Fiducian Group
Annual Report 2018

Plain-text annual report

ANNUAL REPORT FIDUCIAN GROUP LIMITED | 2018 ABN 41 602 423 610 CONTENTs Financial highlights Five Year Financial summarY Joint report oF the chairman and the eXecutive deputY chairman directors’ report auditor’s independence declaration Financial statements consolidated statement oF comprehensive income consolidated statement oF Financial position consolidated statement oF changes in eQuitY consolidated statement oF cash Flows notes to the Financial statements directors’ declaration independent auditor’s report to the members shareholder inFormation corporate directorY 3 5 7 15 28 32 33 34 35 36 73 74 81 83 S T N E T N O C P a g e 1 Annual report 2018 | Fiducian Group LimitedNew South Wales Office Locations Abbotsford Ballina Bathurst Bondi Bondi Junction Castle Hill Caves Beach Coffs Coast Gosford Hunter Kellyville Macarthur Narrabri Newcastle North-East Sydney Nowra Randwick Roseville Southern Highlands Sydney CBD Tamworth Taren Point Walcha Windsor GROWTH FINANCIAL hIGhLIGhTs FOR 2018 Fund Performance FUA 1/168 Growth Ultra Growth 2/111 4/105 Cap Stable 6/168 Balanced Flagship funds performance ranking for three years to 30 June 2018 against all funds on a leading survey $83mil Funds Under Advice acquired in 2017-18 S T H G I L H G I H L A I C N A N I F UNPAT up 21% to $10.5mil FUMAA up $1 billion (by 18%) to $6.7bil Dividends up 25% to 20.00 cents / share 61 Aligned Planners & Associates 37 Offices across Australia 112 Staff around Australia from over 28 different countries of origin P a g e 3 Annual report 2018 | Fiducian Group Limited A U F Australian Capital Territory Office Locations Canberra DIVERSIFICATION P a g e 4 Annual report 2018 | Fiducian Group LimitedY R A M M U S L A I C N A N I F FIvE yEAR FINANCIAL sUMMARy FOR ThE yEARs 2014 TO 2018 FINANCIAL hIsTORy Financial PerFormance gross revenue underlying net profit after tax (unpat) statutory net profit after tax (npat) cost to income ratio (cti) - ex amortisation % Financial Position total assets total equity cash shareholder inFormation number of shares outstanding market capitalisation (in $ mil) eps based on unpat (in cents) dividends (in cents) share price - 30 June closing (in $) 2018 2017 2016 2015 2014 $’000 $’000 $’000 $’000 $’000 45,873 10,505 9,198 56% 40,562 31,132 13,885 40,752 35,451 26,253 22,874 8,710 7,512 60% 7,036 5,839 63% 5,748 4,622 62% 4,501 3,983 63% 36,277 27,620 9,548 33,690 24,127 9,691 28,770 21,191 12,374 26,363 19,351 11,194 31,242,623 31,264,368 31,110,855 30,883,398 30,757,897 146 33.6 20.0 4.66 128 27.8 16.0 4.09 72 22.6 12.5 2.31 53 18.6 10.0 1.70 50 14.6 9.1 1.62 FOR ThE FIvE yEARs 2014 TO 2018 24% Annualised Profit Growth 23% Annualised EPS Growth 7% Cost To Income % Reduction P a g e 5 Annual report 2018 | Fiducian Group Limited Victoria Office Locations Mt Waverley Sale Surrey Hills Ringwood St Kilda SIMPLE & POWERFUL JOINT REPORT OF ThE ChAIRMAN AND ThE EXECUTIvE DEPUTy ChAIRMAN HIGHLIGHTS Funds Under Management Advice & Administration up by $1.0 billion (18%) Net underlying profit after tax up by $1.8 million (21%) Basic underlying earnings per share up 21% Established position as a comprehensive financial services provider of Platform Administration, Funds Management, and Financial Planning Entry into the markets of sMA administration and Financial Planning software sales to external dealer groups as an IT systems developer T R O P E R T N O J I P a g e 7 Annual report 2018 | Fiducian Group Limited T R O P E R T N O J I dear shareholder, on behalf of the directors, we jointly report on the consolidated operating performance of Fiducian group limited and its controlled operating entities for the year ended 30 June 2018. FINANCIAL INFORMATION RESULTS FOR 2017-18 the Fiducian group result continues to show positive momentum in operational activity and application of the board’s strategy to grow the business. consolidated operating revenue increased by 13% and consolidated net revenue increased by 12% driven by business growth. gross margin remained at 74% (2017: 74%) during the year underlying earnings before interest, tax, depreciation and amortisation (underlying ebitda) increased by 21% to $14.80 million. underlying net profit after tax (unpat) is $10.50 million an increase of 21% over the 2017 results. this represents an underlying earnings per share of 33.6 cents which is 21% ahead of the 2017 results. underlying npat does not include amortisation or one off costs and therefore gives a clearer picture of the group’s cash generating ability going forward. the statutory net profit for the consolidated entity after providing for income tax was $9.20 million (2017: $7.51 million), an increase of 22%. in summary, all major operating divisions contributed positively to the result. this is an important consideration for shareholders, as the Fiducian group model with three FINANCIAL hIGhLIGhTs Year ending 30 June Funds Under management, advice and administration (FUmaa) operating revenue* Fees and charges paid* net revenue gross margin Underlying eBitda depreciation tax on underlying earnings Underlying nPat (UnPat) amortisation income from client servicing rearrangement (net of tax) statutory nPat Basic ePs based on UnPat (in cents) basic eps based on npat (in cents) P a g e 8 successful business streams can generate up to three times the revenue generating capacity of simple platform operators who obtain revenue only from administration services or other single revenue generating businesses such as fund management or financial planning. the increase in operating expenses by 5% (2017: 9%) primarily in the first half of 2018 was directed towards further strengthening the already strong compliance lines of defence for financial planning, expanding financial planner and support staff positions, some systems development to provide greater efficiency and deliver data required by government under new legislation and as well, business development activities. our diversity policy encourages persons of different race, gender, sexual orientation, religion, national or ethnic origin, age or disability and skills to participate and receive recognition, reward and management responsibility commensurate with their performance. some staff positions changed during the year which allowed for a refreshing of some staff positions. employees are from 28 different countries of origin, 50% are female with 27% in senior roles, while 23% are over 55 years of age. the combined Funds under management, administration and advice (Fumaa) have steadily grown by 237% over the past 5 years to $6.72 billion as at June 2018, an increase of over $1.0 billion over 2017. (see graph on next page). 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. 2018 2017 $ GROwTh % ChANGE 6.72 Billion 5.68 Billion 1.0 Billion 18% $’000 45,873 (12,117) 33,756 74% 14,832 (89) (4,239) 10,504 (1,307) - 9,198 33.6 29.4 $’000 40,752 5.1 million 13% (10,480) 30,272 3.5 million 12% 74% 12,220 2.6 million 21% (86) (3,424) 8,710 1.8 million 21% (1,233) 35 7,512 1.7 million 27.8 24.0 22% 21% Annual report 2018 | Fiducian Group Limited FUMAA (IN $ BIL) T R O P E R T N O J I FINAL DIVIDEND the board remains prudent, 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 11 cents per share has been declared which will bring the total fully franked dividend declared for the 2018 financial year to 20 cents, an increase of 25% (2017: 16 cents). the full year dividend represents 67% of the statutory npat for the year. the final dividend will be paid on 12th september 2018 on issued shares held on 29th august 2018. it is heartening to note that a shareholder who invested $1,000 in Fiducian shares in 2012-13, is now receiving $200 as a fully franked dividend for 2017-18. ACQUISITIONS during the year the group has acquired around $83 million of Funds under advice for our salaried & franchised planners. these acquisitions have started to contribute to our revenue. as acquisitions continue to assimilate into our processes, they should deliver increased revenue and demonstrate our disciplined approach to balancing growth and returns. our funds under advice now stand at around $2.40 billion. we are continuing negotiations to acquire more clients of financial planning practices, but sometimes these take longer than anticipated, as we will not compromise on quality and the compliance history of the vendor. MARKET BUY-BACK during the year, 21,745 shares were bought back on the market (2017: nil shares) leaving 31.24 million shares on issue at year end (2017: 31.26 million). CASH FLOW net operating cash flows of $10.4 million were achieved (2017: $8.6 million). after adjusting for investing activities (acquisitions) $0.3 million and financing activities (dividends and share buyback) $5.7 million, net cash increased by $4.3 million (2017: decrease $0.1 million). cash at year-end was $13.9 million (2017: $9.5 million). an amount of $5.1 million is required for regulatory purposes. surplus cash is planned for business acquisitions, which should assist our future revenue and earning capacity STAFF AND DIRECTOR OPTIONS in accordance with the terms and conditions of the approved employee and director share option plan, 35,000 options (2017: 100,000) will be issued to the executive deputy chairman in accordance with his contract of employment subject to approval at the annual general meeting. these options will be issued at $4.35 a share, a discount of 5% based on the average price in June and may be converted to shares by him making a payment of their value to the company after 1 year and within 5 years. options are only granted when the underlying net profit or share price increases by more than 15% over the previous year. FINANCIAL PLANNING during the year, Funds under advice grew from $2.14 billion in June 2017 to $2.41 billion in June 2018 due to acquisitions of financial planning businesses, increases in net inflows and rising financial markets. 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 program that differentiates our financial planners from the marketplace and enables them to deliver superior quality advice in a compliant manner, continues. compliance is important and we currently have one practice development manager for every 12 financial planners as our first line of defence and an almost similar number of compliance officers as our second line of defence. consequently, clients receive appropriate advice and retention of clients and funds remains high. P a g e 9 Annual report 2018 | Fiducian Group Limited NET FUNDS INFLOWS - SIx MONTHLY (IN $ MIL) T R O P E R T N O J I going forward, our focus will remain on generating inflows through organic and inorganic growth. this implies further acquisitions of financial planning client bases that satisfy our strict quality criteria and as well, expanding the franchisee network so we can continue to assist clients who wish to achieve their financial and lifestyle goals using our processes. staffing for recruitment in this area is likely to increase. SALARIED OFFICES company owned offices with salaried financial planners in new south wales, victoria, western australia, Queensland and tasmania continue to contribute to overall results. salaried offices comprise over 48.5% of funds under advice. acquisitions made during the year have assimilated well into our existing presence in victoria and should add to our results going forward. FRANCHISED OFFICES Franchised offices now comprise around 51.5% of our funds under advice. we have a total of 37 franchised financial planners nationally whom we continue to assist through practice development, compliance, para-planning, marketing, financial planning software and investment products and strategies. in addition, we have 4 accounting practices in our ‘associate’ franchisee program which aims to convert them to a full operating franchise when educational and training programs are completed. PLATFORM ADMINIsTRATION platform administration offers portfolio wrap administration for superannuation and investment services to financial planners as well as managed discretionary accounts (mdas) which offer investors access to a portfolio of shares directly managed for them. negotiations are underway with external groups of financial planners who could use our services to administer their client share and, fund portfolios, also called separately managed accounts (sma). we have the capability and capacity to offer this administration service to the external market in conjunction with the services we currently provide to our own platforms. one such sma contract is currently operating successfully and negotiations with other groups are progressing. success in this area, which puts us in direct competition with other platform administrators’, will add to our revenues. with over twenty years of experience behind us, we are confidently delivering a superior and largely automated level of service to this market. the hallmark of the Fiducian administration offering is quality in terms of daily processing, accuracy and customer service. Funds under administration increased in total by 23.1% (around $400 million) to $1.94 billion (2017: $1.58 billion). we continue to experience strong growth in net Fund inflows driven by our salaried and franchised financial planners (see graph above) we expect this positive trend to continue. INDEPENDENT FINANCIAL PLANNERS (IFAs) Funds under administration for iFas are around 8.03% of total funds under administration. efforts are underway to build new relationships and increase net inflows from non- aligned financial planner groups, in particular through sma administration services sUPERANNUATION the superannuation trustee board established for our public offer, superannuation wrap fund in march 2015 with an equal number of independent and non-independent directors is operating well. the board is supported by the office of superannuation trustee and has outsourced some key operational processes to other specialist service providers. three directors were re-elected for a three-year term following completion of their term in the office. P a g e 1 0 Annual report 2018 | Fiducian Group Limited T R O P E R T N O J I FUNDs MANAGEMENT Fiducian manages clients’ investments through its manage the manager system of investing. we carefully select a range of investment managers and blend them in our funds to advise on or manage this money through mandates or their funds. in this way, we seek to deliver above average returns over the short to medium term and thereby deliver superior returns, compared with our peers, over the longer term, as indicated below. the process also has the potential to reduce volatility while providing liquidity and transparency. there were some notable performances over the three year return period for our flagship diversified funds. the performances of these funds to end of June 2018 are reported in the morningstar investment performance survey. the growth and balanced Funds were ranked 1st and 6th respectively out of 168 funds, the capital stable Fund was ranked 4th out of 105 funds and the ultra growth Fund was ranked 2nd out of 111 funds on the survey. over the last ten years, thirty nine annualised returns are reported for these funds of which all results were ranked in the top quartile against the combined strength of all the australian and leading international investment managers that are managing money in australia. this is an outstanding achievement. INFORMATION TEChNOLOGy Fiducian information technology division has been busy with enhancements to deliver straight-through-processing functionality to ‘Fastrack’ and our administration system which provides greater control, efficiency and substantial cost savings and, as well, opens up new business opportunities. the improvements now in place provide integration with our on-line reporting tools and financial planning software ‘Force’, and as well, give greater flexibility to administer a wider range of investments. Further improvements towards electronic application and processing which allow flexibility to administer different configurations of products have been developed. a raft of new superannuation and taxation legislation changes were brought in last year and these required substantial it systems development to be operational by specific dates. we are proud to advise that our it team successfully completed all these system modifications within the scheduled times required by the relevant regulators. a successful and major system development to administer smas for external financial planning groups on Fastrack, our platform administration system was made. this has opened up a new source of revenue for us. in addition Force our financial planning software has been enhanced to receive client account data from external platforms and as well, offer risk insurance plans. Following on from this, we have begun offering Force to the external market and signed on our first external user. these developments have the potential to add to our revenues in time and will be nurtured through additional distribution personnel. hUMAN REsOURCEs MANAGEMENT AND STAFF there were only a few staff changes during the year, largely at the junior levels. effective reporting processes are in place for all subsidiaries which enhance group board oversight of our business activities. Key performance indicators have been documented to monitor performance. Fiducian is an equal opportunity employer. any person irrespective of race, gender, sexual orientation, religion, national or ethnic origin, age or disability has a similar opportunity to work and rise to seniority within the company subject to their skills, qualifications and experience for the role. there are persons from 28 different nationalities employed at Fiducian. 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 boards 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 and the platform user group again deserve commendation for their contributions to the developments and enhancements to our financial planning software (Force), on-line reporting tool (Fiducian online) and platform administration system (Fastrack). 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 identified measures to lift profit including by 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 the plan COMMUNITy sUPPORT Fiducian continues to raise funds for charity. sponsorship has also been extended to community organisations and sporting teams linked to our planning network. vision beyond aus, a charity supported by the Fiducian group, has grown to assist hospitals in india, myanmar, nepal and cambodia. over 29,845 men, women and children who live in abject poverty have now had their eyesight restored. we intend to continue our charitable support to the community. P a g e 1 1 Annual report 2018 | Fiducian Group Limited T R O P E R T N O J I CURRENT ECONOMIC AND MARKET ENvIRONMENT the global economy overall appears to be still on track to grow strongly this year and next, according to the international monetary Fund (imF), with global growth forecast to be 3.9% in 2018 and 3.9% in 2019. however, in its latest report (July), the imF emphasises that ‘the balance of risks has shifted further to the downside, including in the short term’, adding that ‘among the advanced economies, growth divergences between the united states on one side, and europe and Japan on the other, are widening, while growth is also becoming more uneven among developing economies’. in particular, the imF notes that ‘in the us, near-term momentum is strengthening’, while ‘growth projections have been revised down for the euro area, Japan and the united Kingdom’. preliminary us national accounts data, released in late July, confirms the growing strength of the us economy, with annualised growth of 4.1% for the June quarter. on the other hand, the whole eurozone grew by only 0.4% in the march quarter, with even slower growth recorded in the two largest european economies, germany (0.3%) and France (0.2%), although growth in europe is expected to pick up over coming months. Japan has also been relatively weak recently and actually contracted in the march quarter (by 0.2%), despite highly expansionary monetary policy. however, Japan too is expected to perform more strongly over coming months. the imF does have some concerns about potential negative flow-on effects, especially on developing economies, from tighter us monetary policy, with the central bank signalling ‘two additional rate hikes in 2018 and three in 2019’ (due to strong growth, reflected in an ‘unemployment rate below levels last registered 50 years ago, creating additional inflationary pressures’). potential effects on some developing economies include ‘capital flow reductions, higher financing costs, and exchange rate pressures’. the australian economy grew by a solid 3.1% (year-on- year) in the march quarter, with the main impetus coming from export growth, mainly due to larger mining volumes (notably iron ore and coal, our largest export items) and higher prices for thermal coal. in fact, growth in exports contributed half of total growth for the quarter, with china taking an increasing share of total exports (now over 30%). domestically though, households have been feeling the squeeze from low growth in after-tax income, rising household costs (such as electricity) and falling house prices, which could affect consumer and investor confidence over the near-term. most major share markets barely moved over the first half of this year, in contrast to last year’s ‘bull’ run. profit growth though, particularly in the us, has continued to be strong, which has improved valuations in many cases. P a g e 1 2 major global government bond markets saw little net movement in yields over the first half of this year, apart from the us, where the 10-year treasury bond yield rose from 2.41% at the start of the year to 2.86% by 30 June. overall, most bond markets continue to appear expensive. as always, we recommend that investors should consult a Fiducian financial planner to develop a financial plan with a diversified investment strategy that could help them achieve their financial goals. OUTLOOK the board expects profit growth to continue steadily in the coming year as management focus on realizing the potential of continued growth in financial planning, platform and self-managed superannuation administration, investment management and information technology. the foundations of our business pillars are solid and growth strategies are in place by building scale on existing capacity and leveraging its relatively fixed cost base. the revenue from recent business acquisitions should benefit the bottom line in the current financial year. additionally, synergy benefits from these businesses are expected. the board intends to continue to build scale and maintain its acquisition and distribution growth strategy to deliver consistent double-digit earnings growth in coming years. however, expenditure controls and profits remain a priority. the government has instituted a royal commission into misconduct in the banking, superannuation and Financial services industry. this group is monitoring the progress of the commission. the commission’s final report and recommendations is expected to be released in February 2019. at this stage, we believe it should be business as usual as we provide the highest level of integrity to our clients. 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 many accompanying changes in legislation. robert bucknell inderjit (indy) singh non-executive chairman executive deputy chairman 16 august 2018 16 august 2018 Annual report 2018 | Fiducian Group Limited FIDUCIAN SUPPORTED CHARITY - VISION BEYOND AUS Registered charitable fund with tax deductible gift recipient status Dedicated to restore eyesight for people living in poverty Operated across 4 countries / 7 hospitals Eyesight restored for over 29,845 men, women & children T R O P E R T N O J I P a g e 1 3 Annual report 2018 | Fiducian Group Limited Queensland Office Locations Buderim Caboolture T R O P E R T N O J I OPPORTUNITY P a g e 1 4 Annual report 2018 | Fiducian Group Limited DIRECTORs’ REPORT T R O P E R ’ S R O T C E R I D P a g e 1 5 Annual report 2018 | Fiducian Group Limited T R O P E R ’ S R O T C E R I D Your directors present their report on the Fiducian group limited (“the company”) and its wholly owned operating entities (referred to hereafter as the group) for the year ended 30 June 2018. DIRECTORS the following persons were directors of Fiducian group limited during the financial year and up to the date of this report: r bucknell i singh F Khouri s hallab 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 its wholly owned subsidiary, Fiducian investment management services limited (b) acting as the trustee of Fiducian superannuation service through its wholly owned subsidiary, Fiducian portfolio services limited (c) acting as the responsible entity of Fiducian Funds through its wholly owned subsidiary, Fiducian investment management services limited (d) providing specialist financial planning services through its wholly owned operating subsidiary, Fiducian Financial services pty limited (e) providing accountancy resource services through its wholly owned operating subsidiary, Fiducian business services pty limited (f) providing administration and professional services to the group through its wholly owned subsidiary, Fiducian services pty limited. (g) development of it software systems for financial planning and wrap platform administration. DIVIDENDS dividends paid to members during the financial year were as follows: Final ordinary fully franked dividend for the year ended 30 June 2017 of 8.90 cents (2016: Fully franked 7.00 cents) per share paid on 13 september 2017. interim ordinary fully franked dividend for the year ended 30 June 2018 of 9.00 cents (2017: Fully franked 7.10 cents) per share paid on 15 march 2018. total dividends paid during the year 2018 2017 $’000 2,783 $’000 2,180 2,814 2,220 5,597 4,400 in addition to the above, since the end of the financial year, the directors of the parent entity, Fiducian group limited have declared a final fully franked dividend for the year ended 30 June 2018 of 11.00 cents per ordinary share held at 29 august 2018 and payable on 12 september 2018. P a g e 1 6 Annual report 2018 | Fiducian Group Limited REVIEW OF OPERATIONS a summary of consolidated revenues and results by significant industry segments is set out below: sEGMENT REvENUEs sEGMENT REsULTs 2018 2017 2018 2017 Funds management Financial planning corporate, administration, other profit from ordinary activities before income tax expenses income tax expenses net profit attributable to members of Fiducian group limited COMMENTS ON OPERATIONS AND RESULTS $’000 12,740 15,370 17,763 $’000 10,169 14,943 15,640 $’000 7,595 (817) 6,659 13,437 (4,239) 9,198 $’000 5,773 74 5,089 10,936 (3,424) 7,512 T R O P E R ’ S R O T C E R I D comments on the operations, business strategies, prospects and financial position are contained in the joint report of the chairman and executive deputy chairman. SHAREHOLDER RETURNS the valuation of investment funds has improved substantially during the year and favourably impacted the management fees received by the Fiducian group, as fully detailed in the joint report of the chairman and executive deputy chairman. this has enabled Fiducian to increase profit for the second half of the year and declare a dividend distribution of 11.00 cents per share, bringing the full year dividend to 20.00 cents per share (2017: 16.00 cents). SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS in continuation of the strategy to expand the financial planning network, the group has provided funding for the acquisition of 5 financial planning businesses in victoria, western australia and new south wales. it is estimated that these businesses could contribute an additional $83 million in funds under advice to the group. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR other than the declaration of dividend after the end of the financial year, 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 group, to affect significantly the operations of the company, 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 executive deputy chairman have commented on expected results of operations in their Joint report. other than this, there are no likely developments that may have significant impact on the expected results or operation of the group. 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 countries 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 gender, ethnic backgrounds, ages and skills to participate and receive recognition, reward and authority commensurate with their performance. employees are comprised of staff from over 28 countries of origin, 23% over 55 years, and 50% female with 27% in senior roles. the group’s current gender diversity report is available to be viewed on the group website. P a g e 1 7 Annual report 2018 | Fiducian Group Limited KEy MANAGEMENT PERsONNEL DIsCLOsUREs (A) DIRECTORS the following persons were directors of Fiducian group limited during the financial year: chairman (non-executive) r bucknell executive deputy chairman and managing director i singh (appointed executive deputy chairman at the annual general meeting on 19 october 2017) non-executive directors F Khouri s hallab (B) INFORMATION ON CURRENT 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 52 years as a chartered accountant. T R O P E R ’ S R O T C E R I D Other current directorships in listed entities none Former directorships in the last 3 years none Special responsibilities chairman of the group, the remuneration committee, and the group audit risk and compliance committee. Interest in shares and options 583,000 ordinary shares in Fiducian group limited. i singh cFP, Btech, mcomm (Bus), asia, asFa, dip. FP. Executive Deputy Chairman. 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 29 years. Other current directorships in listed entities none Former directorships in the last 3 years none Special responsibilities executive deputy chairman, managing director and company secretary Interest in shares and options 10,523,851 ordinary shares in Fiducian group limited. 200,000 options for ordinary shares in Fiducian group limited F G Khouri B Bus, FcPa, cta 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 in listed entities none Former directorships in the last 3 years none Special responsibilities director of Fiducian portfolio services limited (trustee subsidiary), member of the audit risk and compliance committees for both the group and super, and member of the group and trustee remuneration committees. Interest in shares and options 268,323 ordinary shares in Fiducian group limited P a g e 1 8 Annual report 2018 | Fiducian Group Limited T R O P E R ’ S R O T C E R I D s hallab B ec (accnt & law), ca, Gaicd, Faist Independent non-executive director Experience and expertise appointed to the board 12 august 2016. chartered accountant and registered company auditor. has over 35 years experience in finance and superannuation. Other current directorships in listed entities company secretary of ensurance limited (asX code: ena). Former directorships in the last 3 years none Special responsibilities director of Fiducian portfolio services limited (trustee subsidiary), member of the audit risk and compliance committee, and member of the remuneration committee. Interest in shares and options 31,000 ordinary shares in Fiducian group limited. (C) COMPANY SECRETARY the company secretary is mr i singh cFp,b tech, m comm. (bus), asia, asFa, dip. Fp. mr. singh has been the 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 2018, and the numbers of meetings attended by each director were: MEETINGs OF DIRECTORs MEETINGs OF COMMITTEEs BOARD B 6 6 6 6 a 6 6 6 6 AUDIT RIsK & COMPLIANCE B a 5 - 6 6 6 - 6 6 REMUNERATION a 1 - 1 - B 1 - 1 1 r bucknell i singh F Khouri s hallab 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. (E) OTHER KEY MANAGEMENT PERSONNEL mr i singh as executive deputy chairman of Fiducian group 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 2018. 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 - e includes remuneration disclosures that are required under australian accounting standard aasb 124 related party disclosures. these disclosures have been included in the director’s report and have been audited. P a g e 1 9 Annual report 2018 | Fiducian Group Limited T R O P E R ’ S R O T C E R I D 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 to 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 not entitled to options under the employee and director share option plan. Directors’ fees the current base remuneration was last reviewed in July 2018. the chairman and other external directors are paid a fixed fee for participation in board and committees meetings plus a fee based on time spent on any additional matters as approved by the board. 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 for the company are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. the maximum pool is $450,000 a year which was approved by shareholders’ at the annual general meeting on 20 october 2016. Retirement allowance for directors there are no retirement allowances for non-executive directors other than superannuation accumulation arising from any contributions made for them. (b) Executive director remuneration and other terms of employment for the executive deputy chairman are formalised in a service agreement. the executive deputy chairman’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, executive deputy chairman • Term of agreement - until 30 June 2019 • Base salary, inclusive of superannuation and salary sacrifice benefits. • Death and TPD/Trauma cover • Short term performance incentives • Long term incentives through the Fiducian Group Limited Employee and Director Share Option Plan, and • Retirement benefits • The employment agreement may be terminated by either party with six-month notice the combination of these comprises the executive’s total remuneration package. an external remuneration consultant advises the remuneration committee, at least every 3 years, to ensure that the group has structured an executive remuneration package that is market competitive and complimentary to the reward strategy of the organisation. their most recent review was in July 2018. Base salary mr singh receives a base pay that comprises the fixed component of pay and the potential for rewards, which reflects the market value for his role. the base salary is reviewed annually by the remuneration committee at the commencement of each financial year. there are no guaranteed base pay increases fixed in the executive’s contract. P a g e 2 0 Annual report 2018 | Fiducian Group Limited T R O P E R ’ S R O T C E R I D Short-term incentives (STI) the sti aims to provide an incentive to Key management personnel to act in the best interests of the Fiducian group (company), it shareholders, clients, staff and all stakeholders, such that the company achieves and possibly exceeds its targets for the financial year. in setting or paying a sti or bonus, the remuneration committee ensures that a bonus does not encourage undue risk taking that would be detrimental to any part of the company or its clients board policy dictates that the executive deputy chairman’s performance for a financial year is reviewed and evaluated by the remuneration committee. the cornerstone to assessing the performance of the executive deputy chairman is the fulfilment of three broad objectives namely: a) activities that ensure delivery of quality output to standards and timeliness which ensure compliance with statutory guidelines and as well, enhance customer and stakeholder relationships; b) production of results and growth outcomes that enable business plan objectives to be achieved; and c) leadership, management of staff, strengthening good corporate culture and managing risks. Key performance indicators (Kpis) of the executive deputy chairman are set by the remuneration committee. the remuneration committee uses both objective and subjective measures in its evaluation and on the basis of the methodology below, the executive deputy chairman achieved 89% of the Kpis set. the business and operating areas considered are Financial planning, Funds management, platform administration, risk management, legal, information technology, marketing, Finance and business development & distribution. each business area senior manager has a number of underlying Kpis that lie within the broad objectives a), b), and c) outlined above. the underlying Kpis of each senior manager may differ and depend on their roles and responsibilities. the executive deputy chairman sets the underlying Kpis for each senior manager and so each business area has a number of performance measures required to be delivered during the year. achievement by senior managers of all the Kpis identified for them would satisfy the board that sufficient personal exertion has been contributed towards achievement of the targets set in the business plan for the year, which is approved by the board. a failure to achieve or deliver on any Kpi item within the three broad objectives by any business area stated above is therefore considered a failure by the executive deputy chairman to achieve all his Kpis. the employment contract with the executive deputy chairman stipulates that a maximum of 20% of that year’s fixed remuneration should be paid to the executive deputy chairman if all Kpis are satisfied. the executive deputy chairman was therefore entitled to a sti of $97,900. the executive deputy chairman declined his full entitlement and accepted the sum of $50,000 as the cash bonus component. 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 of June market value for ordinary shares in the company the options are issued under the company’s esop at the rate of 5,000 options for each 1% increase in annual profit in excess of 15% or 5,000 options for each 1% increase in the 30-day average for June market value for ordinary shares in the company whichever is higher and only after approval by the shareholders of the company. For the year ended 30 June 2018 mr. singh is entitled to 35,000 options at an exercise price of $4.35. 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 executive deputy chairman or by mutual consent is equal to 6 months of the gross annual remuneration. P a g e 2 1 Annual report 2018 | Fiducian Group Limited B - DETAILS OF REMUNERATION the key management personnel of the group were the following executive and non-executive directors during the year: • R Bucknell Non-Executive Chairman • I Singh • F Khouri • S Hallab Executive Deputy Chairman Non-Executive Director Non-Executive Director Amounts of remuneration details of the remuneration of the key management personnel are set out in the following table 2018 shORT-TERM EMPLOyEE BENEFITs POsT-EMPLOyMENT BENEFITs shARE- BAsED PAyMENT NAME CAsh sALARy & FEEs CAsh BONUs NON- MONETARy BENEFITs sUPER ANNUATION RETIREMENT BENEFITs OPTIONs TOTAL T R O P E R ’ S R O T C E R I D $ - - - $ non-executive directors r bucknell1,2 116,200 (chairman) F Khouri3 s hallab executive directors i singh4 totals 85,043 61,096 524,991 50,000 787,330 50,000 $ - - - - - $ - 8,079 5,804 20,049 33,932 $ - - - - - $ - - - $ 116,200 93,122 66,900 45,278 640,318 45,278 916,540 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 $222,320 for financial planning services paid to companies in which mr Khouri has an interest in his capacity as a financial planner. 4 mr i singh is entitled to 35,000 options in respect of the year ended 30 June 2018. these are subject to approval at the annual general meeting on 25 october 2018. P a g e 2 2 Annual report 2018 | Fiducian Group Limited 2017 shORT-TERM EMPLOyEE BENEFITs POsT-EMPLOyMENT BENEFITs shARE- BAsED PAyMENT NAME CAsh sALARy & FEEs CAsh BONUs NON- MONETARy BENEFITs sUPER ANNUATION RETIREMENT BENEFITs OPTIONs TOTAL non-executive directors r bucknell1,2 (chairman) F Khouri3 c stone4 s hallab5 executive directors i singh6 totals $ 113,000 84,562 13,361 25,543 $ - - - - 515,384 40,000 751,850 40,000 $ - - - - - - $ - 8,033 1,269 2,427 19,615 31,344 $ - - - - - - $ - - - - $ 113,000 92,595 14,630 27,970 T R O P E R ’ S R O T C E R I D 51,265 626,264 51,265 874,459 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 $217,240 for financial planning services paid to companies in which mr Khouri has an interest in his capacity as a financial planner 4 the remuneration of mr stone relates to the period of 1 July 2016 to 20 october 2016 when mr stone resigned as director of the group 5 the remuneration of mr hallab relates to the period commencing from 12 august 2016 when mr hallab was appointed as director of the head entity 6 mr i singh was also entitled to 100,000 options in respect of the year ended 30 June 2017 which was not considered part of the table above pending approval at the annual general meeting. these were approved at the annual general meeting on 19 october 2017. 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) Options compensation and holdings options over shares in Fiducian group 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 24. P a g e 2 3 Annual report 2018 | Fiducian Group Limited T R O P E R ’ S R O T C E R I D the numbers of options for ordinary shares in the company held directly by directors of Fiducian group 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. 2018 NAME BALANCE AT ThE sTART OF ThE yEAR EXERCIsED GRANTED DURING ThE yEAR As REMUNERATION1 LAPsED DURING ThE yEAR BALANCE AT ThE END OF ThE yEAR vEsTED AND EXERCIsABLE i singh1 100,000 - 100,000 - 200,000 100,000 1 under the terms of his employment mr i singh is entitled to 35,000 options relating to the current year. these are subject to approval at the annual general meeting on 25 october 2018 and therefore, these have not been included above. options granted during the year are in respect of the entitlement relating to 2016-17. 2017 NAME BALANCE AT ThE sTART OF ThE yEAR EXERCIsED GRANTED DURING ThE yEAR As REMUNERATION1 LAPsED DURING ThE yEAR BALANCE AT ThE END OF ThE yEAR vEsTED AND EXERCIsABLE i singh1 100,000 100,000 100,000 - 100,000 - 1 under the terms of his employment mr i singh is entitled to 100,000 options relating to the current year. these were subject to approval at the annual general meeting on 19 october 2017 and were issued subsequent to 30 June 2017, therefore, these have not been included above. options granted during the year are in respect of the entitlement relating to 2015-16. (ii) Share holdings the numbers of shares in the company held by current directors of Fiducian group limited, including their personally related and associated entities, are set out below. no shares were granted during the period as compensation. 2018 NAME 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 i singh r bucknell F Khouri s hallab 2017 10,523,851 583,000 268,323 - - - - - - - - 31,000 10,523,851 583,000 268,323 31,000 NAME 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 i singh r bucknell F Khouri s hallab c stone 10,423,851 100,000 800,000 251,373 - 33,700 - - - - - (217,000) 16,950 - (33,700) 10,523,851 583,000 268,323 - - Shares provided on exercise of options during the year there were no ordinary shares issued as a result of the exercise of remuneration options to a director of Fiducian group limited during the period (2017: 100,000). no amounts are unpaid on any shares issued on the exercise of options. P a g e 2 4 Annual report 2018 | Fiducian Group Limited 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 previous year. For the current year ended 30 June 2018 there has been a small increase in the base salary of the executive deputy chairman. cash bonuses granted in respect of the current financial year ended on 30 June 2018 is $50,000 (2017: $40,000) and the grant of options entitlements have been only in accordance with the incentive programs. the executive deputy chairman is entitled to 35,000 options in respect of the current year ended 30 June 2018 (2017: 100,000 options) subject to shareholder approval. 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 (2016: nil). details of loans to related parties of the directors have been disclosed in note 28 related party transactions. T R O P E R ’ S R O T C E R I D OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL a director, mr r bucknell, is a director 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. a director mr s hallab 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 group limited: directors’ fees and committee fees Financial planning fees paid or payable SHARES UNDER OPTION CONsOLIDATED 2018 2017 $ $ 276,222 222,320 498,542 248,195 217,240 465,435 unissued ordinary shares of Fiducian group limited under option at the date of this report are disclosed in note 24 of 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 group limited issued during the year in respect of 2018 and 2017 years on the exercise of options granted under the Fiducian group limited employee & director share option plan are disclosed under note 24 to the Financial report. P a g e 2 5 Annual report 2018 | Fiducian Group Limited T R O P E R ’ S R O T C E R I D INDEMNIFICATION AND INSURANCE OF OFFICERS under the terms of its constitution, Fiducian indemnifies all past and present directors of Fiducian and its wholly-owned subsidiaries against certain liabilities and costs incurred by them in their respective capacities. the constitution of Fiducian group limited provides the following indemnification of officers: • To indemnify officers of the Company and related bodies corporate to the maximum extent permitted by law. • To allow the Company to pay a premium for a contract insuring directors, the secretary and executive officers of Fiducian group 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 group 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. 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. 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 26 to the consolidated financial report. AUDITORS’ INDEPENDENCE DECLARATION a copy of the auditors’ independence declaration as required under section 307c of the corporations act 2001 is set out on page 28. ROUNDING OF AMOUNTS The Company is of a kind referred to in Class Order 2016/191, 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. P a g e 2 6 Annual report 2018 | Fiducian Group Limited CORPORATE GOVERNANCE a description of the group’s current corporate governance practices is available on the group’s website and can be viewed at https://www.fiducian.com.au/wp-content/uploads/corporate_docs/Corporate_Governance_Statement.pdf. this report is made in accordance with a resolution of the directors. inderjit (indy) singh executive deputy chairman sydney, 16 august 2018 T R O P E R ’ S R O T C E R I D P a g e 2 7 Annual report 2018 | Fiducian Group Limited AUDITOR’s INDEPENDENCE DECLARATION Auditor’s Independence Declaration As lead auditor for the audit of Fiducian Group Limited for the year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the relation to the audit; and in Corporations Act 2001 ​ (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Fiducian Group Limited and the entities it controlled during the period. Craig Stafford Partner PricewaterhouseCoopers Sydney 16 August 2018 PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124 T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au ​ Liability limited by a scheme approved under Professional Standards Legislation. P a g e 2 8 ​ ThIs PAGE hAvE BEEN LEFT BLANK INTENTIONALLy P a g e 2 9 Annual report 2018 | Fiducian Group LimitedTasmania Office Locations Devonport Hobart Launceston I N O T A R A L C E D E C N E D N E P E D N I S ’ R O T I D U A NEW BEGINNINGS P a g e 3 0 Annual report 2018 | Fiducian Group Limited FINANCIAL sTATEMENTs consolidated statement oF comprehensive income consolidated statement oF Financial position consolidated statement oF changes in eQuitY consolidated statement oF cash Flows notes to the Financial statements directors’ declaration independent auditor’s report to the members 32 33 34 35 36 73 74 Fiducian group limited is a company limited by shares, incorporated and domiciled in australia. its registered office and principal place of business is : Fiducian group limited level 4, 1 York street, sydney, nsw 2000. this financial statements were authorised for issue by the directors on 16 august 2018. the directors have the power to amend and reissue the financial statements. S T N E M E T A T S L A I C N A N I F P a g e 3 1 Annual report 2018 | Fiducian Group Limited CONsOLIDATED sTATEMENT OF COMPREhENsIvE INCOME FOR ThE yEAR ENDED 30 JUNE 2018 NOTEs CONsOLIDATED 2018 2017 S T N E M E T A T S L A I C N A N I F revenue from ordinary activities other income payments to advisers and service providers 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 total comprehensive income for the year profit is attributable to: owners of Fiducian group limited earnings per share earnings per share from profit from continuing operations attributable to the ordinary equity holders of the company: basic earnings per share (in cents) diluted earnings per share (in cents) 4 5 6(a) 6(b) 7 30 $’000 45,438 435 (12,117) (12,428) (1,396) (6,495) 13,437 (4,239) 9,198 - 9,198 9,198 $’000 40,426 326 (10,480) (12,210) (1,319) (5,807) 10,936 (3,424) 7,512 - 7,512 7,512 29.42 cents 29.28 cents 24.04 cents 24.00 cents The above statement of comprehensive income should be read in conjunction with the accompanying notes. P a g e 3 2 Annual report 2018 | Fiducian Group Limited CONsOLIDATED sTATEMENT OF FINANCIAL POsITION As AT 30 JUNE 2018 NOTEs CONsOLIDATED assets current assets cash and cash equivalents trade and other receivables total current assets non-current assets loan receivables property, plant and equipment intangible assets total non-current assets total assets liaBilities current liabilities trade and other payables current tax liabilities total current liabilities non-current liabilities net deferred tax liabilities provisions total non-current liabilities total liabilities net assets eQUitY contributed equity reserves retained profits total equity 2018 $’000 13,885 4,976 18,861 5,738 186 15,776 21,700 40,561 6,081 1,460 7,541 1,357 532 1,889 9,430 31,131 7,041 130 23,960 31,131 9 10 11 13 15 16 17 18 19 20 21 22 The above statement of financial position should be read in conjunction with the accompanying notes. S T N E M E T A T S L A I C N A N I F 2017 $’000 9,548 4,369 13,917 6,323 223 15,814 22,360 36,277 5,576 1,280 6,856 1,420 381 1,801 8,657 27,620 7,141 120 20,359 27,620 P a g e 3 3 Annual report 2018 | Fiducian Group Limited CONsOLIDATED sTATEMENT OF ChANGEs IN EqUITy As AT 30 JUNE 2018 NOTEs CONTRIBUTED EqUITy REsERvEs RETAINED PROFITs TOTAL $’000 $’000 $’000 $’000 S T N E M E T A T S L A I C N A N I F Balance as at 30 June 2016 6,855 67 17,205 24,127 profit for the year other comprehensive income total comprehensive income for the year transactions with equity holders in their capacity as equity holders shares issued for the acquisition of business dividends provided for or paid shares issued on exercise of options transfer to retained earning transfer from reserves options expense total transactions with equity holders 8 21 - - - 123 - 163 - - - 286 - - - - - - (42) - 95 53 7,512 - 7,512 7,512 - 7,512 - 123 (4,400) (4,400) - - 42 - 163 (42) 42 95 (4,358) (4,019) Balance as at 30 June 2017 7,141 120 20,359 27,620 profit for the year other comprehensive income total comprehensive income for the year transactions with equity holders in their capacity as equity holders shares bought back-on market and cancelled shares issued on exercise of option dividends provided for or paid transfer to retained earning transfer from reserves options expense total transactions with equity holders Balance as at 30 June 2018 8 21 - - - (100) - - - - - (100) 7,041 - - - - - - - - 10 10 9,198 - 9,198 - - 9,198 - 9,198 (100) - (5,597) (5,597) - - - - - 10 (5,597) (5,687) 130 23,960 31,131 The above statement of changes in equity should be read in conjunction with the accompanying notes. P a g e 3 4 Annual report 2018 | Fiducian Group Limited CONsOLIDATED sTATEMENT OF CAsh FLOws FOR ThE yEAR ENDED 30 JUNE 2018 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 net cash inflow from operating activities 29 cash flows from investing activities payments in relation to acquisitions net payment to and on behalf of advisers for business development payments for property, plant and equipment proceeds from client servicing rearrangement net cash outflow from investing activities cash flows from financing activities payments for shares bought back shares issued on exercise of options dividends paid net cash outflow from financing activities net increase/(decrease) in cash held cash and cash equivalents at the beginning of the year cash and cash equivalents at the end of year 9 NOTEs CONsOLIDATED 2018 2017 $’000 $’000 49,143 44,151 (34,756) (32,281) S T N E M E T A T S L A I C N A N I F 14,387 435 (4,444) 10,378 (827) 526 (44) - (345) (100) - (5,597) (5,697) 4,337 9,548 13,885 11,870 326 (3,511) 8,685 (1,742) (2,889) (10) 50 (4,591) - 163 (4,400) (4,237) (143) 9,691 9,548 The above statement of cash flows should be read in conjunction with the accompanying notes. P a g e 3 5 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs 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 Fiducian group 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 group limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS the financial report of Fiducian group 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 judgment in the process of applying the group’s accounting policies. the areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. (B) PRINCIPLES OF CONSOLIDATION the consolidated financial report incorporates the assets and liabilities of all entities controlled by Fiducian group limited (company or parent entity) as at 30 June 2018 and the results of all controlled entities for the year then ended. Fiducian group 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 acquisition method of accounting is used to account for the business combinations by the group. 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. non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income. (C) REVENUE AND ExPENSE 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 and expenses are recognised for the major business activities as follows: (i) Management fees and Fees, payments to advisers and service providers revenues comprising trustee and management fees are recognised on an accruals basis. Fees, payments to advisers and service providers are recognised as the associated services are provided. (ii) Interest income interest income is brought to account using the effective interest method. the effective interest rate method calculates the amortised cost of a financial instrument and allocates the interest income over the relevant period. P a g e 3 6 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (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 nor loss. deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to use 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. Tax consolidation Fiducian group limited and its wholly owned subsidiaries have implemented the tax consolidation legislation with Fiducian group limited as the head entity of the tax consolidated group. as a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. the head entity has entered into a tax sharing agreement and a tax funding agreement with the members of the tax consolidated group. under the tax funding agreement, the members of the group are required to contribute to the head entity for their current tax liabilities. the assets and liabilities arising under the tax funding agreements are recognised as intercompany assets and liabilities at call. members of the tax consolidated group via the tax sharing agreement may be called to provide for the income tax liabilities between the entities should the head entity default on its tax payment obligations. no amount has been recognised in respect of this component of the agreement as the outcome is considered remote. (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 27). 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 group acts as a trustee of Fiducian superannuation service through a subsidiary, Fiducian portfolio services ltd, and acts as the operator of an investor directed portfolio service, Fiducian investment service, managed discretionary account service and the responsible entity of Fiducian Funds (“the trusts”) through another subsidiary, Fiducian investment management services ltd. the accounting policies adopted by these companies in the preparation of their financial reports and that of the group for the year ended 30 June 2018 reflect the fiduciary nature of these company’s responsibilities and that of the group 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 these companies or the group. 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 these companies or the group having to meet the liabilities of the trusts as remote. P a g e 3 7 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (G) IMPAIRMENT OF ASSETS goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. an impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. the recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows which are largely independent of the cash flows from other assets or groups of assets (cash-generating units). non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (H) CASH AND CASH EQUIVALENTS For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (I) TRADE RECEIVABLES trade receivables are recognised at fair value and subsequently measured at amortised cost, less provision for impairment. trade receivables are due for settlement no more than 120 days from the date of recognition for trade receivables and financial planning fees, and no more than 30 days for other receivables. collectability of trade receivables is reviewed on an ongoing basis. receivables, which are known to be uncollectible, are written off. an allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (outside settlement terms) are considered indicators that the trade receivable is impaired. the amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. 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, measured initially at their fair values at the acquisition date. the excess of the purchase consideration and the acquisition-date fair value over the 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 re-measured to fair value with changes in fair value recognised in profit or loss. P a g e 3 8 Annual report 2018 | Fiducian Group Limited 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (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. 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. subsequent to initial recognition, loans are measured at amortised cost using the effective interest method and are presented net of provisions form impairment. (L) 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. S T N E M E T A T S L A I C N A N I F P a g e 3 9 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (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 or client portfolio at the date of acquisition. goodwill on acquisitions 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. 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 is tested for events or changes in circumstances that indicate that they may be impaired and whether they exceed their recoverable amount. (O) TRADE AND OTHER PAYABLES these amounts represent liabilities for goods and services provided to the group before 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 P a g e 4 0 Annual report 2018 | Fiducian Group Limited 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (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 and sick 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 corporate 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 via the share option plans. information relating to this scheme is set out in note 24. 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. S T N E M E T A T S L A I C N A N I F (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. no gain or loss is recognised in the profit or loss and 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. P a g e 4 1 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 1. sUMMARy OF sIGNIFICANT ACCOUNTING POLICIEs (CONTINUED) (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 2016/191 issued by the Australian Securities and Investments commission, relating to the “rounding off” of amounts in the financial report. amounts in the financial report have been rounded off in accordance with that class order to the nearest thousand dollars, or in certain cases, to the nearest dollar. (W) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2018 reporting periods. the group has decided not to early adopt any of the standards available for early adoption. 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 aasb 9 Financial instruments addresses the classification, measurement, recognition and derecognition of financial assets and financial liabilities while revising the rules for hedge accounting and impairment. Fiducian will first apply aasb 9 from 1 July 2018 and the standard will be applied retrospectively in respect of classification, measurement and impairment. there are no requirements to restate comparatives and the cumulative effect of initially applying the standard will be recognised as an opening balance sheet adjustment. the group has completed its assessment of the impacts of the standard and does not see any impact from the revised recognition and measurement provisions or hedge accounting rules . with the impairment rules, Fiducian’s modelling does not indicate that there will be any material effect on the move from an incurred credit loss model to an expected credit loss model. AASB 15 Revenue from Contracts with Customers aasb 15 replaces the current guidance on revenue recognition from contracts with customers. it requires identification of all performance obligations within a transaction and the associated transaction price allocated to these obligations. revenue is recognised upon satisfaction of these performance obligations when control of these goods or services are transferred to the customer. when revenue is received from contracts which involve a variable consideration, revenue is recognised when it is highly probable that there will be no significant reversal of the variable component. Fiducian will apply aasb 15 from 1 July 2018 with no comparative restatements. Fiducian has completed its assessment of the impacts on the revenue streams of the group and based on this assessment the principles of aasb 15 are broadly consistent with Fiducian’s current accounting policies. therefore, there will not be any material impact on adoption of aasb 15. AASB 16 Lease (effective from 1 January 2019) the standard introduces a single lease accounting model and removes the current distinction between operating and financial leases. it requires the recognition of an asset (the right to use leased item) and financial liability to pay rentals for the lease contract. Fiducian is in the process of assessing the implication of this standard on its operating leases. P a g e 4 2 Annual report 2018 | Fiducian Group Limited 2. CRITICAL ACCOUNTING EsTIMATEs AND AssUMPTIONs in preparing the annual report, the group makes estimates and assumptions concerning the future which management believe are reasonable. however, actual results in the future may differ from those reported and therefore it is reasonably possible, on the basis of existing knowledge, that the outcomes in future may differ from management’s assumptions and estimates and may require adjustments to the carrying amounts of the assets and liabilities reported. the estimates and assumptions 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). (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 the cash- generating units have been determined based on earnings multiples requiring the use of sustainable revenue estimates and comparable market transactions. 3. sEGMENT INFORMATION (A) DESCRIPTION OF SEGMENTS Business segments the business activities of the group have been segregated into business segments based on legal entities and reviewed by management accordingly. the business segments are as follows: Financial Planning the group continued its specialist financial planning operations through its subsidiary, Fiducian Financial services pty ltd. Funds Management the group through its subsidiary, Fiducian investment management services ltd, acts as an operator of an investor directed portfolio service, Fiducian investment service and as responsible entity for managed investment schemes. Corporate and Administration the administration and professional services are provided to the group by a subsidiary, Fiducian services pty ltd. management views this as an operating segment. For the current year the operations of Fiducian portfolio services ltd which acts as an rse of the public offer superannuation fund and Fiducian business services pty ltd which provides accountancy resources services have been aggregated in this segment as management have concluded that these segments do not meet the quantitative thresholds required by aasb 8 operating segments. the figures and segments of the previous year have been adjusted to make them comparable with the current year. Geographical segments the group operates in the geographical segments of australia and in india. the indian operations which are in the course of winding up are not considered material for a separate geographical segment disclosure during the financial year 2018. S T N E M E T A T S L A I C N A N I F P a g e 4 3 Annual report 2018 | Fiducian Group Limited 3. sEGMENT INFORMATION (CONTINUED) (B) PRIMARY REPORTING - BUSINESS SEGMENTS FUNDs MANAGEMENT FINANCIAL PLANNING CORPORATE, ADMINIsTRATION & OThER sEGMENT ELIMINATIONs CONsOLIDATED $’000 $’000 $’000 $’000 $’000 2018 revenue from external customers inter-segment sales 1 other revenue total segment revenue profit from ordinary activities before income tax expense income tax expense profit from ordinary activities after income tax expense 15,631 15,849 13,958 (3,000) 109 12,740 (276) 271 15,844 3,276 55 17,289 7,595 (817) 6,659 - - - - - segment assets 9,163 24,697 segment liabilities 5,147 5,114 17,926 1,168 (11,225) (1,999) acquisitions of plant and equipment, intangibles and other non-current segment assets depreciation, amortisation and impairment - - 1,251 1,305 69 91 - - 1 intersegment sales for the current period represents internal service charges from administration entity to other business lines. 45,438 - 435 45,873 13,437 (4,239) 9,198 40,561 9,430 1,320 1,396 S T N E M E T A T S L A I C N A N I F P a g e 4 4 Annual report 2018 | Fiducian Group Limited 3. sEGMENT INFORMATION (CONTINUED) (B) PRIMARY REPORTING - BUSINESS SEGMENTS (CONTINUED) FUNDs MANAGEMENT FINANCIAL PLANNING CORPORATE, ADMINIsTRATION & OThER sEGMENT ELIMINATIONs CONsOLIDATED $’000 $’000 $’000 $’000 $’000 2017 revenue from external customers inter-segment sales 1 other revenue 12,711 15,279 (2,640) 98 (532) 196 total segment revenue 10,169 14,943 12,436 3,172 32 15,640 profit from ordinary activities before income tax expense income tax expense profit from ordinary activities after income tax expense 5,773 74 5,089 - - - - - segment assets 8,130 23,932 segment liabilities 3,511 4,780 15,332 2,259 (11,118) (1,893) acquisitions of plant and equipment, intangibles and other non-current segment assets depreciation, amortisation and impairment - - 1,008 1,211 15 108 - - 1 intersegment sales for the current period represents internal service charges from administration entity to other business lines. S T N E M E T A T S L A I C N A N I F 40,426 - 326 40,752 10,936 (3,424) 7,512 36,276 8,657 1,023 1,319 P a g e 4 5 Annual report 2018 | Fiducian Group Limited 3. sEGMENT INFORMATION (CONTINUED) (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 operation as follows: total segment revenue inter-segment eliminations total revenue from continuing operations (note 4) CONsOLIDATED 2018 2017 $’000 $’000 45,438 40,426 - - 45,438 40,426 the entity is domiciled in australia. the amount of its revenue from external customers in australia is $45,438,000 (2017: $40,426,000). (ii) Segment assets 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). (iii) 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. 4. REvENUE FROM ORDINARy ACTIvITIEs S T N E M E T A T S L A I C N A N I F From continuing operations sales revenue Fees received 1 other revenue from ordinary activities CONsOLIDATED 2018 2017 $’000 $’000 44,605 833 45,438 39,666 760 40,426 1 includes expense recovery fee of $3,826,000 (2017: $3,943,000). For details refer to the note 6 expenses. 5. OThER INCOME CONsOLIDATED 2018 2017 $’000 $’000 435 435 326 326 Interest received/receivable other income P a g e 4 6 Annual report 2018 | Fiducian Group Limited 6. EXPENsEs Profit before income tax includes the following expenses: a) depreciation and amortisation expense depreciation Furniture office equipment and computers leasehold improvements total depreciation amortisation capitalised computer software client portfolio acquisition costs total amortisation impairment goodwill total impairment expense CONsOLIDATED 2018 2017 $’000 $’000 26 54 80 9 1,307 1,316 - - 29 57 86 12 1,186 1,198 35 35 total depreciation, amortisation and impairment expense 1,396 1,319 S T N E M E T A T S L A I C N A N I F 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 remuneration (note 25) regulatory fees administration and other expense recovery1 458 1,402 1,071 192 757 231 562 352 2,089 (619) 6,495 383 1,233 939 285 771 203 524 182 1,853 (566) 5,807 1 under the administration agreement entered into by the trustee, Fiducian portfolio services limited, on behalf of Fiducian superannuation service (Fss) with Fiducian services pty ltd (‘the administrator’) the expenses of Fss are paid on the trustee’s behalf by the administrator and are reimbursed by Fss by way of an expense recovery Fee paid out of the expense reserve in Fss. For the current year the expense recovery Fee of $3,826,000 (2017: $3,943,000) has been included in revenue from ordinary activities in note 4 as part of Fees received. P a g e 4 7 Annual report 2018 | Fiducian Group Limited 7. INCOME TAX EXPENsE a) income tax expense current tax deferred tax income tax expense S T N E M E T A T S L A I C N A N I F Deferred income tax/(revenue) expense included in income tax expense comprises: Decrease/(Increase) in deferred tax assets (Note 14) (decrease) in deferred tax liabilities (note 18) deferred tax (b) numerical reconciliation of income tax expense to prima facie tax payable profit from continuing operations before income tax expense tax at the australian tax rate of 30% tax effect of amounts which are not deductible (taxable) in calculating taxable income: entertainment sundry items income tax under provided in previous year income tax expense (c) tax consolidation legislation CONsOLIDATED 2018 2017 $’000 $’000 4,620 (381) 4,239 6 (387) (381) 4,003 (579) 3,424 (232) (347) (579) 13,437 4,031 10,936 3,281 51 48 109 4 42 97 4,239 3,424 Fiducian group limited and its wholly owned subsidiaries have formed a tax consolidated group. as a consequence these financial statements have been prepared on a tax-consolidated basis where the head entity has assumed the tax liabilities initially recognised by the standalone taxpayers. P a g e 4 8 Annual report 2018 | Fiducian Group Limited 8. DIvIDENDs Final ordinary fully franked dividend for the year ended 30 June 2017 of 8.90 cents (2016: Fully franked 7.00 cents) per share paid on 13 september 2017. interim ordinary fully franked dividend for the year ended 30 June 2018 of 9.00 cents (2017: Fully franked 5.50 cents) per share paid on 15 march 2018. total dividends paid during of the year CONsOLIDATED 2018 2017 $’000 2,783 $’000 2,180 2,814 2,220 5,597 4,400 the directors have declared a final fully franked dividend for the year ended 30 June 2018 in the amount of 11 cents per ordinary share to be paid on shares registered on 29 august 2018 and payable on 12 september 2018. Franked dividends the franked portions of the final dividends recommended after 30 June 2018 will be franked out of existing franking credits. Franking credits available for the subsequent financial year based on a tax rate of 30% CONsOLIDATED 2018 2017 $’000 13,688 $’000 11,541 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 $1,473,000 (2017: $1,192,000). 9. CURRENT AssETs - CAsh AND CAsh EqUIvALENTs S T N E M E T A T S L A I C N A N I F cash at bank and in hand CONsOLIDATED 2018 2017 $’000 13,885 13,885 $’000 9,548 9,548 P a g e 4 9 Annual report 2018 | Fiducian Group Limited 10. CURRENT AssETs - TRADE AND OThER RECEIvABLEs amounts receivable from related 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 additional provision during the year balance at end of the year S T N E M E T A T S L A I C N A N I F CONsOLIDATED 2018 2017 $’000 $’000 3,818 410 3 1,067 142 5,440 (464) 4,976 (287) (177) (464) 3,300 238 3 833 282 4,656 (287) 4,369 (82) (205) (287) at 30 June 2018, a provision for impairment exists for trade receivables outstanding greater than 120 days where management considers that the receivable is impaired. information about the group’s exposure to credit and interest rate risk in relation to trade and other receivables is provided in note 32. 11. NON-CURRENT AssETs - LOAN RECEIvABLEs business development loans * staff loans * less: provision for impairment of loans * refer to note 10 for the current portion of these receivables (A) IMPAIRED RECEIVABLES CONsOLIDATED 2018 2017 $’000 5,916 10 (188) 5,738 $’000 6,427 24 (128) 6,323 $60,000 has been provided against a business development loan of $449,600 in the current year (2017: $128,000). P a g e 5 0 Annual report 2018 | Fiducian Group Limited 11. NON-CURRENT AssETs - LOAN RECEIvABLEs (CONTINUED) (B) FAIR VALUES the fair values and carrying values of non-current receivables of the group are as follows: business development loans* staff loans* 2018 2017 CARRyING AMOUNT FAIR vALUE CARRyING AMOUNT FAIR vALUE $’000 5,728 10 5,738 $’000 5,728 10 5,738 $’000 6,299 24 6,323 $’000 6,299 24 6,323 business development loans and staff loans are carried at amortised cost; their carrying value is a reasonable approximation of fair value. 12. NON-CURRENT AssETs - OThER FINANCIAL AssETs the group’s principal subsidiaries as at 30 June 2018 are set out below. NAME OF ENTITy COUNTRy OF INCORPORATION CLAss OF shAREs EqUITy hOLDING % Fiducian investment management services ltd (“Fim”)1 Fiducian portfolio services ltd (“Fps”)2 Fiducian services pty ltd (“Fsl”)3 Fiducian Financial services pty ltd (“FFs”)4 Fiducian business services pty ltd (“Fbs”)5 australia australia australia australia australia ordinary ordinary ordinary ordinary ordinary 100 100 100 100 100 1 the company acts as the responsible entity of the Fiducian Funds and the operator of the Fiducian investment service 2 the company acts as the trustee for the Fiducian superannuation service 3 the company provides the administration and professional services to the other entities within the group 4 the principal activity of the company is the development of a specialist financial planning services network 5 the principal activity of the company is to provide bookkeeping, accounting and tax processing services in addition to the above subsidiaries, Fiducian business services has 90% equity investment in Fiducian resourcing services pvt ltd, a company incorporated in india, providing accounting and tax processing services to the group. the operations of this company which are in the process of being wound up are not considered material to the group in 2018. S T N E M E T A T S L A I C N A N I F P a g e 5 1 Annual report 2018 | Fiducian Group Limited 13. NON-CURRENT AssETs - PROPERTy, PLANT & EqUIPMENT Plant and equipment Furniture, office equipment and computers less: accumulated depreciation CONsOLIDATED 2018 2017 $’000 $’000 1,641 (1,455) 186 1,598 (1,375) 223 S T N E M E T A T S L A I C N A N I F MOVEMENTS reconciliation of the carrying amount of each class of property, plant and equipment are set out below. FURNITURE AND OFFICE EqUIPMENT COMPUTERs LEAsEhOLD IMPROvEMENTs TOTAL $’000 $’000 $’000 $’000 consolidated at 1 July 2016 cost accumulated depreciation net book amount Year ended 30 June 2017 opening net book amount additions disposals Depreciation/amortisation charge closing net book amount at 30 June 2017 cost accumulated depreciation net book amount Year ended 30 June 2018 opening net book amount additions disposals Depreciation/amortisation charge closing net book amount at 30 June 2018 cost accumulated depreciation net book amount 290 (219) 71 71 5 - (18) 58 295 (237) 58 58 - - (14) 44 295 (251) 44 462 (430) 32 32 6 - (11) 27 468 (441) 27 27 44 - (13) 58 512 (454) 58 835 (640) 195 195 - - (57) 138 835 (697) 138 138 - - (54) 84 835 (751) 84 1,587 (1,289) 298 298 11 - (86) 223 1,598 (1,375) 223 223 44 - (81) 186 1,642 (1,456) 186 P a g e 5 2 Annual report 2018 | Fiducian Group Limited 14. NON-CURRENT AssETs – DEFERRED TAX AssETs the balance comprises temporary differences attributable to: doubtful debts employee benefits accrued expenditure provision for audit and taxation services provision for Fbt restructure expenses deferred tax assets before set off set off against deferred tax liabilities (note 18) movements: opening balance at 1 July taken to the statement of comprehensive income deferred tax assets before set off set off against deferred tax liabilities CONsOLIDATED 2018 2017 $’000 $’000 196 573 215 130 11 74 1,199 (1,199) - 1,205 (6) 1,199 (1,199) - 124 538 290 123 19 111 1,205 (1,205) - 973 232 1,205 (1,205) - S T N E M E T A T S L A I C N A N I F 15. NON-CURRENT AssETs - INTANGIBLE AssETs 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 CONsOLIDATED 2018 2017 $’000 $’000 5,029 (5,023) 6 14,027 (5,592) 8,435 7,799 (464) 7,335 15,776 5,029 (5,014) 15 12,949 (4,286) 8,663 7,600 (464) 7,136 15,814 P a g e 5 3 Annual report 2018 | Fiducian Group Limited 15. NON-CURRENT AssETs - INTANGIBLE AssETs (CONTINUED) (A) MOVEMENTS movements in each category are set out below: ACqUIsITION OF CLIENT PORTFOLIOs GOODwILL ON ACqUIsITION CAPITALIsED COMPUTER sOFTwARE TOTAL S T N E M E T A T S L A I C N A N I F consolidated at 1 July 2016 cost accumulated depreciation net book amount Year ended 30 June 2017 opening net book amount additions* Disposals/write off impairment charge amortisation charge** closing net book amount at 30 June 2017 cost accumulated depreciation net book amount Year ended 30 June 2018 opening net book amount additions* Disposals/write off impairment charge amortisation charge** closing net book amount at 30 June 2018 cost accumulated depreciation net book amount $’000 12,365 (3,099) 9,266 9,266 763 (180) - (1,186) 8,663 12,949 (4,286) 8,663 8,663 1,079 - - (1,307) 8,435 14,027 (5,592) 8,435 $’000 7,449 (464) 6,985 6,985 241 (90) - - 7,136 7,600 (464) 7,136 7,136 199 - - - 7,335 7,799 (464) 7,335 $’000 $’000 5,021 (5,002) 19 19 8 - - (12) 15 5,029 (5,014) 15 15 - - - (9) 6 5,029 (5,023) 6 24,835 (8,565) 16,270 16,270 1,012 (270) - (1,198) 15,814 25,578 (9,764) 15,814 15,814 1,278 - - (1,316) 15,776 26,856 (11,079) 15,776 * capitalised computer software costs includes an internally generated intangible asset. the assets in this category have been amortised on the basis of 5 year useful life. ** amortisation of $1,316,000 (2017 : $1,198,000) is included in depreciation, and amortisation expense in the statement of comprehensive income. (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. P a g e 5 4 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 15. NON-CURRENT AssETs - INTANGIBLE AssETs (CONTINUED) (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 during the year, no impairment charge was recorded against goodwill to reflect the lower payment on final settlement for the acquisition of a portfolio of client assets relating to financial planning and business services respectively (2017: $35,000). (E) SENSITIVITY ANALYSIS the estimates and judgments included in the fair value calculations are based on historical experience and other factors, including management’s and the directors’ expectations of future events that are believed to be reasonable under the current circumstances. other than (d) above there has been no impairment recognised for the Fiducian group cgus in the impairment assessment performed at 30 June 2018. based on management’s current assessment, the recoverable amount of Fiducian’s cgus exceeds the carrying amount by $7.35 million. (F) BUSINESS COMBINATION during the year the group had made the following acquisitions: sEGMENT FIDUCIAN ENTITy date purchased vendor staff employed by group maximum purchase price paid by 30 June 2018 deferred consideration at 30 June 2018 value attributed on the statement of Financial position as at 30 June 2018 business combination or asset only provisional fair value of assets recognized as a result of acquisition are as follows: intangible assets deferred tax liabilities net identifiable assets acquired goodwill net assets acquired FINANCIAL PLANNING FINANCIAL PLANNING FIDUCIAN FINANCIAL sERvICEs PTy LTD FIDUCIAN FINANCIAL sERvICEs PTy LTD 7 dec 2017 4 may 2018 client portfolio client portfolio no $380,000 $380,000 - 100% no $463,894 $373,943 $89,951 100% business combination business combination $504,000 ($151,200) $352,800 $27,200 $380,000 $463,894 ($139,168) $324,726 $139,168 $463,894 while each acquisition is considered on its own merits, a number of synergies are expected to result once the business combination has been fully implemented. this may include leverage from the existing scale Fiducian has from its infrastructure in risk, compliance, it, legal, Finance and other support functions, products and processes. the acquired businesses did not contribute significantly to the group’s current year profits. however, if the acquisitions had taken place on 1 July 2017, management estimate a maximum revenue impact of $745k for the year ended 30 June 2018. 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. under the terms of the agreements for the acquisitions, the deferred consideration may be reduced in respect of any clients that have not transferred to the group within the period specified in the agreements or should the recurring income be lower than contracted for. P a g e 5 5 Annual report 2018 | Fiducian Group Limited 16. CURRENT LIABILITIES - TRADE AND OTHER PAyABLES trade payables other payables* client portfolio deferred settlement annual leave entitlements accrued long service leave entitlements accrued CONsOLIDATED 2018 2017 $’000 2,032 2,319 198 705 827 $’000 1,799 1,917 448 665 747 6,081 5,576 information about the group’s exposure to credit and interest rate risk is shown in note 32. * other payables include retirement benefits payable to planners covered under salary agreements with Fiducian Financial services pty limited. 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 planner 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. 17. CURRENT LIABILITIEs - CURRENT TAX LIABILITIEs income tax CONsOLIDATED 2018 2017 $’000 1,460 1,460 $’000 1,280 1,280 S T N E M E T A T S L A I C N A N I F P a g e 5 6 Annual report 2018 | Fiducian Group Limited 18. NON-CURRENT LIABILITIEs-DEFERRED TAX LIABILITIEs the balance comprises temporary differences attributable to: Amounts recognised in profit and loss: amortisation of client portfolios deferred tax liabilities before set off set off against deferred tax assets net deferred tax liabilities movements: opening balance at 1 July addition during the year taken to the statement of comprehensive income deferred tax liabilities at 30 June before set off set off against deferred tax assets net deferred tax liabilities expiration of net deferred tax liabilities within 12 months after 12 months 19. NON - CURRENT LIABILITIEs-PROvIsIONs deferred settlements - payments employee benefits - long service leave S T N E M E T A T S L A I C N A N I F CONsOLIDATED 2018 2017 $’000 $’000 2,556 2,556 (1,199) 1,357 2,625 318 (387) 2,556 (1,199) 1,357 413 944 1,357 2,625 2,625 (1,205) 1,420 2,738 233 (346) 2,625 (1,205) 1,420 381 1,039 1,420 CONsOLIDATED 2018 2017 $’000 $’000 154 378 532 - 381 381 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. P a g e 5 7 Annual report 2018 | Fiducian Group Limited 20. CONTRIBUTED EqUITy (A) SHARE CAPITAL ordinary shares - fully paid (B) MOVEMENTS IN ORDINARY SHARE CAPITAL CONsOLIDATED 2018 2017 $’000 7,041 7,041 $’000 7,141 7,141 S T N E M E T A T S L A I C N A N I F DATE DETAILs NUMBER OF shAREs AvERAGE PRICE $’000 1 July 2016 opening balance 31,110,855 - 6,855 shares issued for the acquisition of business shares issued on exercise of options 53,513 100,000 $2.29 $1.63 123 163 30 June 2017 balance 31,264,368 - 7,141 share bought back-on market and cancelled shares issued on exercise of options 30 June 2018 balance (C) ORDINARY SHARES (21,745) $4.55 (100) - 31,242,623 - - - 7,041 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 presents 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 1 July 2017 and 30 June 2018 the company purchased and cancelled ordinary shares on-market in order to reduce the company’s capital and surplus liquidity. during the financial year the shares were acquired at an average price of $ 4.55 per share, with prices ranging from $4.20 to $4.80. at 30 June 2018, 478,255 shares remained available to be repurchased under the most recently announced buy back notice to the asX. (E) OPTIONS information relating to Fiducian group employee & director and options issued, exercised and lapsed during the year is set out in note 24. P a g e 5 8 Annual report 2018 | Fiducian Group Limited 20. CONTRIBUTED EqUITy (CONTINUED) (F) CAPITAL RISK MANAGEMENT the group’s objectives when managing capital of the wholly owned subsidiaries within the group are to safeguard its ability to continue as a going concern, to individually continue to meet externally imposed capital requirements of apra and asic under its registrable superannuation entity (rse) license, responsible entity (re) licence and their australian Financial services (aFs) license, 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 asic re licence, the re, Fiducian investment management services limited, must maintain $5,000,000 net tangible assets at all times during the financial year. b. under its aFs licence, Fiducian portfolio services limited must maintain $150,000 cash at all times during the financial year. the requirement under the aFs licence and re licences are 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 at each meeting. 21. REsERvEs movements share-based payments reserve balance 1 July option expense transfer to retained profits (on exercise of options) balance at 30 June CONsOLIDATED 2018 2017 $’000 $’000 120 10 - 130 67 95 (42) 120 the share-based payments reserve is used to recognise the fair value of options issued but not exercised. 22. RETAINED PROFITs S T N E M E T A T S L A I C N A N I F movements balance 1 July net profit for the year dividends paid (note 8) transfer from share-based payment reserve (on exercise of options) balance at 30 June CONsOLIDATED 2018 2017 $’000 $’000 20,359 9,198 (5,597) - 23,960 17,205 7,512 (4,400) 42 20,359 P a g e 5 9 Annual report 2018 | Fiducian Group Limited 23. KEy MANAGEMENT PERsONNEL DIsCLOsUREs (A) KEY MANAGEMENT PERSONNEL short-term employee benefits post-employment benefits share-based payment CONsOLIDATED 2018 2017 $ 837,330 33,932 45,278 916,540 $ 791,850 31,344 51,265 874,459 S T N E M E T A T S L A I C N A N I F detailed remuneration disclosures are provided in sections a-e of the remuneration report contained in the directors’ report. (B) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (i) Options provided as remuneration and shares issued on exercise of such options, 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 group limited, including their personally related and associated entities, are set out below. NAME BALANCE AT ThE sTART OF ThE yEAR EXERCIsED 2018 GRANTED DURING ThE yEAR As REMUNERATION LAPsED DURING ThE yEAR BALANCE AT ThE END OF ThE yEAR vEsTED AND EXERCIsABLE i singh1 100,000 - 100,000 - 200,000 100,000 1 under the terms of his employment mr i singh is entitled to 35,000 options relating to the current year. these are subject to approval at the annual general meeting on 25 october 2018 and therefore, these have not been included above. options granted during the year are in respect of the entitlement relating to 2016-17. NAME BALANCE AT ThE sTART OF ThE yEAR EXERCIsED 2017 GRANTED DURING ThE yEAR As REMUNERATION LAPsED DURING ThE yEAR BALANCE AT ThE END OF ThE yEAR vEsTED AND EXERCIsABLE i singh1 100,000 100,000 100,000 - 100,000 - 1 under the terms of his employment mr i singh is entitled to 100,000 options relating to the current year. these were subject to approval at the annual general meeting on 19 october 2017 and were issued subsequent to 30 June 2017, therefore, these have not been included above. options granted during the year are in respect of the entitlement relating to 2015-16. P a g e 6 0 Annual report 2018 | Fiducian Group Limited 23. KEy MANAGEMENT PERsONNEL DIsCLOsUREs (CONTINUED) (B) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (CONTINUED) (iii) Shareholdings the numbers of shares in the company held during the financial year by each director of Fiducian group limited, including their personally related and associated entities, are set out below. there were no shares granted during the period as compensation 2018 RECEIvED DURING ThE yEAR ON ThE EXERCIsE OF OPTIONs NAME BALANCE AT ThE sTART OF ThE yEAR i singh r bucknell F Khouri s hallab 10,523,851 583,000 268,323 - OThER ChANGEs DURING ThE yEAR BALANCE AT ThE END OF ThE yEAR - - - - - - - 31,000 10,523,851 583,000 268,323 31,000 S T N E M E T A T S L A I C N A N I F NAME BALANCE AT ThE sTART OF ThE yEAR 2017 RECEIvED DURING ThE yEAR ON ThE EXERCIsE OF OPTIONs OThER ChANGEs DURING ThE yEAR BALANCE AT ThE END OF ThE yEAR i singh r bucknell F Khouri c stone 10,423,851 100,000 - 10,523,851 800,000 251,373 33,700 - - - (217,000) 16,950 (33,700) 583,000 268,323 - Shares provided on exercise of options during the year no ordinary shares in the company were issued as a result of the exercise of remuneration options to the executive deputy chairman of Fiducian group limited, as key management person of the group. (2017: 100,000). 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 (2017: nil). details of loans to related parties of the directors has been disclosed in note 28 related party transactions. P a g e 6 1 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 23. KEy MANAGEMENT PERsONNEL DIsCLOsUREs (CONTINUED) (D) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL a director, mr r bucknell, is a director of hunter place services pty ltd, a company which provides his services as a director to the group. 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 s hallab 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 group limited: directors’ fees Financial planning fees paid or payable CONsOLIDATED 2018 2017 $ 276,222 222,320 498,542 $ 248,195 217,240 465,435 details of these fees and explanations for the increase have been provided in the remuneration report included in the director’s report. Shares under option unissued ordinary shares of Fiducian group 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 group limited issued during the year ended 30 June 2018 on the exercise of options granted under the Fiducian group limited employee & director share option plan is disclosed under note 24 to the financial report. 24. shARE BAsED PAyMENTs (A) EMPLOYEE AND DIRECTOR SHARE OPTION PLAN (ESOP) the establishment of the Fiducian group 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. Fiducian group limited (‘Fgl’) 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. P a g e 6 2 Annual report 2018 | Fiducian Group Limited S T N E M E T A T S L A I C N A N I F 24. shARE BAsED PAyMENTs (CONTINUED) 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. during the year 100,000 options @ $3.77 were issued (2017: 100,000 options @ $2.18) to the executive deputy chairman and no employee options expired during the same period (2017: nil). 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 being met in accordance with his executive agreement. the directors have resolved to issue 35,000 options (2017: 100,000) at an exercise price of $4.35 to the executive director in respect of the year ended 30 June 2018. the assessed fair value at reporting date of the share based payments during the year ended 30 June 2018 was $0.72 per option (2017: $0.62). the fair value at reporting date has been independently calculated using the black scholes pricing model. the assumptions included in the valuation of these options include a risk-free-interest rate of 1.25%, a nil dividend yield on the ordinary shares of the company and a volatility in the company’s share price of 30% based on historical share price. set out below are summaries of options granted under various option plans: BALANCE AT sTART OF ThE yEAR GRANTED DURING ThE yEAR EXERCIsED DURING ThE yEAR LAPsED DURING ThE yEAR BALANCE AT END OF ThE yEAR vEsTED & EXERCIsABLE AT ThE END OF yEAR NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER weighted average exercise price $2.18 $3.77 100,000 - - 100,000 100,000 100,000 - - - - - - - - 100,000 100,000 200,000 $2.98 100,000 - 100,000 - the volume weighted average remaining contractual life of share options outstanding at the end of the period was 3.81 years (2017: 4.31 Years). BALANCE AT sTART OF ThE yEAR GRANTED DURING ThE yEAR EXERCIsED DURING ThE yEAR LAPsED DURING ThE yEAR BALANCE AT END OF ThE yEAR vEsTED & EXERCIsABLE AT ThE END OF yEAR NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER GRANT DATE EXPIRy DATE EXERCIsE PRICE consolidated 2018 esop-executive deputy chairman 20 oct 16 20 oct 21 20 oct 17 20 oct 22 $2.18 $3.77 GRANT DATE EXPIRy DATE EXERCIsE PRICE consolidated 2017 esop-executive deputy chairman 23 oct 14 23 oct 19 20 oct 16 20 oct 21 $1.63 $2.18 weighted average exercise price $1.63 $2.18 $1.63 100,000 - 100,000 - 100,000 - 100,000 100,000 100,000 - - - - - 100,000 100,000 $2.18 - - - - the volume weighted average remaining contractual life of share options outstanding at the end of the period was 4.31 years (2016: 3.32 Years) (B) 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 $45,278 (2017: $51,265). P a g e 6 3 Annual report 2018 | Fiducian Group Limited 25. REMUNERATION OF AUDITORs during the year the following fees were paid or payable for services provided by the auditor of the parent entity and its related practices: audit services pricewaterhousecoopers australian firm: audit and review of financial reports other audit related work, including audit of entities for which a group entity is trustee, manager or responsible entity (gross of any amounts reimbursed) total remuneration CONsOLIDATED 2018 2017 $ $ 142,447 138,974 419,498 561,945 385,026 524,000 it is the group’s policy to employ pricewaterhousecoopers on assignments additional to its statutory audit duties where pricewaterhousecoopers’ expertise and experience with the group are important, on the proviso that the auditor’s independence is not affected. 26. CONTINGENT LIABILITIEs the parent entity and group had contingent liabilities at 30 June 2018 in respect of bank guarantees for property leases of parent and group entities amounting to $590,357 (2017: $405,000). in addition to the above, the group is aware of the continuing activities of the royal commission into misconduct in the banking, superannuation and Financial services industry and is monitoring its progress. the group has not been contacted by the commission and believes that its strong compliance and governance practices along with the relatively high level of resources committed to this area should support its transparent client relationship based model. it means that the matters being identified at the commission present limited risk to the group. as part of its ongoing commitment to maintain the highest level of integrity to its clients, the group is conducting reviews to ensure that its services remain of the highest quality. consequently, the group has not found it necessary to make any provision. 27. COMMITMENTs FOR EXPENDITURE (A) CAPITAL ExPENDITURE S T N E M E T A T S L A I C N A N I F commitment payable within one year (B) OPERATING LEASES CONsOLIDATED 2018 2017 $’000 - $’000 - 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 leases are renegotiated. CONsOLIDATED 2018 2017 $’000 1,021 565 1,586 $’000 1,082 1,648 2,730 payable within one year payable later than one year but not later than 5 years P a g e 6 4 Annual report 2018 | Fiducian Group Limited 28. RELATED-PARTy TRANsACTIONs (A) PARENT ENTITY the parent entity within the group is Fiducian group limited at year end. (B) SUBSIDIARIES interests in subsidiaries are set out in note 12. the consolidated financial report incorporate the assets, liabilities and results of the subsidiaries set out in note 12 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 23. (D) TRANSACTIONS WITH RELATED PARTIES (i) transactions between the group and other related entities a. operator fee income received from related trusts b. trustee fee income received from related trusts c. recovery of group costs, such as insurance from related trusts d. collection of fees by responsible entities from the related funds. the above transactions were on normal commercial terms and conditions and at market rates. all transactions between group entities are eliminated on consolidation. (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 c. loans to related parties of directors the above transactions were on normal commercial terms and conditions and at market rates. S T N E M E T A T S L A I C N A N I F P a g e 6 5 Annual report 2018 | Fiducian Group Limited 28. RELATED-PARTy TRANsACTIONs (CONTINUED) (D) TRANSACTIONS WITH RELATED PARTIES (CONTINUED) the following transactions occurred with related parties: CONsOLIDATED OwNERshIP INTEREsT1 2018 2017 related trusts Fiducian investment service operator fees income expense recovery interest Fiducian superannuation service operator fees income expense recovery interest Fiducian Funds operator fees income expense recovery interest S T N E M E T A T S L A I C N A N I F entities associated with directors or their relatives hawkesbury Financial services pty ltd2 Financial planning fees paid Fiducian Financial services bondi Junction pty ltd3 Financial planning fees paid nil nil nil 5,431,317 322,266 278,336 4,425,672 339,192 197,521 15,178,659 3,946,610 628,230 13,412,420 3,900,862 523,633 13,951,373 270,000 198,260 11,423,119 269,150 193,654 222,320 217,240 44,930 41,021 1 “Ownership Interest” means the percentage of capital of the Company held directly and/or indirectly through another entity by Fiducian group limited. 2 payments to Franchisee associated with director, F Khouri in the normal course of business in arm’s length transactions. 3 payments to Franchisee associated with a relative of r bucknell, in the normal course of business in arm’s length transactions. loans to related Parties oF directors BALANCE AT 1 JULy 2017 INTEREsT PAID/ PAyABLE FOR ThE yEAR REPAID DURING ThE yEAR BALANCE AT 30 JUNE 2018 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. 26,965 323 (14,515) 12,773 1 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. P a g e 6 6 Annual report 2018 | Fiducian Group Limited 28. RELATED-PARTy TRANsACTIONs (CONTINUED) (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 (income from related trusts) CONsOLIDATED 2018 2017 $ $ 3,492,186 3,300,383 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. 29. RECONCILIATION OF PROFIT OR LOss AFTER INCOME TAX TO NET CAsh INFLOw FROM OPERATING ACTIvITIEs profit for the year Non-cash employee (expense)/ benefit depreciation,amortisation and impairment changes in operating assets and liabilities: change in accounts receivable change in income tax payable change in trade creditors change in other creditors change in deferred income tax liability net cash inflow from operating activities CONsOLIDATED 2018 2017 $’000 9,198 117 1,396 (762) 180 372 262 (385) 10,378 $’000 7,512 257 1,319 (282) 491 (201) 167 (578) 8,685 S T N E M E T A T S L A I C N A N I F P a g e 6 7 Annual report 2018 | Fiducian Group Limited 30. EARNINGs PER shARE earnings per share using weighted average number of ordinary shares outstanding during the period: (A) BASIC EARNING PER SHARE (IN CENTS) profit from continuing operations attributable to the ordinary equity of the company 29.42 24.04 CONsOLIDATED 2018 2017 (B) DILUTED EARNING 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 DENOMINATOR 29.28 24.00 CONsOLIDATED 2018 2017 number number weighted average number of ordinary shares used as denominator in calculating basic earnings per share 31,263,238 31,250,210 adjustments for calculation of diluted earnings per share options 152,269 49,517 weighted average number of ordinary shares and potential ordinary shares used as denominator in calculating diluted earnings per share 31,415,506 31,299,277 (D) RECONCILIATION OF EARNINGS USED IN CALCULATING BASIC AND DILUTED EARNINGS PER SHARE S T N E M E T A T S L A I C N A N I F net profit and earnings used to calculate basic and diluted earnings per share CONsOLIDATED 2018 2017 $’000 9,198 $’000 7,512 (E) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES options granted to employees under the Fiducian group limited employee share option plan (esop) 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 24. 31. EvENTs OCCURRING AFTER BALANCE DATE / REPORTING DATE 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 group, to affect significantly the operations of the group, the results of those operations or the state of affairs of the group in subsequent years. P a g e 6 8 Annual report 2018 | Fiducian Group Limited 32. FINANCIAL RIsK MANAGEMENT the group’s activities expose it to a variety of financial risks: market risk (including interest rate 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 holds the following financial instruments: Financial assets cash and cash equivalents trade and other receivables Financial liabilities trade and other payables (A) MARKET RISK (i) Foreign exchange risk CONsOLIDATED 2018 2017 $’000 $’000 13,885 10,714 24,599 9,548 10,692 20,240 6,613 5,957 the group has limited operations outside australia and is not exposed to any material foreign exchange risk. (ii) Interest rate risk the group’s main interest rate risk arises from deposits in australian dollars, and short-term loans to staff and planners. the group has no borrowings. 30 JUNE 2018 30 JUNE 2017 wEIGhTED AvERAGE INTEREsT RATE % 1.58% 4.26% wEIGhTED AvERAGE INTEREsT RATE % 1.34% 3.88% BALANCE $’000 13,885 6,151 20,036 BALANCE $’000 9,548 6,564 16,112 cash at bank and on deposit business development and staff loans 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 and loans with variable interest rates. at 30 June 2018 if interest rates change by +/- 100 basis points (2017: +/- 100 basis points) from the year end rates with all other variables held constant, post-tax profit would have been $141,570 higher or lower (2017: $ 113,000). S T N E M E T A T S L A I C N A N I F P a g e 6 9 Annual report 2018 | Fiducian Group Limited 32. FINANCIAL RIsK MANAGEMENT (CONTINUED) (B) CREDIT RISK credit risk for the group arises from trade receivables, cash at bank and on deposits, business development and staff loans. Risk Management the group has low credit risk from trade 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, thereby mitigating credit risk. For cash at bank and on deposits, the credit quality assessed against external credit ratings and only parties with minimum rating as detailed below in the table are accepted. For business development and staff loans which are unrated management assess the credit quality of the franchisee based on extensive credit rating scorecard taking into account financial position, collateral to provide security for the loan and cultural alignment to the business. the compliance with credit limits are monitored regularly by line management. the credit quality of other financial assets can be assessed against external credit ratings as follows: cash at bank and on deposit aa- business development and staff loans unrated CONsOLIDATED 2018 2017 $’000 $’000 13,885 9,548 6,151 6,564 Security under the terms of agreement for business development loans, the group has a security deed over the all the assets of the franchisee’s business registered in personal property security register. this security may be called upon if the franchisee defaults under the terms of agreement. the maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarized on this page. (C) LIQUIDITY RISK the group maintains sufficient liquid reserves to meet all foreseeable working capital, investment and regulatory licensing requirements. the group has a $4 million undrawn overdraft facility (2017: $4 million) available with their bank. S T N E M E T A T S L A I C N A N I F Financial liabilities due in less than 1 year due between 1 and 2 years (D) FAIR VALUE ESTIMATION CONsOLIDATED 2018 2017 $’000 6,081 532 6,613 $’000 5,576 381 5,957 the fair value of financial assets and financial liabilities must be estimated for recognition and measurements or for disclosure purposes. (a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) (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) the group did not have any assets or liabilities recognised at fair value as at 30 June 2018 P a g e 7 0 Annual report 2018 | Fiducian Group Limited 32. FINANCIAL RIsK MANAGEMENT (CONTINUED) (E) ASSETS AND LIABILITIES NOT CARRIED AT FAIR VALUE BUT FOR WHICH FAIR VALUE IS DISCLOSED business development loans and staff loans are carried at amortised cost; their carrying value is 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. the carrying amount of the trade receivables is assumed to approximate their fair values due to their short-term nature. trade and other payables include 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 represent 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 their short-term nature. non-current loans have been valued at the present value of estimated future cash flows discounted at the market interest rates for these type of loans. 33. PARENT ENTITy FINANCIAL INFORMATION the stand-alone summarised financial statements of the company is as follows: (a) Balance sheet current assets non current assets total assets current liabilities non current liabilities total liabilities net assets equity share capital reserves retained earnings equity (b) total comprehensive income dividend from subsidiary and other income 2018 2017 $’000 $’000 19,011 9,349 28,360 - - - 16,378 9,349 25,727 - - - 28,360 25,727 7,040 144 21,176 28,360 7,141 120 18,466 25,727 8,300 7,550 S T N E M E T A T S L A I C N A N I F 34. DEED OF CROss- GUARANTEE the company has in place a deed of cross-guarantee, substantially in the form of asic pro Forma 24 with each wholly owned member of the Fiducian group, with the exception of Fiducian portfolio services ltd. this entity has been excluded from the group following the release of an asic class order disallowing apra regulated entities from being part of a closed group covered by a deed of cross guarantee. since the financial statements of this excluded entity are not material to the consolidated financial statements management did not consider it necessary to disclose additional consolidation information related to the close group excluding this entity. the effect of the deed of cross-guarantee is that each participating member that has entered into the deed, guarantees to each creditor of any participating member of the Fiducian group that has entered into the deed payment in full of any debt owed to that creditor in the event of winding up of that relevant member of the Fiducian group. P a g e 7 1 Annual report 2018 | Fiducian Group Limited South Australia Office Locations Adelaide City Central S T N E M E T A T S L A I C N A N I F CULTIVATED FOR THE LONG TERM P a g e 7 2 Annual report 2018 | Fiducian Group Limited DIRECTORs’ DECLARATION in the directors’ opinion: (a) the financial statements and notes set out on pages 32 to 71 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 2018 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. (c) at the date of this declaration, there are reasonable grounds to believe that the members of the wholly owned group identified in note 12 will be able to meet any obligations or liabilities to which they are, or may become subject by virtue of the deed of cross guarantee described in note 34. 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 executive deputy chairman 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 N O T A R A L C E D ’ S R O T C E R I D inderjit (indy) singh executive deputy chairman sydney, 16 august 2018 P a g e 7 3 Annual report 2018 | Fiducian Group Limited INDEPENDENT AUDITOR’s REPORT TO ThE MEMBERs Independent auditor’s report to the shareholders of Fiducian Group Limited Report on the audit of the financial report Our opinion In our opinion the accompanying financial report of Fiducian Group Limited (the Company) and its Corporations Act 2001 controlled entities (together the Group) is in accordance with the , including: ​ (a) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001 . ​ What we have audited The Group financial report comprises: ● ● ● ● ● ● the consolidated statement of financial position as at 30 June 2018 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include a summary of significant accounting policies the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the report section of our report. ​ Auditor’s responsibilities for the audit of the financial We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical ​ Code of Ethics for Professional Accountants Standards Board’s APES 110 (the Code) that are relevant ​ to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. P a g e 7 4 ​ ​ ​ ​ Materiality ● For the purpose of our audit we used overall Group materiality of $671,860, which represents approximately 5% of the Group’s profit before tax. ● We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. ● We chose Group profit before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. ● We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit Scope ● Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. ● Our audit procedures covered the Group’s most significant operations being “Financial planning”, “Funds management” and “Corporate, administration & other”. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit and Risk Committee. Key audit matter Revenue (Refer to note 4) ($45m) Revenue of the Group includes income from ‘financial planning’ ($15.8 m), ‘funds management’ ($12.7 m) and ‘corporate, administration & other’ ($17.3 m). We considered accuracy of revenue to be a key audit matter due to the materiality of the revenue streams and the presumption in Australian Auditing Standards that the risk of fraud in revenue should be considered a significant audit risk. From 1 July 2018, the Group will transition to AASB 15 Revenue from Contracts with Customers . In accordance with the Australian ​ Accounting Standards, the Group is required to disclose the impact of accounting standards issued but not yet applied. Accordingly, the Group has disclosed information relevant to the How our audit addressed the key audit matter Our procedures included: - - - evaluating and testing certain controls related to accurate recognition and calculation of revenue for revenue streams where amounts are automatically calculated by the Group’s core product system, including administration fees and portfolio review fees, manually reperforming the fee calculations for a sample of transactions with reference to Product Disclosure Statements (PDS), member application forms or other forms of documentation of terms for revenue streams where amounts are at the discretion of the Group’s financial planners, agreeing a sample to correspondence between the planner and the relevant client. P a g e 7 5 ​ possible impacts of AASB 15 from 1 July 2018 within Note 1(w). Our procedures to evaluate the disclosures on the possible impact of AASB 15 included: - - - evaluating the Group’s assessment of their revenue streams and contract types in line with the five step model required by AASB 15 selecting a sample of revenue contracts and testing whether the Group’s assessment of AASB 15 is consistent with the contents of the revenue contracts, and assessing the adequacy of disclosures made in the financial report. Our procedures included: - - - evaluating the Group’s year-end assessment of the recoverability of loans to financial planners, including making inquiries of management about any changes in each borrower’s circumstances and evaluating the Group’s assessment of the financial health and performance of the underlying business obtaining confirmations of all loans to financial planners, and testing collateral/security arrangements to loan contracts and Personal Property Security Registers for a sample of the loans. Our procedures to evaluate the disclosures on the possible impact of AASB 9 included: - - evaluating the Group’s assessment of expected impairment supporting the Expected Credit Loss (ECL) requirements of AASB 9, and assessing the adequacy of disclosures made in the financial report. Our procedures included: - - updating our understanding of prevailing market conditions and factors that could materially affect the fair value and usage of the relevant assets, and considering whether these may represent indicators of impairment evaluating key assumptions used by the Group in the calculation of the recoverable amount of acquired client portfolios and goodwill such as the multiple applied to associated revenues when estimating fair value, and Recoverability of loans to financial planners (Refer to note 10 and 11) ($6.3m) From time to time, the Group enters into lending arrangements with specified financial planning franchisees. Outstanding loans totalled $6.3m at the reporting date (FY17 $6.7m). The recoverability of the loans is a key audit matter due to the judgement involved in assessing the ability of each financial planner to repay their loan as and when they fall due. From 1 July 2018, the Group will transition to AASB 9 Financial Instruments . In accordance ​ with the Australian Accounting Standards, the Group is required to disclose the impact of accounting standards issued but not yet applied. Accordingly, the Group has disclosed information relevant to the possible impacts of AASB 9 from 1 July 2018 within Note 1(w). Assessment of intangible assets’ carrying values (Refer to note 15) ($15.8) The balance sheet includes intangible assets relating to portfolios of financial advice clients and goodwill arising from acquisitions made by the financial planning business of the Group. The combined carrying value of client portfolios and goodwill as at the reporting date was $15.8m (FY17 $15.8m). At each period end, the Group considers whether there are any indicators that the carrying value of P a g e 7 6 ​ client portfolios might be impaired. It also performs an annual impairment test for goodwill. This was a key audit matter due to the size of the intangible assets balance and the judgement involved in the periodic impairment assessment. - comparing market multiples to independent sources and stress testing the multiples applied. Other information The directors are responsible for the other information. The other information comprises the Financial highlights, Five year financial summary, Joint report of the Chairman and the Executive Deputy Chairman, Directors' Report, Shareholder information and Corporate directory included in the Group’s annual report for the year ended 30 June 2018 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. Corporations Act 2001 and ​ In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf auditor's report. . This description forms part of our P a g e 7 7 ​ ​ Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 19 to 25 of the Directors’ report for the year ended 30 June 2018. In our opinion, the remuneration report of Fiducian Group Limited for the year ended 30 June 2018 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Corporations Act 2001 . Our responsibility ​ PricewaterhouseCoopers Craig Stafford Partner Sydney 16 August 2018 P a g e 7 8 ​ ​ ThIs PAGE hAvE BEEN LEFT BLANK INTENTIONALLy P a g e 7 9 Annual report 2018 | Fiducian Group LimitedWestern Australia Office Locations South Perth T R O P E R S ’ R O T I D U A T N E D N E P E D N I ANTICIPATION Barossa Valley SA P a g e 8 0 Annual report 2018 | Fiducian Group Limited shAREhOLDER INFORMATION A. DISTRIBUTION OF EQUITY SECURITY HOLDERS BY SIzE OF HOLDING analysis of numbers of equity security holders by size of holding, as at 31 July 2018 DIsTRIBUTION 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - and over total holders OPTION hOLDERs ORDINARy shARE hOLDER - - - - 1 1 263 486 164 180 23 1,116 there were 20 holders of a less than marketable parcel of ordinary shares. B. EQUITY SECURITY HOLDERS twenty largest quoted equity security holders the names of the 20 largest registered shareholders of quoted equity securities as at 31 July 2018, are listed below NAME NUMBER hELD PERCENTAGE OF IssUED shAREs 1 2 indYshri singh ptY limited J p morgan nominees australia limited 3 hsbc custodY nominees (australia) limited 4 5 london citY eQuities limited SHRIND INVESTMENTS PTY LTD (INDYSHRI SUPER FUND A/C) 6 mr victor John plummer 7 bnp paribas noms ptY ltd (drp) 8 hunter place services ptY ltd 9 citicorp nominees ptY limited 10 MR IVAN TANNER + MRS FELICITY TANNER (THE SUPERNATURAL S/F A/C) 11 d r smith holdings ptY ltd 12 norcad investments ptY ltd 13 bnp paribas nominees ptY ltd (ib au noms retailclient drp) 14 garrett smYthe ltd 15 bnp paribas noms (nZ) ltd (drp) 16 HFR PTY LTD (THE F & M KHOURI S/FUND A/C) 17 mr ian harold holland 18 BOND STREET CUSTODIANS LIMITED (RSALTE - D64848 A/C) 19 mrs JenniFer margaret leeson 20 FORSYTH BARR CUSTODIANS LTD (FORSYTH BARR LTD-NOMINEE A/C) 8,795,933 2,594,463 2,378,245 2,012,214 1,727,918 800,000 674,517 583,000 582,473 521,500 500,000 450,000 402,445 339,000 239,600 216,137 165,000 154,694 138,847 134,600 28.15 8.30 7.61 6.44 5.53 2.56 2.16 1.87 1.86 1.67 1.60 1.44 1.29 1.09 0.77 0.69 0.53 0.50 0.44 0.43 23,410,586 74.93 P a g e 8 1 I N O T A M R O F N I R E D L O H E R A H S Annual report 2018 | Fiducian Group Limited I N O T A M R O F N I R E D L O H E R A H S shAREhOLDER INFORMATION (CONTINUED) Unquoted equity securities as at 31 July 2018 TyPE OF sECURITy NUMBER ON IssUE NUMBER OF hOLDERs options - executive deputy chairman 200,000 1 C. SUBSTANTIAL SHAREHOLDERS substantial shareholders and associates as at 31 July 2018 (more than 5% of a class of shares) in the company are set out below NAME NUMBER hELD PERCENTAGE indYshri singh ptY limited and associates J p morgan nominees australia limited hsbc custodY nominees (australia) limited london citY eQuities limited 10,523,851 2,594,463 2,378,245 2,012,214 33.68 8.30 7.61 6.44 D. VOTING RIGHTS 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 8 2 Annual report 2018 | Fiducian Group Limited CORPORATE DIRECTORy shARE REGIsTER computershare investor services pty limited level 4, 60 carrington street sydney nsw 2000 AUDITOR pricewaterhousecoopers chartered accountants one international towers watermans Quay, barangaroo sydney nsw 2000 BANKERs anZ banking group 388 collins street melbourne vic 3000 national australia bank limited 500 bourke street melbourne vic 3000 AUsTRALIAN sECURITIEs EXChANGE LIsTING Fiducian group limited (asX:Fid) wEBsITE ADDREss www.fiducian.com.au DIRECTORs r bucknell Fca chairman i singh cFp, btech, mcomm (bus), asia, asFa, dip. Fp executive deputy chairman F Khouri b bus, Fcpa, cta s hallab b ec (accnt & law), ca, gaicd, Faist COMPANy sECRETARy i singh cFp, btech, mcomm (bus), asia, asFa, dip. Fp NOTICE OF ANNUAL GENERAL MEETING the annual general meeting of Fiducian group limited Will be held at level 4, 1 York street, sydney. time: 10:00 am date: thursday 25 october 2018 PRINCIPAL REGIsTERED OFFICE IN AUsTRALIA level 4 1 York street sydney nsw 2000 (02) 8298 4600 whOLLy OwNED OPERATING ENTITIEs Fiducian business services pty limited Fiducian Financial services pty limited Fiducian investment management services limited Fiducian portfolio services limited Fiducian services pty limited Y R O T C E R I D E T A R O P R O C P a g e 8 3 Annual report 2018 | Fiducian Group Limited P a g e 8 4 Annual report 2018 | Fiducian Group LimitedFIDUCIAN GROUP LIMITED Level 4, 1 york Street, Sydney NSW 2000 Australia GPO Box 4175, Sydney NSW 2001 Australia Telephone: +61 2 8298 4600 Fax: +61 2 8298 4611 www.fiducian.com.au 

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