Fiducian Group Annual Report 2021 S A R Y A NNIVER SILV E R 25YEARS Contents Milestones Financial Highlights Five Year Financial Summary Executive Chairman’s Report Directors’ Report Auditor’s Independence Declaration 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 Financial Planner Office Locations CONTENTS 2 3 5 6 14 26 28 29 30 31 32 72 73 78 80 81 Annual Report 2021 1 25YEARSSILVERANNIVERSARY MILESTONES Milestones S A R Y A NNIVER SILVE R 25YEARS 1996 Fiducian Porftolio Services (FPS) founded by Indy Singh as independent financial services and funds management company 2004 FORCe FP financial planning software released for advisers 2012 Fiducian migrates to FasTrack, a state-of-the-art in-house platform admin system 1997 Fiducan launches master funds, client admin and financial planning services for adviser groups 2005 Fiducian buys Money & Advice, a Tasmanian financial planning company 2013 Fiducian Accountants & Business Advisers (FABA) buys practices on Sunshine Coast QLD 1998 Two more services launched: superannuation and investment 2006 Bodinnars Personal Financial Planner and Money & Advice commence trading as Fiducian Financial Services 2014 FoFA-compliant advice and products released through FFS and FPS 1999 Fiducian Strategic Asset Allocation software launched for planners 2007 Funds Under Management top $1 billion 2015 Company re-structures into Fiducian Group Ltd (FGL) 2000 Fiducian lists on the ASX and Fiducian Portfolio Review software released 2008 Fiducian weathers Global Financial Crisis and delivers on its shareholder commitments without impacting staff with salary cuts or redundancies 2017 Fiducian gross revenue climbs to $40 million 2001 Internally developed financial planning software Fiducian Online Resource Centre (FORCe) launched 2009 Fiducian Business Services launched for business growth development activities 2019 Fiducian acquires MyState Retail Financial Planning Business in Tasmania 2002 Fiducian Financial Services (FFS) established and new national headquarters opened at York Street, Sydney NSW 2010 Fiducian sponsors Fiducian Legends: Australian PGA Senior championship 2011 FORCe Desktop v3 debuts with new interface, navigation and tools 2003 FORCe goes online as does Fiducian Online for investors. Fiducian buys Bodinnars Personal Financial Planners 2 Fiducian Group Ltd 2020 COVID-19 impacts financial markets but Fiducian continues to deliver on profit growth with Gross revenue breaking the $50 million barrier 2021 FGL FUMAA surges past $10 billion Financial Highlights For 2021 FINANCIAL HIGHLIGHTS Fund Performance Growth Ultra Growth Balanced Cap Stable 3 yrs 2/173 2/123 5 yrs 1/167 1/116 7 yrs 1/161 10 yrs 2/146 1/106 1/96 13/173 7/167 15/106 9/102 3/161 6/97 8/146 7/89 Flagship funds performance ranking for three, five, seven and ten years to 30 June 2021 against all funds in the Morningstar survey. Statutory NPAT UEBITDA* UNPAT* Dividends $12.2m 16% $19.2m 10% $14.1m 11% 26.90c 17% Net Inflows FUMAA* $228m 5% $10.4b 30% Financial Planners Offices 72 Aligned Planners & Associates 46 Offices across Australia * (UEBITDA) – Underlying Earnings Before Interest Tax Depreciation Amortisation, no AASB16 adjustment on lease rent and interest on lease liability (UNPAT) – Underlying Net Profit After Tax, no AASB16 adjustment on lease rent and interest on lease liability (FUMAA) – Funds Under Management, Advice and Administration Annual Report 2021 3 FINANCIAL HIGHLIGHTS Financial Highlights (Continued) For 2021 Revenue ($ million) Underlying EBITDA ($ million) Underlying NPAT ($ million) . 9 4 4 5 9 4 . 8 . 8 5 8 . 4 1 3 . 2 1 . 9 5 4 . 8 0 4 . 2 9 5 1 7 1 1 6 1 . . 1 . 4 1 7 . 2 1 . 0 2 1 . 5 0 1 7 . 8 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Dividends (cents) Share Price - 30 June Closing ($) EPS based on UNPAT (cents) . 9 6 2 . 0 3 2 3 . 2 2 . 0 0 2 . 0 6 1 0 7 6 . 6 1 . 5 0 0 5 . 6 6 4 . 9 0 4 . 3 . 8 3 . 6 3 3 . 8 7 2 . 9 4 5 4 0 4 . 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 4 Fiducian Group Ltd Five Year Financial Summary For the years 2017 to 2021 FINANCIAL SUMMARY Financial History Financial Performance Gross Revenue Underlying EBITDA (UEBITDA) 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 2021 $’000 2020 $’000 2019 $’000 2018 $’000 2017 $’000 58,839 54,904 49,404 45,873 40,752 19,218 14,131 12,179 53% 17,499 12,725 10,463 55% 58,595 54,653 42,869 19,316 38,123 13,961 16,065 14,832 12,290 12,047 10,350 56% 45,899 34,826 11,792 10,505 9,198 56% 40,561 31,131 13,885 8,710 7,512 60% 36,277 27,620 9,548 Performance over the Last Five Years 11% Annualised UNPAT Growth 16% Annualised EPS Growth 7% Cost to Income % Reduction 13.9% 13.1% Annualised Dividend Growth Annualised Share Price Growth Annual Report 2021 5 EXECUTIVE CHAIRMAN’S REPORT S A R Y A NNIVER SILVE R 25YEARS Executive Chairman’s Report Dear Shareholders, I am pleased to advise that: As Executive Chairman and on behalf of the directors, I am pleased to present this report on the consolidated operating performance of Fiducian Group Limited and its controlled entities for the year ended 30 June 2021. Highlights At the end of the last financial year, the world was in deep recession and stock markets which had declined by 35% around March 2020, had only started to stabilize. Massive fiscal and monetary stimulus was provided by developed and developing nations to keep their economies afloat and help their populace to feed themselves another day. A race to develop a vaccine for COVID-19 had begun in the hope that humans could develop antibodies to the virus. Consequently, vaccines have been developed, economies are recovering and stock markets have been rallying strongly. Unfortunately, all have not taken the COVID-19 virus or its ability to mutate seriously. Hopefully we can return to life in the new normal, whatever it may be. Nevertheless, it has been pretty much business as usual at Fiducian. Operating under the principles of our Business Continuity Plan we have managed to look after our staff, grow the business and support our charity Vision Beyond Aus. Fiducian has shown that it is resilient against unexpected and adverse shocks and can deliver on the concept of People, Profit and Planet which is being promoted as the hallmark of successful businesses. The Group has adapted well to the changing operating environment and delivered a strong performance in the 25th year of its existence. This was achieved through a combination of consistent and assured inflows from our financial planning network, a strong recovery in stock markets worldwide and strict controls by management on cost and operational efficiencies. • All our people, the heart and soul of our business, are safe. • All staff continued to work seamlessly from home with the continuing support of their respective managers and the IT team. • The dedication and contribution by senior management, staff and financial planners to deliver on business requirements has not waivered despite working from home for the last 16 months or more. • Financial planners have maintained their client relationships and provided advice through video conferencing when face to face meetings were not possible. • The client administration team for our platforms continued to deliver a seamless service without any disruption to our clients and exceeded the service level standards set. • Through difficult times no one was retrenched, laid off or had their remuneration reduced. For their hard work and loyalty, generally all staff were rewarded with a salary increase for the next year and a bonus which was equal to or higher than what they had received in the previous year or received in accordance with their employment terms. • The flagship diversified Fiducian Funds have maintained their superior rankings on the Morningstar Survey compared with up to 197 recognised fund managers in their peer groups. This superior performance includes the last twelve months and continues over the last ten years or more. 6 Fiducian Group Ltd EXECUTIVE CHAIRMAN’S REPORT Financial Information Results for the year of 16% to $12.2 million (2020: $10.5 million). The Underlying earnings per share lifted 11% from 40.5 cents in 2020 to 44.9 cents in the current year. Legislation enacted saw the company lose over $1 million in revenue as income referred to as “grandfathered” commissions was terminated under law. Fresh new inflows and strong financial markets have helped the consolidated entity overcome this deficit and deliver a Statutory Net Profit After Tax increase The combined Funds under Management, Administration and Advice (FUMAA) grew 30% to $10.4 billion over the previous year (June 2020 $8.0 billion). Provided financial markets remain positive, this should support further revenue increases in the year ahead. Financial highlights Year Ending 30 June 2021 2020 $ Growth % Change Funds Under Management, Advice and Administration (FUMAA) 10.4 Billion 8.0 Billion 2.4 Billion 30% $’000 $’000 Operating Revenue Fees and Charges paid Net Revenue Gross Margin EBITDA Add back rent and deduct interest on lease liabilities Underlying EBITDA Depreciation Tax on underlying earnings Underlying NPAT (UNPAT) Amortisation AASB 16 Leases adjustment impacts - Office Lease Statutory NPAT Basic EPS based on UNPAT (in cents) Basic EPS based on NPAT (in cents) 58,839 (15,944) 42,895 73% 20,560 (1,342) 19,218 (255) (4,832) 14,131 (1,788) (164) 12,179 44.9 38.7 54,904 3.9 Million 7% (14,617) 40,287 2.6 Million 6% 73% 18,344 2.2 Million 12% (845) 17,499 1.7 Million 10% (212) (4,562) 12,725 1.4 Million 11% (2,023) (239) 10,463 1.7 Million 40.5 33.3 16% 11% Annual Report 2021 7 EXECUTIVE CHAIRMAN’S REPORT FUMAA (in $ billion) 12.00 10.00 8.00 5.68 5.15 6.00 4.74 4.00 2.00 +120% 10.44 9.33 8.20 8.03 7.40 6.72 6.30 6.31 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 FUA FUM FUAdm Capital Management Cash Flow A key feature of the company is that it has a clean Balance Sheet and currently remains debt free with a positive working capital and cash flow position. This is not to say that a capital raising or taking on debt would be avoided, should suitable acquisitions and opportunities for business expansion and earnings growth present themselves. Final Dividend The Board remains prudent, but is confident that the future of the business is positive and likely to continue to strengthen through organic growth and acquisitions of client bases that can benefit from the Fiducian process. As a result, a fully franked final dividend of 14.6 cents per share has been declared which will bring the total fully franked dividend declared for the 2021 financial year to 26.9 cents, an increase of 17% (2020: 23.00 cents). The full year dividend represents 69% of the statutory NPAT for the year. The final dividend will be paid on 13th September 2021 on issued shares held on 30th August 2021. On Market Buy-Back During the year, no shares were bought back on market leaving 31.44 million shares on issue at year end. 8 Fiducian Group Ltd Net operating cash flows increased to $16.0 million from $11.7 million of the previous year. After adjusting for investing activities ($1.5million) and financing activities ($9.2 million), net cash and cash equivalents increased by $5.3 million (2020: increase of $2.2 million). Cash at year end was therefore higher at $19.3 million compared to $13.9 million at the end of 2020. Business acquisitions made in prior years have assisted and will continue to assist with our future revenue and earning capacity. Staff and Chairman Options In accordance with the terms and conditions of the approved Employee and Director Share Option Plan, 90,000 options will be issued to the Executive Chairman in compliance with his contract of employment. Such options are subject to approval at the Annual General Meeting and only granted when the profit or share price increases by more than 15% over the previous year. The options in normal circumstances, vest after one year and can be exercised when they are paid for by the Executive Chairman within five years from issue. EXECUTIVE CHAIRMAN’S REPORT Financial Planning Salaried and Franchised Offices During the year, Funds under Advice grew from $3.0 billion in June 2020 to $3.7 billion in June 2021 due to acquisitions of financial planning businesses, increases in net inflows and rising financial markets. Going forward, some adjustments may be made to the funds under advice figure due to erstwhile “grandfathered” clients not renewing their engagement with a financial planner. However, inflows have increased as newer financial planners begin to appreciate the many benefits of the Fiducian compliant process for their clients. Fiducian expects the highest level of compliance and client service from its financial planning network. Regulatory oversight and supervision of our financial planners has been supported by additional investments in our compliance functions. This is an expensive proposition, but one we feel is necessary. 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 through Webinars and Video Conferencing. As a consequence, client retention remains high. Our focus will remain on generating inflows through organic and inorganic growth. Financial planners of businesses acquired in prior years, along with new planners to replace departures have adopted the compliant Fiducian processes and are now starting to contribute to our revenue. Further acquisitions are being negotiated. New and efficient methods of telecommunication and video conferencing are being used to assist financial planners in practice development, marketing, financial planning software training and investment products and strategies. Face-to- face meetings between practice managers and financial planners have been limited due to COVID-19 restrictions. I expect that they will renew when things return to normal as they cannot be entirely replaced, but video conferencing, which is low cost and more efficient, will now be more widely used. Company owned offices with salaried financial planners are based in New South Wales, Victoria, Western Australia, Queensland and Tasmania and continue to contribute to overall results. Salaried offices now comprise over 43.7% of Funds under Advice. Franchised offices now comprise around 56.3% of our Funds under Advice. We have 46 financial planning offices nationally. Platform Administration Platform Administration offers portfolio wrap administration for superannuation and investment services to financial planners as well as Separately Managed Accounts (SMAs) which offer investors direct access to a small number of shares and funds that are managed separately for them. We believe that our capability and systems enhancements give us the ability to readily compete for such business and negotiations are underway with prospects who could use our services for administration of their SMAs. In addition, our business development team has recently found some success in registering external Licensees to start using our platforms. There is sufficient capacity to offer administration service to the external market in conjunction with the services we currently provide. From September 2020, the presentation of administration fees in the product disclosure statements was modified in line with our competitors’ disclosures. This resulted in an administration fee reduction which placed our platforms at the bottom half of the fees charged by equivalent competing platforms. In line with the trend in the industry, transaction and asset holding fees were introduced to offset in part the administration fee reduction. To give complete transparency, investors have been given the ability to drill down through Fiducian Online and view every single listed security that their underlying Fiducian Funds hold anywhere in the world. The hallmark of the Fiducian administration offering is quality in terms of daily processing, accuracy and customer service, which has been consistently delivered throughout the COVID-19 lockdown. Annual Report 2021 9 EXECUTIVE CHAIRMAN’S REPORT Net Funds Inflows - Six monthly (in $ million) 140 120 100 80 60 40 20 0 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 Funds Under Administration Funds under administration stand at $2.9 billion and has increased by $0.7 billion over the June 2020 balance of $2.2 billion. Overall growth in net funds under administration is driven by new inflows in the platform and market growth. Independent Financial Planners (IFAs) Funds under Administration for IFAs is around 8.4% 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 and wider adoption of our existing platforms and funds. Superannuation The Superannuation Trustee Board established for our public offer superannuation wrap fund in March 2015 with equal independent directors operates professionally and with independence. The Board is supported by the office of Superannuation Trustee and outsources key operational processes to specialist service providers. Funds Management Our in-house Manage-the-Manager system of investment continues to attract the majority of retail funds placed with us. Fiducian Funds have performed well over the medium to long-term in their respective categories as we diversify their assets through a range of underlying fund managers to reduce risk and volatility. Since inception almost twenty five years ago, the performances of these funds to end of June 2021 as reported in the Morningstar Investment Performance Survey have been commendable. Some of our funds are distributed in New Zealand through their local platforms and we have recently registered these funds on a KiwiSaver offering. Information Technology Fiducian Information Technology development team has been busily working from home to provide system enhancements that deliver efficiency and wide ranging functionality to ‘FasTrack’, our administration system. The improvements provide integration with our on-line reporting tools and financial planning software, ‘FORCe’, which gives us an edge when competing for administration related business and as well scope to distribute FORCe on a stand- alone basis. Human Resources Management and Staff Effective reporting processes are in place for all subsidiaries which enhance Group Board oversight of our business activities. The continued performance by senior management and staff during the work from home and on-again off-again COVID-19 lockdown has been seamless. Over the last 25 years, we have always acknowledged that staff are our most important and valuable asset and we continue to nurture and help them grow personally and into positions of responsibility. Our strategy to view our staff as a large Fiducian family who stand alongside each other in difficult times should continue to serve us well in the new normal. 10 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY Fiducian has and will always be an equal opportunity employer. Our diversity policy encourages persons of different race, gender, sexual preferences, religion, national or ethnic origin, age or disability and skills to participate and receive recognition, reward and management responsibility commensurate with their performance. Employees are from 24 different countries of origin, 47% are female with 24% of female employees in senior roles and 21% of our employees are over 55 years of age. Planners Council 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 alert us on financial planning issues that may need consideration. The Council also contributes from personal and live experience to help with developments and enhancements of our financial planning software (FORCe), on-line reporting tool (Fiducian Online) and platform administration system (FasTrack). Board of Directors The Board of Directors and Management has worked together cohesively as a team with respect and candour for each other but with a clear mutual understanding of each other’s roles and responsibilities in achieving optimal performance. While acknowledging that the strength of financial markets influence future performance, the Business Plan for the year ahead focusses on competitive advantages to lift profits through organic growth as well as acquisitions. Greater emphasis on promoting our successes through marketing is planned. Management remains committed to achieving the goals and objectives set down in the plan. Community Support Despite the shackles of the pandemic on its fundraising activities, Fiducian is determined to continue with its work to raise funds for charity and support community organisations and sporting teams linked to our planning network. Vision Beyond AUS, a charity supported by the Fiducian Group, increased its footprint from hospitals in India, Myanmar, Nepal, Cambodia to humanitarian work with the blind in Ethiopia. Over 43,095 men, women and children living in abject poverty have had their eyesight restored through its tireless fundraising. EXECUTIVE CHAIRMAN’S REPORT In addition, VBA made a donation to acquire ventilators and monitoring equipment supplied to field hospitals set up in India as it battled to control the massive spread of the third wave COVID-19 infection. Fiducian staff have continued to voluntarily provide accounting, administration and marketing support to the charity to ensure that every single dollar contributed by generous donors goes towards eliminating visual impairment in the world. Current Economic and Market Environment The global economy is now in the process of recovering from last year’s recession, which saw the largest decline in global output since the Second World War. The IMF estimates that the world economy contracted by around 3.3% in 2020 due to what it terms the ‘Great Lockdown’, or restrictions put in place by governments to control the spread of the COVID-19 pandemic. Many parts of the world were enjoying a rapid turnaround in economic activity, despite further ‘waves’ of the virus. The OECD recently reported ‘amid renewed virus outbreaks, less frequent but more dispersed throughout the world, global growth continues to recover’, because of ‘the unprecedented protective policy net that governments have deployed to preserve the economic fabric, firms and jobs in their economies’. As a consequence, the IMF is now forecasting global growth of around 6% for this year before growth moderates to a still strong 4.4% in 2022. One indicator of economic health is corporate earnings growth and MSCI data indicates that global corporate earnings contracted by over 10% in 2020, but are forecast to grow by an impressive 40% this year before slowing to a more sustainable rate of around 10% in 2022. This strong growth in corporate profits is being underpinned by monetary stimulus being provided by most of the world’s major central banks and by huge fiscal stimulus programs being implemented by governments. In order to lift productivity, economic growth, employment and ultimately real wages, borrowing for investments is being encouraged. Since these stimulus programs began to be implemented early last year, most major share markets have been on an upwards trend. With the pandemic not yet overcome, either globally or domestically, stimulus is likely to remain in place for some time to come and, as such, share markets are likely to have more upside despite their relatively elevated valuations. On this basis, we remain above benchmark for ‘growth’ assets in our diversified portfolios. In contrast, 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 the aim of achieving a diversified investment strategy that could help investors realise their financial goals. Annual Report 2021 11 25YEARSSILVERANNIVERSARY EXECUTIVE CHAIRMAN’S REPORT Outlook Our focus over the last 25 years has been to establish a business with a rock solid foundation and build growth strategies around this base which are able to scale up on existing capacity and leverage our relatively low fixed cost base. This strategy has benefitted us in the difficult and uncertain times with increasing revenues and growing profits. Strong focus on cost and operational efficiency has enabled Management to make the difficult decisions on expenditure and costs priorities quickly without disturbing the growth momentum. The Board’s aim remains to build scale and deliver consistent double digit earnings growth in coming years and we are well positioned to deliver on our strategy through realising the potential of our Financial Planning, Platform Administration, Investment Management and Information Technology businesses. On behalf of the Board, I would like to thank all participants for their individual contributions to the growth and success of Fiducian in our journey over the last 25 years. Inderjit (Indy) Singh OAM Executive Chairman Sydney, 16 August 2021 12 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY EXECUTIVE CHAIRMAN’S REPORT Fiducian Supported Charity Vision Beyond AUS (Public Benevolent Institution) Vision Beyond Australia Ltd, a charity proudly supported by the Fiducian Group, received Public Benevolent Institution status effective from 1 January 2019. The charity remains a registered charitable fund since 2011 with tax deductible gift recipient status, but is now able to remit donations directly to its overseas projects. The charity which is dedicated to restoring eyesight for people living in poverty, operates in Myanmar, Cambodia, Nepal, India and Ethiopia through 6 hospitals and has restored eyesight for over 43,095 men, women and children. We estimate that around 200,000 persons would have received medical attention during the process. IMAGE: Happy Nepalese children posing after their free eye-screening sponsored by Vision Beyond Aus Annual Report 2021 13 DIRECTORS’ REPORT Directors’ Report Your directors present their report on Fiducian Group Limited (“the Company”) and its wholly owned operating entities (referred to hereafter as the Group) for the year ended 30 June 2021. Directors The following persons were directors of Fiducian Group Limited during the financial year and up to the date of this report: • I Singh • R Bucknell • 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 Separately Managed Accounts service, through its wholly owned subsidiary, Fiducian Investment Management Services Limited b. Acting as the Responsible Entity of Fiducian Funds through its wholly owned subsidiary, Fiducian Investment Management Services Limited c. Acting as the Trustee of Fiducian Superannuation Service through its wholly owned subsidiary, Fiducian Portfolio Services Limited d. Providing specialist financial planning services through its wholly owned operating subsidiary, Fiducian Financial Services Pty Limited e. Providing client account administration platforms, self-managed superannuation services to clients and corporate services to other entities within the Group through its wholly owned subsidiary, Fiducian Services Pty Limited f. Development of IT software systems for financial planning and wrap platform administration through its wholly owned subsidiary, Fiducian Services Pty Limited g. Distribution of the products and service offerings of the Group companies through its wholly owned operating subsidiary, Fiducian Business Services Pty Limited Dividends Dividends paid to members during the financial year were as follows: Dividends Final ordinary fully franked dividend for the year ended 30 June 2020 of 11.50 cents (2019: Fully franked 11.30 cents) per share paid on 14 September 2020. Interim ordinary fully franked dividend for the year ended 30 June 2021 of 12.30 cents (2020: Fully franked 11.50 cents) per share paid on 15 March 2021. Total dividends paid during the year 2021 $’000 2020 $’000 3,616 3,553 3,867 7,483 3,616 7,169 Subsequent to 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 2021 of 14.60 cents per ordinary share held on 30 August 2021 and payable on 13 September 2021. 14 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT Review of operations A summary of consolidated revenues and results by significant industry segments is set out below: Segment Revenues Segment Results Funds Management Financial Planning Platform Administration Corporate Services Total Depreciation and amortisation Income tax expenses Net profit attributable to members of Fiducian Group Limited Comments on operations and results Comments on the operations, business strategies, prospects and financial position are contained in the report of the Executive Chairman. Shareholder returns The Executive Chairman has outlined in his report to the shareholders how the Group delivered a strong result despite the economic effects of the pandemic which continued to be felt through the financial year ended 30 June 2021. After consideration of the economic environment and the strength of the company’s debt-free balance sheet, the directors have decided on a dividend distribution of 14.60 cents per share for the second half, bringing the full year dividend to 26.90 cents per share (2020: 23.00 cents) Significant changes in the state of affairs There were no significant changes in the state of affairs that impacted the business. However, the Group funded / committed to provide loan funding of $3.2 million to help franchisees acquire financial planning practices and grow their businesses. Matters subsequent to 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 that is 2021 $’000 17,871 19,493 12,571 8,904 58,839 2020 $’000 14,954 20,778 11,091 8,081 54,904 2021 $’000 11,517 (360) 10,566 (1,163) 20,560 (3,627) (4,754) 12,179 2020 $’000 9,376 1,071 9,347 (1,450) 18,344 (3,407) (4,474) 10,463 likely in the opinion of the directors of the Group to impact the results of those operations or the state of affairs of the Group. Likely developments and expected results of operations The Executive Chairman has commented on expected results of operations in his Executive Chairman’s Report. Other than this, there are no likely developments that may have significant impact on the expected results or operations 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 respective countries of origin. We recognize that diversity includes, but is not limited to gender, age, ethnicity and cultural backgrounds. Our diversity policy encourages persons of different gnder, ethnic backgrounds, ages and skills to participate and receive recognition, reward and authority commensurate with their performance. Employees are comprised of staff from over 24 countries of origin, 21.37% over 55 years, and 47.33% female with 24.19% in senior roles. The Group’s current gender diversity report is available to be viewed on the Group website. Annual Report 2021 15 DIRECTORS’ REPORT Key management personnel disclosures 1. Information on current Directors I Singh (OAM) BTech, MComm (Bus), ASIA, ASFA, DipFP, CFP Executive Chairman Experience and expertise Founder and Managing Director of the Company since 1996 and Chairman since 25 October 2018. General Management and hands-on experience in funds management and superannuation funds over the past 32 years. Other current directorships in listed entities None Former directorships in the last 3 years None Special responsibilities Executive Chairman of the Group. Interest in shares and options 10,872,061 ordinary shares in Fiducian Group Limited. 35,000 options for ordinary shares in Fiducian Group Limited. R Bucknell FCA Independent non-executive director Experience and expertise Chairman from 1996 until 25 October 2018. Extensive experience in accounting and business management over the past 55 years as a Chartered Accountant. Other current directorships in listed entities None Former directorships in the last 3 years None Special responsibilities Chairman of the Remuneration Committee, and member of the Audit Risk and Compliance Committee for Fiducian Group Limited as well as the subsidiary entities, Fiducian Investment Management Services Ltd, Fiducian Services Pty Ltd and Fiducian Financial Services Pty Limited. Interest in shares and options 500,000 ordinary shares in Fiducian Group Limited. F G Khouri BBus, 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 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 Fiducian Group Limited, the subsidiary entities, Fiducian Investment Management Services Ltd, Fiducian Services Pty Ltd and Fiducian Financial Services Pty Limited and the Trustee Subsidiary for Fiducian Superannuation Service and a member of the Group and Trustee Remuneration Committees. Interest in shares and options 268,323 ordinary shares in Fiducian Group Limited. 16 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT S Hallab BEc (Accnt & Law), CA, GAICD, FAIST Independent non-executive director Experience and expertise Board member since 12 August 2016. Chartered Accountant and registered company auditor. Has over 38 years of experience in finance and superannuation. Other current directorships in listed entities Non-Executive Director and 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), Chairman of the Audit Risk and Compliance Committee for Fiducian Group Limited, the subsidiary entities Fiducian Investment Management Services Ltd, Fiducian Services Pty Ltd and Fiducian Financial Services Pty Limited and a member of the Remuneration Committee. Interest in shares and options 74,527 ordinary shares in Fiducian Group Limited. 2. Company secretary P Gubecka LLB, LLM, BCom, CPA, FGIA, FCG (CS, CGP) Company Secretary Experience and expertise Mr. P Gubecka is the Company secretary and the General Counsel of the Group. Mr. Gubecka is an Australian legal practitioner and CPA with over 14 years experience in financial services and superannuation. 3. Meetings of directors The number of meetings of the Company’s Board of Directors and of each board committee held during the year ended 30 June 2021, and the number of meetings attended by each director were: Meetings of directors Meetings of committees Board Audit Risk & Compliance Remuneration A 5 5 5 5 B 5 5 5 5 A - 6 6 6 B - 6 6 6 A - 1 1 1 B - 1 1 1 I Singh R Bucknell 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. 4. Other Mr. I Singh as Executive Chairman of Fiducian Group Limited, has authority for and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year ended 30 June 2021. This authority and responsibility is unchanged from the previous year. 5. Remuneration report The remuneration report is set out under the following main headings: A - Principles used to determine the nature and the E - Additional information amount of remuneration B - Details of remuneration F - Director’s superannuation C - Service agreements and induction process G - Loans to directors D - Share-based compensation H - Other transactions with key management personnel Annual Report 2021 17 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT The information provided under headings A - H include remuneration disclosures that are required under Australian Accounting Standard AASB 124 Related Party Disclosures. These disclosures have been included in the Directors’ Report and have been audited. A - Principles used to determine the nature and the amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms 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 2021. The external directors are paid a fixed fee for participation in Board and Committee meetings plus a fee based on time spent on any additional matters as approved by the Board. Directors who are financial planners, may have received remuneration from placing their financial planning business with the Group. 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 per annum, which was previously 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 compulsory superannuation guarantee contributions made on their behalf. 18 Fiducian Group Ltd (b) Executive Chairman Remuneration and other terms of employment for the Executive Chairman are formalised in a service agreement. The Executive 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 Chairman • Term of agreement - until 30 June 2024 • 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 (ESOP) • Retirement benefits, and • 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 conducted in July 2021 and there were no changes recommended to the executive remuneration structure arising from their review. Base salary Mr. I 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. Short-term incentives (STI) The STI aims to provide an incentive to the Executive Chairman to act in the best interests of the Company, its 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. 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT The employment contract with the Executive Chairman stipulates that a maximum of 20% of that year’s fixed remuneration should be paid to the Executive Chairman if all KPIs are satisfied. The Executive Chairman was therefore entitled to a STI of $98,414 but chose to receive a bonus of $13,000. Long-term incentives Mr. I 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 Company’s underlying net profit after tax 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% in excess of 15% increase in the Company’s pre-tax profit or the Company’s underlying net profit after tax, 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 2021, Mr. I Singh is entitled to 90,000 options at a strike price of $6.47. Retirement and termination benefits Retirement benefits are delivered under the Fiducian Superannuation Service. This fund provides accumulation benefits on commercial terms and conditions to the specified executive based on the superannuation guarantee contributions for that specified executive. 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 Chairman or by mutual consent is equal to 6 months of the gross annual remuneration. An overview of the Group performance and shareholder returns over the last 5 years is provided in the table below: Board policy dictates that the Executive Chairman’s performance for a financial year is reviewed and evaluated by the Remuneration Committee. The cornerstone to assessing the performance of the Executive 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 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 Chairman achieved 84% of the KPIs set for the financial year. The business and operating areas considered are Financial Planning, Funds Management, Business Development and Distribution, and Fiducian Services comprising of Platform Administration, Risk Management, Legal and Compliance, Information Technology, Marketing and Communications and Finance and Human Resources. Each business area’s Executive Leader has a number of underlying KPIs that lie within the broad objectives a), b), and c) outlined above. The underlying KPIs of each Executive Leader may differ and depend on their roles and responsibilities. The Executive Chairman sets the underlying KPIs for each Executive Leader and so each business area has a number of performance measures required to be delivered during the year. Achievement by Executive Leaders 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 Chairman to achieve all his KPIs. Group Performance and Shareholder returns Underlying Net Profit After Tax (UNPAT) Statutory Net Profit After Tax (NPAT) EPS based on NPAT (in cents) EPS based on UNPAT (in cents) Dividends (in cents) Share Price - 30 June closing (in $) 2021 14,131 12,179 44.9 38.7 26.9 6.70 2020 12,725 10,463 40.5 33.3 23.0 5.00 2019 12,047 10,350 38.3 33.0 22.3 5.16 2018 10,505 9,198 33.6 29.4 20.0 4.66 2017 8,710 7,512 27.9 24.0 16.0 4.09 Annual Report 2021 19 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT B - Details of remuneration Details of the remuneration of the key management personnel are set out in the following table: 2021 Short-Term Employee Benefits Benefits Payment Post- Share- Employment Based Name Executive Chairman Cash salary & fees $ Cash bonus $ Annual & long service leave $ Super- annuation $ Options $ Total $ I Singh 1 561,000 15,000 13,301 24,999 48,986 663,286 Non-executive directors R Bucknell 2,3 F Khouri 4 S Hallab 96,000 95,279 93,100 - - - - - - Totals 845,379 15,000 13,301 - 9,052 8,844 42,895 - - - 48,986 96,000 104,331 101,944 965,561 1 Mr I Singh is entitled to 90,000 options at a strike price of $6.47 in respect of the year ended 30 June 2021. The amount shown as options payment relates to the grant for FY21 and represents the value of those options expensed over its term in accordance with accounting standards. The total amount of options relating to FY21 is $114,300 which will be expensed over the vesting period. 2 Excludes GST if paid to another firm. 3 Including amounts paid to the director’s company only in respect to director’s duties. 4 This excludes fees of $264,350 for financial planning services paid to companies in which Mr F Khouri has an interest in his capacity as a financial planner. 20 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT 2020 Short-Term Employee Benefits Benefits Payment Post- Share- Employment Based Name Executive Chairman Cash salary & fees $ Cash bonus $ Annual & long service leave $ Super- annuation $ Options $ Total $ I Singh 1 555,000 15,000 (13,007) 21,003 3,614 581,610 Non-executive directors R Bucknell 2,3 F Khouri 4 S Hallab Totals 104,000 87,022 62,457 808,479 - - - - - - - 8,267 5,933 - - - 104,000 95,289 68,390 15,000 (13,007) 35,203 3,614 849,289 1 Mr I Singh is not entitled to any options in respect of the year ended 30 June 2020. The amount shown as options payment relates to the grant of 35,000 options for FY18 and represents the value of those options expensed over its term in accordance with accounting standards. 2 Excludes GST if paid to another firm. 3 Including amounts paid to the director’s company only in respect to director’s duties. 4 This excludes fees of $246,134 for financial planning services paid to companies in which Mr F Khouri has an interest in his capacity as a financial planner. Annual Report 2021 21 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT C - Service agreements and induction process D - Share-based compensation (i) Options compensation and holdings The service agreement of the Executive Chairman 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. 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. The number of options for ordinary shares in the Company held directly by the Executive Chairman 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. 2021 Name I Singh 1 Balance at the start of the year 35,000 Exercised - Granted during the year as remuneration1 Lapsed during the year Balance at the end of the year Vested and exercisable - - 35,000 35,000 1 Under the terms of his employment Mr I Singh is entitled to 90,000 options relating to the year ended 30 June 2021. These are subject to approval at the annual general meeting on 21 October 2021 and therefore these have not been included in the above table. 2020 Name I Singh 1 Balance at the start of the year 35,000 Exercised - Granted during the year as remuneration1 Lapsed during the year Balance at the end of the year Vested and exercisable - - 35,000 35,000 1 Under the terms of his employment Mr I Singh was not entitled to any options for the year ended 30 June 2020. 22 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT (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. 2021 Name I Singh R Bucknell F Khouri S Hallab 2020 Name I Singh R Bucknell F Khouri S Hallab Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 10,872,061 500,000 268,323 68,027 - - - - - - - 6,500 10,872,061 500,000 268,323 74,527 Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 10,723,851 583,000 268,323 52,477 - - - - 148,210 (83,000) - 15,550 10,872,061 500,000 268,323 68,027 Shares provided on exercise of options During the year the Group did not issue any ordinary shares as a result of the exercise of remuneration options by the Executive Chairman of Fiducian Group Limited (2020: Nil). No amounts are unpaid on any shares issued on the exercise of options. F - Directors’ superannuation Directors may have superannuation monies invested in Fiducian Superannuation Service. These monies are invested subject to the normal terms and conditions applying to this superannuation fund. G - Loans to directors No loans were made to directors during the financial year (2020: Nil). 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 2021 the base salary of the Executive Chairman increased by 1% or $6,000 and a cash bonus of $13,000 (2020: $15,000) was awarded in addition to the grant of option entitlements in accordance with the incentive programs. The Executive Chairman is entitled to 90,000 options in respect of the current year ended 30 June 2021 (2020: Nil). Annual Report 2021 23 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT H - Other transactions with key management personnel Mr. R Bucknell, a director of the Company, is also 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 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 Total payments relating to other transactions with key management personnel Consolidated 2021 $ 302,275 264,350 566,625 2020 $ 267,679 246,134 513,813 * Details of these fees have been provided in the Remuneration report included in the Directors’ Report. Shares under option Unissued ordinary shares of Fiducian Group Limited under option at the date of this report are disclosed in Note 24 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 if any, during the year 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. 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. 24 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY DIRECTORS’ REPORT Proceedings on behalf of the company Rounding of amounts 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 Risk and Compliance 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 to the auditor (KPMG) of the parent entity, its related practices and non-related audit firms, are shown in Note 25 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 26. The Company is of a kind referred to in Class Order 2016/191 ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 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 KPMG replaced PricewaterhouseCoopers for FY21 to be the external auditor in accordance with Section 327 of the Corporations Act 2001. 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/files/corporate_docs/ Corporate_Governance_Statement.pdf. This report is made in accordance with a resolution of the directors. Inderjit (Indy) Singh OAM Executive Chairman Sydney, 16 August 2021 Annual Report 2021 25 25YEARSSILVERANNIVERSARY AUDITOR’S INDEPENDENCE DECLARATION Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Fiducian Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Fiducian Group Limited for the financial year ended 30 June 2021 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Andrew Reeves Partner Sydney 16 August 2021 ©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 26 ©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 26 Fiducian Group Ltd Auditor’s Independence Declaration DIRECTORS’ DECLARATION 72 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 28 29 30 31 32 72 73 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. These financial statements were authorised for issue by the directors on 16 August 2021. The directors have the power to amend and reissue the financial statements. Annual Report 2021 27 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income For the year ended 30 June 2021 Notes Consolidated Revenue from ordinary activities Other income Payments to advisers and service providers Employee benefits expense Amortisation and depreciation 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 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 2021 $’000 58,640 199 (15,944) (17,061) (3,627) (5,274) 16,933 (4,754) 12,179 - 12,179 2020 $’000 54,697 207 (14,617) (16,115) (3,407) (5,828) 14,937 (4,474) 10,463 - 10,463 12,179 10,463 38.74 38.70 33.28 33.24 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 28 Fiducian Group Ltd Financial Statements 25YEARSSILVERANNIVERSARY Consolidated Statement of Financial Position As at 30 June 2021 FINANCIAL STATEMENTS 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 Right-of-use assets Intangible assets Total Non-Current Assets Total assets LIABILITIES Current liabilities Trade and other payables Lease liabilities Current tax liabilities Total Current Liabilities Non-current liabilities Net deferred tax liabilities Lease liabilities Provisions Total Non-Current Liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity 2021 $’000 19,316 7,837 27,153 6,134 611 5,324 19,373 31,442 58,595 7,474 1,315 457 9,246 1,483 4,578 419 6,480 15,726 42,869 7,636 75 35,158 42,869 2020 $’000 13,961 6,327 20,288 5,712 759 6,907 20,987 34,365 54,653 6,677 1,377 360 8,414 1,978 5,858 280 8,116 16,530 38,123 7,636 25 30,462 38,123 9 10 11 13 35 15 16 35 17 18 35 19 20 21 22 The above statement of financial position should be read in conjunction with the accompanying notes. Annual Report 2021 29 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity As at 30 June 2021 Balance as at 30 June 2019 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders Dividends paid Options expense Total transactions with equity holders Balance as at 30 June 2020 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders Dividends paid Options expense Total transactions with equity holders 8 21 8 21 Contributed Notes Equity Reserves $’000 7,636 $’000 22 Retained Profits $’000 27,168 10,463 - Total $’000 34,826 10,463 - 10,463 10,463 (7,169) - (7,169) 30,462 12,179 - 12,179 (7,483) - (7,483) 35,158 (7,169) 3 (7,166) 38,123 12,179 - 12,179 (7,483) 50 (7,433) 42,869 - - - - - - - - - - 3 3 7,636 25 - - - - - - - - - - 50 50 75 Balance as at 30 June 2021 7,636 The above statement of changes in equity should be read in conjunction with the accompanying notes. 30 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY Consolidated Statement of Cash Flows For the year ended 30 June 2021 FINANCIAL STATEMENTS Notes Consolidated Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Income taxes paid Net cash inflow from operating activities 29 Cash flows from investing activities Payments in relation to acquisitions Business development loans granted to advisers Repayment of business development loans by advisers Payments for property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Lease principal payments Dividends paid Net cash outflow from financing activities Net increase in cash and cash equivalents held Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of year 9 The above statement of cash flows should be read in conjunction with the accompanying notes. 2021 $’000 64,060 (43,050) 21,010 199 (5,170) 16,039 (544) (2,207) 1,386 (105) (1,470) (1,731) (7,483) (9,214) 5,355 13,961 19,316 2020 $’000 59,470 (42,631) 16,839 301 (5,418) 11,722 (695) (1,349) 1,603 (800) (1,241) (1,143) (7,169) (8,312) 2,169 11,792 13,961 Annual Report 2021 31 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS Notes to the Financial Statements 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 2021 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 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 entity’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 recognition Revenue is recognised, using the five step approach prescribed by the accounting standards, upon satisfaction of the performance obligations, which occur when control of the goods or services is transferred to the customer. The key judgments in the recognition of revenue involves determining whether the contract is a single performance contract, whether the performance obligation is satisfied over time, as well as the timing and amount of variable consideration to be recognised. The primary revenue streams from contracts with customers for the Group are in the nature of management fee income earned from funds management, fees earned from offering platform services and fee income from offering advice to customers. 32 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) • Fees earned from the funds management services have been accounted for as single performance obligations to each fund satisfied over time. The fees received based on a fixed percentage on the assets under management are considered variable consideration but with the uncertainty in the variable element being resolved within the reporting period. Fund management services are held to be performed on an ongoing daily basis and therefore fees are accrued daily and paid monthly in arrears for the service provided. • Revenue streams earned from platform administration services are identified as separate single performance obligations to individual customers with customers exercising control over the funds transitioned onto the platform. Platform administration services are held to be performed on an ongoing daily basis and therefore fees are accrued daily and paid monthly in arrears for the service provided by the platform. • Fees earned from offering advice to customers are a combination of fees earned for ongoing service, and one off fees. Ongoing fees based on Funds Under Advice are treated as single performance obligations satisfied over time. The fees received based on a fixed percentage on the Funds Under Advice are considered variable consideration but with the uncertainty in the variable element being resolved within the reporting period. Advice service fees are therefore accrued daily and paid monthly in arrears for the service period, and therefore the revenue is attributed to services provided for within the period and accounted for as such. One off fees are identified as a single performance obligation with service performed at a point in time and revenue recognised in line with the service. 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. Annual Report 2021 33 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) E. Operating leases H. Cash and cash equivalents The Group leases office space and equipment for which contracts are typically entered into for fixed periods and may include extension options. Leases are recognised as a right-of-use asset and a corresponding liability at the commencement date, being the date the leased asset is available for use by the Group. The accounting policy for the classification and accounting for leases has been explained in Note 1-O. 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 and Responsible Entity of an Investor Directed Portfolio Service, Fiducian Investment Service, Separately Managed Accounts service and the Responsible Entity of Fiducian Funds and Separately Managed Accounts (“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 2021 reflect the fiduciary nature of these companies’ 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. G. Impairment of goodwill and intangible 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. For statement of cash flows 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. Trade receivables are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period greater than 120 days past due. 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. 34 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) 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. K. Investments and other financial instruments 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. Business Development Loans Fiducian provides financial support in the form of business development loans to aligned financial planner franchisees to enable them to grow their business organically or through acquisition. Management have assessed the business model for these loans to be ‘Hold and Collect’ and the cash flows of these loans to be Solely Payments of Principal and Interest (SPPI) and therefore the business development loans are classified as Amortised Cost. The ECL is determined with reference to the following stages: Stage 1: Performing loans 12 month ECL At initial recognition and for financial assets for which credit risk was low, ECL was determined based on the PD over the next 12 months and the losses associated with such default, adjusted for forward looking information. Interest income was determined with reference to the effective interest rate and the gross carrying amount of the asset. Stage 2: Non-performing loans: Lifetime ECL The Group assessed whether there had been a Significant Increase in Credit Risk (SICR) of the loans since initial recognition, based on qualitative and quantitative factors, and reasonable forward looking information, which included significant management judgement. Qualitative factors included but were not limited to payment history, requests to modify contractual payments and compliance reviews. Quantitative analysis utilised an internally developed model based on loan to value ratios and forecast cash flows, adjusted for forward looking indicators such as the level of the ASX 200. Where the Group’s modelling indicated a SICR, an ECL was determined with reference to the loan’s lifetime probability of default and the lifetime loss associated with that probability of default. Interest income was determined with reference to the financial asset’s effective interest rate and the gross carrying amount of the asset. The deferral of contractual payments for short periods of time has not been treated as an automatic indicator of SICR by and of themselves. Stage 3: Credit impaired loans: Lifetime ECL Where one or more events which have a detrimental impact on estimated future cash flows has occurred, the loans would be classified as credit impaired and included in stage 3. Management have pre-defined some events that would objectively indicate credit impairment such as loan to value ratio increasing beyond a certain percentage and bankruptcy of the adviser. Lifetime ECL continues to be recognised but interest income is taken on a net of provision basis. As at 30 June 2021 the Group does not have any business development loans in stage 3. Impairment L. Fair value estimation Credit impairments are based on a 3-stage Expected Credit Loss (ECL) approach where individual loans are categorised based on changes in the credit risk since origination. An unbiased and probability weighted ECL is then computed for the individual loan as the product of the Probability of Default (PD), the Loss Given Default (LGD) probability and the Exposure At the time of Default (EAD). Other than the business development loans discussed above, 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. Annual Report 2021 35 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) 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 – 10 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 estimated 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 amounts. These are included in the statement of comprehensive income. 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 Unpaid consideration for the acquistion of client portfolios is shown as an outstanding liability while the full amount of client portfolios acquired is booked as an intangible asset and amortised on a straight-line basis over a period of 36 Fiducian Group Ltd 10 years. The period is based on management’s internal assessment of the average life of an acquired client portfolio and there is no indication that the amortization period is less than 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. Right of use assets and lease liabilities The Group recognizes a right-of-use asset offset with a corresponding lease liability in respect of its rented premises from the date at which the premises became available for use by the Group. The right-of-use assets initially measured at cost will comprise the following: • The amount of the initial measurement of the lease liabilities • Any lease payments made at/or before the commencement date less lease incentives • Any initial directs costs incurred by the group and • Restoration costs The lease liabilities as at the commencement date will include the net present value of the following lease payments: • Any fixed payments less any lease incentives receivable • Variable lease payments based on an index or rate, initially measured using that index or rate at commencement • Amount expected to be payable by the Group under a residual value guarantee • Payments of penalties for termination the lease, if the lease term reflects the group exercising the option to terminate the lease • Exercise price of a purchase option if the Group is reasonably certain to exercise that option 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) The right-of-use asset is depreciated from the commencement date to the earlier of the end of the useful life of the right-of-use asset and the end of the lease term (including the extension option where applicable) on a straight-line basis. In determining the lease term, management has considered all facts and circumstances that create an economic incentive to exercise the extension option. If the Group is reasonably certain that it will exercise the option to renew the lease then the extended period has been taken into consideration for calculating the depreciation amount. The right-of-use assets held by the Group may be subsequently adjusted for any re-measurement of the lease liability to reflect any reassessment or lease modifications identified, or to reflect revised in-substance fixed lease payments. The lease payments are discounted using the interest rate implicit in the lease or, where that is not available, by using the lessee’s incremental borrowing rate payable to borrow funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Under the standard, the lease payments are allocated between the principal and finance cost. The operating expense in respect of lease payments in the profit and loss account has been replaced by the finance cost, calculated by applying the incremental borrowing rate on the remaining balance of the lease liability, and the depreciation cost for the right-of-use asset. This has typically resulted in higher depreciation and interest expenses in earlier years and lower expenses in later years with flow on impacts to key metrics like EBITDA etc. The Finance cost component of the lease payment is treated as an operating cash outflow in the statement of cash flows while the principal payment has been treated as a financing cash outflow. Payments associated with short-term leases of equipment and premises with a lease term of less than 12 months continue to be recognised on a straight line basis as an expense in the profit and loss account. P. 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. Q. 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. R. 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 and 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. Annual Report 2021 37 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 1. Summary of significant accounting policies (continued) 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. 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 re-issued. T. 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. U. 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. V. 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 or other 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. W. Rounding of amounts The Company is of a kind referred to in Class Order 2016/191 ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 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. X. New accounting standards and interpretations that became effective in the current year The revised AASB Framework was effective for the Consolidated Entity’s annual financial reporting period beginning on 1 July 2020. The AASB Framework provides the AASB with a base of consistent concepts upon which future accounting standards will be developed. The AASB Framework will also assist financial report preparers to develop consistent accounting policies when there is no specific or similar standard that addresses an issue. The AASB Framework includes amendments to the definition and recognition criteria for assets, liabilities, income and expenses, guidance on measurement and derecognition, and other relevant financial reporting concepts. The application of the revised AASB Framework did not have a material impact on the Consolidated Entity’s financial statements. Other amendments made to existing standards that were mandatorily effective for the annual reporting period beginning on 1 July 2020 did not result in a material impact to the Consolidated Entity’s financial statements 38 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 2. Critical accounting estimates and 3. Segment information judgements In preparing the Annual Report, the Group makes estimates and assumptions concerning the future which management believes are reasonable. However, outcomes may differ from management’s assumptions and estimates and may require adjustments to the carrying amounts of the assets and liabilities reported. These estimates and judgements 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 client portfolios may be impaired in accordance with the accounting policy stated in Note 1-N. If any such indication exists, the Group shall estimate the recoverable amount of the asset. The recoverable amounts of cash-generating units have been determined based on earnings multiples requiring the use of sustainable revenue estimates and comparable market transactions. (iii) Estimated impairment of loans receivables The Group applies a three-stage approach to measuring the ECL based on changes in the business development loan’s underlying credit risk and includes forward-looking or macroeconomic information (FLI). The calculation of ECL requires judgement and the choice of inputs, estimates and assumptions around the product of the probability of default (PD), the loss given default (LGD) and the exposure at default (EAD). Outcomes within the next financial period that are different from management’s assumptions and estimates could result in changes to the timing and amount of ECL to be recognised. 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: Funds Management The Group acts as Responsible Entity for managed investment schemes and separately managed accounts through its subsidiary Fiducian Investment Management Services Limited. Financial Planning The Group continues its specialist financial planning services through its subsidiary, Fiducian Financial Services Pty Ltd. Platform Administration The Group acts as an Registrable Superannuation Entity (RSE) of a public offer superannuation fund which is offered on its wrap platform through its subsidiary Fiducian Portfolio Services Ltd. The Group also acts as an Operator and Responsible entity of an Investor Directed Portfolio Service and the Fiducian Investment Service through another subsidiary Fiducian Investment Management Services Limited. Corporate Services This segment is an aggregation of the administration and professional services net of recoveries provided to the Group by a subsidiary, Fiducian Services Pty Ltd and Fiducian Business Services Pty Ltd, which provided distribution activities in the current period. 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. Annual Report 2021 39 25YEARSSILVERANNIVERSARY - - - - - 58,640 - 199 58,839 20,560 (3,627) 16,933 (4,754) 12,179 58,595 15,726 FINANCIAL STATEMENTS 3. Segment information (Continued) B. Primary reporting - Business segments Funds Management Financial Planning Platform Administration Corporate Services Segment Eliminations Consolidated $’000 $’000 $’000 $’000 $’000 $’000 2021 Revenue from external customers 22,823 19,446 16,371 - Inter-segment sales 1 Other revenue (4,974) 22 (120) 167 (3,800) 8,894 - 10 Total segment revenue 17,871 19,493 12,571 8,904 11,517 (360) 10,556 (1,153) Profit from ordinary activities before income tax, depreciation and amortisation Depreciation, amortisation and impairment Profit from ordinary activities before income tax Income tax expense Profit from ordinary activities after income tax expense Segment assets Segment liabilities Acquisitions of plant and equipment, intangible and other non-current segment assets 10,748 32,317 3,093 2,800 31,159 - (25) - - 82,620 40,225 (70,183) (58,458) 310 - 285 1 Intersegment sales for the current period represents internal service charges from the Administration entity to other business lines. 40 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY - - - - - 54,697 - 207 54,904 18,344 (3,407) 14,937 (4,474) 10,463 54,653 16,530 FINANCIAL STATEMENTS 3. Segment information (Continued) B. Primary reporting - Business segments (Continued) Funds Management Financial Planning Platform Administration Corporate Services Segment Eliminations Consolidated $’000 $’000 $’000 $’000 $’000 $’000 2020 Revenue from external customers 19,445 20,685 14,567 - Inter-segment sales 1 Other revenue (4,550) 59 (120) 213 (3,476) 8,146 - (65) Total segment revenue 14,954 20,778 11,091 8,081 9,376 1,071 9,412 (1,515) Profit from ordinary activities before income tax, depreciation and amortisation Depreciation, amortisation and impairment Profit from ordinary activities before income tax Income tax expense Profit from ordinary activities after income tax expense Segment assets Segment liabilities Acquisitions of plant and equipment, intangible and other non-current segment assets 9,546 33,071 2,893 2,359 32,359 - 3,905 - - 73,665 37,108 (64,522) (55,297) 769 - 4,674 1 Intersegment sales for the current period represents internal service charges from the Administration entity to other business lines. Annual Report 2021 41 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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 in the statement of comprehensive income is reported in a manner consistent with the regular reporting provided to the board during the year. Segment revenue reconciles to total revenue from continuing operations as follows: Total segment revenue Total revenue from continuing operations (Note 4) Consolidated 2021 $’000 58,640 58,640 2020 $’000 54,697 54,697 The Group is domiciled in Australia. The amount of its revenue from external customers in Australia is $58,640,000 (2020: $54,697, 000). (ii) Segment assets Total assets are reported in a manner consistent with the regular reporting provided to the board during the year. 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. The Indian assets are not material. (iii) Segment liabilities Total liabilities are reported in a manner consistent with the regular reporting provided to the board during the year. These liabilities are allocated based on the operations of the segment. 4. Revenue from ordinary activities From continuing operations Sales revenue Fees received 1 Other Revenue from ordinary activities 1 Includes expense recovery fee of $2,883,333 (2020: $3,800,000). For details refer to Note 6. 5. Other income Interest received/receivable Accounting Business Sale Proceeds Receivable write off Other income 42 Fiducian Group Ltd Consolidated 2021 $’000 57,508 1,132 58,640 Consolidated 2021 $’000 199 - 199 2020 $’000 53,681 1,016 54,697 2020 $’000 302 (95) 207 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 6. Expenses Consolidated Profit before income tax includes the following expenses: a) Amortisation and depreciation expense Amortisation Capitalised computer software Client portfolio acquisition costs Total amortisation Depreciation Furniture, office equipment and computers Leasehold improvements Right-of-use assets Total depreciation Total amortisation and depreciation expense 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 Recovery 1 Total other expenses 2021 $’000 9 1,779 1,788 255 - 1,584 1,839 3,627 696 1,140 36 137 1,057 64 596 604 2,054 (1,110) 5,274 2020 $’000 10 2,013 2,023 182 30 1,172 1,384 3,407 659 1,542 294 212 989 197 960 390 1,388 (803) 5,828 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. Additional out of pocket expense reimbursements of $447,221 (2020: $261,033) have been included in Expense Recovery in Note 6(b). For the current year the Expense Recovery Fee of $2,883,333 (2020: $3,800,000) has been included in Revenue from ordinary activities in Note 4 as part of Fees received. Annual Report 2021 43 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 7. Income tax expense a) Income tax expense Current tax Deferred tax Income tax expense Deferred income tax (revenue)/expense included in income tax expense comprises: Decrease 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% (2020: 30%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Entertainment Sundry items Income tax (over)/under provided in previous year Income tax expense c) Tax consolidation legislation Consolidated 2021 $’000 5,268 (514) 4,754 407 (921) (514) 16,933 5,080 19 (143) (202) 4,754 2020 $’000 5,082 (608) 4,474 348 (956) (608) 14,937 4,481 59 41 (107) 4,474 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. 44 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY 8. Dividends Final ordinary fully franked dividend for the year ended 30 June 2020 of 11.50 cents (2019: Fully franked 11.30 cents) per share paid on 14 September 2020. Interim ordinary fully franked dividend for the year ended 30 June 2021 of 12.30 cents (2020: Fully franked 11.50 cents) per share paid on 15 March 2021. Total dividends paid during the year FINANCIAL STATEMENTS Consolidated 2021 $’000 3,616 3,867 7,483 2020 $’000 3,553 3,616 7,169 Subsequent to 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 2021 of 14.60 cents per ordinary share held on 30 August 2021 and payable on 13 September 2021. Franked dividends The franked portions of the final dividends recommended after 30 June 2021 will be franked out of existing franking credits. Franking credits available for the subsequent financial year based on a tax rate of 30% Consolidated 2021 $’000 20,227 2020 $’000 18,240 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 $1,967,410 (2020: $1,549,672). 9. Current assets – Cash and cash equivalents Cash at bank and in hand Balance at end of the year Consolidated 2021 $’000 19,316 19,316 2020 $’000 13,961 13,961 Annual Report 2021 45 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 10. Current assets – Trade and other receivables Consolidated Amounts receivable from related entities: Related trusts Business development loans * Other Prepayments Less: provision for impairment of trade receivables - Other * Refer to Note 11 for the non-current portion of these receivables. Movement in provision for impairment of trade receivables - Other Balance at beginning of the year Reduction/(Additional) provision during the year Balance at end of the year 2021 $’000 5,384 1,659 526 576 8,145 (308) 7,837 (459) 151 (308) 2020 $’000 4,597 863 760 566 6,786 (459) 6,327 (500) 41 (459) At 30 June 2021, a provision for impairment exists for trade receivables outstanding greater that 120 days where management considers that the receivable is impaired. There is no material loss expected other than the provisions made. Information about the Group’s exposure to interest rate risk in relation to trade and other receivables is provided in Note 32-A and details on the credit risk associated with Business Development loans in Note 32-B. 11. Non-current assets – Loan receivables Business development loans * Less: provision for impairment of loans Balance at end of the year Consolidated 2021 $’000 6,455 (321) 6,134 2020 $’000 6,266 (554) 5,712 * Refer to Note 10 for the current portion of these receivables. A. Impaired receivables and receivables past due In response to COVID-19 the Group undertook a review of its business development loans and the related ECL. The review considered the macroeconomic outlook, adviser credit quality, the type of collateral held, exposure at default and the effect of payment deferral options as at the reporting date. While the model inputs including forward-looking information were revised, the ECL models, SICR thresholds and definitions of default remain consistent with prior periods. Following the economic consequences of COVID-19 at the reporting date the timing of contractual recovery is subject to evolving regulatory and industry support for counterparties requesting such support. The deferral of contractual payments for short periods of time has not been treated as an automatic indicator of SICR or considered a default if there has not been a material effect on the present value of expected future cash flows. 46 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 11. Non-current assets – Loan receivables (continued) The Group does not have any non-performing loans. However, consistent with the 3 stage approach to Expected Credit Loss (ECL) recognition, some underperforming loans have been classified as Stage 2 where there has been a Significant Increase in Credit Risk (SICR) in underlying exposures since initial recognition. Despite these assets not being of a lower credit quality than exposures classified in stage 1. In accordance with the ECL methodology, these loans have transitioned from stage 1 to stage 2, requiring the provision of a Lifetime ECL. Underperforming loans included in Stage 2 assessment Impaired receivables and receivables past due Less: Lifetime ECL against Stage 2 Net impaired receivables and receivables past due Consolidated 2021 $’000 2,827 2,827 (321) 2,506 2020 $’000 2,905 2,905 (554) 2,351 The Group assessed semi-annually its business development loans and the related ECL to determine whether there has been a SICR. The review considered the macroeconomic outlook, adviser credit quality, the type of collateral held, exposure at default and the effect of payment deferral options, if any, as at the reporting date. The deferral of contractual payments for short periods of time is not been treated as an automatic indicator of SICR by and of themselves. The SICR methodology used in the review is a relative credit risk based approach which considers changes in an underlying exposure’s credit risk since origination. The Group used three downside scenarios anchored to a deterioration in the ASX 200, broadly representing low, medium and significant downside to determine a SICR. Since the prior year the Group has adopted a fourth more extreme scenario to recognise a COVID-19 fueled economic environment. There has been a slight decrease in the quantum of Stage 2 exposures under this scenario. In calculating the ECL, loan exposures which in prior years had shown a SICR had gradually reduced over time through repayments and therefore after application of probability to the exposure’s PDs and LGD and adjusting for the collateral held, the Group determined that the current ECL balance was higher than required and accordingly it was reduced by an amount of $233,000. No further provision was required despite the increase in exposure. Security Under the terms of agreement for business development loans, the Group has a security deed over all the assets of the franchisee’s business registered in the Personal Property Security Register. This security may be called upon if the franchisee defaults under the terms of the agreement. B. Fair values The fair values and carrying values of non-current receivables of the Group are as follows: Business development loans * 2021 2020 Carrying amount Fair value Carrying amount Fair value $’000 6,134 $’000 6,134 $’000 5,712 $’000 5,712 * Business development loans are carried at amortised cost; their carrying value is a reasonable approximation of fair value. Annual Report 2021 47 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 12. Investment in Subsidiaries The Group’s subsidiaries as at 30 June 2021 are set out below. Country of Equity Holding Name of Entity Incorporation Class of Shares Fiducian Investment Management Services Ltd (FIMS) 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 for the Fiducian Funds and Separately Managed Accounts service. The Company is also the Operator of the Fiducian Investment Service. 2 The Company acts as the Trustee for the Fiducian Superannuation Service. 3 The Company provides platform administration and self-managed superannuation services to clients and corporate services to other entities within the Group. 4 The principal activity of the Company is the provision of a specialist financial planning services network. 5 The Company is responsible for the distribution and business development activities on behalf of the Group. In addition to the above subsidiaries, Fiducian Business Services has a 90% equity investment in Fiducian Resourcing Services Pvt Ltd, a company incorporated in India. The operations of this company, which are in the process of being wound up, are not considered material to the Group in 2021. 13. Non-current assets – Property, plant & equipment Consolidated 2021 $’000 2,620 (2,009) 611 2020 $’000 2,515 (1,756) 759 Plant and Equipment Cost Less: accumulated depreciation Total plant and equipment 48 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 13. Non-current assets – Property, plant & equipment (continued) Movements Reconciliation of the carrying amount of each class of property, plant and equipment are set out below. Furniture and Office Leasehold Equipment Computers Improvements $’000 $’000 $’000 At 30 June 2019 Cost Accumulated depreciation Net book amount Year ended 30 June 2020 Opening net book amount Additions Disposals Depreciation Closing net book amount At 30 June 2020 Cost Accumulated depreciation Net book amount Year ended 30 June 2021 Opening net book amount Additions Disposals Depreciation Closing net book amount At 30 June 2021 Cost Accumulated depreciation Net book amount 300 (264) 36 36 19 - (17) 38 319 (281) 38 38 - (3) (15) 20 316 (296) 20 582 (476) 106 106 780 - (165) 721 1,362 (641) 721 721 109 - (239) 591 1,471 (880) 591 834 (804) 30 30 - - (30) - 834 (834) - - - - - - 834 (834) - Total $’000 1,716 (1,544) 172 172 799 - (212) 759 2,515 (1,756) 759 759 109 (3) (254) 611 2,621 (2,010) 611 Annual Report 2021 49 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 14. Non-current assets – Deferred tax assets Consolidated The balance comprises temporary differences attributable to: Doubtful debts Employee benefits Accrued expenditure Provision for audit and taxation services Provision for FBT AASB 16 lease adjustments Deferred tax assets before set off Set off against deferred tax liabilities (Note 18) Movements: Opening balance at 1 July Addition during the year Taken to the statement of comprehensive income Deferred tax assets before set off Set off against deferred tax liabilities 2021 $’000 93 702 374 214 5 1,761 3,149 (3,149) - 3,556 - (407) 3,149 (3,149) - 2020 $’000 138 636 464 150 8 2,160 3,556 (3,556) - 1,447 2,457 (348) 3,556 (3,556) - 50 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY 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: Impairment/amortisation Total intangible assets FINANCIAL STATEMENTS Consolidated 2021 $’000 5,259 (5,044) 215 20,332 (10,396) 9,936 9,976 (754) 9,222 19,373 2020 $’000 5,060 (5,035) 25 20,376 (8,617) 11,759 9,957 (754) 9,203 20,987 Annual Report 2021 51 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 15. Non-current assets – Intangible assets (Continued) A. Movements Movements in each category are set out below: Acquisition of Goodwill on Client Portfolios Acquisition At 30 June 2019 Cost Accumulated amortisation/impairment 2 Net book amount Year ended 30 June 2020 Opening net book amount Additions 1 Amortisation/impairment charge 2 Closing net book amount At 30 June 2020 Cost Accumulated amortisation/impairment 2 Net book amount Year ended 30 June 2021 Opening net book amount Additions/Work in progress 1 Sale of business Amortisation/impairment charge 2 Closing net book amount At 30 June 2021 Cost Accumulated amortisation/impairment 2 Net book amount $’000 18,143 (6,604) 11,539 11,539 2,233 (2,013) 11,759 20,376 (8,617) 11,759 11,759 43 (87) (1,779) 9,936 20,332 (10,396) 9,936 $’000 9,200 (659) 8,541 8,541 662 - 9,203 9,862 (659) 9,203 9,203 19 - - 9,222 9,881 (659) 9,222 Capitalised Computer Software $’000 5,026 (5,025) 1 1 34 (10) 25 5,060 (5,035) 25 25 199 - (9) 215 5,259 (5,044) 215 Total $’000 32,369 (12,288) 20,081 20,081 2,929 (2,023) 20,987 35,298 (14,311) 20,987 20,987 261 (87) (1,788) 19,373 35,472 (16,099) 19,373 1 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. 2 Amortisation of $1,788,000 (2020 : $2,023,000) is included in depreciation, amortisation and impairment expense in the statement of comprehensive income. 52 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 15. Non-current assets – Intangible assets (Continued) B. Impairment tests for goodwill and client portfolios Goodwill and client portfolios are allocated to the financial planning business reportable segment which has been identified as the applicable cash-generating unit (CGU). The CGU is the lowest level within the entity at which the goodwill and client portfolios are monitored for internal management purposes on an ongoing basis. The recoverable amount of the CGU is determined based on market value calculations in line with the fair value less cost of disposal method and represents a level 2 fair value estimate. These calculations apply income multiples consistent with the market valuations of similar financial services businesses to recurring revenue from the CGU at the year end, less cost to sell. C. Impact of possible changes in key assumptions In the current year there has been considerable volatility in the economic environment as a result of COVID-19. Management has carefully considered the impact of COVID-19 and the implications of lower economic activity on its operations. However management has not observed any disruption to its operations or significantly lower revenue as a result of the reduced economic activity, and therefore have seen no reason to reduce the estimates for operating cash flows for impairment testing purposes. The estimates and judgments included in the fair value calculations are based on historical experience, observed transactions in the market for similar financial services businesses and other factors, including management’s and the Directors’ expectations of future events that are believed to be reasonable under the current circumstances. There has been no impairment recognised for the Group’s CGUs in the impairment assessment performed at 30 June 2021. The key assumption made in the assessment of impairment of goodwill is the income multiple applied to recurring revenues. The income multiple assumption is compared to market each year and adjusted appropriately. In the current year, there has been considerable volatility in the securities markets as a result of COVID-19. Based on management’s current assessment, the recoverable amount of the Group’s CGU exceeds the carrying amount. An 8% change in the current multiples of 2.2 used in the assumption would be required before the carrying value of the CGU would exceed the recoverable amount. To assess the accuracy of the market value calculation, management performed an alternative analysis using the value-in- use model which considers long term assumptions such as market growth rates, a terminal growth rate, inflation rates and a discount rate. Based on management’s value-in-use analysis, the recoverable amount of the Group’s CGU exceeds the carrying amount and is consistent with the outcome of the market value approach. D. Impairment charge During the year, no impairment charge was recorded in the books (2020: Nil). Annual Report 2021 53 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 16. Current liabilities – Trade and other payables Trade payables Other payables 1,2 Client portfolio deferred settlement Annual leave entitlements accrued Long service leave entitlements accrued Total trade and other payables Consolidated 2021 $’000 2,611 2,940 - 791 1,132 7,474 2020 $’000 2,142 2,150 545 730 1,110 6,677 Information about the Group’s exposure to credit and interest rate risk is shown in Note 32. 1 Includes a provision for fee for no service remediation of $100,000 (2020: $100,000) which has been retained though no claims for compensation have been received. 2 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 and is not transferable and 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 Total current tax liabilities Consolidated 2021 $’000 457 457 2020 $’000 360 360 54 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 18. Non-current liabilities – Deferred tax liabilities Consolidated The balance comprises temporary differences attributable to: Recognition and depreciation of ROU assets Recognition and 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 Total deferred tax liabilities 19. Non-current liabilities – Provisions Employee benefits - long service leave Total provisions 2021 $’000 1,595 3,037 4,632 (3,149) 1,483 5,534 19 (921) 4,632 (3,149) 1,483 936 547 1,483 Consolidated 2021 $’000 419 419 2020 $’000 2,072 3,462 5,534 (3,556) 1,978 3,407 3,083 (956) 5,534 (3,556) 1,978 595 1,383 1,978 2020 $’000 280 280 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. Annual Report 2021 55 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 20. Contributed equity A. Share Capital Ordinary shares - fully paid Total share capital B. Movements in ordinary share capital Date Details 1 July 2019 Opening balance Shares bought back on market and cancelled Shares issued on exercise of options 30 June 2020 Balance Shares bought back on market and cancelled Shares issued on exercise of options 30 June 2021 Balance C. Ordinary shares Consolidated 2021 $’000 7,636 7,636 Number of shares 31,442,623 - - 2020 $’000 7,636 7,636 $’000 7,636 - - 31,442,623 7,636 - - - - 31,442,623 7,636 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 amount paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote and, upon a poll each share is entitled to one vote. D. Share buy-back Between 1 July 2020 and 30 June 2021, the Company did not purchase and cancel any ordinary shares on-market. At 30 June 2021, 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 options issued, exercised and lapsed during the year is set out in Note 24. 56 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 20. Contributed equity (continued) F. Capital risk management The externally imposed requirements are: 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) Licence, Responsible Entity (RE) Licence and their Australian Financial Services (AFS) Licence, and to continue to provide returns to shareholders and benefits to 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. 21. Reserves 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 Licence are maintained by placing cash on deposit with an Authorised Deposit taking Institution. The requirement under the AFS Licence is reported to the Board quarterly at each meeting. Consolidated 2021 $’000 2020 $’000 Movements Share-based payments reserve Balance at 1 July Option expense Transfer to retained profits (on exercise of options) Balance at 30 June 25 50 - 75 The share-based payments reserve is used to recognise the fair value of options issued but not exercised. 22. Retained profits Movements Balance at 1 July Net profit for the year Dividends paid (Note 8) Balance at 30 June Consolidated 2021 $’000 30,462 12,179 (7,483) 35,158 22 3 - 25 2020 $’000 27,168 10,463 (7,169) 30,462 Annual Report 2021 57 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 23. Key management personnel disclosures A. Key management personnel Short-term employee benefits Post-employment benefits Share-based payment Total payments to key management personnel Consolidated 2021 $ 873,680 42,895 48,986 965,561 2020 $ 810,472 35,203 3,614 849,289 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 number 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. 2021 Name I Singh 1 Balance at the start of the year Exercised Granted during the year as remuneration Lapsed during the year Balance at the end of the year Vested and exercisable 35,000 - - - 35,000 35,000 1 Under the terms of his employment Mr I Singh is entitled to 90,000 options relating to the year ended 20 June 2021. These are subject to approval at the annual general meeting on 21 October 2021 and therefore these have not been included in the above table. 2020 Name I Singh 1 Balance at the start of the year Exercised Granted during the year as remuneration Lapsed during the year Balance at the end of the year Vested and exercisable 35,000 - - - 35,000 35,000 1 Under the terms of his employment Mr I Singh is not entitled to any options relating to the year ended 30 June 2020. 58 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 23. Key management personnel disclosures (continued) (iii) Shareholdings The number 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. 2021 Name I Singh R Bucknell F Khouri S Hallab 2020 Name I Singh R Bucknell F Khouri S Hallab Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 10,872,061 500,000 268,323 68,027 - - - - - - - 6,500 10,872,061 500,000 268,323 74,527 Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 10,723,851 583,000 268,323 52,477 - - - - 148,210 (83,000) - 15,550 10,872,061 500,000 268,323 68,027 Shares provided on exercise of options During the year no ordinary share was issued as a result of the exercise of remuneration options to the Executive Chairman of Fiducian Group Limited (2020: Nil). No amounts are unpaid on any shares issued on the exercise of options. C. Loans to directors No loans were made to directors during the financial year (2020: Nil). Annual Report 2021 59 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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. 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 Total payments relating to other transactions with key management personnel Consolidated 2021 $ 302,275 264,350 566,625 2020 $ 267,679 246,134 513,813 * 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 24 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 2021 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. 60 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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. The parent entity has established the ESOP, which is designed to provide incentives to employees and directors. All grants of options under the ESOP are subject to compliance with the Corporations Act 2001 and ASX Listing Rules. The directors may, from time to time, determine which employees and directors may participate in the ESOP, and the number of options that may be issued to them. The directors have an absolute discretion to determine who will participate and the number of options that may be issued. The ESOP provides for an upper limit on the number of options that may be outstanding, the exercise price, exercise period and expiry, and adjustments in the event of capital restructuring. The directors have resolved that the ESOP no longer applies to non-executive directors. Options are granted under the plan for no consideration. Employee options are granted for a five-year period where 35% vest after one year, a further 45% vest after two years and the balance vest after three years. Director options vest after one year. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is converted into one ordinary share on payment of the exercise price. The exercise price of options is based on the volume weighted average price at which the Company’s shares are traded on the Australian Securities Exchange during the month preceding the date the options are granted. 90,000 options (2020: Nil) will be issued to the Executive Chairman in October 2021 in respect of his entitlement relating to financial year ended 30 June 2021 and no employee options expired during the same period (2020: 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 90,000 options (2020: Nil) to the Executive Chairman in respect of the year ended 30 June 2021. The assessed fair value at reporting date of the share based payments during the year ended 30 June 2021 was $1.27 per option (2020: Nil). If applicable the fair value at reporting date has been calculated using the Black Scholes pricing model. The assumptions used in the valuation of these options included a risk free rate of 1.75%, semi-annual dividends of 14.6 cents per share (in line with the most recently declared divided) and volatility in the Company’s share price of 27.6%, based on observed data for the last two years. Set out below are summaries of options granted under various option plans: Expiry Exercise Start of the During the During the During the End of the at the End of Balance at Granted Exercised Lapsed Balance at Exercisable Vested & Grant Date Date Price Consolidated 2021 ESOP-Executive Chairman 25 Oct 18 25 Oct 23 $4.35 Weighted average exercise price Year Number Year Number Year Number Year Number Year Number 35,000 35,000 $4.35 - - - - - - - - - 35,000 35,000 $4.35 Year Number 35,000 35,000 $4.35 Under the terms of his employment Mr I Singh is entitled to 90,000 options at a strike price of $6.47 relating to the year ended 30 June 2021. These are subject to approval at the annual general meeting on 21 October 2021 and therefore these have not been included in the above table. The volume of weighted average remaining contractual life of share options outstanding at the end of the period was 2.32 years (2020: 3.32 Years). Annual Report 2021 61 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 24. Share based payments (Continued) A. Employee and director share option plan (ESOP) (Continued) Expiry Exercise Start of the During the During the During the End of the at the End of Balance at Granted Exercised Lapsed Balance at Exercisable Vested & Grant Date Date Price Consolidated 2020 ESOP-Executive Chairman 25 Oct 18 25 Oct 23 $4.35 Weighted average exercise price Year Number Year Number Year Number Year Number Year Number 35,000 35,000 $4.35 - - - - - - - - - 35,000 35,000 $4.35 Year Number 35,000 35,000 $4.35 The volume of weighted average remaining contractual life of share options outstanding at the end of the period was 3.32 years (2020: 4.32 Years). B. Expenses arising from share-based payment transactions Expenses of $48,986 (2020: $3,614) arising from share-based payment transactions were recognised during the period as part of employee benefit expense. The total amount of options relating to FY21 is $114,300 which will be expensed over the vesting period in accordance with the accounting standards. 25. Remuneration of auditors KPMG replaced PricewaterhouseCoopers as the auditor of the parent entity and its related practices in the current year. Accordingly, the current year auditor remuneration in the table below was paid or payable for services provided by KPMG while the auditor remuneration for the comparative year relates to services provided by PricewaterhouseCoopers: Audit and review of financial reports Group Controlled entities and joint operations Funds Total audit and review of financial reports Other statutory assurance services Other assurance services Other services Internal audit fees paid to KPMG Tax compliance services paid to PwC Tax advisory services paid to PwC Consulting services paid to PwC Total other non-audit services Total service provided by Auditor 62 Fiducian Group Ltd Consolidated 2021 $ 57,750 102,750 227,500 388,000 2020 $ 130,076 75,000 338,000 543,076 111,750 105,000 50,250 134,000 46,434 - - - 46,434 596,434 - 104,700 24,000 55,000 183,700 965,776 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 25. Remuneration of auditors (Continued) It is the Group’s policy to engage the external auditor on assignments in addition to their statutory audit duties where the external auditor’s expertise and experience with the Group are important, provided that the auditor’s independence is not impacted. Fees accrued and expensed in the financial statements of the Group relate solely to the services provided to the Company and its controlled entities. Prior to being appointed as external auditors of the Group, KPMG acted as the internal auditor of Fiducian Superannuation Service. KPMG did not provide any other services to the Group during the year. 26. Contingent liabilities Contingent liabilities at 30 June 2021 represent bank guarantees for property leases of parent and group entities amounting to $818,753 (2020: $818,753). 27. Commitments Consolidated 2021 $’000 1,141 1,141 2020 $’000 130 130 Business development loan commitments payable within one year 28. Related-party transactions A. Parent entity The parent entity within the Group is Fiducian Group Limited. B. Subsidiaries Interests in subsidiaries are set out in Note 12. The consolidated financial report incorporates 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. Annual Report 2021 63 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 28. Related-party transactions (Continued) D. Transactions with related parties (i) Transactions between the Group and other related entities include the following: a. Operator fee income received from related Investor Directed Portfolio Service (IDPS) b. Trustee fee income received from related trusts c. Recovery of group costs from related trusts d. Collection of fees by Responsible Entities from the related funds and Separately Managed Accounts 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 include the following: a. Financial planning fees paid by Fiducian Financial Services Pty Limited to entities associated with the directors b. Financial planning fees paid by Fiducian Financial Services Pty Limited to entities associated with relatives of the directors The above transactions were on normal commercial terms and conditions and at market rates. The following transactions occurred with related parties: Related trusts Fiducian Investment Service Operator fees income Expense recovery Fiducian Superannuation Service Operator fees income Expense recovery Fiducian Funds Operator fees income Expense recovery Entities associated with directors or their relatives Hawkesbury Financial Services Pty Ltd 2 Financial planning fees paid Fiducian Financial Services Bondi Junction Pty Ltd 3 Financial planning fees paid Consolidated Ownership Interest 1 Nil Nil Nil 2021 $ 2020 $ 7,314,165 6,626,790 35,936 160,715 19,346,854 17,711,020 3,252,495 4,061,034 21,328,969 17,827,134 393,451 495,713 264,350 246,134 136,992 154,341 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. 64 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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) Total current receivables Consolidated 2021 $ 2020 $ 5,384,600 4,596,853 5,384,600 4,596,853 No ECL provision is required to be raised in respect of any outstanding balances and no expense is required to be recognised in respect of impaired 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 benefit Amortisation and depreciation 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 2021 $’000 12,179 221 3,627 (403) (216) 737 408 (514) 2020 $’000 10,463 136 3,407 (843) (306) (217) (277) (641) 16,039 11,722 Annual Report 2021 65 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 30. Earnings per share Consolidated 2021 2020 Earnings per share using weighted average number of ordinary shares outstanding during the period: A. Basic earnings per share (in cents) Profit from continuing operations attributable to the ordinary equity and potential ordinary equity of the company 38.74 33.28 B. Diluted earnings per share (in cents) Profit from continuing operations attributable to the ordinary equity of the company 38.70 33.24 Consolidated 2021 Number 2020 Number C. Weighted average number of shares used as denominator Weighted average number of ordinary shares used as denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share options 31,442,623 31,442,623 30,450 30,450 Weighted average number of ordinary shares and potential ordinary shares used as denominator in calculating diluted earnings per share 31,473,073 31,473,073 Consolidated 2021 $’000 2020 $’000 D. Reconciliation of earnings used in calculating basic and diluted earnings per share Net profit and earnings used to calculate basic and diluted earnings per share 12,179 10,463 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. 66 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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. 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 Business development loans Total financial assets Financial liabilities Trade and other payables A. Market risk (i) Foreign exchange risk Consolidated 2021 $’000 19,316 6,178 7,793 33,287 2020 $’000 13,961 5,464 6,575 26,000 7,893 6,957 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 loans to planners. The Group has no borrowings. Cash at bank and on deposit Business development loans 30 June 2021 Weighted Average Interest Rate % 0.15% 2.23% 30 June 2020 Weighted Average Interest Rate % 0.34% 2.50% Balance $’000 19,316 7,793 27,109 Balance $’000 13,961 6,575 20,536 Bank deposits are at call and Business Development loans have terms extending between 1 and 10 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 2021 if interest rates change by +/- 100 basis points (2020: +/- 100 basis points) from the year end rates with all other variables held constant, post-tax profit would have been $192,020 higher or lower (2020: $ 143,753). Annual Report 2021 67 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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. Financial planning fees are only paid following the receipt of the related 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 loans which are unrated, management assesses the credit quality of the franchisee based on 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 (Standard & Poor’s) as follows: Cash at bank and on deposit AA- Business development loans Unrated Consolidated 2021 $’000 2020 $’000 19,316 13,961 7,793 6,575 Business development loans have been categorised in line with the Group’s internal credit classification as follows: Performing Under performing Non performing Loans written off Total gross loan receivables Less: Loan loss allowance Less: Write off Loan receivables net of expected credit losses Consolidated 2021 $’000 5,287 2,827 - - 8,114 (321) - 7,793 2020 $’000 4,224 2,905 - - 7,129 (554) - 6,575 Security Under the terms of the agreement for business development loans, the Group has a security deed over all the assets of the franchisee’s business which is registered on the 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 summarised on this page. 68 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 32. Financial risk management (Continued) C. Liquidity risk The Group maintains sufficient liquid reserves to meet all foreseeable working capital, investment and regulatory licensing requirements. D. Maturity of financial liabilities The table below analyses the group’s financial liabilities into relevant maturity groupings based on their contractual maturities. Contractual Cash Flows Carrying Amount Trade and other payables and provisions Due in less than 1 year Due in more than 1 year Lease Liabilities Due in less than 1 year Due in more than 1 year Total financial liabilities E. Fair value estimation 2021 $’000 7,474 419 1,407 4,765 14,065 2020 $’000 6,677 280 1,741 6,619 15,317 2021 $’000 7,474 419 1,253 4,640 13,786 2020 $’000 6,677 280 1,377 5,858 14,192 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 2021. F. Assets and liabilities not carried at fair value but for which fair value is disclosed Cash and cash equivalents include 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. Business development loans represent contractual payments by advisers over the period of loan. Loans classified as current have not been discounted as the carrying values are a reasonable approximation of fair value due to the short-term nature. Non-current loans have been valued at the present value of estimated future cash flows discounted at the market interest rates for these type of loan. 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. Annual Report 2021 69 25YEARSSILVERANNIVERSARY FINANCIAL STATEMENTS 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 Parent Entity 2021 $’000 32,490 11,849 44,339 85 46 131 2020 $’000 28,845 9,349 38,194 - - - 44,208 38,194 7,636 75 36,497 44,208 7,636 25 30,533 38,194 13,100 12,000 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 deed of cross-guarantee following the release of 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 do not consider it necessary to disclose additional consolidation information related to the closed 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. 70 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY 35. Lease assets and liabilities (i) Amount recognised in the Statement of Financial Position Right-of-use asset Property Equipment Lease Liabilities Current Non-Current Deferred tax assets Deferred tax liabilities (ii) Amount recognised in the Statement of Comprehensive Income Depreciation relating to the Right-of-use assets Interest Expense (Finance Cost) Expense relating to short term leases (iii) Total Cash outflows relating to operating leases Principal payments included under Financing activities Interest payments included under operating activities FINANCIAL STATEMENTS Consolidated 30 Jun 2021 30 Jun 2020 $’000 $’000 5,005 319 5,324 1,315 4,578 5,893 1,761 1,595 1,584 389 36 1,731 389 2,120 6,472 435 6,907 1,377 5,858 7,235 2,160 2,072 1,172 297 294 1,143 297 1,440 Financial Statements Annual Report 2021 71 25YEARSSILVERANNIVERSARY DIRECTORS’ DECLARATION Directors’ Declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 28 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 2021 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 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. Inderjit (Indy) Singh OAM Executive Chairman Sydney, 16 August 2021 72 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY INDEPENDENT AUDITOR’S REPORT Independent Auditor’s Report To the shareholders of Fiducian Group Ltd Report on the audit of the Financial Report Opinion We have audited the Financial Report of Fiducian Group Ltd (the Company). The Financial Report comprises: • Consolidated Statement of financial position as In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • • giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. at 30 June 2021; • Consolidated Statement of comprehensive income, Consolidated Statement of changes in equity, and Consolidated Statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 74 ©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. ©2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report to the Members Annual Report 2021 73 INDEPENDENT AUDITOR’S REPORT Key Audit Matters The Key Audit Matters we identified are: • Valuation of Goodwill; and • Revenue recognition. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These 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. Valuation of Goodwill - $9.2m Refer to Note 1N. Intangible Assets and Note 15 Goodwill to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s testing of goodwill for impairment, given the size of the balance (being 17% of total assets). At each year end, the Group performs an annual impairment test for goodwill. Due to the changes observed in the Financial Planning Industry as a result of the outcome of the Royal Commission recommendations, the Group assessed the valuation of goodwill using two methods being the value-in-use discounted cash flow model and the market multiple model. The key assumptions the Group applied in their annual impairment test for goodwill includes the following: • Market multiples used by the Group in determining the estimated fair value of the acquired financial planning businesses. The Financial Planning Industry Group’s market multiple model is sensitive to changes in the market multiple. • • Forecast cash flows, growth rates and terminal growth rates. The Group has experienced changes resulting from the recommendations of the Royal Commission. This increases the risk of inaccurate forecasts or a wider range of possible outcomes for us to consider. A cash generating unit (“CGU”) specific discount rate incorporating the appropriate risks. These are complicated in nature and vary according to the conditions and environment the specific CGU is subject to from time to time. Working with our valuation specialists, our procedures included: • We considered the appropriateness of the methods applied by the Group to perform the annual test of goodwill impairment against the requirements of the accounting standards. • We assessed the integrity of the value in use model and the market multiple model used, including the accuracy of the underlying calculation formulas. • We compared the implied multiples from comparable market transactions to the implied multiple from the Group’s market multiple model. • We independently developed a discount rate range using publicly available data for comparable entities, adjusted by risk factors specific to the Group’s CGUs and the industry they operate in. • We challenged the forecast cash flows, growth rates and terminal value contained in the value in use models against our understanding of the relevant CGU and externally sourced industry-based growth rates. We assessed the application of key forecast cash flow assumptions for consistency across the Group’s CGUs. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the value in use model. 74 Fiducian Group Ltd 75 We focused on the key assumptions applied and involved our valuation specialists to supplement our senior audit team members in assessing this key audit matter INDEPENDENT AUDITOR’S REPORT • We considered the sensitivity of the value in use model by varying key assumptions, such as forecast growth rates and discount rates, within a reasonably possible range. We considered key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible. • We assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. Revenue recognition - $58.6m Refer to Note 1C. Revenue Recognition and 4 Revenue to the Financial Report The key audit matter How the matter was addressed in our audit The Group generates revenue from multiple products and services, including fees earned from the funds management services, platform administrations services and fees earned from offering advice to customers. Revenue recognition is a key audit matter given the audit complexity associated with the number of different revenue streams, and the significance of revenue to the Group’s results. We focussed on the: • Key revenue streams, each with varying fee rates and Product Disclosure Statements, which required significant audit effort to test the fees recognised. • Drivers of fee calculations, which include funds under management (FUM), funds under administration (FUAdm) and funds under advice (FUA). Information is sourced from the Group’s third-party service organisations which provide investment administration, custody and unit registry services. This required us to understand the key processes and assess the key controls of these service organisations relevant to the Group’s revenue recognition. Our procedures included: • We assessed the Group’s revenue recognition policy against the requirements of AASB 15 Revenue from Contracts with Customers. • We obtained an understanding of the key processes, evaluated the design and tested the operational effectiveness of key controls related to the Group’s recognition of revenue. • We obtained and read the GS007 (Guidance Statement 007 Audit Implications of the Use of Service Organisations for Investment Management Services) assurance reports and management’s assessment thereof to understand the processes and assess the controls relevant to the third-party service organisations. • We recalculated the fee calculation of the platform administration services and funds management services revenue streams. We used the fee rates stipulated in the Group’s publicly available Product Disclosure Statements, Investor Guide and Additional Information Booklet multiplied by FUM and FUAdm based on custodial records. • We checked a sample of revenue transactions from fees earned from offering advice to customers to the relevant statement of advice, record of advice, and client application forms agreed and signed by the customer. 76 Annual Report 2021 75 INDEPENDENT AUDITOR’S REPORT • We checked a sample of fees earned from financial planning advice to external financial supplier statements and independent confirmations from external advisors. • We assessed the disclosures in the financial report using our understanding obtained from our testing, and against the requirements of the accounting standards Other Information Other Information is financial and non-financial information in Fiducian Group Ltd.’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • Preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • Implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • Assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations or have no realistic alternative but to do so. 76 Fiducian Group Ltd 77 INDEPENDENT AUDITOR’S REPORT Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Fiducian Group Ltd for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 17 to 24 of the Directors’ report for the year 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Andrew Reeves Partner Sydney 16 August 2021 78 Annual Report 2021 77 SHAREHOLDER INFORMATION Shareholder Information A. Distribution of equity security holders by size of holding Analysis of number of equity security holders by size of holding as at 31 July 2021: 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 - 1 403 571 194 217 24 1,409 There were 51 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 2021 are listed below: Name INDYSHRI SINGH PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED SHRIND INVESTMENTS PTY LTDLONDON CITY EQUITIES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR JOHN CHARLES PLUMMER SUPERNATURAL SUPER PTY LTD CITICORP NOMINEES PTY LIMITED D R SMITH HOLDINGS PTY LTD 1 2 3 4 5 6 7 8 9 10 HUNTER PLACE SERVICES PTY LTD 11 GARRETT SMYTHE LTD 12 BNP PARIBAS NOMS PTY LTD 13 NATIONAL NOMINEES LIMITED 14 NORCAD INVESTMENTS PTY LTD 15 HFR PTY LTD 16 BNP PARIBAS NOMINEES PTY LTD 17 SORTIE PTY LIMITED 18 MR IAN HAROLD HOLLAND 19 MR ALISTAIR BRIAN CAMPBELL + MRS KAREN PATRICIA CAMPBELL 20 MRS JENNIFER MARGARET LEESON 78 Fiducian Group Ltd Percentage of Number Held Issued Shares 8,795,933 2,256,112 2,076,128 2,015,000 1,910,698 850,000 553,595 501,123 500,000 500,000 339,000 328,803 290,314 275,000 216,137 184,723 169,761 165,000 153,000 138,847 22,219,174 27.97 7.18 6.60 6.41 6.08 2.70 1.76 1.59 1.59 1.59 1.08 1.05 0.92 0.87 0.69 0.59 0.54 0.52 0.49 0.44 70.66 25YEARSSILVERANNIVERSARY Shareholder Information (Continued) SHAREHOLDER INFORMATION Unquoted equity securities As at 31 July 2021 Type of Security Options - Executive Chairman C. Substantial shareholders Number on Issue Number of Holders 35,000 1 Substantial shareholders and associates as at 31 July 2021 (more than 5% of a class of shares) in the company are set out below: Name INDYSHRI SINGH PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED LONDON CITY EQUITIES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED Number Held Percentage 10,872,061 2,256,112 2,015,000 1,910,698 34.58 7.18 6.41 6.08 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 Annual Report 2021 79 25YEARSSILVERANNIVERSARY CORPORATE DIRECTORY Corporate Directory Directors Share registrar I Singh OAM, BTech, MComm (Bus), ASIA, ASFA, DipFP, CFP Executive Chairman Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 R Bucknell FCA F Khouri B Bus, FCPA, CTA S Hallab B Ec (Accnt & Law), CA, GAICD, FAIST Company secretary P Gubecka LLB, LLM, BCom, CPA, FGIA, FCG (CS, CGP) Auditor KPMG Chartered Accountants Tower Three, International Towers 300 Barangaroo Avenue, Sydney NSW 2000 Notice of Annual General Meeting Bankers The Annual General Meeting of Fiducian Group Limited Will be held: Virtually Time: Date: Details to be advised 10:00 am Thursday, 21 October 2021 National Australia Bank Limited 500 Bourke Street Melbourne VIC 3000 ANZ Banking Group 388 Collins Street Melbourne VIC 3000 Principal registered office in Australia Australian Securities Exchange Listing 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 Fiducian Group Limited (ASX:FID) Website address www.fiducian.com.au 80 Fiducian Group Ltd 25YEARSSILVERANNIVERSARY Financial Planner Office Locations OFFICE LOCATIONS Australian Capital Territory Tasmania Canberra New South Wales Albury Bathurst Newcastle Nowra Bondi Junction Parramatta Caves Beach Penrith Coffs Coast Randwick Eastgardens Sydney CBD Gosford Hunter Tamworth Tuggerah Macarthur Windsor Neutral Bay Wynyard Devonport Hobart Launceston Victoria Cobden Colac Doncaster Geelong Ivanhoe Mentone Mt Waverley Ringwood Sale St Kilda Sunbury Surrey Hills Traralgon Queensland Western Australia Bayside Toowoomba Caboolture Townsville Sunshine Coast Bunbury Osborne Park South Perth South Australia North Adelaide Annual Report 2021 81 25YEARSSILVERANNIVERSARY THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY 82 Fiducian Group Ltd 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 Fiducian Group Annual Report 2021 S A R Y SILV E R A NNIVER 25YEARS