Fiducian Group
Annual Report 2014

Plain-text annual report

FIDUCIAN PORTFOLIO SERVICES LIMITED ANNUAL REPORT 2014 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 as 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 S 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 1 3 4 3 5 3 6 3 7 3 9 4 0 8 7 8 8 A N N U A L R E P O R T 2 0 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 P A G E 1  JOINT REPORT OF THE CHAIRMAN AND THE MANAGING DIRECTOR Dear Shareholder, 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 2014. 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 4 FINANCIAL INFORMATION Results for 2013-2014 Consolidated Reportable Profit after income tax for the 2014 financial year is $3.98 million and represents an increase of 17.4% in comparison to $3.39 million for the prior year. The earnings before interest expense, tax, depreciation and amortisation (EBITDA) was $6.76 million compared with $5.35 million for the same period last year – an increase of 26.4%. Reportable Profit is impacted by the accounting treatment to acquisitions by amortisation of $0.52 million. As such, Underlying Net Profit after Tax adjusted for amortisation is $4.50 million and represents adjusted earnings per share of 14.5 cents for the full year. In summary, all operational divisions contributed positively to the result. The acquisitions executed last year have assimilated well within our business. Our system developments finalised predominantly last financial year also delivered greater cost efficiency and operational control. In respect of financial planning, the Future of Financial Advice (FOFA) regulatory changes now appear accepted within the industry. As we have said in the past, our financial planning services were FOFA compliant well in advance of the regulatory changes being proposed. In addition, further regulatory change has come through the new Prudential Standards which have a significant impact on our activities as Trustee of a Superannuation Fund. To comply with these standards, we expect to introduce changes to the corporate structure of Fiducian Portfolio Services Limited, which is currently the parent listed entity but also the trustee of the Fiducian Superannuation Service, the Responsible Entity of Fiducian Funds and the Operator of Fiducian Investment Services our IDPS wrap platform. In coming months, we plan to separate the Parent Entity from Trustee and Responsible Entity functions. While this is a significant activity, we remain confident that it will not impact on our operations or growth in funds inflows whilst enhancing the group’s corporate governance. Despite operational challenges imposed by legislative change over the past few years, net operating expenses have been further reduced by 6.9% in 2014 (2013 decreased by 14.6%). 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 and more importantly at this juncture, bring to bear their expertise which has been gained through years of loyal service. Our diversity policy encourages persons of different sexes, ethnic backgrounds, ages and skills to participate and receive recognition, reward and management responsibility commensurate with their performance. No senior management positions changed during the year. Employees are from over 20 different countries of origin, 26% are over 55 years of age and 42% are female with 31% in senior roles. CAPITAL MANAGEMENT A key feature of the company is that it currently remains debt free and exhibits a positive working capital and cash flow position. Final Dividend The Board remains cautious in nature, but is confident that the future of the business is positive and likely to continue to strengthen. As a result, a fully franked final dividend of 5.0 cents per share has been declared which will bring the total fully A N N U A L R E P O R T 2 0 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 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 franked dividend declared for the 2014 financial year to 9.1 cents, an increase of 30% (2013: 7.0 cents). The final dividend will be paid on issued shares held on 5th September 2014 and be paid on 19th September 2014. Acquisitions During the year, we added to our existing salaried operations in Sydney by absorbing one small accounting practice and an additional small financial planning client base. Both are being serviced by existing staff. In April this year, a financial planning practice with $66 million in funds under advice was also acquired in Tasmania. As acquisitions continue to assimilate into our processes, they should deliver increased corporate strength and demonstrate our disciplined approach to balancing growth and returns. On Market Buy-Back Over the year, Fiducian bought 774,532 shares on market (2013: 259,502) for a total consideration, including brokerage, of $0.91 million (2013: $0.25 million) at an average price per share of $1.17 (2013: $0.96). There are 30.758 million shares on issue at year end (2013: 31.532 million). Cash Flow Net operating cash flows of $5.86 million were achieved (2013: $4.81 million) – an increase of 21.8%. After payment for prior and current year business acquisitions ($0.87 million), share buy backs ($0.91 million), dividend outlays ($2.40 million), fixed assets ($0.09 million), receipts of loan repayment by staff / advisers ($0.10) and investments ($0.06 million) net cash increased by $1.75 million (2013: increase $1.77 million). Cash at year end was $11.2 million (2013: $9.4 million). An amount of $5.0 million is required for regulatory purposes. Business acquisitions of prior years should assist our future revenue and earning capacity. Staff and Managing Director Options In accordance with the terms and conditions of the approved Employee and Director Share Option Plan, no options will be issued to employees but 100,000 options will be issued to the Managing Director in accordance with his contract of employment. These options will be issued at $1.63, a discount of 5% over the weighted volume average price in June and may be converted to shares by making a payment of their value to the company after 1 year and within 5 years. FINANCIAL PLANNING During the year Funds under Advice grew 18.1% to 1.37 billion as financial planner productivity and net flow lifted. Fiducian expects the highest level of compliance and client service from its financial planning network. Even though the generation of higher inflows is important, our commitment is to quality. As such, our extensive internal training programs, that differentiate our financial planners from the marketplace enable them to deliver superior quality advice continues. As a consequence and despite financial market volatility, client retention remains high. Over the years, there have been large scale groups merging to become bank or institutionally aligned and a number of smaller groups becoming insolvent or wound down due to claims or compliance issues. In addition, the propensity for credit seems to have contracted and lending covenants being imposed upon smaller dealerships appear much tighter. We shall be exploring opportunities here. Regulatory changes whereby accountants will be required to be licensed if they offer self managed super funds advice should also provide Fiducian further opportunities. Salaried Offices Company owned offices with salaried financial planners are based in New South Wales, Victoria, Western Australia, Queensland and Tasmania and continue to contribute to overall results. Salaried offices now comprise over 46% of funds under administration. Acquisitions made during the year should in due course bolt on to our existing presence in Tasmania and Sydney and add to our results. 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 4 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 Franchised Offices Franchised offices now comprise around 44% of our funds under administration. Another five franchisees were added during the financial year resulting in a total of 42 franchised financial planners nationally which we continue to assist through practice development. In addition, referral arrangements continue to be initiated with accountants, who themselves have shown an interest in holistic financial planning given regulation changes to Self Managed Super Funds. As such, an additional 3 accountants have joined our ‘Associate’ franchise program which can also convert them to a full operating franchise when educational requirements are completed. BUSINESS SERVICES Fiducian Business Services (FBS) is our subsidiary that was established to provide support to accountants for bookkeeping, accounts preparation and self managed superannuation fund administration. It now has two accounting practices which operate as Fiducian Accountants & Business Advisers (FABA) in New South Wales and Queensland. 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. Our Self Managed Superannuation Fund administration facility has been showing steady growth in the number of funds administered. It is supported by our presence in India for cost effective processing. During the year one small accounting practice was purchased and absorbed into existing Sydney operations. Succession continues to be an issue for an ageing sole practitioner demographic and we shall be seeking such acquisition opportunities at realistic valuations. PLATFORM ADMINISTRATION Platform Administration offers portfolio wrap administration for superannuation and investment services to financial planners. The hallmark of the Fiducian administration offering is quality in terms of daily processing, accuracy and customer service. Funds Under Administration Funds under administration increased in total by 11% to $1.03 billion (2013: $0.93 billion). Though the bulk of our withdrawals are from IFAs, we believe that the rate of IFA withdrawals could slow as many of their clients have been with Fiducian for a long time. Net Inflow continued to be positive from our aligned financial planners, both salaried and franchised. Independent Financial Planners (IFAs) Funds under administration for IFAs are around 10% of total funds under administration. Some IFAs have sold their businesses to other Dealer Groups, which generally have their own recommended product lists and platform arrangements which can result in funds being withdrawn from Fiducian. Whilst this is the case, efforts are underway to build new relationships and net inflow from non-aligned financial planner groups. Our full service offer, supported by last year’s product restructure could allow a non-aligned small dealer with a Fiducian relationship become competitive against large scale financial planning dealer groups. Corporate Superannuation Corporate superannuation decreased by 16% (2013: decrease 25%) during the year. It forms only a small portion of funds under administration. The product has now been altered and does not offer default investment options which under new legislation can only be offered by funds authorised to offer a MySuper product. Fiducian‘s core belief is that holistic personalised financial planning advice is essential for all clients. Corporate superannuation and MySuper do not encourage personalised financial planning advice and therefore it has been decided to wind down this fund and transfer those members who wish to stay with Fiducian to the Fiducian Superannuation Service. A N N U A L R E P O R T 2 0 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 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 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 and deliver superior returns, compared with their peers, over the longer term. Blending of underlying portfolios within asset sectors and tilts towards different managers’ 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 the top quartile or top of the second quartile over multiple time periods, which is what our investment process is designed to deliver. Last year, there were some notable performances. The Fiducian Ultra Growth Fund was ranked 1st out of its 106 fund peer group survey. Performance last year from some Fiducian specialist funds was also very pleasing, with reported annual investment returns by the Fiducian India Fund 43.0%, Fiducian Technology Fund 28.6% and the Fiducian Australian Smaller Companies Fund 28.3%. INFORMATION TECHNOLOGY Fiducian Information Technology division has successfully delivered FasTrack our administration system which provides greater control, efficiency and substantial cost savings and as well, opens up new business opportunities. Reporting of member accounts is now also available on tablets and mobile phones. These improvements are now in place and provide greater integration with our on-line reporting tools and financial planning software FORCe which is licensed to our aligned financial planning groups. HUMAN RESOURCES Management and Staff Staff numbers have been stable throughout the year and so has the management team on whom we place a great deal of reliance. Effective reporting processes enhance Board oversight of business activity and monthly performance. 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. Planners Council, IT and Platform User Groups The Planners 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 again deserves commendation for its contribution to the development and enhancements to our financial planning software (FORCe), on-line reporting tool (Fiducian OnLine) and platform administration system (FasTrack). The Platform User Group has also made valuable contributions to our system improvements, product enhancements and client administration efficiencies. 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 ahead has adopted key measures for performance to lift profits including acquisitions. Future performance can also be influenced by continuing strength in financial markets and decisive political leadership. 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 4 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 Share markets are not currently expensive by historical measures and there is a large amount of cash waiting on the sidelines to enter, which could strengthen them further. The Australian market has finally exceeded its high point of 2007 on an accumulation basis (including dividends). However, the price index still remains below its previous high. We have seen a strong share market recovery in the United States, Japan and Europe. However, it has still not translated into an equivalent strength in the Australian share market. On this measure alone, there appears further upside for the Australian share market. Regardless, investors still remain somewhat cautious and the Global Financial Crisis remains etched in their memories. Our house view is for share markets to again deliver positive returns this year as news of European and US economic improvements come through. We also believe that fears about China are overdone and it should, along with India continue to show economic growth and support developed financial markets. As always, we recommend that investors should consult a Fiducian financial planner to develop a diversified investment strategy that could help them achieve their financial goals. OUTLOOK The Board expects profit growth to continue in coming years as management focuses on realizing the full potential of financial planning, platform administration, investment management, information technology and business/accounting services by building scale on existing capacity and leveraging its relatively fixed cost base. Fiducian also continues to keep abreast of changes to superannuation legislation and implement required changes to comply with the Prudential Standards introduced by APRA, which includes creation of a separate Trustee. Expenditure controls and profitable growth remain a priority. However, the business plan for 2015 financial year looks at expanding the revenue base by growing the existing Fiducian business model organically yet making more sizeable acquisitions where they can become earnings accretive and build scale quicker. Therefore our 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 buybacks where beneficial. We would like to thank all participants for their individual contributions to the growth and success of Fiducian in what has been an eventful yet successful year with much accompanying change in legislation. Robert Bucknell Chairman Indy Singh Managing Director 26 August 2014 26 August 2014 A N N U A L R E P O R T 2 0 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 P A G E 7 C O R P O R A T E D I R E C T O R Y DIRECTORS 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 NOTICE OF ANNUAL GEN ERAL MEE T I NG The annual general meeting of Fiducian Portfolio Services Limited Will be held at Level 4, 1 York Street, Sydney Time Date 10:00am Thursday 23 October 2014 PRI NCIPAL R E GI ST E R E D OFFI CE IN AU ST RALI A Level 4 1 York Street Sydney NSW 2000 (02) 8298 4600 WHOLLY OW NE D OPERATING EN T I TI E 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 2000 B AN KERS Westpac Banking Corporation 341 George Street Sydney NSW 2000 ANZ Banking Group 388 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 4 D I R E C T O R S ’ R E P O R T Your directors present their report on Fiducian Portfolio Services Limited (“the Company“) and on the consolidated entity (referred to here after as the Group) and its wholly owned operating entities throughout the year ended 30 June 2014. 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) Operating an Investor Directed Portfolio Service and Managed Discretionary Account service through Fiducian Investment Service; (b) Acting as the Trustee of Fiducian Superannuation Service; (c) Acting as the Responsible Entity of Fiducian Funds; (d) Providing specialist financial planning services through its wholly owned operating entity, Fiducian Financial Services Pty Ltd; (e) Providing 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 2013 of 3.60 cents (2012: Fully franked 2.50 cents) per share paid on 20 September 2013. Interim ordinary fully franked dividend for the year ended 30 June 2014 of 4.10 cents (2013: Fully franked 3.40 cents) per share paid on 26 March 2014. Total dividends in respect of the year 2014 $’000 2013 $’000 1,131 794 1,265 2,396 1,076 1,870 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 2014 of 5.00 cents per ordinary share held at 5 September 2014 and payable on 19 September 2014. Review of operations A summary of consolidated revenues and results by significant industry segments is set out below:- SEGMENT REVENUES SEGMENT RESULTS 2014 $’000 2013 $’000 2014 $’000 2013 $’000 4,843 Funds management and administration Financial planning (3) Accountancy resource services 1,114 850 (12) (77) - Intersegment sales 18,257 7,715 18,584 10,392 4,022 2,065 (7,217) (4,716) - Profit from ordinary activities before income tax expense Income tax expense Net profit attributable to members of Fiducian Portfolio Services Limited 6,075 (2,092) 3,983 4,763 (1,371) 3,392 22,873 22,106 A N N U A L R E P O R T 2 0 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 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 The valuation of investment funds has improved substantially during the year and favourably impacted the management fees received by Fiducian, as more fully detailed in the Joint Report of the Chairman and Managing Director. This has enabled Fiducian to increase profit for the second half of the year and propose a dividend distribution of 5.00 cents per share, bringing the full year dividend to 9.10 cents per share. Significant changes in the state of affairs During the financial year the Group acquired an accounting practice and two financial planning practices and their portfolio of clients were transferred to the respective operating entities progressively during the financial year. Contributed equity has reduced by $907,932 (inclusive of transaction costs) as a result of the buy back of 774,532 shares on the stock exchange at an average price of $1.17 per share during the year. Other than this, there were no significant changes in the state of affairs of the Group during or since the financial year. Matters subsequent to the end of the financial year Under the Rules of the Employee and Director Share Option Plan the Directors have offered 100,000 options to the Managing Director after year end (2013: 100,000). To the date of this report no (2013: 155,000) employee options have lapsed. To the date of this report, the Company has not bought back any shares on the market (2013: 81,000 shares at an average price of $1.03). 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. Employee Diversity Fiducian is proud to be an equal opportunity employer. It endorses diversity and currently has a number of employees that bring different skill-sets from their country of origin. We recognise that diversity includes, but is not limited to gender, age, ethnicity and cultural backgrounds. Our diversity policy encourages persons of different sexes, ethnic backgrounds, ages and skills to participate and receive recognition, reward and authority commensurate with their performance. Employees are comprised of staff from over 21 countries of origin, 26% over 55 years, and 42% female with 31% in senior roles. 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 4 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 Bucknell FCA. Chairman – non executive. Experience and expertise Chairman since inception in 1996. Extensive experience in accounting and business management over the past 50 years as a Chartered Accountant. Other current directorships None Former directorships in the last 3 years None Special responsibilities Chairman of the Group, member of the Remuneration, Internal Compliance Committees and Board Audit Committee. Interest in shares and options 800,000 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 25 years. Other current directorships None Former directorships in the last 3 years None Special responsibilities Managing Director, Member of Investment and Internal and External Compliance Committees. Interest in shares and options 10,162,512 ordinary shares in Fiducian Portfolio Services Limited. 140,000 options for ordinary shares in Fiducian Portfolio Services Limited. F 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. Other current directorships None Former directorships in the last 3 years None A N N U A L R E P O R T 2 0 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 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 E ME NT PE R SONNEL DIS C LO SUR ES C O N TIN UED (b) Information on directors (continued) Special responsibilities Chairman of the Board Audit Committee and member of Remuneration Committee. Interest in shares and options 251,373 ordinary shares in Fiducian Portfolio Services Limited. C 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 24 years experience. Currently Head of Compliance of State Street Australia Limited, and has 9 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 Chairman of the Remuneration Committee and member of the Board Audit Committee and the Internal and External Compliance Committees. Interest in shares and options 23,700 ordinary shares in Fiducian Portfolio Services Limited. (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. (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 2014, and the numbers of meetings attended by each director were:- FULL MEETINGS OF DIRECTIORS Corporate Trustee* Audit A 12 12 12 12 B 12 12 12 12 A 12 12 12 12 B 12 12 12 12 A 5 5 5 5 B 5 5 5 5 R Bucknell I Singh F Khouri C Stone MEETING OF COMMITTEES External Compliance & Risk Committee Financial Serv Super Invest- ment Remun- ration A B A B A B *** *** *** *** *** *** A 1 B 1 5 5 ** ** 12 12 *** *** Internal Comp- liance A 2 2 B 2 2 *** *** *** *** *** *** *** *** 2 2 5 5 5 5 *** *** 1 1 1 1 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. ** = I Singh attended 5 of the 5 meetings held with the two independent members of the External Compliance & Risk Committee. *** = Not a member of the relevant committee at the time of meeting. 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 4 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 NT PE R SONNEL D IS CL OSURES C O NT IN UED (e) Other key management personnel Mr I Singh as Managing Director of Fiducian Portfolio Services Limited, had authority for and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year ended 30 June 2014. This authority and responsibility is unchanged from the previous year. (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 Australian Accounting Standard 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 seeks to ensure 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) 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 2013. 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. A N N U A L R E P O R T 2 0 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 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 NT PE R SONNEL D IS CL OSURES C O NT IN UED A - Principles used to determine the nature and the amount of remuneration (continued) (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 2017 • 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 complementary to the reward strategy of the organisation. Their most recent review was in August 2013. 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. Benefits Executive benefits include death cover of $1 million and TPD/ Trauma insurance cover of $0.2 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% or 5,000 options for each one percent increase in the 30 day average for June market value for ordinary shares in the Company whichever is higher and only after approval by shareholders in the Company. 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 4 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 NT PE R SONNEL D IS CL OSURES C O NT IN UED A - Principles used to determine the nature and the amount of remuneration (continued) 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: I Singh – Managing Director & Company Secretary • R Bucknell – Chairman • • F Khouri – Non-executive Director • C Stone – Non-executive Director Amounts of remuneration Details of the remuneration of the key management personnel are set out in the following table :- A N N U A L R E P O R T 2 0 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 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 NT IN UED B - Details of remuneration (continued) Key management personnel of Fiducian Portfolio Services Limited and the Group 2014 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 directors1 R Bucknell2,3 (Chairman) F Khouri4 C Stone Executive director I Singh5 Totals $ 164,850 61,760 68,823 449,667 745,099 $ - - - - - $ $ $ $ $ - - - - 4,966 8,002 15,318 15,318 17,775 30,743 - - - - - - 164,850 - - 66,726 76,824 18,981 18,981 501,741 810,141 (1) Non-executive directors fees have increased during the current year due to new APRA prudential standards and other requirements introduced from 1 July 2013. (2) Excludes GST if paid to another firm. (3) Including amounts paid to the director’s company only in respect to director’s duties. (4) This excludes fees of $209,142 for financial planning services paid to companies in which Mr Khouri has an interest in his capacity as a financial planner. (5) Subject to shareholder approval 100,000 options will be issued to Mr I Singh in respect of 2014 financial year. 2013 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 Bucknell1,2 (Chairman) F Khouri3,4 C Stone Executive director I Singh5 Totals $ 137,700 55,585 52,746 442,433 688,464 $ - - - - - $ $ $ $ $ - - - - - - 5,003 4,739 20,613 30,355 - - - - - - 137,700 - - - - 60,588 57,485 463,046 718,819 (1) Excludes GST if paid to another firm. (2) Including amounts paid to the director’s company only in respect to director’s duties. (3) This excludes fees of $213,712 for financial planning services paid to companies in which Mr Khouri has an interest. (4) 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. (5) Subject to shareholders approval 100,000 options will be issued to Mr I Singh in respect of the 2013 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 4 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 NT PE R SONNEL 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 and receive an induction pack of documents necessary for them to understand Fiducian’s charters, 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 26. 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:- 2014 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 55,000 - 100,000 (15,000) 140,000 40,000 3,500 Adviser options, issued in prior years, held by an entity in which F Khouri has an interest have lapsed during the year. 2013 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 - - - - - (100,000) 55,000 55,000 - - - * 3,500 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 26. A N N U A L R E P O R T 2 0 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 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 NT IN UED D - Share-based compensation (continued) (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. 2014 NAME I Singh R Bucknell F Khouri C Stone 2013 NAME I Singh R Bucknell F Khouri C Stone 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 10,113,012 900,000 226,373 20,000 - - - - 49,500 (100,000) 25,000 3,700 10,162,512 800,000 251,373 23,700 BALANCE AT THE START OF THE YEAR RECEIVED DURING THE YEAR ON THE EXERCISE OF OPTIONS 10,012,415 900,000 226,373 - - - - - OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR 100,597 10,113,012 - - 20,000 900,000 226,373 20,000 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 (2013: Nil). 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 $9,000 in August 2013, there has been no other increases in base salary of the Managing Director. Cash bonuses and entitlements have not been granted or paid in the past 5 financial years and the grant of options entitlements have been only in accordance with the incentive programs being 100,000 options in respect of the 2014 financial year (2013: 100,000 options). 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 4 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 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 (2013: Nil). Other transactions with key management personnel A director, Mr R 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 2014 $ 2013 $ 308,400 209,142 517,542 255,773 213,712 469,485 Shares under option 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 2014 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 26 to the Financial Report. A N N U A L R E P O R T 2 0 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 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 NT IN UED E - Additional information (continued) 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 4 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. The fees paid or payable for services provided during the year by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non-related audit firms, are shown in Note 27 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, 26 August 2014 A N N U A L R E P O R T 2 0 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 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 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 4 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 ASX Good Corporate Principles and Recommendations read with the 2010 Amendments, except where noted. The Board notes that the ASX Corporate Governance Council’s Corporate Governanace Principles and Recommendations (Third Edition) takes effect for a listed entity’s first full financial year commencing on or after 1 July 2014. 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:- • Contributing to the development and approval of corporate strategy, including setting performance objectives and approval levels for management. • Reviewing and approving business plans, the annual budgets and financial matters, including available resources and major capital expenditure, acquistions and divestiture initiatives. • Monitoring corporate and organisational performance and the implementation of the Fiducian Group’s strategies, policies and objectives, compliance with the Groups’s code of conduct and the progress of major capital expenditure and other significant corporate projects, including any acqusitions or divestments. • Monitoring and reviewing management’s existing processes aimed at ensuring the integrity of financial performance and other reporting, including the approval of annual and half yearly financial reports to shareholders and the Australian Securities Exchange (ASX) and liaison with the Group’s auditors. • Selecting, appointing and appraising the performance of, determining the remuneration of, and if necessary determining the removal of, the Managing Director, and ensuring there are adequate plans and procedures in place for succession planning. • Reviewing procedures for the appointment and /or removal of senior employees of the Group, including management team members, and monitoring their performance. • Ensuring there are adequate policies in relation to risk identification and management, and that internal controls and procedures are in place regarding the same. In summary, these policies are designed to ensure that strategic, operational, legal reputational and financial risks are identified, assessed, addressed, adequately controlled and monitored to allow acheivement of Group business objectives, with adequate accountability and reporting mechanisms in place. • Ensuring there is a disaster recovery plan and a business continuity plan in place which detail the recovery procedures to be followed in the event of a disaster or damaging event affecting the Fiducian 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. The Board charter was reviewed in May 2014. 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 section 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 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 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 executive and non-executive directors, with a minimum of three directors. The majority of directors must be non-executive 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 complementary 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. Non executive Directors’ independence Non executive 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 director 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. 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 4 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) 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 below:- • Mr Bucknell has served on the Board since inception of the Group, being for more than fifteen years. He brings a depth of experience and independent judgement to his role as director and remains vital to the growth of the Group. • 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. All three non executive directors are considered by the Board to be independent. Independent professional advice Directors and members of Board committees have the right to obtain independent professional advice at the expense of the Group on matters arising in the course of their 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 will shortly be carried out in accordance with this process. 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. With the exception of the Audit committee which is comprised of all non executive directors, the committees 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. To address regulatory requirements the name and function of various Board committees may be changed. 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 summary 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. A N N U A L R E P O R T 2 0 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 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) Remuneration Committee The Remuneration Committee is comprised of the non-executive Chairman and two other non-executive directors. The Committee ensures a formal performance evaluation is in place for the Managing Director and senior management personnel using established company objecives, key performance indicators and other criteria such as business performance and prevailing market conditions. Performance evaluation takes place annually. External advice on remuneration levels is obtained when deemed appropriate, but at a minimum of three year intervals. The Board has delegated to the Managing Director responsibility and authority for employee remuneration. Compliance committees (a) The Internal Compliance Committee is comprised of the non-executive Chairman, one other non-executive Director, and the Managing Director. The Committee reviews disclosure documents required to be given under statute. The compliance officer attends and participates at the meetings. (b) The External Compliance and Risk Committee (Financial Services) is comprised of independent members, a non- executive Director, and the Managing Director. The Commitee monitors compliance of systems, procedures, policies and programs established to ensure disclosure and reporting relating to compliance with obligations imposed by the Corporations Law, and that the interests of fund members are protected. The compliance officer attends and participates at the meetings. (c) The External Compliance and Risk Committee (Superannuation) is comprised of two independent members, and one other non-executive Director. The Commitee 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, and two other non-executive Directors. The Managing Director, the Chief Financial Officer 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 required. 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 Managing Director has no appointments as a director outside the Group, other than to his own family companies. 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 4 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 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. Diversity policy Fiducian is an equal opportunity employer and does not discriminate on gender, age, cultural background or country of origin. Our training programs are aimed at developing the full potential of each director and staff member. 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 made available 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 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:- F Khouri (Chairman) R Bucknell C Stone 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. Mr C Stone is a chartered accountant with experience in taxation and superannuation matters as well as a practising lawyer. 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 A N N U A L R E P O R T 2 0 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 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) • 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 • 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. Further information on director’s attendance at audit committee meetings can be found in the “Directors’ Report“ section of the Annual report. 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 2014 . 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 of the financial statements. 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. 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 Chief Financial Officer. 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 4 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 Principles 5 and 6: Make timely and balanced disclosures and respect the rights of Shareholders (continued) Fiducian provides electronic reports and other communication to shareholders, who provide their email address. Hard copies are 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 Framework is in place 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 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 Committees, which then report 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 work health and safety (WH&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 (all of whom are independent):- C Stone (Chairman) R Bucknell 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. A N N U A L R E P O R T 2 0 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 P A G E 2 9 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 8: Remunerate fairly and responsibly (continued) The Committee ensures a formal performance evaluation is in place for the Managing Director using established company objecives, key performance indicators and other criteria such as business performance and prevailing market conditions. External advice on remuneration levels is obtained when deemed appropriate, but at a minimum of three year intervals. 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. Further information on director’s attendance at the remuneration committee meetings can be found in the “Directors’ Report“ section of the Annual report. The Managing Director is responsible for the remuneration of all other senior managers and staff. 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 4 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 18 August 2014 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 - - - - - 1 1 102 359 115 150 28 24 778 There were no holders of a less than marketable parcel of ordinary shares. B. EQUITY SEC UR I TY H OLD E R S Twenty largest quoted equity security holders. The names of the twenty largest registered shareholders of quoted equity securities as at 18 August 2014, are listed below. NAME NUMBER HELD PERCENTAGE OF ISSUED SHARES Indyshri Singh Pty Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited Shrind Investments Pty Ltd (Indyshri Super Fund A/C) JP Morgan Nominees Australia Limited London City Equities Limited Norcad Investment Pty Ltd Hunter Place Services Pty Ltd Citicorp Nominees Pty Limited (Colonial First State Inv A/C) Citicorp Nominees Pty Limited D R Smith Holdings Pty Ltd Mr Victor John Plummer Bond Street Custodians Limited (Ganes Value Growth A/C) Garrett Smythe Limited BNP Paribas Noms (NZ)Ltd 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Mr Ivan Tanner + Mrs Felicity Tanner (The Supernatural S/F A/C) 17 18 19 Mrs Jennifer Margaret Leeson 20 H F R Pty Ltd (F & M Khouri S/Fund A/C) Dendrinos Nominees Pty Ltd (Bayside Taxi Staff S/F A/C) Forsyth Barr Custodians Ltd (Forsyth Barr Ltd-Nominee A/C) 8,655,932 1,985,540 1,956,771 1,506,580 1,480,021 1,213,666 1,003,000 800,000 692,293 673,369 593,689 500,000 387,268 339,000 254,000 251,820 199,187 150,000 138,847 126,950 22,907,933 28.14% 6.46% 6.36% 4.90% 4.81% 3.95% 3.26% 2.60% 2.25% 2.19% 1.93% 1.63% 1.26% 1.10% 0.83% 0.82% 0.65% 0.49% 0.45% 0.41% 74.49% Unquoted equity securities As at 18 August 2014: TYPE OF SECURITY Options – Managing Director NUMBER ON ISSUE NUMBER OF HOLDERS 140,000 140,000 1 1 A N N U A L R E P O R T 2 0 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 P A G E 3 1 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. SUBSTANTI AL SH AR E H OLD E R S Substantial shareholders and associates as at 18 August 2014 (more than 5% of a class of shares) in the company are set out below:- NAME Indyshri Singh Pty Limited and associates National Nominees Limited HSBC Custody Nominees (Australia) Limited NUMBER HELD PERCENTAGE 10,162,512 1,985,540 1,956,771 33.04% 6.46% 6.36% 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 one vote and upon a poll one vote for each share held. Options No voting rights. 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 4 A N N U A L R E P O R T 2 0 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 P A G E 3 3 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 S 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 5 3 6 3 7 3 9 4 0 8 7 8 8 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 9 - 21, both of which are not part of this financial report. The financial report was authorised for issue by the directors on 26 August 2014. 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. 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 4 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 4 NOTES CONSOLIDATED PARENT ENTITY Revenue from ordinary activities Other Income Payments to advisers 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 4 5 6(a) 6(b) 7 24 2014 $’000 RESTATED 2013 $’000 2014 $’000 RESTATED 2013 $’000 22,537 21,752 18,283 17,933 337 (4,908) (9,812) (682) 354 (4,575) (9,344) (582) (1,396) (2,842) 6,075 (2,092) 4,763 (1,371) 301 (8,247) (6,314) (141) 136 4,019 (1,311) 324 (5,508) (6,060) (150) (1,696) 4,843 (1,409) 3,983 3,392 2,708 3,434 - - - - Total comprehensive income for the year 3,983 3,392 2,708 3,434 Profit is attributible to: Owners of Fiducian Portfolio Services Limited 3,983 3,392 2,708 3,434 3,983 3,392 2,708 3,434 Earnings per share 32 Earnings per share from profit from continuing operations attributable to the ordinary equity holders of the company: RESTATED Basic earnings per share (in cents) Diluted earnings per share (in cents) 12.81 cents 10.33 cents 12.75 cents 10.24 cents The above statements of comprehensive income should be read in conjunction with the accompanying notes. A N N U A L R E P O R T 2 0 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 P A G E 3 5 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 4 NOTES CONSOLIDATED PARENT ENTITY 2014 $’000 RESTATED 2013 $’000 2014 $’000 RESTATED 2013 $’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 Deferred tax liabilities Provisions Total Non-Current Liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity Contingent liabilities Commitments for expenditure 11,194 2,855 14,049 2,084 - 106 524 816 9,600 13,130 27,179 4,118 1,173 5,292 276 1,313 947 2,536 7,828 9,440 2,749 12,189 2,141 - 155 598 950 7,712 11,556 23,745 2,888 292 3,180 110 897 836 1,843 5,023 19,351 18,722 8,046 5,924 7,536 5,982 13,970 13,518 2,084 3,875 2,141 3,875 106 149 665 151 155 184 694 194 7,030 21,000 7,243 20,761 2,737 390 3,127 - - 717 717 2,074 277 2,351 - 9 598 607 3,843 17,157 2,958 17,803 6,236 26 13,089 19,351 7,145 75 11,502 18,722 6,236 26 10,895 17,157 7,145 75 10,583 17,803 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 28 29 The above statements of financial position 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 4 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 4 NOTES CONTRIBUTED EQUITY $’000 RESERVES $’000 TOTAL $’000 RETAINED EARNINGS $’000 Consolidated Balance as at 30 June 2012 (Restated) 7,395 219 Profit for the year (Restated) Other comprehensive income Total comprehensive income for the year (Restated) Transactions with equity holders in their capacity as equity holders Transaction costs Buy back of shares Dividends provided for or paid Share options lapsed Foreign Exchange transactions Total transactions with equity holders 22 22 8 23 23 - - - - (250) - - - (250) - - - - - - (142) (2) (144) 9,980 3,392 - 3,392 - - (1,870) - - 17,594 3,392 - 3,392 - (250) (1,870) (142) (2) (1,870) (2,264) Balance as at 30 June 2013 (Restated) 7,145 75 11,502 18,722 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders Buy back of shares Dividends provided for or paid Share options lapsed Foreign Exchange transactions Total transactions with equity holders 22 8 23 23 - - - (909) - - - (909) - - - - - (49) - (49) 3,983 - 3,983 - (2,396) - - 3,983 - 3,983 (909) (2,396) (49) - (2,396) (3,354) Balance as at 30 June 2014 6,236 26 13,089 19,351 A N N U A L R E P O R T 2 0 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 P A G E 3 7 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 4 NOTES CONTRIBUTED EQUITY $’000 RESERVES $’000 TOTAL $’000 RETAINED EARNINGS $’000 Parent Balance as at 30 June 2012 (Restated) 7,395 217 Profit for the year (Restated) Other comprehensive income Total comprehensive income for the year (Restated) Transactions with equity holders in their capacity as equity holders Buy back of shares Dividends provided for or paid Share options lapsed Total transactions with equity holders 22 8 23 - - - (250) - - (250) - - - - - (142) (142) 9,019 3,434 - 3,434 - (1,870) - (1,870) 16,631 3,434 - 3,434 (250) (1,870) (142) (2,264) Balance as at 30 June 2013 (Restated) 7,145 75 10,583 17,803 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders Buy back of shares Dividends provided for or paid Share options lapsed Total transactions with equity holders 22 8 23 - - - (909) - - (909) - - - - - (49) (49) 2,708 - 2,708 - (2,396) - (2,396) 2,708 - 2,708 (909) (2,396) (49) (3,354) Balance as at 30 June 2014 6,236 26 10,895 17,158 The above statements of changes in quity should read in conjunction with the accompanying notes. 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 4 S T A T E M E N T S O F C A S H F L O W 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 4 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 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 Repayment of loans by associates & planners Payments for property, plant and equipment Net cash (outflow)/inflow from investing activities Cash flows from financing activities Payments for shares bought back Dividends paid Net cash (outflow/inflow) from financing activities NOTES CONSOLIDATED PARENT ENTITY 2014 2014 $’000 $’000 $’000 2013 2013 $’000 24,575 24,428 19,841 20,594 (17,814) (18,821) (15,255) (16,587) 6,761 322 (1,219) 5,607 357 (1,159) 4,587 310 (1,178) 4,007 322 (1,124) 31 5,863 4,805 3,719 3,205 - 64 (874) 95 (89) (359) 87 (689) 446 (404) (804) (919) - 64 - 95 (62) 97 (359) 87 - 446 (34) 140 (909) (250) (909) (250) (2,396) (1,870) (2,396) (1,870) (3,305) (2,120) (3,305) (2,120) Net increase in cash held 1,754 1,766 510 1,225 Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of year 9,440 7,674 7,536 6,311 9 11,194 9,440 8,046 7,536 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 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 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 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 4 1 SUMM ARY OF SI GN IFI CA NT 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 Limited 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. Restatement relating to deferred tax in connection with business combinations Following a review of the accounting treatment applied to business combinations Management has determined that the deferred tax liability had not been properly recognised in the books of account in relation to the client portfolio intangibles. Retrospective recognition was made during the current year and the comparative figures at 30 June 2013 and at 1 July 2012 have been restated to reflect this. Further details and the impact on the financial statements have been provided separately in Note 36. (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 2014 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 entities (including structured entities) over which the Group has control. The group controls an entity when the group is exposed, to or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Investments in subsidiaries are accounted for at cost in the parent company’s financial report. The acquistion method of accounting is used to account for the business combinations by the Group. Operating segments are reported in a manner consistent with the internal reporting provided to the managing director. 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. 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 4 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 4 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 4 1 SUMMARY O F SI GNI FI CANT A CC OUNT I N G PO LI C IES c o n t i n u e d (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, payments to advisers and related costs Revenues comprising trustee and management fees are recognised on an accruals basis. Fees, payments to advisers and costs related to this revenue is recognised at the same time and on the same basis. (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 a 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 comprehensice expenses. (d) Income tax The income tax expense or benefit 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. A N N U A L R E P O R T 2 0 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 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 4 1 SUMM ARY OF SI GN IFI CA NT A CC OUN TI N G PO LI C IES c o n t i n u e d (d) Income tax continue (continued) 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. 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 29). 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 2014 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 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 4 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 4 1 SUMMARY O F SI GNI FI CANT A CC OUNT I N G PO LI C IES c o n t i n u e d (i) Trade receivables (continued) 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. 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 acquirer. 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 are classfied as held for trading if 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. A N N U A L R E P O R T 2 0 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 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 4 1 SUMM ARY OF SI GN IFI CA NT A CC OUN TI N G PO LI C IES c o n t i n u e d (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. (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 that 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. 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 4 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 4 1 SUMMARY OF SI GNI FIC AN T A C CO UN T IN G POL IC I ES c o n t i n u e d (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) 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 26. 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 no consideration 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 along with the consideration paid is deducted from equity and the shares are regarded as treasury shares until they are cancelled. A N N U A L R E P O R T 2 0 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 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 4 1 SUMM ARY OF SI GN IFI CA NT A CC OUN TI N G PO LI C IES c o n t i n u e d (r) Contributed equity (continued) No gain or loss is recognised in the profit or loss and the the consideration paid including any directly incremental costs (net of income taxes) is recognised directly in equity. Treasury shares are bought with the intention of cancellation and are not reissued. (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. Rounded components presented throughout the financial report may not add up precisely to the rounded sum as a result of rounding to the nearest thousand dollars in various sections of the report. (w) New and amended accounting standards adopted by the Company Certain new accounting standards and interpretations have become mandatory for 30 June 2014 and these have been applied in the preparation of the these financial statements where applicable. The mandatory standards are:- AASB 10 Consolidated Financial Statements AASB 10 replaces the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements. The standard introduces a single definition of control applicable to all entities. Control exists when the investor can use their power to affect the amount of its returns. The Group has reviewed its investments in other entites to assess whether the conclusion to consolidate would be different under this new standard. No differences were found and therefore no adjustments are required to the carrying amounts in the financial statements as a result of adoption. AASB 11 Joint Arrangements AASB 11 introduces a principles based approach to accounting for joint arrangements. It switches the focus from the legal structure of joint arrangements to the sharing of rights and obligations of the parties under the joint arrangement. The Group does not particiapte in any joint arrangement and therefore this standard does not impact its financial statements. 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 4 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 4 1 SUMM ARY OF SI GN IFI CA NT A CC OUN TI N G PO LI C IES c o n t i n u e d (w) New and amended accounting standards adopted by the Company (continued) AASB 12 Disclosure of Interests in Other Entities AASB 12 sets out the required disclosure for the entities reporting under the new standards AASB10 and AASB 11 and replaces the disclosures requirements currently found in AASB 127 and AASB 128. Adoption of this standard does not affect the amounts recognised in the financial statements but has impacted the disclosures made in these financial statements. AASB 13 Fair Value Measurement AASB 13 does not extend the use of fair value accounting but clarifies how to measure fair value and aims to enhance fair value disclosure. The Group has determined that its current measurement techniques will not change as a result of the new guidance but additional disclosure required by this standard have been made in these financial statements. (x) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2014 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 2017) AASB 9 Financial Instruments addresses the classification and measurement of financial assets and financial liabilites and rules for hedge accounting and is likely to impact the Group’s accounting of its financial assets and liabilites. The standard is applicable to the Group’s financial statements from 1 July 2017 but is available for early adoption. Management does not expect this to have a significant impact on the Group’s financial statements and is in the midst of performing a detailed analysis on the impacts of the new standard. 2 CRITI CAL ACCOU NT ING E ST IMA 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 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 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 4 3 SEGMENT 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. Business Services The company provides accountancy resource services through its subsidiary, Fiducian Business Services Pty Ltd. Although this segment does not meet the quantitative thresholds required by AASB 8, management has concluded that this segment should be reported as it is closely monitored by managment for its potential growth opportunities. Geographical segments The Group operates in the following geographical segments - in Australia and in India. The Indian operations are not considered material for a sperate geographical segment disclosure during the financial year 2014. 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 4 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 4 3 SEGMENT INFO RM AT I ON CON TIN UE D (b) Primary reporting – business segments FUNDS MANAGEMENT AND ADMINISTRATION FINANCIAL PLANNING BUSINESS SERVICES INTERSEGMENT ELIMINATIONS CONSOLIDATED $’000 $’000 $’000 $’000 $’000 2014 Sales to external customers Intersegment sales Total sales revenue Other revenue Total segment revenue Profit from ordinary activities before income tax expense Income tax expense Profit from ordinary activities after income tax expense Segment assets Segment liabilities Acquisitions of plant and equipment, intangibles and other non-current segment assets Depreciation, amortisation and impairment Net cash inflow from operating activities 18,283 - 18,283 301 18,584 3,247 7,121 10,368 24 10,392 1,006 96 1,102 12 1,114 - (7,217) (7,217) - (7,217) 4,022 2,065 (12) - 21,000 11,300 2,801 3,843 5,208 2,815 (7,922) (4,039) 63 2,212 221 141 425 116 3,719 1,340 805 - - - 22,537 - 22,537 337 22,873 6,075 (2,092) 3,983 27,179 7,827 2,496 682 5,863 A N N U A L R E P O R T 2 0 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 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 4 3 SEGMENT INFO RM AT I ON CON TIN UE D (b) Primary reporting – business segments (continued) FUNDS MANAGEMENT AND ADMINISTRATION FINANCIAL PLANNING BUSINESS SERVICES INTERSEGMENT ELIMINATIONS CONSOLIDATED $’000 $’000 $’000 $’000 $’000 2013 Sales to external customers Intersegment sales Total sales revenue Other revenue Total segment revenue Profit from ordinary activities before income tax expense Income tax expense Profit from ordinary activities after income tax expense 17,933 - 17,933 324 18,257 3,069 4,620 7,689 26 7,715 4,843 (3) 750 96 846 4 850 (77) Segment assets (Restated) 20,720 9,158 2,059 Segment liabilities (Restated) 2,959 4,347 2,051 Acquisitions of plant and equipment, intangibles and other non-current segment assets Depreciation, amortisation and impairment Net cash inflow from operating activities 69 520 441 150 345 87 3,205 1,009 591 - (4,716) (4,716) - (4,716) - (8,192) (4,334) - - - 21,752 - 21,752 354 22,106 4,763 (1,371) 3,392 23,745 5,023 1,030 582 4,805 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 4 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 4 3 SEGMENT INFO RM AT I ON CON TIN UE D (c) Other segment information (i) Segment revenue 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 2014 $’000 2013 $’000 29,753 (7,217) 22,537 26,468 (4,716) 21,752 The entity is domiciled in Australia. The amount of its revenue from external customers in Australia is $22,537,000 (2013: $21,752,000). (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 2014 $’000 2013 $’000 6,758 5,353 - (2) (164) (518) 6,075 (1) (7) (133) (449) 4,763 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 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 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 4 4 REV ENUE FR OM O RD I NAR Y A CT I VI TI ES NOTES CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 22,078 21,369 17,935 17,518 458 383 348 415 22,537 21,752 18,283 17,933 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 Fair value (losses)/gains on financial assets at fair value through profit or loss 13 6 EXP ENSES Profit before income tax includes the following specific expenses: (a) Depreciation, and amortisation 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 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 Expense Recovery 27 346 - (9) 337 112 52 164 13 504 518 682 464 807 909 192 480 116 442 6 357 21 (24) 354 109 24 133 11 438 449 582 443 823 943 287 531 179 429 - 310 - (9) 301 94 3 97 13 31 44 327 21 (24) 324 94 4 98 10 42 52 141 150 370 343 427 105 290 69 424 - 363 650 465 190 353 134 426 - 1,175 1,142 1,028 1,050 (3,193) (1,935) (3,193) (1,935) 1,396 2,842 (136) 1,696 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 4 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 4 6 EXPENSES CONTINUED Fiducian Portfolio Services Limited, as trustee for the Fiducian Superannuation Service, is entitled to the reimbursement of expenses incurred by it in the operation of the service. Effective from 1 July 2012 Fiducian will, for a three year period, recover an amount up to 75% of the balance of any unrecovered operational expenses incurred by it subject to available reserves. Thereafter, it will recover up to 100% of any unrecovered operational expenses subject to available reserves. Expense recoveries will vary year on year depending on the nature of the expenses incurred by the trustee. Notwithstanding this, the current reserves are sufficient to sustain the current level of reimbursable expenses for the next financial year. 7 INCO ME TAX E X PE NS E NOTES CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 (a) Income tax expense Current tax Deferred tax Adjustments for current tax of prior periods Income tax expense Deferred income tax (revenue) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (Decrease) increase in deferred tax liabilities 15 20 Deferred tax (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense 1,991 (9) 110 2,092 134 (143) (9) 1,517 (108) (37) 1,371 13 (121) (108) 1,215 1,427 20 76 (5) (13) 1,311 1,409 29 (9) 20 7 (12) (5) 6,075 4,763 4,019 4,843 Tax at the Australian tax rate of 30% 1,823 1,429 1,206 1,453 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment Tax offset for amortisation Sundry items Under/(over) provision in prior years Income tax expense (c) Tax consolidation legislation 18 (142) 283 1,982 110 2,092 13 (122) 88 1,408 (37) 1,371 13 - 16 1,235 76 1,311 10 (12) (29) 1,422 (13) 1,409 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 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 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 4 8 DI VI DENDS Ordinary shares Final ordinary fully franked dividend for the year ended 30 June 2013 of 3.60 cents (2012: Fully franked 2.50 cents) per share paid on 20 September 2013. Interim ordinary fully franked dividend for the year ended 30 June 2014 of 4.10 cents (2013: Fully franked 3.40 cents) per share paid on 26 March 2014. Total dividends paid in cash PARENT ENTITY 2014 $’000 2013 $’000 1,131 794 1,265 1,076 2,396 1,870 The Directors have declared the payment of a final fully franked dividend for the year ended 30 June 2014 in the amount of 5.00 cents per ordinary share to be paid on shares registered on 5 September 2014 and payable on 19 September 2014. Franked dividends The franked portions of the final dividends recommended after 30 June 2014 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 2014 $’000 2013 $’000 2014 $’000 2013 $’000 7,632 6,715 5,657 5,538 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 $659,000 (2013: $487,000). 9 CURRENT AS SE TS – CASH AN D CA S H E QUI V A LEN T S Cash at bank and in hand Deposits securing bank guarantees Deposits - other CONSOLIDATED PARENT ENTITY 2014 $’000 6,161 34 5,000 11,194 2013 $’000 5,408 32 4,000 9,440 2014 $’000 3,046 - 5,000 8,046 2013 $’000 3,536 - 4,000 7,536 The Group’s and the parent entity’s exposure to interest rate risk is discussed in Note 34. 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 4 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 4 10 CURRENT ASS E T S – T R ADE , O THE R R EC EI VAB L ES A ND PR EP AYM 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 the year Written off against provision Balance at end of the year CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 - - 1,710 1,449 181 3 721 270 2,885 (30) 2,855 213 11 765 341 2,779 (30) 2,749 3,519 1,660 181 3 336 229 5,928 (4) 5,924 3,937 1,423 213 11 198 204 5,986 (4) 5,982 (30) - (30) (111) 81 (30) (4) - (4) (9) 5 (4) At 30 June 2014, 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- CURR E NT AS SE T S – R EC EIV A B L ES Business development loans* Loans to staff* Less: Provision for impairment of receivables CONSOLIDATED PARENT ENTITY 2014 $’000 2,055 29 2,084 - 2013 $’000 2,089 52 2,141 - 2014 $’000 2,055 29 2,084 - 2013 $’000 2,089 52 2,141 - 2,084 2,141 2,084 2,141 *Refer to Note 10 for the current portion of these receivables. (a) Impaired receivables and receivables past due No amount has been provided against non-current receivables in the current year (2013: Nil). A N N U A L R E P O R T 2 0 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 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 4 11 NON -CUR RE NT ASSE T S – R EC EI V A B L ES 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 2014 2013 CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE $’000 $’000 $’000 $’000 2,055 29 2,084 2,055 29 2,084 2,089 52 2,141 2,089 52 2,141 (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 NO N-CU RR E NT AS SE T S – OTH 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 Business Services Pty Ltd** Australia Ordinary Harold Bodinnar & Associates Pty Ltd*** Australia Ordinary Money & Advice Pty Ltd*** Australia Ordinary 100 100 100 100 2014 $’000 3,763 10 97 5 2013 $’000 3,763 10 97 5 Total investment by parent entity 3,875 3,875 *= The principal activity of the Company is the development of a specialist financial planning services network. **= The principal activity of this Company is to provide bookkeeping, accounting and tax processing services. ***= These companies are currently dormant as their operations have been transferred to Fiducian Financial Services Pty Ltd. In addition to the above subsidiaries, Fiducian Business Services has a 90% equity investment in Fiducian Resourcing Services Pvt Ltd, a company incoporated in India, providing accounting and tax processing services to the group.The operations of the Company are in its initial stages and are not considered material to the Group in 2014. 13 NON- CURR 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 A LUE THRO UG H PROF IT OR L OSS Investment in unlisted unit trust At beginning of the year Capital distribution Revaluation - fair value (losses) At end of the year Investment in related trust CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 155 (40) (9) 106 106 275 (96) (24) 155 155 155 (40) (9) 106 106 275 (96) (24) 155 155 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 4 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 4 13 NON -CUR RE NT ASSE TS – OTH ER F IN AN CIA L ASSE T S AT F AIR VA LUE THROUGH PROF IT O R 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 remained frozen. Unit prices continue to be issued by the respective managers of the underlying unlisted unit trusts but as there has been no trading following the redemption freeze, an estimation is required in order to determine fair value. Refer to the assumptions in Note 2(iii) for further details. Changes in fair values of these financial assets at fair value through profit and loss are recorded in Other Income in the statement of comprehensive income. Refer to Note 5. Investments in other financial assets 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. These investments are valued at current published prices at 30 June 2014. Risk exposure Information about the Group’s and the parent entity’s exposure to credit and price risk is provided in Note 34. 14 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Plant and equipment Furniture, office equipment and computers Less: Accumulated depreciation CONSOLIDATED PARENT ENTITY 2014 $’000 1,550 (1,027) 524 2013 $’000 1,461 (863) 598 2014 $’000 982 (833) 149 2013 $’000 921 (737) 184 A N N U A L R E P O R T 2 0 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 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 4 14 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT co nt inued Movements Reconciliation of the carrying amounts of each class of property, plant and equipment are set out below. FURNITURE AND OFFICE EQUIPMENT COMPUTERS LEASEHOLD IMPROVEMENTS $’000 $’000 $’000 Consolidated At 1 July 2012 Cost Accumulated depreciation Net book amount Year ended 30 June 2013 Opening net book amount Additions Disposals Depreciation/amortisation charge Closing net book amount At 30 June 2013 Cost Accumulated depreciation Net book amount Year ended 30 June 2014 Opening net book amount Additions Disposals Depreciation/amortisation charge Closing net book amount At 30 June 2014 Cost Accumulated depreciation Net book amount 302 (228) 74 74 13 - (14) 73 226 (153) 73 73 51 - (22) 102 277 (175) 102 549 (298) 251 251 48 (4) (95) 200 427 (227) 200 200 9 - (92) 117 436 (319) 117 TOTAL $’000 1,316 (984) 332 332 403 (4) (133) 598 1,461 (863) 598 598 89 - (162) 524 465 (458) 7 7 342 - (24) 325 808 (483) 325 325 28 - (48) 305 837 (532) 305 1,550 (1,026) 524 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 4 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 4 14 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT CONTINUED Parent entity At 1 July 2012 Cost Accumulated depreciation Net book amount Year ended 30 June 2013 Opening net book amount Additions Disposals Depreciation/amortisation charge Closing net book amount At 30 June 2013 Cost Accumulated depreciation Net book amount Year ended 30 June 2014 Opening net book amount Additions Disposals Depreciation/amortisation charge Closing net book amount At 30 June 2014 Cost Accumulated depreciation Net book amount FURNITURE AND OFFICE EQUIPMENT COMPUTERS LEASEHOLD IMPROVEMENTS $’000 $’000 $’000 186 (168) 18 18 10 - (9) 19 106 (87) 19 19 43 - (16) 46 149 (103) 46 496 (265) 231 231 23 (6) (85) 163 350 (187) 163 163 5 - (82) 86 355 (269) 86 465 (459) 6 6 - - (4) 2 465 (463) 2 2 13 - - 15 478 (463) 15 TOTAL $’000 1,147 (892) 255 255 33 (6) (98) 184 921 (737) 184 184 61 - (96) 149 982 (833) 149 A N N U A L R E P O R T 2 0 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 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 4 15 NO N-CU RR E NT AS SE T S – DEF ER RED TA X A SSETS NOTES CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’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 Taken to the Statement of Comprehensive Income Closing balance at 30 June Deferred tax assets likely to be recovered within 12 months Deferred tax assets likely to be recovered after 12 months 10 496 24 152 109 25 - 816 950 (134) 816 532 284 816 9 480 29 110 110 22 189 950 963 (13) 950 629 321 950 2 362 21 146 109 25 - 665 694 (29) 665 450 215 665 1 335 28 105 109 22 91 694 701 (7) 694 481 213 694 16 NO N-CU RR E NT AS SE T S – I N TA 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 4,999 (4,973) 26 6,436 (1,918) 4,518 5,521 (464) 5,057 9,600 RESTATED 4,999 (4,960) 39 4,994 (4,969) 25 RESTATED 4,994 (4,956) 38 4,588 (1,413) 3,175 4,962 (464) 4,498 7,712 418 (418) - 125 - 125 151 418 (387) 31 125 - 125 194 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 4 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 4 16 N ON-CUR R E NT AS SE T S – IN TA N G I B LE A SS ETS C O N TIN UED (a) Movements Movements in each category are set out below:- CONSOLIDATED RESTATED GOODWILL ON PORTFOLIOS ACQUISITION ACQUISITION OF CLIENT CAPITALISED COMPUTER SOFTWARE* $’000 $’000 $’000 At 1 July 2012 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2013 Opening net book amount Additions Disposals/write off Impairment charge Amortisation charge Closing net book amount At 30 June 2013 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2014 Opening net book amount Additions** Disposals/write off Impairment charge Amortisation charge*** Closing net book amount At 30 June 2014 Cost Accumulated amortisation and impairment Net book amount 4,075 (978) 3,097 3,097 591 (78) - (435) 3,175 4,588 (1,413) 3,175 3,175 1,848 - - (505) 4,518 6,436 (1,918) 4,518 4,785 (464) 4,321 4,321 177 - - - 4,498 4,962 (464) 4,498 4,498 559 - - - 5,057 5,521 (464) 5,057 RESTATED TOTAL $’000 14,223 (6,791) 7,432 7,432 804 (78) - (446) 7,712 5,363 (5,349) 14 14 36 - - (11) 39 4,999 (4,960) 39 14,549 (6,837) 7,712 39 - - - (13) 26 7,712 2,407 - - (518) 9,600 4,999 (4,973) 26 16,956 (7,355) 9,600 * 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. ** Based on provisional accounting for the identifiable intangible assets acquired in the business combinations in the current year. *** Amortisation of $518,000 (2013: $446,000) 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 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 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 4 16 N ON-CU RR E NT AS SE T S – I NT A N G I B LE A SS ETS C O N TIN 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. (d) Impairment charge There has been no impairment charge recorded against goodwill during the financial year ended 30 June 2014 (2013: Nil). (e) Business Acquisitions Summary of acquisitions. During the year the Group made the following acquisition:- ACQUISITION FINANCIAL PLANNING FINANCIAL PLANNING BUSINESS SERVICES FIDUCIAN ENTITY Date Purchased Vendor staff employed by Group Maximum purchase price Paid by 30 June 2014 Deferred consideration at 30 June 2014 Value attributed on the Statement of Financial Position at 30 June 2014 Business combination or asset only FIDUCIAN FINANCIAL SERVICES PTY LTD FIDUCIAN FINANCIAL SERVICES PTY LTD FIDUCIAN BUSINESS SERVICES PTY LTD 31 March 2014 Client portfolio 1 April 2014 6 November 2013 Client portfolio Accountancy practice No Yes Yes $381,469 $296,407 $85,062 $1,312,500 $443,750 $868,750 $169,100 $104,876 $64,224 100% 100% 100% Business Combination Business Combination Business Combination Provisional Fair value of assets recognised as a result of aquisition are as follows:- Intangible assets Deferred Tax liabilities Net identifiable assets acquired Goodwill Net Assets Acquired $381,469 (114,441) $267,028 $114,441 $381,469 $1,312,500 (393,750) $918,750 $393,750 $1,312,500 $169,100 (50,730) $118,370 $50,730 $169,100 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 4 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 4 16 N ON-CU RR E NT AS SE T S – I NT A N G I B LE A SS ETS C O NT IN UED (e) Business Acquisitions (continued) The acquired businesses did not contribute significantly to the group’s current year profits. However if the acquisitions had taken place on 1 July 2013, management estimate a maximum revenue impact of $726,690 for the year ended 30 June 2014. It is not practicable to estimate the profit contribution given the significant change in the cost bases to the operation of the business once within the Fiducian Group. The accounting for assets acquired in the business combinations have not been finalised as at the end of the reporting period and have been accounted for in these financial statements at provisional amounts. The accounting will be completed within the one year window allowed under AASB 3 Business combinations. (f) Sensitivity Analysis The estimates and judgements included in the fair value calculations are based on historical experience and other factors, including management’s and the Director’s expectations of future events that are believed to be reasonable under the current circumstances. There have been no impairment recognised for the Fiducian Group CGUs in the impairment assessment performed at 30 June 2014. Based on management’s current assessment, the recoverable amount of Fiducian’s CGU exceeds the carrying amount by $5.2million. The Fiducian Group’s CGU recoverable amount is sensitive to reasonably possible movements in key assumptions including changes to the earnings multiple of 3.1 used to determine the fair value of the CGU. Management has modelled below the impact of changes in these key assumptions with the following result :- • if earning multiple were to decrease to 2.7, the CGU’s recoverable amount would exceed carrying amount by $3.4million. • if earning multiple were to decrease to 2.9, the CGU’s recoverable amount would exceed carrying amount by $4.3million. 17 CU RRENT LIABI LI TI E S – T RA D E A N D OT HER P A Y A B L ES Trade payables Other payables Amounts due to related entities Client portfolio deferred settlement Annual leave entitlements accrued CONSOLIDATED PARENT ENTITY 2014 $’000 980 1,597 - 897 645 4,118 2013 $’000 690 1,443 - 94 661 2,888 2014 $’000 957 1,163 184 - 431 2013 $’000 547 909 168 - 450 2,736 2,074 Information about the Group’s and the parent entity’s exposure to credit and interest rate risk is shown in Note 34. * Other payables includes retirement benefits payable to advisers covered under salary agreements with Fiducian Financial Services Pty Ltd. Under the terms of the agreement with certain long serving salaried financial planners, those planners 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 payment is subject to further ongoing conditions, including client retention, provision of support services to the entity to achieve this aim. The benefit is personal to the planner, is not transferable, can be stopped by or repaid to Fiducian Financial Services 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. This arrangement has been accounted for in accordance with AASB 119 Employee Benefits. 18 CU RRENT LIABI LI TI E S – C U R R EN T TA X L IA B I LI TI ES CONSOLIDATED 2013 $’000 2014 $’000 PARENT ENTITY 2013 $’000 2014 $’000 Income tax 1,173 292 390 277 A N N U A L R E P O R T 2 0 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 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 4 19 NO N CUR RE NT LI ABIL I TI E S – TRA DE A ND OT H ER PA YA B LE S Client portfolio deferred settlement 276 110 - - CONSOLIDATED 2013 $’000 2014 $’000 PARENT ENTITY 2013 $’000 2014 $’000 20 N ON-CU RR E NT LIA BI L IT I E S – DEF ER RED TA X LI A B IL I TI ES CONSOLIDATED 2013 $’000 2014 $’000 PARENT ENTITY 2013 $’000 2014 $’000 The balance comprises temporary differences attributable to:- Amounts recognised in profit and loss Depreciation and amortisation 1,313 Net deferred tax liabilities Movements:- Opening balance 1 July Taken to the statement of comprehensive income Arising on Business combination Closing balance 30 June Deferred tax liabilities likely to be settled within 12 months Deferred tax liabilities likely to be settled after 12 months 1,313 897 (143) 559 1,313 132 1,181 1,313 21 NO N-CU RR E NT L IA BI L ITI E S – PR OVI SION S 897 897 841 (121) 177 897 129 768 897 - - 9 (9) - - - - - 9 9 21 (12) - 9 9 - 9 CONSOLIDATED 2013 $’000 2014 $’000 PARENT ENTITY 2013 $’000 2014 $’000 Employee benefits – long service leave 947 836 717 598 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. 22 CO NTRIBU T E D E Q UI T Y (a) Share capital Ordinary shares – fully paid Treasury shares 6,086 150 6,236 7,141 4 7,145 CONSOLIDATED 2013 $’000 2014 $’000 PARENT ENTITY 2013 $’000 2014 $’000 6,086 150 6,236 7,141 4 7,145 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 4 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 4 21 CO NTRIBU TE D E Q UI TY c o n t i n u e d (b) Movements in ordinary share capital DETAILS NUMBER OF SHARES AVERAGE PRICE $’000 DATE 1 July 2012 Opening Balance Shares bought back on-market and cancelled 31,805,231 (255,462) Shares bought back on-market prior to 1 July 2012 but cancelled subsequent to that date Treasury Shares 30 June 2013 Buy-back transaction costs Balance Shares bought back on-market and cancelled Buy Back transaction costs Treasury shares 30 June 2014 Balance (c) Ordinary shares (13,300) (4,040) 31,532,429 (679,961) - (94,571) 30,757,897 - $0.96 - $1.12 - $1.11 - $1.58 7,395 (245) - (4) (1) 7,145 (755) (4) (150) 6,236 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 2013 and June 2014 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 27 March 2014. During the financial year the shares were acquired at an average price of $1.17 per share, with prices ranging from $1.01 to $1.63. The net cost of $909,170 of transaction costs, was deducted from equity. At 30 June 2014, 488,468 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 26. (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 be a body regulated by APRA. b. Under its APRA 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 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 $2,510,000 (2013: $4,060,000). A N N U A L R E P O R T 2 0 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 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 4 NOTES CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 23 RESERV ES Movements Share based payments reserve Balance 1 July Option expense Option lapses Transfer to share capital (options exercised) Balance 30 June 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 Total Reserves - - - 26 2 (2) - 75 75 19 (68) - 26 217 - (142) - 75 75 19 (68) - 26 - - - 26 217 - (142) - 75 - - - 75 24 RETAINE D PRO FIT S Movements in retained profits were as follows: Balance 1 July Net profit for the year Dividends paid Balance 30 June 8 11,502 3,983 (2,396) 13,089 9,980 3,392 (1,870) 11,502 10,583 2,708 (2,396) 10,895 9,019 3,434 (1,870) 10,583 25 KEY MA NA GE M EN T PE R SON N EL DI SC LOS UR ES (a) Key management personnel compensation Short-term employee benefits Post employment benefits Post employment benefits CONSOLIDATED PARENT ENTITY 2014 $ 2013 $ 2014 $ 2013 $ 760,417 688,464 760,417 688,464 30,743 18,981 30,355 - 30,743 18,981 30,355 - 810,141 718,819 810,141 718,819 Detailed remuneration disclosures are provided in sections A-E of the Remuneration Report contained in the Directors’ Report. 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 4 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 4 25 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 (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. During the period 100,000 shares were granted to Mr I Singh as compensation in respect of the previous year. 2014 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 55,000 - 100,000 (15,000) 140,000 40,000 3,500 Adviser options issued in prior years are held by an entity in which F Khouri has an interest have lapsed during the year. 2013 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 - - - - - (100,000) 55,000 55,000 - - - * 3,500 Adviser options, issued in prior years, 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. 2014 NAME I Singh R Bucknell F Khouri C Stone 2013 NAME I Singh R Bucknell F Khouri C Stone BALANCE AT THE START OF THE YEAR 10,113,012 900,000 226,373 20,000 BALANCE AT THE START OF THE YEAR 10,012,415 900,000 226,373 - RECEIVED DURING THE YEAR ON THE EXERCISE OF DIRECTOR OPTIONS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR - - - - 49,500 (100,000) 25,000 3,700 10,162,512 800,000 251,373 23,700 RECEIVED DURING THE YEAR ON THE EXERCISE OF DIRECTOR OPTIONS OTHER CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR - - - - 100,597 - - 20,000 10,113,012 900,000 226,373 20,000 A N N U A L R E P O R T 2 0 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 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 4 25 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 (2013: Nil). No entities with which directors have interests have exercised any Adviser options during the year (2013: 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 (2013: Nil). (d) Other transactions with key management personnel A director, Mr R 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. A director, Mr C Stone, was paid director’s fees for his personal contribution to the Board. 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 CONSOLIDATED 2014 $ 2013 $ 308,400 255,773 209,142 213,712 517,542 469,485 * Details of these fees and explanations for the increase have been provided in the Remuneration section in the Directors report. Shares under option Unissued ordinary shares of Fiducian Portfolio Services Limited under option at the date of this report are disclosed in Note 26 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 2014 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 26 to the financial report. 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 4 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 4 25 KEY MANAGE ME NT P E RSONN EL DI SC LOS UR ES c o n t i n u e d (e) Other transactions with key management personnel Balance at the start of the year ($) Interest paid / payable for the year ($) Balance at the end of the year ($) Number of KMP in this aggregation Aggregate details of business development and staff loans made to Key management personnel of the Group, including their close family members and entities related to them 76,333 4,210 77,902 2 Business development and staff loans have been made at arm’s length and at the same terms and conditions provided to other franchisees and staff. 26 SHARE B ASE D P AY ME 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 balance 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 shares are traded on the Australian Securities Exchange during the month preceding the date the options are granted. Other than options issued to the executive director as detailed in the paragraph below , during the year the directors determined not to issue any options (2013: Nil) to staff , and 155,000 employee options expired (2013: 110,000) over the period. 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. Subject to this approval, the Directors have resolved to issue 100,000 options at an exercise price of $1.63 (2013: 100,000 options at $1.05) to the executive director in respect of the year ended 30 June 2014. (b) Adviser share option plan (ASOP) The parent entity established the ASOP 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 ASOP has not been extended beyond June 2011. Options were granted for no consideration. The total Adviser options issued since inception total 6,847,517. During the year 20,270 Adviser options lapsed leaving no further options on issue. A N N U A L R E P O R T 2 0 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 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 4 26 SHARE B ASE D P AYME NT S C O N TIN 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 – 2014 ESOP – Managing Director – Note 26(a) 29 Oct 2008 29 Oct 2013 $2.30 27 Oct 2010 29 Oct 2015 $1.28 15,000 40,000 - - 23 Oct 2013 23 Oct 2018 $1.05 - 100,000 55,000 100,000 ESOP – Staff – Note 26(a) 27 Aug 2008 27 Aug 2013 $2.30 ASOP – Advisers – Note 26(b) 30 Sept 2008 30 Sept 2013 $2.70 155,000 155,000 20,270 20,270 - - - - Total 230,270 100,000 - - - - - - - - - (15,000) - - - - 40,000 40,000 100,000 - (15,000) 140,000 40,000 (155,000) (155,000) (20,270 (20,270) - - - - - - - - (190,270) 140,000 40,000 Weighted average exercise price $2.16 $ 1.05 $ - $2.34 $1.12 $1.28 The volume weighted average remaining contractual life of share options outstanding at the end of the period was 3.46 years (2013 : 0.56 years). 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 4 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 4 26 S HARE BASE D PAY ME NT S C O N TIN 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 LAPSED 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 – 2013 ESOP – Managing Director – Note 26(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 26(a) 31 Jul 2007 31 Jul 2012 $2.65 27 Aug 2008 27 Aug 2013 $2.30 ASOP – Advisers – Note 26(b) 30 Sept 2007 30 Sept 2012 $3.45 30 Sept 2008 30 Sept 2013 $2.70 Total 15,000 40,000 155,000 110,000 155,000 265,000 22,042 20,270 42,312 462,312 - - - - - - - - - - - - - - - - - - - - - - (100,000) - - - 15,000 40,000 (100,000) 55,000 - 15,000 40,000 55,000 (110,000) - - - 155,000 155,000 (110,000) 155,000 155,000 (22,042) - - 20,270 (22,042) 20,270 - 20,270 20,270 (232,042) 230,270 230,270 Weighted average exercise price $2.44 $ - $ - $2.73 $2.16 $2.16 Fair value of options granted During the year ended 30 June 2014 100,000 options (2013: Nil) were issued to the Managing Director 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 . A N N U A L R E P O R T 2 0 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 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 4 26 SHARE B AS E D PA YME NT S CO N TIN UE D The model inputs for options granted during the year ended 30 June 2014 included:- ESOP - Director 2014 (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 1.05 23 Oct 2013 23 Oct 2018 1.15 35% 5.95% 2.50% 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: Options issued, net of lapses 27 REMUNE RAT I ON OF AUD I TOR S CONSOLIDATED PARENT ENTITY 2014 $ 2013 $ 2014 $ 2013 $ (48,235) (142,165) - (48,235) - (142,165) - 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: Audit Services PricewaterhouseCoopers Australian firm: CONSOLIDATED PARENT ENTITY 2013 $ 2012 $ 2013 $ 2012 $ Audit and review of financial reports 104,206 100,682 86,206 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) 337,590 328,168 337,590 328,168 Total remuneration 441,796 428,850 423,796 425,638 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. 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 4 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 4 28 CONTINGE NT LI ABI LI T I E S The parent entity and Group had contingent liabilities at 30 June 2014 in respect of bank guarantees for property leases of parent and group entities amounting to $438,000 (2013: $438,000). 29 COMMI TME NT S FO R E XP E N DI TURE (a) Capital expenditure Commitments payable within one year - - - - CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 (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 1,030 4,670 5,700 539 5,934 6,473 856 4,380 5,236 472 5,587 6,059 30 RELATED P AR T Y T R ANSACT ION 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. 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). (c) Key management personnel Disclosures relating to key management personnel are set out in Note 25. (d) Transactions with related parties i) Transactions between Fiducian Portfolio Services Limited and other entities in the wholly-owned group 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. Collection of fees by AFS licensed companies on behalf of other members of the group. e. Dealer service fees paid by Fiducian Portfolio Services Limited The above transactions were on normal commercial terms and conditions and at market rates. (ii) Transactions with related parties of directors a. Financial planning fees paid by Fiducian Financial Services Pty Limited to entities associated with the directors b. Financial planning fees paid by Fiducian Financial Services Pty Limited to entities associated with relatives of the directors The above transactions were on normal commercial terms and conditions and at market rates. A N N U A L R E P O R T 2 0 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 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 4 30 RELATED P AR T Y T R ANSACT ION S c o n t i n u e d The following transactions occurred with related parties:- OWNERSHIP INTEREST1 2014 $ 2013 $ 2014 $ 2013 $ CONSOLIDATED PARENT ENTITY Wholly owned group Fiducian Financial Services Pty Ltd Deal service fees paid Financial planning fees paid Expenses paid and systems costs recovered Related trusts Fiducian Investment Service Operator fees income Fiducian Superannuation Service Trustee fees income Expense recovery Fiducian Funds Responsible entity fees income Expenses recovery Director associated entities Hawkesbury Financial Services Pty Ltd2 Financial planning fees paid 100% Nil Nil Nil Fiducian Financial Services Bondi Junction Pty Ltd3 Financial planning fees paid - - - - - - 2,214,000 4,987,900 - - 4,540,590 198,574 2,746,796 3,267,050 2,746,796 3,267,050 8,373,323 11,160,514 1,935,071 2,923,670 8,373,323 11,160,514 1,935,071 1,935,071 3,566,835 270,000 3,142,321 - 3,566,835 270,000 3,142,321 - 209,142 213,712 130,354 141,173 - - - - 1 “Ownership Interest” means the percentage of capital of the company held directly and/or indirectly through another entity by Fiducian Portfolio Services Limited 2 Payments to Franchisee associated with a director, F Khouri in the normal course of business in arms length transactions. 3 Payments to Franchisee associated with James Bucknell, relative of R Bucknell, in the normal course of business in arms length transactions. 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 4 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 4 30 RELATED P AR T Y T R ANSACT I ONS C O NT IN 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 2014 $ 2013 $ 3,506,280 3,937,630 1,660,045 1,663,141 5,166,325 5,600,771 184,217 168,047 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. 31 REC ONC I LIATION OF PR OF IT OR L OSS A F T ER IN C OME TA X T O N ET CAS H INF LOW FR OM O PE RA T I NG A CT I VI TI ES CONSOLIDATED PARENT ENTITY Profit for the year Non-cash employee (expense)/benefit Dividend and investment income Depreciation and amortisation Net (gain) loss on sale of non-current assets Changes in operating assets and liabilities: Change in accounts receivable Change in income tax payable Change in other assets at fair value Change in trade creditors Change in other creditors Change in related entities balance Change in deferred income tax asset Change in deferred income tax liability Net cash inflow from operating activities 2014 $’000 3,983 45 - 682 (24) (149) 881 9 290 154 - 134 (142) 5,864 2013 $’000 3,392 (426) (21) 582 (5) 481 321 24 25 541 - 13 (122) 4,805 2014 $’000 2,708 50 - 141 (25) (396) 113 9 410 254 435 29 (9) 2013 $’000 3,434 (340) (21) 150 - 694 290 24 (49) 239 (1,211) 7 (12) 3,719 3,205 A N N U A L R E P O R T 2 0 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 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 4 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 (in cents) Profit from continuing operations attributable to the ordinary equity of the company (b) Diluted earnings per share (in cents) 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 RESTATED 2013 2013 12.81 10.33 12.75 10.24 CONSOLIDATED 2014 NUMBER 2013 NUMBER 31,015,853 31,667,435 142,958 278,867 31,158,811 31,946,302 (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 2014 $’000 3,983 2013 $’000 3,392 (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 26. 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 4 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 4 33 EVENTS O CC U RR I NG A FTE R B A LA N C E DA TE /R E POR T ING DAT E Under the Rules of the Employee and Director Share Option Plan and subject to shareholder approval, the Directors have offered 100,000 options to the Managing Director after year end (2013: 100,000). At the date of this report all employee options have now lapsed (2013: 155,000). To the date of this report, the Company has not bought back any shares on the market (2013: 81,000 shares at an average price of $1.03). 34 FINANCIA L RI SK MANAGE M 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 and parent entity hold the following financial instruments:- CONSOLIDATED PARENT ENTITY 2014 $’000 11,194 4,939 106 2013 $’000 9,440 4,890 155 2014 $’000 8,046 8,009 106 2013 $’000 7,536 8,123 155 16,239 14,485 16,161 15,814 4,394 2,998 2,736 2,074 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 movements in financial markets. 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% (2013: - 10%) against actual market movements, with all other variables held constant other than financial planning fees that are paid out of such income. A N N U A L R E P O R T 2 0 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 P A G E 7 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 4 34 FINANCIA L R IS K MAN AG E MEN T C O N TIN 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 2014 $’000 2013 $’000 2014 $’000 2013 $’000 (11) (16) (11) (16) 1,277 1,568 1,277 1,568 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. Cash at bank and on deposit Staff & financial planner loans 30 JUNE 2014 30 JUNE 2013 Weighted average interest rate % 2.1% 5.3% - Balance $’000 11,194 2,268 13,462 Weighted average interest rate % 2.8% 5.1% - Balance $’000 9,440 2,365 11,805 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 2014 if interest rates change by +/- 100 basis points (2013: +/- 100 basis points) from the year end rates with all other variables held constant, post-tax profit would have been $94,000 higher or lower (2013: $83,000). (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- BBB+ Investment in related trust Unrated Loans to staff and financial planners Unrated CONSOLIDATED PARENT ENTITY 2014 $’000 2013 $’000 2014 $’000 2013 $’000 - - 11,194 9,440 - - 11,194 9,440 - 8,046 1,000 9,046 - 7,536 - 7,536 106 155 106 155 2,268 2,365 2,268 2,365 The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised on this page. 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 4 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 4 34 FINANCIA L R IS K MAN AG E MEN T C O N TIN 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 2014 $’000 4,118 276 4,394 2013 $’000 2,888 110 2,998 2014 $’000 2,737 - 2,737 2013 $’000 2,074 - 2,074 The fair value of financial assets and financial liabilities must be estimated for recognition and measurements or for disclosure purposes. 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 2014. Parent and Group - at 30 June 2014 Assets Other financial assets at fair value through profit or loss Investment in related trust Total assets Parent and Group - at 30 June 2013 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 - - - - 106 106 106 106 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - 155 155 155 155 A N N U A L R E P O R T 2 0 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 P A G E 7 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 4 34 FINAN CIAL RI SK MANAGE M EN T C O N TIN UED (d) Fair value estimation (continued) 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, this has been made difficult as a result of a redemption freeze. The Group has performed a review at 30 June 2014 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 2014:- Parent and Group Investment in related trust – Opening balance Transfers in to level 3 Capital distribution Fair value(Loss) recognised in Statement of Comprehensive Income 2014 $’000 2013 $’000 155 - (40) (9) 106 275 - (96) (24) 155 The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term financial liabilities for disclosure purposes is estimated by nature. The fair value of discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments. 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 4 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 4 34 FINAN CI AL RIS K MANAGE MEN T C O NT IN UED (e) Assets and liabilities not carried at fair value but for which fair value is disclosed The following table analyses within the fair value hierachy the Group and parent company’s assets and liabilities not measured at fair value at 30 June 2014 but for which fair value is disclosed:- Group - at 30 June 2014 Assets Cash and cash equivalents Trade and other receivables (excluding loans) Business development and staff loans Total assets Liabilities Trade and other payables Total Liabilites Parent - at 30 June 2014 Assets Cash and cash equivalents Trade and other receivables (excluding loans) Business development and staff loans Total assets Liabilities Trade and other payables Total Liabilites Level 1 $’000 11,194 - - 11,194 - - Level 2 $’000 Level 3 $’000 - - - - - - - 2,671 1,672 4,343 4,553 4,553 Level 1 $’000 Level 2 $’000 Level 3 $’000 8,046 - - 8,046 - - - - - - - - - 5,728 1,672 7,400 2,801 2,801 Level 4 $’000 11,194 2,671 1,672 15,537 4,553 4,553 Level 4 $’000 8,046 5,728 1,672 15,446 2,801 2,801 Assets and liabilities included in this table are carried at amortised cost; their carrying value are a reasonable approximation of fair value. Cash and cash equivalents include cash in hand, deposits held with bank and other short term investments in an active market. Trade receivables include the contractual amount for settlement of the trade debts due to the Group /Company . The carrying amount of the trade receivables are assumed to approximate their fair values due to their short term nature. Trade and other payables inlcude amounts due to creditors and accruals and represent the contractual amounts and obligations due by the Company for expenses. The carrying amount of the trade and other payables are assumed to approximate the fair value due to their short term nature. Business development and staff loans represents contractual payments by advisers and staff over the period of loan. Loans classified as current have not been discounted as the carrying values are a reasonable approximation of fair value due to the short term nature. Non current loans have been valued at the present value of estimated future cash flows discounted at the original effective interest rates of the loans. A N N U A L R E P O R T 2 0 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 P A G E 8 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 4 35 UN CONSOL I D ATE D S TR U CT UR ED EN TI TI ES A structured entity is an entity that has been designed so that the voting or similar rights are not the dominant factor in deciding who controls the entity and the relevant activities are directed by means of contractual arrangements. The Company acts as Responsible entity (“RE)” for the Fiducian funds and has significant influence over the funds due to its power to participate in financial and operating policies of the investee through the powers vested in it by the various contractual agreements. The Company considers all these funds to be structured entities. The Company receives management fees and netting fees from the funds in its capacity as RE of the funds. Except as indicated in Note 13, the Company does not invest in any of the funds it manages nor have any other forms of involvement such as the provision of funding, liquidity support or providing guarantees. Despite this, the Company has determined that it has an interest in the funds based on the variability of returns from management fees it receives linked to the net asset valuation of the respective funds. The funds’ objectives range from acheiving medium to long term capital growth and their investment strategy does not include the use of leverage. The funds finance their operations by issuing redeemable units which are puttable at the holder’s option and entitle the holder to a proportional stake in the respective fund’s net assets. The nature and extent of the Company’s interest in the funds has been aggregated and is summarised below:- Type of Fund Australian Equity Funds Global Equity Funds Property Fund Diversified Funds Technology Fund Structured Income Fund Fixed Interest Fund Accrued Income* $’000s 133 59 20 76 26 3 - Financial Assets** $’000s Maximum Exposure to Loss $’000s - - - - - 106 - 133 59 20 76 26 109 - Fund Net Asset Value $’000s 326,974 210,226 62,152 454,426 20,210 11,885 72,620 Fund’s Investment Portfolio $’000s 337,067 211,732 64,147 460,228 20,330 12,891 72,871 *= shown as Other receivables in the Current Assets line under trade and other receivables subheading in the Statement of Financial Position. **= shown as Non current assets - Other financial assets at fair value though profit and loss (refer to Note 13 for details). Unless specified otherwise, the Company’s maximum exposure to loss is the total of its on-balance sheet position as at the reporting date. There are no additional off balance sheet arrangements which would expose the Company to potential loss. During the year the company earned management fees and netting fees from the structured entities. The Company also acts as the trustee of the Fiducian Superannuation Service under the provisions of the Trust deed for the fund. Due to its fiduciary and statutory obligations to manage the assets of the trust on behalf of the beneficiaries , the Company exercises significant influence over the superannuation fund and therefore the superannuation fund is considered a structured entity as defined above. For its service the Company receives a management fee for managing the investment from the members of the fund. In addition to this the Company is entitled to reimbursement of expenses incurred by it in the operation of the service (for details refer to note 6). The nature and extent of the Company’s interest in the fund is summarised below :- Type of Fund Accrued Income Financial Assets** Maximum Exposure Fund Net Asset Value Fiducian Superannuation Service $’000s 1,272 $’000s - $’000s 1,272 $’000s 782,272 Fund’s Investment Portfolio $’000s 781,593 P A G E 8 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 4 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 4 36 RES TATE ME NT OF CO MPA R A TI VES Following a review of the accounting for business combinations during the year, Management ascertained that the deferrred tax liability component of acquisitions had not been properly recognised in the books of account in relation to the client portfolio intangible. Impact of changing this accounting would result in the recognition of Goodwill and a corresponding recognition of deferred income tax liability for each acquisition. Management has decided to retrospectively restate 2013 comparatives and the opening balance sheet as at 1 July 2012 to reflect the change. The net impact on the current year statement of comprehensive income has been a nominal reduction of tax expense to reflect the unwinding of the deferred tax liability relating to taxable temporary differences. The impact on the 2013 comparatives and the opening balance sheet as at 1 July 2012 has been summarised below:- Consolidated Adjustment 2013 $’000s Published 2013 $’000s Restated 2013 $’000s Published Parent Adjustment 2013 $’000s Restated 4,763 - 4,763 4,843 - 4,843 (1,493) 3,270 3,270 (122) (122) (122) (1,371) (1,421) 3,392 3,392 3,422 3,422 (12) (12) (12) (1,409) 3,434 3,434 Statement of Comprehensive Income (relevant excerpts) Profit before income tax expense Income tas expense Profit for the year Total comprehensive income A N N U A L R E P O R T 2 0 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 P A G E 8 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 4 36 RESTATEME NT OF CO MPA R AT IV ES CO N TIN UE D Consolidated Adjustment 2013 $’000s Published 2013 $’000s Restated 2013 $’000s Published Parent Adjustment 2013 $’000s Restated Statement of Financial Position (relevant excerpts) 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 2,141 - 155 598 950 6,413 10,257 - - - - - 2,141 - 155 598 950 1,299 1,299 7,712 11,556 2,141 3,875 155 184 694 69 7,118 Total assets 22,446 1,299 23,745 20,636 Non-current liabilities Payables non current Deferred tax liabilities Provisions Total Non-Current Liabilities Total liabilities 110 - 836 946 4,126 - 897 - 897 897 110 897 836 1,843 - - 598 598 5,023 2,949 - - - - - 125 125 125 - 9 - 9 9 2,141 3,875 155 184 694 194 7,243 20,761 - 9 598 607 2,958 Net assets 18,320 402 18,722 17,687 116 17,803 Equity Contributed equity Reserves Retained profits Total equity 7,145 75 11,100 18,320 - - 420 420 7,145 75 11,502 18,722 7,145 75 10,467 17,687 - - 116 116 7,145 75 10,583 17,803 P A G E 8 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 4 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 4 36 RES TATE ME NT OF CO MPA R A TI VES CO N TIN UE D Consolidated Adjustment 2013 $’000s Published 2013 $’000s Restated 2013 $’000s Published Parent Adjustment 2013 $’000s Restated Statement of Changes in Equity Retained Earnings Balance as at 1 July 2012 Profit for the year Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders Dividends provided for or paid Total transactions with equity holders Total Non-current Assets Note 3 Segment Information Segment Assets Funds Management Financial Planning Business Services Intersegment eliminations Segment Liabilities Funds Management Financial Planning Business Services Intersegment eliminations 9,700 3,270 3,270 (1,870) (1,870) 11,100 20,595 8,291 1,752 (8,192) 22,446 2,950 3,723 1,787 (4,334) 4,126 280 122 122 9,980 3,392 3,392 8,915 3,422 3,422 104 12 12 9,019 3,434 3,434 - - (1,870) (1,870) (1,870) (1,870) - - (1,870) (1,870) 402 11,502 10,467 116 10,583 125 867 307 - 1,299 9 624 264 - 897 20,720 9,158 2,059 (8,192) 23,745 2,959 4,347 2,051 (4,334) 5,023 A N N U A L R E P O R T 2 0 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 P A G E 8 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 4 36 RESTATE ME NT OF C O MPA R A TI V ES CO N TIN UE D Consolidated Adjustment 2013 $’000s Published 2013 $’000s Restated 2013 $’000s Published Parent Adjustment 2013 $’000s Restated 21 (12) - 9 125 - 125 125 21 (12) 0 9 125 - 125 194 Note 20 Deferred tax liabilities Movements: Opening balance 1 July 2012 Credited to the statement of income Arising on Business combination Closing balance 30 June 2013 Note 16 Intangible assets Goodwill Goodwill on acquisition Less: Accumulated amortisation - - - - 3,663 (464) 3,199 841 (121) 177 897 1,299 - 1,299 841 (121) 177 897 4,962 (464) 4,498 - - - - - - - Total Intangible Assets 6,413 1,299 7,712 69 Consolidated Adjustment 2013 Published 2013 Restated Note 32 Earnings per share Earnings per share (in cents) (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 Net profit and earnings used calculating basic and diluted earnings per share 10.08 0.25 10.33 10.07 3,270 0.25 122 10.24 3,392 P A G E 8 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 4 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 40 to 86 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 2014 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 Chief Financial Officer 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, 26 August 2014 A N N U A L R E P O R T 2 0 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 P A G E 8 7 P A G E 8 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 4 A N N U A L R E P O R T 2 0 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 P A G E 8 9 This page has been left blank intentionally P A G E 9 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 4 This page has been left blank intentionally A N N U A L R E P O R T 2 0 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 P A G E 9 1 This page has been left blank intentionally P A G E 9 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 4 A N N U A L R E P O R T 2 0 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 P A G E 9 3 

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