The Remuneration Committee is comprised of the non-executive Chairman and one other non-executive director. The committee evaluates the Managing Director’s performance, determines bonus’s payable to him and establishes the salary package appropriate for each year. External advice is obtained when deemed appropriate, but at least at three yearly intervals. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 2 5 C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O N T I N U E D Principle 2: Structure the Board to add value (continued) Compliance committees (a) An Internal Compliance Committee is comprised of the non-executive Chairman, one other non-executive Director, and the Managing Director. The Committee monitors compliance systems, procedures, policies and programs established to ensure disclosure by management to the Board of areas of operating and non-financial risk including disclosure documents required to be given under statute. The compliance officer attends and participates at the meetings. (b) The External Compliance and Risk Committee is comprised of two independent members and the Managing Director. The Committee monitors compliance of systems, procedures, policies and programs established to ensure disclosure and reporting relating to compliance with obligations imposed by the corporations and superannuation laws, and that the interests of fund members are protected. The compliance officer attends and participates at the meetings. Audit committee The Audit Committee is comprised of the non-executive Chairman, one other non-executive Director and the Managing Director. The financial controller and auditor attend and participate at meetings. The Committee monitors all accounting policies to ensure they comply with accepted accounting standards and practices and is further discussed under Principle 4. Investment committee The Investment Committee is comprised of two independent members, the Managing Director and senior staff that form the Investment Management Team. The Committee monitors that procedures are fully carried out by the Investment Management Team, in accordance with the investment guidelines set by the Board. Managing Director’s attendance at Compliance and Audit committees The Board has ensured that the Compliance and Audit committees have a majority of independent members; but it expects the Managing Director to attend these committees as applicable. Attendance by the Managing Director has been beneficial as clarification can be provided promptly and any corrective measures required can be actioned swiftly and efficiently. Commitment The Chairman is expected to spend at least 45 days per year preparing for and attending Board meetings and meeting with the Managing Director. Other non-executive directors are expected to spend at least 20 days per year preparing for and attending Board meetings. All non-executive directors are expected to allow sufficient additional time to attend committee meetings and associated activities. Prior to appointment or being submitted for re-election, each non-executive director is required to specifically acknowledge that they have and will continue to have the time available to undertake relevant educational development and discharge their responsibilities to the Board and any of its committees, of which they are a member. The number of Board and Committee meetings attended by each director during each financial year is disclosed in the Directors’ Report of each Annual Report of the Group. The Executive Director has no appointments as a director outside the Group, other than to his own family companies. Principle 3: Promote ethical and responsible decision making Code of conduct The Directors and Management actively promote ethical and responsible decision making in line with the Group’s motto of ‘Integrity, Trust and Expertise.’ Additionally the Board and management believe that shareholder and public confidence is based upon the procedures in place internally which work to promote and ensure the highest standards of ethical behaviour are maintained. The company has developed a Code of Conduct (the Code) which has been fully endorsed by the Board and applies to all directors and employees. The Code is regularly reviewed and updated, as necessary, to ensure it reflects the highest standards of behaviour, professionalism and practices necessary to maintain confidence in the Group’s integrity and to take into account legal obligations and reasonable expectations of the company’s stakeholders. In summary, the Code requires that at all times all company personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies. A copy of the Code of Conduct is available on the Company’s website. P A G E 2 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O N T I N U E D Principle 3: Promote ethical and responsible decision making (continued) Share trading policy The purchase and sale of company securities by directors and employees is detailed in a written policy statement on insider and personal trading. This policy is discussed with and given to each new director or employee as part of the induction process. Each director and employee is required to sign an annual declaration confirming their compliance. Generally, directors and employees are only allowed to buy or sell Fiducian securities during the six weeks immediately after the release to the market of financial information or any other major statement that may affect the share price. The compliance officer advises both directors and staff when such periods commence and conclude. The Code requires employees who are aware of unethical practices within the group or breaches of the company’s trading policy to report these using the company’s whistleblower program. This can be done anonymously. The directors are satisfied that the Group has complied with its policies on trading in securities. A copy of the the trading policy is available on the company’s website. Principle 4: Safeguard integrity in financial reporting Audit committee The audit committee consists of the following directors: R Bucknell (Chairman)* I Singh F Khouri * On 22 August 2011, Mr Bucknell retired as Chairman of the Audit Committee and Mr Khouri was appointed as the new Chairman. All members of the audit committee are financially literate and have the appropriate understanding of the industry in which the Group operates. The Chairman, Mr F Khouri is a partner in a public accounting practice and a registered company auditor. Mr R Bucknell, has relevant qualifications and experience by virtue of being a former partner in a major accounting firm. The audit committee operates in accordance with a charter which is available on the company’s website. The main responsibilities of the audit committee are to: • review, assess and approve the annual and half-year financial reports and all other financial information published by the company or released to the market. • assist the Board in reviewing the effectiveness of the organisation’s internal financial controls covering: • effectiveness and efficiency of operations. • reliability of financial reporting, including important judgements and accounting estimates. • compliance with applicable laws and regulations • areas of financial risk • security of computer systems and applications • fraud and theft • recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance. • consider the independence and competence of the external auditor on an ongoing basis. • review and approve the level of non-audit services provided by the external auditors and ensure that it does not adversely impact on auditor independence. • review and monitor related party transactions and assess their propriety. • report to the Board on matters relevant to the committee’s role and responsibilities. In fulfilling its responsibilities, the Audit Committee • receives regular reports from management and the external auditor. • meets with the external auditor at least twice a year, or more frequently if necessary. • reviews the processes the Managing Director and senior managers have in place to support their certifications to the Board A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 2 7 C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O N T I N U E D Principle 4: Safeguard integrity in financial reporting (continued) • reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved. • has the right of access to the external auditors at any time • provides the external auditor with a clear line of direct communication, at any time, to the Chairman. The audit committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. External auditors The company and audit committee policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. PricewaterhouseCoopers has been the appointed external auditor since inception in 1996. It is PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies at least every five years, and in accordance with that policy a new audit engagement partner was introduced in the financial year ended 30 June 2009. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the Directors’ Report and in each Annual Report to Shareholders. It is the policy of the external auditors to provide an annual declaration of their independence to the audit committee. The external auditor normally attends the annual general meeting to be available to answer shareholder questions about the conduct of the audit and the preparation and content of the financial report and audit thereof. Principles 5 and 6: Make timely and balanced disclosures and respect the rights of Shareholders Continuous disclosure and shareholder communication The company has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of the company’s shares. In addition, the Company releases quarterly cash flow reports to the ASX. The Managing Director has been nominated as the person responsible for communications with the Australian Securities Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. Shareholders can receive updates on the Group’s information released to the ASX on the ASX’s website at www.asx.com.au or on the company’s website. When analysts are briefed on aspects of the Group’s operations, the material used in such presentations is that already released to the ASX and posted on the company’s website. Primary responsibility for compliance with Group policy on balanced and timely disclosure rests with the Managing Director who is assisted by the Group’s General Counsel and the CFO. Fiducian provides electronic reports and other communication to shareholders, who provide their email address. Hard copies will be sent to other shareholders. All shareholders receive a copy of the company’s annual and half-yearly reports. In addition, the company provides opportunities for shareholders to participate through electronic means with company announcements, media briefings, details of company meetings, press releases for the last three years and financial reports for the last five years, which are all available on the ASX’s website. Principle 7: Recognise and manage risk The Board, through the audit, compliance and internal risk committees, is responsible for ensuring that there are adequate policies in relation to risk management, compliance and internal control systems. In summary, the company policies are designed to ensure that strategic, operational, legal, reputational and financial risks are identified, assessed effectively and efficiently managed and monitored to achieve the Group’s objectives. A detailed Risk Management Strategy and Plan is formalised which details the policies in place in relation to risk management processes, compliance and internal control systems, procedures, registers and reporting. The head of each P A G E 2 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 C O R P O R A T E G O V E R N A N C E S T A T E M E N T C O N T I N U E D Principle 7: Recognise and manage risk (continued) business unit reports monthly, by exception, against the Risk Management Plan to the General Counsel. Further, detailed checklist reports are prepared quarterly by each business unit to confirm compliance with all licensing, corporations and superannuation law requirements to the External Compliance and Risk Committee, which then reports to the Board. In addition, the Board each year approves a strategic plan together with operating objectives and budgets which also encompasses the Group’s vision and mission. The Board monitors progress against these objectives and budgets, including the establishment and monitoring of KPIs of both a financial and non-financial nature. Also, regular financial reporting is received by the Board on such matters as the Group’s liquidity, funds under management inflows and outflows, funds performances and economic and financial market changes, impacts and forecasts. These measures assist the Board in managing business risk and any necessary mitigation strategies. The environment, health and safety management systems The Company recognises the importance of environmental and occupational health and safety (OH&S) issues and is committed to high levels of performance, whilst recognising that the Group’s operations expose it to little safety risk or environmental hazards. Corporate reporting The Managing Director and Financial Controller have made the following signed certifications to the Board • that the company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the company and Group and are in accordance with relevant accounting standards; and • that the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and that the company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects in relation to financial reporting risks. Principle 8: Remunerate fairly and responsibly. Remuneration committee The remuneration committee consists of the following non-executive directors (both of whom are independent): R Bucknell (Chairman) F Khouri The Managing Director has signed a formal employment contract at the time of his appointment covering a range of matters including his duties, rights, responsibilities and any entitlements on termination. Further information on the Managing Director’s remuneration, including principles used to determine remuneration, is set out in the Directors’ Report under the heading ‘Remuneration Report’ in each Annual Report issued by the Company. In accordance with Group policy, the Managing Director is not permitted to enter into any transactions that would limit the economic risk of options or other unvested entitlements. The Committee evaluates the Managing Director using criteria such as business performance, accomplishment of short and long-term strategic objectives and the development of management, taking this documented evaluation into account, and the assessment by external consultants at least every three years, when considering the Managing Director’s remuneration package, to ensure that it is reasonable and competitive. The remuneration committee advises the Board on remuneration and incentive policies and practices generally, and makes specific recommendations on remuneration packages and other terms of employment for the Managing Director. The Board assumes responsibility for overseeing management succession planning, including the implementation of appropriate executive development programmes and ensuring adequate arrangements are in place, so that an appropriate candidate can be recruited for later promotion to the Managing Director’s position. The Managing Director is responsible for the remuneration of all other senior managers and staff. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 2 9 S H A R E H O L D E R I N F O R M A T I O N A. DISTRIBUTION OF EQUITY SECURITY HOLDERS BY SIZE OF HOLDING Analysis of numbers of equity security holders by size of holding, as at 13 August 2012 DISTRIBUTION : 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 50,000 50,001 - 100,000 100,001 - and over Total holders OPTIONS ORDINARY SHARES 0 12 7 1 1 1 22 90 352 123 131 25 27 748 There were no holders of a less than marketable parcel of ordinary shares. B. EQ UITY SE CU R IT Y H OLD E RS Twenty largest quoted equity security holders. The names of the twenty largest registered shareholders of quoted equity securities as at 13 August 2012, are listed below. NAME NUMBER HELD PERCENTAGE OF ISSUED SHARES Indyshri Singh Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited JP Morgan Nominees Australia Limited Norcad Investments Pty Ltd Hunter Place Services Pty Ltd Citicorp Nominees Pty Limited (Colonial First State Inc A/C) Imperial Pacific Fund Managers Pty Ltd Mr Inderjit Singh D R Smith Holdings Pty Ltd Imperial Pacific Fund Managers Pty Limited Shrind Investments Pty Ltd (Indyshri Super Fund A/c) 1 8,952,835 2 3,978,083 3 2,464,956 4 1,280,581 5 1,003,000 6 900,000 7 642,629 8 590,093 9 567,500 10 550,000 11 523,573 12 487,080 13 Mr Erich Gustav Brosell 429,211 400,000 Mr Victor John Plummer 14 HSBC Custody Nominees (Australia) Limited (NT-Comnwlth S/Fund A/C) 328,669 15 314,536 16 Bond Street Custodians Limited (Ganes Value Growth A/C) 300,000 17 Mr Walter Frederick Holland 174,187 18 150,000 19 140,971 20 H F R Pty Ltd (F & M Khouri S/Fund A/C) Berne No 132 Nominees Pty Ltd (323723 A/C) BNP Paribas Noms Pty Ltd (Master Cust DRP) 24,177,904 28.15 12.51 7.75 4.03 3.15 2.83 2.02 1.86 1.78 1.73 1.65 1.53 1.35 1.26 1.03 0.99 0.94 0.55 0.47 0.44 76.02 Unquoted equity securities As at 13 August 2012: TYPE OF SECURITY Options – Managing Director Options – Employees Options – Financial Planners NUMBER ON ISSUE NUMBER OF HOLDERS 155,000 155,000 50,142 360,142 1 8 13 22 P A G E 3 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 S H A R E H O L D E R I N F O R M A T I O N C O N T I N U E D C. SUBSTA NTI AL SH AR E H OLDER S Substantial shareholders and associates as at 13 August 2012 (more than 5% of a class of shares) in the company are set out below: NAME Indyshri Singh Pty Limited and associates HSBC Custody Nominees (Australia) Limited National Nominees Limited NUMBER HELD PERCENTAGE 10,012,415 3,978,083 2,464,956 31.50% 12.51% 7.75% D. VO TING R IGHT S The voting rights attaching to each class of equity securities are set out below: Ordinary shares On a show of hands each holder of ordinary shares has 1 vote and upon a poll 1 vote for each share held. Options No voting rights. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 3 1 P A G E 3 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 FINANCIAL REPORT F I N A N C I A L R E P O R T S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E S T A T E M E N T S O F F I N A N C I A L P O S I T I O N S T A T E M E N T S O F C H A N G E S I N E Q U I T Y S T A T E M E N T S O F C A S H F L O W N O T E S T O T H E F I N A N C I A L S T A T E M E N T S D I R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S 3 4 3 5 3 6 3 7 3 8 7 8 7 9 This financial report covers both Fiducian Portfolio Services Limited as an individual entity and the consolidated entity consisting of Fiducian Portfolio Services Limited and its controlled entities. The financial report is presented in Australian currency. Fiducian Portfolio Services Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Fiducian Portfolio Services Limited Level 4, 1 York Street Sydney NSW 2000 A description of the nature of the consolidated entity’s operations and its principal activities is included in the Joint Report of the Chairman and Managing Director, and in the director’s report on pages 2 – 21, both of which are not part of this financial report. The financial report was authorised for issue by the directors on 27 August 2012. The company has the power to amend and reissue the financial report. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the company. All press releases, financial reports and other information are available on our website: www.fiducian.com.au. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 3 3 S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 Revenue from ordinary activities Other Income Fees, commissions and related costs Employee benefits expense Depreciation and amortisation expense Other expenses Profit before income tax expense Income tax expense Profit for the year Other comprehensive income for the full year, net of tax NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 4 5 6(a) 6(b) 7 23 - 22,632 23,886 18,961 21,045 573 (4,929) (10,041) (546) 608 (5,577) (8,424) (296) 529 (5,641) (6,941) (225) 517 (6,354) (6,069) (172) (4,357) (3,805) (3,288) (3,028) 3,332 (1,121) 6,392 (1,956) 3,395 (1,031) 5,939 (1,800) 2,211 4,436 2,364 4,139 - - - Total comprehensive income for the year 2,211 4,436 2,364 4,139 Profit is attributible to: Owners of Fiducian Portfolio Services Limited Non Controlling Interests Earnings per share 35 32 2,215 (4) 4,436 - 2,364 4,139 - - 2,211 4,436 2,364 4,139 Earnings per share from profit from continuing operations attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share 6.91 cents 13.78 cents 6.81 cents 13.44 cents The above statements of comprehensive income should be read in conjunction with the accompanying notes. P A G E 3 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 S TAT E M E N T S O F F I N A N C I A L P O S I T I O N A S A T 3 0 J U N E 2 0 1 2 NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Total Current Assets Non-current assets Receivables Other financial assets Other financial assets at fair value through profit or loss Property, plant and equipment Deferred tax assets Intangible assets Total Non-Current Assets Total assets LIABILITIES Current liabilities Payables current Current tax liabilities Total Current Liabilities Non-current liabilities Payables non current Provisions Total Non-Current Liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity Contingent liabilities Commitments for expenditure 7,674 3,251 10,925 2,130 - 275 332 963 6,310 10,010 20,935 2,847 (29) 2,818 - 803 803 10,150 2,698 12,848 2,275 - 425 377 881 5,624 9,582 22,430 2,782 836 3,618 142 709 851 6,311 5,557 8,332 4,590 11,868 12,922 2,130 3,875 2,275 3,875 275 255 701 85 425 328 626 232 7,321 19,189 7,761 20,683 2,079 (13) 2,066 - 596 596 2,380 763 3,143 - 517 517 3,621 17,314 4,469 17,961 2,662 16,527 3,660 17,023 7,395 219 9,700 7,827 247 9,887 7,395 217 8,915 7,827 247 8,949 17,314 17,961 16,527 17,023 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 27 28 The above statements of financial position should be read in conjunction with the accompanying notes. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 3 5 S T A T E M E N T O F C H A N G E S I N E Q U I T Y A S AT 3 0 J U N E 2 0 1 2 Total equity at the beginning of the financial year Profit for the year NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 17,961 16,783 17,023 16,142 2,211 4,436 2,364 4,139 Other comprehensive income - - - - Total comprehensive income for the year 2,211 4,436 2,364 4,139 Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Buy back of shares, inclusive of transaction costs Dividends provided for or paid Employee share options exercised/lapsed Transactions with foreign exchange differences 21 21 8 22 22 - (432) 341 (361) - (432) 341 (361) (2,398) (3,143) (2,398) (3,143) (30) 2 (95) - (30) - (95) - Total transactions with equity holders (2,858) (3,258) (2,860) (3,258) Total equity at the end of the financial year 17,314 17,961 16,527 17,023 The above statements of changes in equity should be read in conjunction with the accompanying notes. P A G E 3 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 S T A T E M E N T O F C H A N G E S I N E Q U I T Y A S AT 3 0 J U N E 2 0 1 2 S T A T E M E N T S O F C A S H F L O W F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 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 Income taxes (paid) / refunded Net cash inflow / (outflow) from operating activities Cash flows from investing activities Loans to related parties (associates, planners and staff) Investment in subsidiary/trusts Payments in relation to acquisitions Distributions from related trust Repayment of loans by associates & planners Payments for property, plant and equipment Net cash inflow / (outflow) from investing activities Cash flows from financing activities Payments for shares bought back Proceeds on exercise of options Dividends paid Net cash inflow / (outflow) from financing activities NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 24,369 26,279 20,639 23,173 (21,296) (20,131) (18,446) (17,914) 3,073 543 (2,068) 6,148 611 (1,639) 2,193 499 (1,882) 5,259 520 (1,379) 31 1,548 5,120 810 4,400 (109) 180 (73) - (1,386) (1,013) - 212 (91) 30 67 (284) (109) 180 (234) - 212 (50) (73) 234 - 30 67 (279) (1,194) (1,273) (1) (21) (432) - (85) 53 (432) - (85) 53 (2,398) (3,143) (2,398) (3,143) (2,830) (3,175) (2,830) (3,175) Net increase/decrease in cash held (2,476) 672 (2,021) 1,204 Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of year 10,150 9,478 8,332 7,128 9 7,674 10,150 6,311 8,332 The above statements of cash flow should be read in conjunction with the accompanying notes. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 3 7 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMAR Y O F SI GNI FI CANT A CC OUN TI N G PO LI C IES The principal accounting policies adopted for the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Fiducian Portfolio Services Limited as an individual entity and the Group consisting of Fiducian Portfolio Services Limited and its subsidiaries. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Fiducian Portfolio Services Ltd. is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS The financial report of Fiducian Portfolio Services Limited also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention The financial report has been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities at fair value through profit or loss. Critical accounting estimates The preparation of financial reports requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 2. (b) Principles of consolidation The consolidated financial report incorporates the assets and liabilities of all entities controlled by Fiducian Portfolio Services Limited (company or parent entity) as at 30 June 2012 and the results of all controlled entities for the year then ended. Fiducian Portfolio Services Limited and its subsidiaries together are referred to in this financial report as the Group. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Investments in subsidiaries are accounted for at cost in the parent company’s financial report. Intercompany transactions and balances 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 Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income. (c) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns and amounts collected on behalf of third parties. Revenue is recognised for the major business activities as follows: (i) Management fees and fees, commissions and related costs Revenues comprising trustee and management fees are recognised on an accruals basis. Fees, Commission and costs related to this revenue is recognised at the same time and on the same basis. P A G E 3 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMAR Y O F SI GNI FI CANT A CC OUN TI N G PO LI C IES c o n t i n u e d (c) Revenue recognition (continued) (ii) Interest income Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (iii) Dividends Dividends are recognised as revenue when the right to receive payment is established. (iv) Distributions from related trusts Distributions from related trusts are recognised as revenue when the right to receive payment is established. (v) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Fiducian Portfolio Services Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. (iii) Group companies The results and financial position of foreign operations (none of which has the currency of hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet • income and expenses for each statement of comprehensive income are translated at the closing rate at the end of the month, and • all resulting exchange differences are recognised in other expenses. (d) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for Australia adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial reports. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 3 9 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMA RY O F SI GNI FI C ANT ACC OUN TI NG PO LI CIE S c o n t i n u e d (d) Income tax (continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Fiducian Portfolio Services Limited and its Australian wholly-owned operating entities have not formed a tax consolidated group. (e) Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (Note 28). Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. (f) Trustee company and Responsible Entity The company acts as a Trustee of Fiducian Superannuation Service and Responsible Entity of Fiducian Funds (‘the trusts’). The accounting policies adopted by the company in the preparation of the financial reports for the year ended 30 June 2012 reflect the fiduciary nature of the company’s responsibility for the assets and liabilities of the trusts. The financial reports do not include the trusts’ assets and liabilities as future economic benefits and obligations derived from the trusts’ assets and liabilities do not accrue to the company. In accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the trust assets and liabilities have not been disclosed as the directors consider the probability of the company having to meet the liabilities of the trusts is remote. (g) Impairment of assets Goodwill and 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 assets are tested 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. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows which are largely independent of the cash flows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (h) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (i) Trade receivables Trade receivables are recognised at fair value and subsequently measured at amortised cost, less provision for impairment. Trade receivables are due for settlement no more than 120 days from the date of recognition for trade receivables and financial planning fees, and no more than 30 days for other receivables. Collectability of trade receivables is reviewed on an ongoing basis. Receivables, which are known to be uncollectible, are written off. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (outside settlement terms) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. P A G E 4 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMA RY O F SI GNI FI C ANT ACC OUN TI NG PO LI CIE S c o n t i n u e d (i) Trade receivables (continued) The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income. (j) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The purchase consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the acquiree. The purchase consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The excess of the purchase consideration transferred, and the acquisition-date fair value over the fair value of the group’s share of the net identifiable assets acquired, is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. (k) Investments and other financial assets The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, and other financial assets. The classification depends on the purposes for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date. (i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a profit. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the statement of financial position date which are classified as non-current assets. Loans and receivables are included in receivables in the statement of financial position in Notes 10 and 11. (I) Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. 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 Group for similar financial instruments. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 4 1 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMAR Y O F SI GNI FI CANT A CC OUN TI N G PO LI C IES c o n t i n u e d (m) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 comprehensive income during the financial period in which they were incurred. Depreciation on assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: Furniture, office equipment and computers 2 – 8 years Leasehold improvements term of the lease The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount in Note 1(g). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (n) Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. These units are all within the financial planning segment. Client portfolios Consideration payable for the acquisition of client portfolios is deferred and amortised on a straight line basis over a period of 10 years. Client portfolios are also tested for events or changes in circumstances indicate that they may be impaired, and are carried at cost less accumulated amortisation and impairment losses. IT development and software Costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems where deemed appropriate. Costs capitalised include direct costs of materials and service and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over periods generally ranging from 3 to 5 years. Capitalised expenditure are tested for events or changes in circumstances that indicate that they may be impaired and whether they exceed their recoverable amount. (o) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. P A G E 4 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMA RY O F SI GNI FI C ANT ACC OUN TI NG PO LI CIE S c o n t i n u e d (p) Provisions Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. No such provision is required at year end. (q) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employee services up to the reporting date and are measured at the amount expected to be paid when the liabilities are settled. Personal/carers leave is brought to account as incurred. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit cost method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms of maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Share-based payments Share-based compensation benefits are provided to employees and financial planners via the two share option plans. Information relating to these schemes is set out in Note 25. No expense is recognised in respect of options granted before 7 November 2002 and vested before 1 January 2005 issued to employees for nil consideration. Shares issued following the exercise of such options are recognised at that time and the proceeds received allocated to share capital. Subsequent options issued to employees for nil considerations have the fair value of options granted under the Fiducian Employee & Director Share Option Plan recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. (r) 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. If the entity reacquires its own equity instruments, for example as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 4 3 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMAR Y O F SI GNI FI CANT A CC OUN TI N G PO LI C IES c o n t i n u e d (s) Dividends Provision is made only for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date. (t) Earnings per share (i) Basic earnings per share Basic earnings per share is determined by dividing the net profit after income tax attributable to equity holders 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. (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. (u) Goods and services tax Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the Australian Taxation Office (ATO). In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to the ATO is included with other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the ATO, are presented as operating cash flow. (v) Rounding of amounts The company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. (w) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 reporting periods. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below. AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2015) AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is likely to affect the Group’s accounting for its financial assets. The standard is not applicable until 1 January 2015 but is available for early adoption. The Group expects this to have limited impact on the financial statements. AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013) On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. Fiducian Portfolio Services Limited is listed on the ASX and is not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. The two standards will therefore have no impact on the financial statements of the entity. P A G E 4 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 1 SUMMAR Y O F SI GNI FI CANT A CC OUN TI N G PO LI C IES c o n t i n u e d (w) New accounting standards and interpretations (continued) AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets (effective from 1 January 2012) In December 2010, the AASB amended AASB 112 Income Taxes to provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model. AASB 112 requires the measurement of deferred tax assets or liabilities to reflect the tax consequences that would follow from the way management expects to recover or settle the carrying amount of the relevant assets or liabilities, that is through use or through sale. The amendment introduces a rebuttable presumption that investment property which is measured at fair value is recovered entirely by sale. The Group will apply the amendment from 1 July 2012. It is currently evaluating the impact of the amendment. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013) AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value exposures. The Group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014. 2 CRITI CAL ACCOU NT ING E STI M A TES A N D A SS UM PT I ONS The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, by comparing its current amount with its recoverable amount in accordance with the accounting policy stated in Note 1(n) . The recoverable amounts of the cash- generating units have been determined based on earnings multiples requiring the use of sustainable revenue estimates and comparable market transactions. (ii) Estimated impairment of client portfolios The Group assesses at the end of each reporting period whether there is any indication that the investment or accounting portfolios may be impaired in accordance with the accounting policy stated in Note 1(n). If any such indication exists, the Group shall estimate the recoverable amount of the asset. The recoverable amounts of cash-generating units have been determined based on discounted cash flow models which require the use of assumptions on discount rates, recurring revenues and cash flow projections. The key estimates and assumptions do not have a significant risk of causing a material adjustment within the next financial year to the carrying amount of assets and liabilities recognised in the financial report. (iii) Valuation of illiquid unlisted unit trusts Investments in unlisted unit trusts are generally priced at the prevailing unit price issued by the manager. Where a unit trust is frozen and redemptions are restricted the unit price issued by the manager may not reflect fair value of the underlying investment. In such cases management may determine that an additional provision is required to reflect a liquidity or valuation discount. Such provisions are subjective as a result of limited information and therefore require a high degree of estimation. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 4 5 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 3 SEGME NT INFO RM AT I ON (a) Description of segments Business segments The Group is organised into the following divisions by product and service type. Funds Management and Administration The company operates in a single segment as Trustee for a public offer superannuation fund - Fiducian Superannuation Service, Operator of an Investor Directed Portfolio Service – Fiducian Investment Service and Responsible Entity for managed investment schemes - Fiducian Funds. Financial Planning The company continued its specialist financial planning operations through its subsidiaries, Fiducian Financial Services Pty Ltd. Accountancy Resource Services The company provides accountancy resource services through its subsidiary, Fiducian Business Services Pty Ltd. The revenue from this segment has been reported as part of Financial Planning as they are not material for 2012. Geographical segments The Group operates in the following geographical segments - in Australia and in India (which is not material for 2012). P A G E 4 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 3 SEGME NT INF OR MATI ON C O N TIN UED (b) Primary reporting – business segments FUNDS MANAGEMENT AND ADMINISTRATION FINANCIAL PLANNING INTER- SEGMENT ELIMINATIONS CONSOLIDATED $’000 $’000 $’000 $’000 2012 Sales to external customers Intersegment sales Total sales revenue Other revenue Total segment revenue Profit from ordinary activities before income tax expense Income tax (benefit) Profit from ordinary activities after income tax benefit Segment assets Segment liabilities - 22,632 18,961 - 18,961 529 19,490 3,671 4,848 8,519 44 8,563 (4,848) (4,848) - (4,848) 3,388 (56) - - 22,632 573 23,205 3,332 (1,121) 2,211 19,189 8,763 (7,017) 20,935 2,662 4,094 (3,135) 3,621 Acquisitions of plant and equipment, intangibles and other non-current segment assets Depreciation, amortisation and impairment Net cash inflow from operating activities 70 225 810 1,180 321 738 - - - 1,250 546 1,548 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 4 7 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 3 SEGME NT INFO RM AT I ON C O N TIN UED (b) Primary reporting – business segments FUNDS MANAGEMENT AND ADMINISTRATION FINANCIAL PLANNING INTER- SEGMENT ELIMINATIONS CONSOLIDATED $’000 $’000 $’000 $’000 2011 Sales to external customers Intersegment sales Total sales revenue Other revenue Total segment revenue Profit from ordinary activities before income tax expense Income tax (benefit) Profit from ordinary activities after income tax benefit Segment assets Segment liabilities - 23,886 21,045 - 21,045 517 21,562 2,841 5,293 8,134 91 8,225 (5,293) (5,293) - (5,293) 5,941 451 - - 23,886 608 24,494 6,392 (1,956) 4,436 20,683 4,816 (3,069) 22,430 3,660 3,202 (2,393) 4,469 Acquisitions of plant and equipment, intangibles and other non-current segment assets Depreciation, amortisation and impairment Net cash inflow from operating activities 279 172 4,400 1,562 124 720 - - - 1,841 296 5,120 P A G E 4 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 3 SEGME NT INFO RM AT I ON C O N TIN UED (c) Other segment information (i) Segment revenue (a) Sales between segments are carried out at arm’s length and are eliminated on consolidation. The revenue from external parties reported to the board is measured in a manner consistent with that in the statements of comprehensive income. Segment revenue reconciles to total revenue from continuing operations as follows: Total segment revenue Intersegment eliminations Total revenue from continuing operations (Note 4) CONSOLIDATED 2012 $’000 2011 $’000 27,480 (4,848) 22,632 29,179 (5,293) 23,886 The entity is domiciled in Australia. The amount of its revenue from external customers in Australia is $22,632,000 (2011: $23,886,000). (ii) EBITDA The board assesses the performance of the operating segments based on the measures of profit contribution and EBITDA. A reconciliation of EBITDA to operating profit before income tax is provided as follows: EBITDA Intersegment eliminations Finance costs Depreciation Amortisation Profit before income tax from continuing operations (iii) Segment assets CONSOLIDATED 2012 $’000 2011 $’000 3,880 6,691 (1) (1) (131) (415) 3,332 - (3) (129) (167) 6,392 The amounts provided to the board with respect to total assets are measured in a manner consistent with that of the financial report. These assets are allocated based on the operations of the segment and the physical location of the asset. All assets are located in Australia and in India which are not material. (iv) Segment liabilities The amounts provided to the board with respect to total liabilities are measured in a manner consistent with that of the financial report. These liabilities are allocated based on the operations of the segment. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 4 9 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 4 REVENU E From continuing operations Sales revenue Fees received Other Revenue from ordinary activities 5 OTHER I NC OM E Interest received/receivable Distributions from related trusts NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 21,991 23,381 18,245 20,523 641 505 716 522 22,632 23,886 18,961 21,045 Fair value gains/(losses) on financial assets at fair value through profit or loss 13 6 EXPENSES Profit before income tax includes the following specific expenses: (a) Depreciation, amortisation and impairment Depreciation Furniture, office equipment and computers Leasehold improvements Total depreciation Amortisation Capitalised computer software Client portfolio acquisition costs Total amortisation Total depreciation, amortisation and impairment (b) Other expenses Other expenses Professional services Sales marketing and travel Rental expense relating to operating leases Premises and equipment Communication and computing Printing and stationery Auditors Doubtful debts Administration and other 26 543 - 30 573 113 18 131 66 349 415 546 345 550 768 158 789 216 438 18 1,075 4,357 611 3 (6) 608 60 16 76 69 151 220 296 146 600 709 123 697 178 407 19 926 499 - 30 529 100 18 118 65 42 107 225 274 386 396 85 629 174 397 (2) 949 520 3 (6) 517 48 16 64 66 42 108 172 127 498 391 75 577 141 397 - 822 3,805 3,288 3,028 P A G E 5 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 7 INC OME T AX E XP E NSE (a) Income tax expense Current tax Deferred tax Income tax expense NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 1,203 (82) 1,121 2,082 (126) 1,956 2012 $’000 1,106 (75) 1,031 2011 $’000 1,871 (71) 1,800 Deferred income tax (revenue) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets 15 Deferred tax (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense (82) (82) (126) (126) (75) (75) (71) (71) 3,332 6,392 3,395 5,939 Tax at the Australian tax rate of 30% 1,000 1,918 1,019 1,782 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment Sundry items 13 108 12 26 10 2 10 8 1,121 1,956 1,031 1,800 Income tax expense 1,121 1,956 1,031 1,800 (c) Tax consolidation legislation Fiducian Portfolio Services Limited and its Australian wholly-owned operating entities have not formed a tax consolidated group. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 5 1 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 8 D IVIDE ND S Ordinary shares Final ordinary fully franked dividend for the year ended 30 June 2011 of 5.00 cents (2010: Fully franked 4.75 cents) per share paid on 20 September 2011. Interim ordinary fully franked dividend for the year ended 30 June 2012 of 2.50 cents (2011: Fully franked 5.00 cents) per share paid on 21 March 2012. Total dividends paid in cash PARENT ENTITY 2012 $’000 2011 $’000 1,600 1,532 798 1,611 2,398 3,143 The Directors have declared the payment of a final fully franked dividend for the year ended 30 June 2012 in the amount of 2.50 cents per ordinary share to be paid on shares registered on 7 September 2012 and payable on 21 September 2012. Franked dividends The franked portions of the final dividends recommended after 30 June 2012 will be franked out of existing franking credits. Franking credits available for subsequent financial years based on a tax rate of 30% CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 6,081 5,373 5,080 4,569 The above amounts represent the balances 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 amount of the provision for income tax. (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. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits from subsidiaries were paid as dividends. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of approximately $341,000 (2011: $689,000) 9 CURR E NT AS SE TS – CASH A N D C A SH E QUI V A LEN T S Cash at bank and in hand Deposits securing bank guarantees CONSOLIDATED PARENT ENTITY 2012 $’000 7,522 152 7,674 2011 $’000 9,998 152 10,150 2012 $’000 6,189 122 6,311 2011 $’000 8,210 122 8,332 The Group’s and the parent entity’s exposure to interest rate risk is discussed in Note 34. P A G E 5 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 10 CURR E NT AS S E TS – TR A DE, OT HER R ECEI VA B LES A N D PR EP A YM ENTS Amounts receivable from related entities: Controlled entities Related trusts Business development loans* Staff loans* Other receivables Prepayments Less: Provision for impairment of receivables * Refer to Note 11 for the non-current portion of these receivables. Movements in provision for impairment of receivables Balance at beginning of year Written off against provision Movement Balance at end of year - - 2,275 1,965 286 35 399 367 3,362 (111) 3,251 (91) - (20) (111) 242 35 100 447 2,789 (91) 2,698 (72) - (19) (91) 2,726 2,208 297 24 72 239 5,566 (9) 5,557 (9) - - (9) 1,966 1,946 253 24 5 405 4,599 (9) 4,590 (9) - - (9) At 30 June 2012, a provision for impairment exists for trade receivables outstanding greater than 120 days. There has been no history of default and no material losses are expected. Information about the Group’s and the parent entity’s exposure to interest rate risk in relation to trade and other receivables is provided in Note 34. 11 NON -C UR RE NT ASSE T S – REC EI V A B L ES Business development loans* Loans to staff* Less: Provision for impairment of receivables CONSOLIDATED PARENT ENTITY 2012 $’000 2,094 36 2,130 - 2,130 2011 $’000 2,093 184 2,277 (2) 2,275 2012 $’000 2,094 36 2,130 - 2,130 2011 $’000 2,093 184 2,277 (2) 2,275 *Refer to Note 10 for the current portion of these receivables. Loans to staff members are granted for an initial term of 3 years, at commercial interest rates and secured. The board has extended these terms. (a) Impaired receivables and receivables past due No amount has been provided against non-current receivables in the current year (2011: $2,000). An amount of $2,000 was written back in relation to previous year. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 5 3 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 11 NON- CU R RE NT A SS E TS – RECEI VA B LES c o n t i n u e d (b) Fair values The fair values and carrying values of non-current receivables of the Group and parent entity are as follows: Business development loans Loans to staff 2012 2011 CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE $’000 $’000 $’000 $’000 2,094 36 2,130 2,094 36 2,130 2,091 184 2,275 2,091 184 2,275 (c) Risk exposure Information about the Group’s and the parent entity’s exposure to credit and interest rate risk is provided in Note 34. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. 12 N ON-CU RR E NT AS SE T S – O TH ER F I NA NC I A L A S SETS NAME OF ENTITY COUNTRY OF INCORPORATION CLASS OF SHARES EQUITY HOLDING COST OF PARENT ENTITY’S INVESTMENT Fiducian Financial Services Pty Ltd Australia Ordinary Fiducian Financial Services Pty Ltd Australia Ordinary Harold Bodinnar & Associates Pty Ltd Australia Ordinary Money & Advice Pty Ltd Australia Ordinary 100 100 100 100 2012 $’000 3,763 10 97 5 2011 $’000 3,763 10 97 5 Total investment by parent entity 3,875 3,875 These financial assets are carried at cost, adjusting for the transfer of operations of Harold Bodinnar & Associates Pty Ltd and Money & Advice Pty Ltd to Fiducian Financial Services Pty Ltd. in 2011 financial year. 13 NON-C URR E NT AS SE T S – O TH ER F IN A N CI A L A SSET S A T F A IR V ALUE THROU GH PR OF I T OR L O SS Investment in unlisted unit trust At beginning of year Capital distribution Revaluation - fair value gains / (losses) At end of year CONSOLIDATED PARENT ENTITY 2012 $’000 425 (180) 30 275 2011 $’000 440 (9) (6) 425 2012 $’000 2011 $’000 425 (180) 30 275 440 (9) (6) 425 P A G E 5 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 13 NON-C URR E NT AS SE T S – O TH ER F IN A N CI A L A SSET S A T F A IR V ALUE THRO UG H PROF IT OR L OSS c o n t i n u e d Financial assets held at fair value through profit and loss comprise investments into a related Fiducian trust. At the year end redemptions from this unlisted unit trust were frozen. Unit prices continue to be issued by the respective managers of the underlying unlisted unit trusts but as there is no trading following the redemption freeze estimation is required in order to determine fair value. Refer to assumptions in Note 2(iii) for further details. Changes in fair values of these financial assets at fair value through profit or loss are recorded in Other Income in the statement of comprehensive income. Refer to Note 5. Risk exposure Information about the Group’s and the parent entity’s exposure to credit and price risk is provided in Note 34. Investments in other financial assets continue to remain illiquid and will be held to maturity. The parent entity continues to receive income and capital distributions which are expected to continue over the life of the investment. It is valued at current published prices at 30 June 2012 against the investment. Reasonably possible shifts have been disclosed in Note 34(a). 14 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Plant and equipment Furniture, office equipment and computers Less: Accumulated depreciation CONSOLIDATED PARENT ENTITY 2012 $’000 1,315 (983) 332 2011 $’000 1,362 (985) 377 2012 $’000 1,146 (891) 255 2011 $’000 1,197 (869) 328 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 5 5 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 14 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT co nt i nued Consolidated At 1 July 2010 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2011 Opening net book amount Additions Disposals Depreciation / amortisation charge Closing net book amount At 30 June 2011 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2012 Opening net book amount Additions Disposals Depreciation / amortisation charge Closing net book amount At 30 June 2012 Cost or fair value Accumulated depreciation Net book amount FURNITURE AND OFFICE EQUIPMENT COMPUTERS LEASEHOLD IMPROVEMENTS $’000 $’000 $’000 269 (200) 69 69 6 (4) (11) 60 271 (211) 60 60 31 - (17) 74 302 (228) 74 395 (339) 56 56 278 (46) (4) 292 627 (335) 292 292 60 (138) 37 251 549 (298) 251 465 (424) 41 41 - - (16) 25 465 (440) 25 25 - - (18) 7 465 (458) 7 TOTAL $’000 1,129 (963) 166 166 284 (50) (23) 377 1,363 (986) 377 377 91 (138) 2 332 1,316 (984) 332 P A G E 5 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 14 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT CONTINUED Parent entity At 1 July 2010 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2011 Opening net book amount Additions Depreciation / amortisation charge Closing net book amount At 30 June 2011 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2012 Opening net book amount Additions Disposals Depreciation / amortisation charge Closing net book amount At 30 June 2012 Cost or fair value Accumulated depreciation Net book amount FURNITURE AND OFFICE EQUIPMENT COMPUTERS LEASEHOLD IMPROVEMENTS $’000 $’000 $’000 TOTAL $’000 176 (143) 33 33 1 (13) 21 177 (156) 21 21 9 - (12) 18 186 (168) 18 278 (238) 40 40 278 (35) 283 556 (273) 283 283 41 (101) 8 231 496 (265) 231 465 (425) 40 40 - (16) 24 465 (441) 24 24 - - (18) 6 465 (459) 6 919 (806) 113 113 279 (64) 328 1,198 (870) 328 328 50 (101) (22) 225 1,147 (892) 225 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 5 7 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 15 N ON-CU RR E NT AS SE T S – DEF ER RED TA X A SSETS NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 The balance comprises temporary differences attributable to: Doubtful Debts Employee benefits Accrued expenditure Provision for audit and taxation services Provision for depreciation Unrealised gains (losses) Amortisation of client portfolios Net deferred tax assets Movements: Opening balance at 1 July Credited to the statement of income 7 Closing balance at 30 June Deferred tax assets likely to be recovered within 12 months Deferred tax likely to be recovered after 12 months 32 461 18 113 110 22 207 963 881 82 963 625 338 963 27 479 15 40 109 22 189 881 755 126 881 561 320 881 3 351 17 108 109 22 91 701 626 75 701 481 220 701 3 346 15 40 109 22 91 626 555 71 626 404 222 626 16 N ON-CU RR E NT AS SE T S – I NT A N G I B LE A SS ETS Deferred expenditure Capitalised expenditure – computer software Less: Accumulated amortisation Client portfolios Cost of acquisition of client portfolios Less: Accumulated amortisation Goodwill Goodwill on acquisition Less: Accumulated amortisation and impairment 5,363 (5,349) 14 5,632 (5,514) 118 5,358 (5,346) 12 5,614 (5,497) 117 4,075 (978) 3,097 3,663 (464) 3,199 6,310 2,936 (629) 2,307 3,663 (464) 3,199 5,624 418 (345) 73 - - - 85 418 (303) 115 - - - 232 P A G E 5 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 16 N ON-CU R R E NT AS SE T S – IN TA N G I B LE A SS ETS C O NT IN UED (a) Movements Movements in each category are set out below: CONSOLIDATED ACQUISITION OF CLIENT GOODWILL ON PORTFOLIOS ACQUISITION CAPITALISED COMPUTER SOFTWARE* $’000 $’000 $’000 At 1 July 2010 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2011 Opening net book amount Additions Amortisation charge Closing net book amount At 30 June 2011 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2012 Opening net book amount Additions Disposals Impairment Charge Amortisation charge** Closing net book amount At 30 June 2012 Cost Accumulated amortisation and impairment Net book amount 1,379 (481) 898 898 1,557 (148) 2,307 2,936 (629) 2,307 2,307 1,139 - - (349) 3,097 4,075 (978) 3,097 3,663 (464) 3,199 3,199 - - 3,199 3,663 (464) 3,199 3,199 - - - - 3,199 3,663 (464) 3,199 TOTAL $’000 10,674 (6,391) 4,283 4,283 1,557 (216) 5,624 5,632 (5,446) 186 186 - (68) 118 5,632 (5,514) 118 12,231 (6,607) 5,624 118 20 (289) 231 (66) 14 5,624 1,159 (289) 231 (415) 6,310 5,363 (5,349) 14 13,101 (6,791) 6,310 * Capitalised computer software costs includes an internally generated intangible asset. The assets in this category have been amortised on the basis of a 5 year useful life. ** Amortisation of $415,000 (2011: $216,000) is included in depreciation, amortisation and impairment expense in the statement of comprehensive income. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 5 9 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 16 NO N-C U RR E NT AS SE T S – I NT AN GI BL E A SSE TS C O NT IN UED (b) Impairment tests for goodwill and client portfolios Goodwill and client portfolios are allocated to the Group’s cash-generating units (CGUs) identified according to business segment. The recoverable amount of a CGU is determined based on market value calculations. These calculations use recurring income measures consistent with market valuations of similar financial services businesses. (c) Impact of possible changes in key assumptions Changes in assumptions made in the assessment of impairment of goodwill relate to updating the earnings multiple used to estimate sustainable revenues. These assumptions are compared to market each year and adjusted appropriately. Refer to Note 2 for details. (d) Impairment charge There has been no impairment charge recorded against goodwill during the financial year ended 30 June 2012 (2011: Nil). (e) Business Acquisitions Summary of acquisitions. During the year the Group made the following three acquisitions: ACQUISITION CLIENT PORTFOLIO CLIENT PORTFOLIO CLIENT PORTFOLIO FIDUCIAN ENTITY FIDUCIAN FINANCIAL SERVICES FIDUCIAN FINANCIAL SERVICES FIDUCIAN FINANCIAL SERVICES Date 5 October 2011 6 January 2012 23 January 2012 Purchased Client portfolio Client portfolio Client portfolio Vendor staff employed by Group Maximum purchase price Paid by 30 June 2012 Deferred consideration at 30 June 2012 Value attributed on the Statement of Financial Position at 30 June 2012 Business combination or asset only Yes $345,252 $261,188 $84,064 100% No Yes $412,685 $255,472 $157,213 $410,000 $410,000 $0 100% 100% Business Combination Business Combination Business Combination The acquired businesses contributed nominal profits to the group at balance date. If they were acquired on 1 July 2011, management estimate a maximum revenue impact of $450,000 for the year ended 30 June 2012. It is not practicable to estimate the profit contribution given the significant change in cost basis to the operation of the business once within the Fiducian Group. P A G E 6 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 17 CURRENT LI ABI LI TI E S – T RA D E A N D OT HE R P AY A BL E S Trade payables Other payables Amounts due to related entities Client portfolio deferred settlement Annual leave entitlements accrued CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 665 902 - 385 895 972 469 - 490 851 596 670 168 - 645 983 373 168 234 622 2,847 2,782 2,079 2,380 Information about the Group’s and the parent entity’s exposure to credit and interest rate risk is shown in Note 34. 18 CURRENT LIABILITIES – CU RRE NT TA X L IA B IL IT IE S Income tax (29) 836 (13) 763 19 NO N C UR RE NT LI ABIL I TI ES – TRA DE A ND OT H ER PA YA B LE S Client portfolio deferred settlement - 142 - - 20 NO N-C U RR E NT L IA BI L ITI E S – PR OVI SION S CONSOLIDATED 2011 $’000 2012 $’000 PARENT ENTITY 2011 $’000 2012 $’000 Employee benefits – long service leave 803 709 596 517 The provision for long service leave includes all pro-rata entitlements where employees have not yet completed the required period of service and also those where employees are entitled to pro-rata payments. The entire amount is presented as non-current as no material amounts are expected to be settled within the next 12 months. 21 CO NTR IBUT E D E Q UI TY (a) Share capital Ordinary shares – fully paid 7,395 7,827 7,395 7,827 CONSOLIDATED 2011 $’000 2012 $’000 PARENT ENTITY 2011 $’000 2012 $’000 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 6 1 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 21 CONTRI BU T E D E QU IT Y c o n t i n u e d (b) Movements in ordinary share capital DATE 1 July 2010 30 June 2011 DETAILS NUMBER OF SHARES AVERAGE PRICE Opening Balance Shares bought back on-market and cancelled Shares bought back on-market prior to 30 June and cancelled on 5 July 2011 Buy-back transaction costs Current tax credit recognised directly in equity Options exercised Options exercised prior to 30 June and shares issued on 5 July 2011 Transfer from share-based payments reserve Balance 32,208,247 (171,155) (87,074) 181,403 33,250 32,164,671 $1.39 $1.38 $1.10 $1.29 Shares bought back on-market and cancelled Buy-back transaction costs (359,440) $1.20 30 June 2012 Balance 31,805,231 $’000 7,827 (239) (121) (1) - 200 43 98 7,827 (431) (1) 7,395 (c) 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. 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. (d) Share buy-back Between July 2011 and June 2012 the company purchased and cancelled ordinary shares on-market in order to reduce the company’s capital and surplus liquidity, as originally announced in 2005 and last extended on 9 June 2011. During the financial year the shares were acquired at an average price of $1.20 per share, with prices ranging from $0.98 to $1.36. The net cost of $430,365, and $1,480 of transaction costs, was deducted from equity. At 30 June 2012, 102,347 shares remained available to be repurchased under the most recently announced buy back notice to the ASX. (e) Options Information relating to Fiducian Portfolio Services Employee & Director and Adviser Option Plans and options issued, exercised and lapsed during the year is set out in Note 25. (f) Capital risk management The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, to continue to meet externally imposed capital requirements of APRA and ASIC under their Responsible Superannuation Entity (RSE) Licence and their Australian Financial Services (AFS) Licence respectively, and to continue to provide returns to shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders via an on-market share buy back, or issue new shares upon exercise of outstanding options. There has been no borrowing to maintain capital adequacy. The externally imposed requirements are: a. Under its AFS Licence, the parent entity must maintain net tangible assets (NTA) - as defined in the licence - of $5,000,000; and b. Under its RSE Licence, the RSE must maintain $100,000 cash at all times. The requirement under the RSE licence is maintained by placing cash on deposit with an ADI. The requirement under the P A G E 6 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 21 CO NT RI BU TE D E Q UI T Y c o n t i n u e d AFS licence is monitored monthly when management accounts are prepared, and is reported to the Board monthly and the External Compliance & Risk Committee at each meeting. The average NTA margin throughout the year over the requirement of $5,000,000 is $4,600,000 (2011: $5,040,000). NOTES CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 22 RESERV ES Movements Share based payments reserve Balance 1 July Option expense Option lapses Transfer to share capital (options exercised) Balance 30 June 247 7 (37) - 217 342 3 - (98) 247 247 7 (37) - 217 - - - 342 3 - (98) 247 - - - The share based payments reserve is used to recognise the fair value of options issued but not exercised. Foreign currency translation Balance 1 July Currency translation difference arising during the year Balance 30 June - 2 2 - - - 219 247 217 247 23 RETAINE D PRO FI T S Movements in retained profits were as follows: Balance 1 July Net profit for the year Dividend from subsidiary Dividends paid Balance 30 June 9,887 2,211 - (2,398) 9,700 8,594 4,436 - (3,143) 9,887 8,949 2,364 - (2,398) 8,915 7,953 4,139 - (3,143) 8,949 8 24 K EY MANAGE ME NT P E RSON N EL DI SC LOS UR ES (a) Key management personnel compensation Short-term employee benefits Post employment benefits Share-based payments CONSOLIDATED PARENT ENTITY 2012 $ 2011 $ 2012 $ 2011 $ 669,092 666,335 669,092 666,335 27,876 26,683 27,876 26,683 - - - - 696,968 693,018 696,968 693,018 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 6 3 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 24 KEY MAN AG E ME NT P E RSON N EL DI SC LOS UR ES c o n t i n u e d (a) Key management personnel compensation (continued) Detailed remuneration disclosures are provided in sections A-E of the Remuneration Report contained in the Directors’ Report. (b) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the Remuneration Report. (ii) Option holdings The numbers of options over ordinary shares in the company held during the financial year by each director of Fiducian Portfolio Services Limited, including their personally related and associated entities, are set out below. No shares were granted during the period as compensation. 2012 NAME BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR AS REMUNERATION EXERCISED LAPSED DURING THE YEAR BALANCE AT THE END OF THE YEAR VESTED AND EXERCISABLE I Singh* F Khouri** 155,000 - - - - - - - 155,000 155,000 - - * * No options are proposed to be issued in accordance with Mr Singh’s employment contract after the end of the year. ** 6,200 Adviser options issued in prior years are held by an entity in which F Khouri has an interest. 2011 NAME I Singh* F Khouri** BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR AS REMUNERATION EXERCISED LAPSED DURING THE YEAR BALANCE AT THE END OF THE YEAR VESTED AND EXERCISABLE 215,000 (100,000) 40,000 - - - - - 155,000 115,000 - - * * No options are proposed to be issued in accordance with Mr Singh’s employment contract after the end of the year. ** 7,374 Adviser options issued in prior years are held by an entity in which F Khouri has an interest. (iii) Shareholdings The numbers of shares in the company held during the financial year by each director of Fiducian Portfolio Services Limited, including their personally related and associated entities, are set out below. There were no shares granted during the period as compensation. 2012 NAME I Singh R E Bucknell F Khouri C Stone 2011 NAME I Singh R E Bucknell F Khouri C Stone BALANCE AT THE START OF THE YEAR RECEIVED DURING THE YEAR ON THE EXERCISE OF DIRECTOR OPTIONS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR 9,939,580 900,000 219,373 - BALANCE AT THE START OF THE YEAR 9,764,580 1,000,000 194,373 - - - - - 72,835 - 7,000 - 10,012,415 9,00,000 226,373 - RECEIVED DURING THE YEAR ON THE EXERCISE OF DIRECTOR OPTIONS 100,000 - - - OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR 75,000 (100,000) 25,000 - 9,939,580 900,000 219,373 - P A G E 6 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 24 KEY MA NA GE M EN T PE R SON N EL DI SC LOS UR ES c o n t i n u e d (b) Equity instrument disclosures relating to key management personnel (continued) Shares provided on exercise of options No ordinary shares in the company were provided as a result of the exercise of remuneration options to the Managing Director of Fiducian Portfolio Services Limited, as key management person of the Group, during the period (2011: Nil). Entities with which a director has an interest exercised no Adviser options during the year (2011: Nil). No amounts are unpaid on any shares issued on the exercise of options. (c) Loans to directors No loans were made to directors during the financial year (2011: Nil). (d) Other transactions with key management personnel A director, Mr R E Bucknell, is a director and shareholder of Hunter Place Services Pty Ltd, a company which provides his services as a director to the company. A director, Mr F Khouri, is an authorised representative under the Fiducian Financial Services Pty Ltd Australian Financial Services Licence and is a director and shareholder of Hawkesbury Financial Services Pty Ltd, which is a franchisee of Fiducian Financial Services Pty Ltd. Hawkesbury Financial Services Pty Ltd places business with and receives financial planning remuneration from the Group. All transactions are on normal commercial terms and conditions. Aggregate amounts of each of the above types of other transactions with directors of Fiducian Portfolio Services Limited: Amounts recognised as an expense Directors’ fees and committee fees Financial planning fees paid or payable Shares under option CONSOLIDATED 2012 $ 2011 $ 233,894 229,915 222,928 238,295 456,822 468,210 Unissued ordinary shares of Fiducian Portfolio Services Limited under option at the date of this report are disclosed in Note 25 of the financial report. No option holder has any right under the options to participate in any other share issue of the company or any other entity until after the exercise of the option. Shares issued on the exercise of options The details of ordinary shares of Fiducian Portfolio Services Limited issued during the year ended 30 June 2012 on the exercise of options granted under the Fiducian Portfolio Services Limited Employee & Director Share Option Plan and the Adviser Share Option Plan are disclosed under Note 25 to the financial report. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 6 5 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 25 SHAR E B AS E D PA YME NT S (a) Employee and director share option plan (ESOP) The establishment of the Fiducian Portfolio Services Limited ESOP was approved by shareholders at the 2000 annual general meeting. The ESOP is designed to provide long-term incentives for senior managers and directors to deliver long-term shareholder returns. Under the plan, participants are granted options which only vest if certain performance standards are met. Participation in the plan is at the Board’s discretion and no individual has a contractual right to participate in the plan or receive any guaranteed benefits. The parent entity has established the ESOP, which is designed to provide incentives to employees and directors. All grants of options under the ESOP are subject to compliance with the Corporations Act 2001 and ASX Listing Rules. The directors may, from time to time, determine which employees and directors may participate in the ESOP, and the number of options that may be issued to them. The directors have an absolute discretion to determine who will participate and the number of options that may be issued. The ESOP provides for an upper limit on the number of options that may be outstanding, the exercise price, exercise period and expiry, and adjustments in the event of capital restructuring. The directors have resolved that the ESOP no longer applies to non-executive directors. Options are granted under the plan for no consideration. Employee options are granted for a five year period where 35% vest after one year, a further 45% vest after two years and the remaining 15% vest after three years. Director options vest after one year. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is converted into one ordinary share on payment of the exercise price. The exercise price of options is based on the volume weighted average price at which the company’s share are traded on the Australian Securities Exchange during the month preceding the date the options are granted. The directors determined to issue no options (2011: Nil) to staff during the year, and 115,375 options expired (2011:108,000) during the year ended 30 June 2012. Subject to prior approval by shareholders, the company may issue each year a maximum of 100,000 options to the executive director for each year of service, subject to performance criteria. The Directors have resolved to issue no options (2011: Nil) to the executive director in respect of the year ended 30 June 2012. (b) Adviser share option plan (ASOP) The parent entity has established the ASOP, which is designed to provide incentives to financial planning groups to reflect their ongoing commitment by way of contributions of income to the parent entity. All grants of options under the ASOP are subject to compliance with the Corporations Act 2001 and ASX Listing Rules. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is converted into one ordinary share on payment of the exercise price. The Board may invite an adviser group to participate in the ASOP. Where the financial planning group has accepted this invitation, the adviser group will be eligible to participate in the ASOP in a particular year. No consideration is payable in respect of acceptance of an invitation to participate nor for the grant of options. Each option allows the holder to acquire one ordinary share on exercise of the option provided income to the Group is maintained in the three years after issue, or the options lapse in whole or in part. The number of options to be issued in respect of a planning group for a financial year is determined (by a formula) at the date of announcement of Fiducian’s audited annual results to the ASX following the financial year. The ASOP provides for an upper limit on the number of options that may be outstanding, the exercise price, exercise period and expiry, and adjustments in the event of capital restructuring. The ASOP has not been extended beyond June 2011. Options were granted for no consideration. The total Adviser options and preference shares issued since inception total 6,847,517. P A G E 6 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 25 SHARE BA SE D P AY ME NT S C O NT IN UED Set out below are summaries of options granted under various option plans: GRANT DATE EXPIRY DATE BALANCE AT EXERCISED EXERCISE START OF THE DURING THE DURING THE YEAR GRANTED PRICE YEAR YEAR FORFEITED BALANCE AT END OF THE YEAR DURING THE YEAR NUMBER NUMBER NUMBER NUMBER NUMBER VESTED AND EXERCISABLE AT END OF THE YEAR NUMBER Consolidated and parent entity – 2012 ESOP – Managing Director – Note 25(a) 30 Oct 2007 30 Oct 2012 $2.65 100,000 29 Oct 2008 29 Oct 2013 $2.30 29 Oct 2010 29 Oct 2015 $1.28 ESOP – Staff – Note 25(a) 3 Jul 2006 3 Jul 2011 $1.29 31 Jul 2007 31 Jul 2012 $2.65 27 Aug 2008 27 Aug 2013 $2.30 ASOP – Advisers – Note 25(b) 29 Aug 2006 29 Aug 2011 $1.68 30 Sept 2007 30 Sept 2012 $3.45 30 Sept 2008 30 Sept 2013 $2.70 Total 15,000 40,000 155,000 95,375 130,000 155,000 380,375 7,323 22,042 27,000 56,365 591,740 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 100,000 15,000 40,000 15,000 40,000 155,000 155,000 (95,375) - - (20,000) 110,000 110,000 - 155,000 155,000 (115,375) 265,000 265,000 (7,323) - - 22,042 (6,730) 20,270 (14,053) 42,312 - 22,042 20,270 42,312 (129,428) 462,312 462,312 Weighted average exercise price $2.26 $ - $ - $1.60 $2.44 $2.44 The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2012 was n/a (2011 – $1.30). The volume weighted average remaining contractual life of share options outstanding at the end of the period was 0.87 years (2011 – 1.53 years). A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 6 7 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 25 SHARE B ASE D P AY ME NT S C O NT IN UED Set out below are summaries of options granted under various option plans: GRANT DATE EXPIRY DATE BALANCE AT EXERCISED EXERCISE START OF THE DURING THE DURING THE YEAR GRANTED PRICE YEAR YEAR FORFEITED BALANCE AT END OF THE YEAR DURING THE YEAR NUMBER NUMBER NUMBER NUMBER NUMBER VESTED AND EXERCISABLE AT END OF THE YEAR NUMBER Consolidated and parent entity – 2011 ESOP – Managing Director – Note 25(a) 26 Oct 2006 26 Oct 2011 $1.29 30 Oct 2007 30 Oct 2012 $2.65 29 Oct 2008 29 Oct 2013 $2.30 100,000 100,000 15,000 - - - 27 Oct 2010 29 Oct 2015 $1.28 - 40,000 (100,000) - - - 215,000 40,000 (100,000) - - - - - - - 100,000 100,000 15,000 40,000 15,000 - 155,000 115,000 ESOP – Staff – Note 25(a) 3 Jul 2006 3 Jul 2011 $1.29 31 Jul 2007 31 Jul 2012 $2.65 27 Aug 2008 27 Aug 2013 $2.30 ASOP – Advisers – Note 25(b) 23 Aug 2005 23 Aug 2010 $0.87 29 Aug 2006 29 Aug 2011 $1.68 30 Sep 2007 30 Sep 2012 $3.45 30 Sep 2008 30 Sep 2013 $2.70 131,625 130,000 260,000 521,625 81,403 10,067 24,842 31,900 148,212 - - - - - - - - - (33,250) (3,000) 95,375 95,375 - - - 130,000 130,000 (105,000) 155,000 124,000 (33,250) (108,000) 380,375 349,375 (81,403) - - - - - (2,744) 7,323 (2,800) 22,042 (4,900) 27,000 - 7,323 22,042 - (81,403) (10,444) 56,365 29,365 Total 884,837 40,000 (214,653) (118,444 591,740 493,740 Weighted average exercise price $2.03 $1.28 $1.13 $2.30 $2.26 $2.31 Fair value of options granted There were no options issued to the Managing Director during the year ended 30 June 2012 in respect of the prior year. The fair value at grant date is independently determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. Options are granted for no consideration, have a five year life, and each tranche vests and is exercisable progressively after 1 year. P A G E 6 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 25 SHARE BASE D PAYME NT S C O NT IN UED The model inputs for options granted during the year ended 30 June 2012 included: ESOP – DIRECTOR 2011 2012 ESOP – EMPLOYEES 2011 2012 ESOP – ADVISERS 2012 2011 (a) exercise price (b) grant date: (c) expiry date: (d) share price at grant date: (e) expected price volatility of the company’s shares: (f) expected dividend yield: (g) risk-free interest rate: (h) lapse (exit) rate - - - - - - - - $1.28 27 Oct 2010 29 Oct 2015 $1.41 36% 5.7% 4.5% 0% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The expected price volatility is based on the historic volatility at grant date (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. (c) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: CONSOLIDATED PARENT ENTITY 2012 $ 2011 $ 2012 $ 2011 $ Options issued under ESOP, net of lapses (29,821) 2,663 (29,821) 2,663 26 REMUNE RA TI ON OF AUDI TOR S During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: CONSOLIDATED PARENT ENTITY 2012 $ 2011 $ 2012 $ 2011 $ PricewaterhouseCoopers Australian firm: Audit and review of financial reports 108,667 107,470 97,470 97,470 Other audit related work, including audit of entities for which the parent entity is trustee, manager or responsible entity (gross of any amounts reimbursed) 328,850 299,680 299,680 299,680 Total remuneration 437,517 407,150 397,150 397,150 It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 6 9 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 27 CONTING E NT L I AB ILI TI E S The parent entity and Group had contingent liabilities at 30 June 2012 in respect of: (a) bank guarantees for property leases of parent and group entities amounting to $436,000. (2011: $426,000). (b) bank guarantee for AFS licence of a subsidiary amounting to Nil (2011: $20,000). Client retention service fee Under the terms of salary agreements made by Harold Bodinnar & Associates Pty Ltd with certain long serving salaried financial planners, those advisers are entitled to a service fee subsequent to their retirement from the company, under conditions designed to protect the company’s client base. Eligibility to this service fee is based on service period and certain income criteria that may increase or decrease prior to retirement date and in the subsequent two years. Payment of this fee is subject to further ongoing conditions, including client retention, the provision of support services to the entity to achieve this aim, and is payable in arrears out of income earned from the retained client base over a period of two years. The benefit is personal to the planner, is not transferable, can be stopped by or repaid to Harold Bodinnar & Associates Pty Ltd should there be a breach of conditions, and will be reduced if the adviser purchases some or all of their client base at or after retirement. No material losses are anticipated in respect of the above contingent liabilities, as the expected reduction in servicing cost post retirement is estimated to offset the benefit payment. 28 COMMIT MEN TS FO R E XP EN DI TURE CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 (a) Capital expenditure Commitments payable within one year - - - - (b) Operating leases The Group leases various offices under non-cancellable operating leases expiring within 12 months to four years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Within one year Later than one year but not later than 5 years 29 RELATE D PA R TY TR A NS AC TI ON S (a) Parent entity The parent entity within the Group is Fiducian Portfolio Services Limited. (b) Subsidiaries Interests in subsidiaries are set out in Note 12. 379 396 775 448 715 1,163 245 - 245 679 345 1,024 The consolidated financial report incorporate the assets, liabilities and results of Fiducian Financial Services Pty Ltd and Fiducian Business Services Pty Ltd in accordance with the accounting policy described in Note 1(b). P A G E 7 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 29 RELATE D PA R TY TR A NS AC TI ON S c o n t i n u e d (c) Key management personnel Disclosures relating to key management personnel are set out in Note 24. (d) Transactions with related parties Transactions between Fiducian Portfolio Services Limited and other entities in the wholly-owned group during the years ended 30 June 2012 and 2011 consisted of: a. Financial planning fees paid by Fiducian Portfolio Services Limited b. Provision of software by Fiducian Portfolio Services Limited c. Recovery of group costs, such as insurance, by Fiducian Portfolio Services Limited d. Interest free working capital advanced by and repaid to Fiducian Portfolio Services Limited e. Collection of fees by AFS licensed companies on behalf of other members of the group. The above transactions were on normal commercial terms and conditions and at market rates. The following transactions occurred with related parties: OWNERSHIP INTEREST* 2012 $ 2011 $ 2012 $ 2011 $ CONSOLIDATED PARENT ENTITY Wholly owned group Fiducian Financial Services Pty Ltd Financial planning fees paid Expenses paid and systems costs recovered Fiducian Business Services Pty Ltd Payment for accountants acquistion Controlling interests Fiducian Resourcing Services Pty Ltd Services fees paid Expenses paid Related trusts Fiducian Investment Service Operator fees income Fiducian Superannuation Service Trustee fees income Fiducian Funds Responsible entity fees income Director associated entities Hawkesbury Financial Services Pty Ltd Financial planning fees paid 100% 100% 90% Nil Nil Nil - - - 3,987 45,055 - - 4,597,304 203,986 5,128,397 178,222 - - - 142,500 313,500 - - - - 3,581,850 4,076,775 3,581,850 4,076,775 11,656,603 12,745,279 11,656,603 12,745,279 3,164,943 3,593,587 3,164,943 3,593,587 222,928 238,295 - - * ‘Ownership Interest’ means the percentage of capital of the company held directly and/or indirectly through another entity by Fiducian Portfolio Services Limited A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 7 1 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 29 RELATE D PA R TY TR A NS AC TI ON S C O N TIN UED e) Outstanding balances arising from sales/purchases of services provided The following balances are outstanding at the reporting date in relation to transactions with related parties: Current receivables (sales of goods and services) Current receivables (income from related trusts) Current payables (purchases of goods and services) PARENT ENTITY 2012 $ 2011 $ 2,726,299 1,965,587 2,012,250 1,845,890 4,738,549 3,811,477 168,047 168,047 No provisions for doubtful receivables have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad and doubtful receivables due from related parties. 30 ECONO MI C DE PE N D E NC Y The trading activity of the entity depends upon remaining as Operator of the Fiducian Investment Service, Trustee of Fiducian Superannuation Service and Responsible Entity of Fiducian Funds. 31 REC O NC I LIATION OF PR OF IT OR L OSS A F T ER IN C OME TA X T O NET CASH I NFLOW FR OM O PERAT I NG A C TI VI TI ES CONSOLIDATED PARENT ENTITY Profit for the year Non-cash employee benefit expense Dividend and investment income Depreciation and amortisation Net (gain) loss on sale of non-current assets Changes in operating assets and liabilities: Decrease/(increase) in accounts receivable Increase/(decrease) in income tax payable Decrease/(increase) in other assets at fair value Increase/(decrease) in trade creditors Increase/(decrease) in other creditors Increase/(decrease) in related entities balance Decrease/(increase) in future income tax benefit Increase/(decrease) in provision for deferred income tax Net cash inflow from operating activities 2012 $’000 2,211 128 - 546 37 (529) (865) (30) (301) 433 - (82) - 1,548 2011 $’000 4,436 37 (3) 296 2 (103) 443 6 150 (18) - (126) - 5,120 2012 $’000 2,364 70 - 225 39 (163) (776) (30) (381) 297 (760) (75) - 810 2011 $’000 4,139 (32) (3) 172 9 (48) 492 6 164 74 (502) (71) - 4,400 P A G E 7 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 32 EARNINGS PE R S HA RE Earnings per share using weighted average number of ordinary shares outstanding during the period: (a) Basic earnings per share Profit from continuing operations attributable to the ordinary equity of the company (b) Diluted earnings per share Profit from continuing operations attributable to the ordinary equity and potential ordinary equity of the company (c) Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator: Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share CONSOLIDATED 2012 2011 6.91 cents 13.78 cents 6.81 cents 13.44 cents CONSOLIDATED 2012 NUMBER 2011 NUMBER 31,989,207 32,183,956 499,114 817,743 32,488,321 33,001,699 (d) Reconciliation of earnings used in calculating basic and diluted earnings per share Net profit and earnings used calculating basic and diluted earnings per share CONSOLIDATED 2012 $’000 2,211 2011 $’000 4,436 (e) Information concerning the classification of securities Options granted to employees under the Fiducian Portfolio Services Limited Employee Share Option Plan (ESOP) and Adviser Share Option Plan (ASOP) are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent that they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in Note 25. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 7 3 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 33 EVENTS O CCU R R ING A FT ER B A L A N CE DA TE / REPO RT IN G DAT E Under the Rules of the Adviser Share Option Plan no options are being issued this year (2011: Nil) as the plan has not been extended. Under the same rules no options will expire after year end. (2011: 330) Under the Rules of the Employee and Director Share Option Plan the Directors have not granted any options to employees or Managing Director after year end (2011: Nil). To the date of this report 110,000 (2011: 95,375) employee options have lapsed and no options have lapsed or been exercised by the Managing Director. To the date of the report, 23,770 shares have been bought back on market at an average price of $0.93 34 FINANCIAL R IS K MAN AG EM ENT The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and other price risks, and aging analysis for credit risk. The Board sets policies which are implemented by management, reviewed monthly for interest rate risk, credit risk and the investment of excess liquidity. The Group and parent entity hold the following financial instruments: CONSOLIDATED PARENT ENTITY 2012 $’000 7,674 5,381 275 2011 $’000 10,150 4,973 425 2012 $’000 6,311 7,687 275 2011 $’000 8,332 6,865 425 13,330 15,548 14,273 15,622 2,847 2,924 2,079 2,380 Financial assets Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Financial liabilities Trade and other payables (a) Market risk (i) Foreign exchange risk The Group has limited operations outside Australia and is not exposed to any material foreign exchange risk. (ii) Price risk The Group and parent entity are exposed to equity securities and other investment price risk. This arises from (a) unlisted investments held by the Group and classified on the statement of financial position at fair value through profit or loss, and (b) from the derivation of fees for the management of investment and superannuation funds. Price risk on unlisted investments is discussed in Note 13 and sensitivity analysis is conducted on the upper range of outcomes of -10%. It is unlikely this investment will increase in value. To minimise its price risk the Group and parent entity offer a range of investment funds in a variety of domestic and international equities, property and fixed interest securities, and across a number of investment managers. Exposure to these funds is driven by clients and their financial planners. Not all of the funds are publicly traded or invest in publicly traded securities. Sensitivity analysis is therefore based on the assumption that all funds under advice, administration and management had increased or decreased by 10% (2011: – 10%) against actual market movements, with all other variables held constant other than financial planning fees that are paid out of such income. P A G E 7 4 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 34 FINANCIA L R IS K MAN AG EMEN T C O NT IN UED Revenue impact from -10% movement in valuation of unlisted unit trusts Revenue impact from +/- 10% movement in funds under administration and management (iii) Interest rate risk IMPACT ON POST-TAX PROFIT IMPACT ON EQUITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 (28) (43) (28) (43) 1,621 1,754 1,621 1,754 The Group’s main interest rate risk arises from deposits in Australian Dollars, and short term loans to staff and planners. The group has no borrowings. 30 JUNE 2012 30 JUNE 2011 Weighted average interest rate % Cash at bank and on deposit Staff & financial planner loans 3.2% 5.8% Balance $’000 7,674 2,451 10,125 Weighted average interest rate % 4.3% 7.2% Balance $’000 10,150 2,552 12,702 Bank deposits are at call and staff and planner loans have terms extending between 1 and 7 years, and may be repayable sooner in certain circumstances. Interest rates are reviewed and adjusted at least quarterly. The Group’s main interest rate risk arises from cash and cash equivalents with variable interest rates. At 30 June 2012 if interest rates change by +/- 100 basis points (2011: +/- 100 basis points) from the year end rates with all other variables held constant, post-tax profit would have been $71,000 higher or lower (2011: $89,000). (b) Credit risk The Group and parent entity have negligible credit risk from receivables, as management fee and financial planning income is received within one month of it falling due, and financial planning fees are only paid following the receipt of this income. The credit quality of other financial assets can be assessed against external credit ratings as follows: Cash and cash equivalents AA AA- Investment in related trust Unrated Loans to staff and financial planners Unrated CONSOLIDATED PARENT ENTITY 2012 $’000 2011 $’000 2012 $’000 2011 $’000 - 7,674 7,674 4,596 5,554 10,150 - 6,311 6,311 2,778 5,554 8,332 275 425 275 425 2,130 2,275 2,130 2,275 The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised on this page. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 7 5 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 34 FINANCIA L R IS K MAN AG EMEN T C O NT IN UED (c) Liquidity risk The Group and parent entity maintain sufficient liquid reserves to meet all foreseeable working capital, investment and regulatory licensing requirements. The group has no undrawn credit or other borrowing facilities in place. Due in less than 1 year Due between 1 and 2 years (d) Fair value estimation CONSOLIDATED PARENT ENTITY 2012 $’000 2,847 - 2,847 2011 $’000 2,782 142 2,924 2012 $’000 2,079 - 2,079 2011 $’000 2,380 - 2,380 The fair value of financial assets and financial liabilities must be estimated for recognition and measurements or for disclosure purposes. As of 1 July 2009, Fiducian Portfolio Services Ltd has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by levels of the following fair value measurement hierarchy: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level1) (b) 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 2), and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3) The following table presents the group’s and the parent entity’s assets and liabilities measured and recognised at fair value according to the fair value hierarchy at 30 June 2012. Parent and Group - at 30 June 2012 Assets Other financial assets at fair value through profit or loss Investment in related trust Total assets Parent and Group - at 30 June 2011 Assets Other financial assets at fair value through profit or loss Investment in related trust Total assets Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - 275 275 275 275 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - 425 425 425 425 P A G E 7 6 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 2 34 FINANC I AL RI SK MA NA GEMEN T C O N TIN UED 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 end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. The Group holds none of these investments. The fair value of financial instruments that are not traded in an active market (for example, debt investments and derivative financial instruments) is determined using valuation techniques. These instruments are included in level 2. The Group held none of these investments during the year. In the circumstances where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are included in level 3. The Group’s accounting policy is to value the investment in related trust at fair value through profit or loss, made difficult as a result of a redemption freeze. The Group has performed a review at 30 June 2012 which focussed on directional movements in the credit quality of the investments held by the underlying fund managers since the prior year, as well as monitoring the underlying funds for indicators of impairment. From this review the Group believes the value recorded represents fair value, with reasonably possible changes in fair value shown in Note 34(a)(ii). The following table presents the changes in level 3 instruments for the year ended 30 June 2012: Parent and Group Investment in related trust – Opening balance Transfers in to level 3 Capital distribution Losses recognised in profit or loss 2012 $’000 2011 $’000 425 - (179) 29 275 440 - (9) (6) 425 The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. 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 group for similar financial instruments. 35 N ON-CONTR OLLI NG I NTER ESTS During the financial year the group established an overseas company in India with a local partner with 90% stake for providing accounting and business resourcing services. The operations for the company are in its initial stages and not material in 2012. The profit contribution of the non-controlling interests are shown separately in the Statement of Comprehensive Income. A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 7 7 D I R E C T O R S ’ D E C L A R A T I O N In the directors’ opinion: (a) the financial statements and notes set out on pages 33 to 77 are in accordance with the Corporations Act 2001, including (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2012 and of their performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the Managing Director and Financial Controller required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. I Singh Director Sydney, 27 August 2012 Independent auditor’s report to the members of Fiducian Portfolio Services Limited Report on the financial report We have audited the accompanying financial report of Fiducian Portfolio Services Limited (the company, which comprises the balance sheet as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both Fiducian Portfolio Services Limited and the Fiducian Portfolio Services Group (the consolidated entity). The consolidated entity comprises the Fiducian Portfolio Services Limited and the entities it controlled at the year's end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. P A G E 7 8 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 1 Independent auditor’s report to the members of Fiducian Portfolio Services Limited Report on the financial report We have audited the accompanying financial report of Fiducian Portfolio Services Limited (the company, which comprises the balance sheet as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both Fiducian Portfolio Services Limited and the Fiducian Portfolio Services Group (the consolidated entity). The consolidated entity comprises the Fiducian Portfolio Services Limited and the entities it controlled at the year's end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. 1 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 7 9 Independent auditor’s report to the members of Fiducian Portfolio Services Limited (continued) Independent auditor’s report to the members of Fiducian Portfolio Services Limited (continued) Portfolio Services Limited web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site. PricewaterhouseCoopers Darren Ross Partner Sydney 27 August 2012 Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Fiducian Portfolio Services Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2012 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 13 to 20 of the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Fiducian Portfolio Services Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001. Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of Fiducian Portfolio Services Limited (the company) for the year ended 30 June 2012 included on Fiducian Portfolio Services Limited web site. The company’s directors are responsible for the integrity of the Fiducian 2 3 P A G E 8 0 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 A N N U A L R E P O R T 2 0 1 2 Independent auditor’s report to the members of Fiducian Portfolio Services Limited (continued) Independent auditor’s report to the members of Fiducian Portfolio Services Limited (continued) Portfolio Services Limited web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site. PricewaterhouseCoopers Darren Ross Partner Sydney 27 August 2012 Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for In conducting our audit, we have complied with the independence requirements of the Corporations our audit opinions. Independence Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Fiducian Portfolio Services Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2012 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 13 to 20 of the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Fiducian Portfolio Services Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001. Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration report of Fiducian Portfolio Services Limited (the company) for the year ended 30 June 2012 included on Fiducian Portfolio Services Limited web site. The company’s directors are responsible for the integrity of the Fiducian 2 3 A N N U A L R E P O R T 2 0 1 2 F I D U C I A N P O R T F O L I O S E R V I C E S L I M I T E D A C N 0 7 3 8 4 5 9 3 1 P A G E 8 1 FIDUCIAN PORTFOLIO SERVICES LIMITED Level 4, 1 York Street, Sydney NSW 2000 Australia GPO Box 4175, Sydney NSW 2001 Australia Telephone: +61 (2) 8298 4600 Fax: + 61 (2) 8298 4611 www.fiducian.com.au 

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