More annual reports from InvestSMART Group Limited:
2023 ReportA N N U A L R E P O R T
H e lping you
g row and
protect your
we alth
2 0 1 7
InvestSMART Group Limited
ABN 62 111 772 359
Annual Report
For the year ended
30 June 2017
For personal use only O U R V I S I O N
TO HELP ALL AUSTR ALIANS GROW
AND PROTECT THEIR WEALTH
WHY?
Because we believe people should be able
to take control of their financial future. And
it shouldn’t be hard or expensive to do so.
HOW?
By providing innovative tools, research and
advice that people can trust, empowering
them to make better investing decisions.
Highlights
Revenue Grow th
14.6% to $14.2m
EBITDA Grow th
30% to $3.1m
Total number of por tfolios managed through
our proprietar y Por tfolio Manager (PM)
15% to 88,892
Value of shares managed in PM
26% to $8.8b
Visits to our websites this year
59% to 6.6m
Value of funds managed in PM
17% to $2b
Straighthrough conversion of
online applications
200% to 68%
Value of proper t y managed in PM
25% to $7.5b
Retail FUM grow th
748% to $35.3m
Value of cash managed in PM
32% to $1.9b
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017
2
For personal use only CO N T E N T S
Chairman and Managing Direc tor ’s repor t
Corporate Governance Statement
Direc tors’ Repor t
Auditor ’s Independence Declaration
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equit y
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Direc tors’ Declaration
Independent Audit Repor t to the Members
Additional Information
Direc tor y
4
6
12
20
21
22
23
24
25
47
48
54
56
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017
For personal use only CHAIRMAN AND MANAGING DIRECTOR’S REPORT
Dear Shareholders,
On behalf of the Directors we are pleased to announce the results for InvestSMART Group for the financial year ended 30 June 2017.
Continuing operations
Commission income
Subscription income
Other income
Change in fair value of assets
Total income
Total operating expenses
EBITDA
FY17
FY16
7,348,059
7,907,634
6,584,654
4,207,421
43,895
288,400
241,297
6,872
14,217,905
12,410,327
11,073,396
9,996,376
3,144,509
2,413,951
The results were satisfying, giving the board confidence that InvestSMART remains well-placed to build on the opportunity in automated
investment advice through its suite of tools, research and broad reach.
There are three primary reasons for this view:
1. A diverse revenue base. Commissions from our existing book of Funds Under Administration (FUA) continue to provide about
50% of our revenues, the remainder coming from our subscription businesses. These historical revenue streams are reasonably
predictable, allowing us to focus on growing Retail Funds Under Management (FUM).
2. Higher engagement leading to higher FUM. The scale of development in our proprietary software, websites and products
continues to improve engagement and conversion to FUM. Our smorgasbord of free research and tools continues to drive
organic traffic to our websites in unprecedented numbers.
3.
Increased investment. Having improved the depth and the quality of our team, and seeing its financial impact, the board is
confident further reinvestment will deliver positive financial returns.
CORPORATE
With a strategic priority to grow FUM, as part of the year-end audit process the company has conducted a comprehensive review of
the Group’s carrying value of its goodwill and intangible assets. This considered the nature of the Group’s traditional subscription and
external fund manager revenues and its future investment in automated investment services.
Under the applicable AASB standards, the Group reduced the carrying value of its goodwill assets by $23.6m which arose from the
purchase of InvestSMART (in 2013), YourShare (in 2014), Intelligent Investor (in 2015) and Eureka Report (in 2016). The AASB standards
do not allow InvestSMART Group to recognise the potential future revenues from growing fund management income from the clients and
customer bases of these businesses.
The total charge of $23.6m is included as a significant item in the year end results and excluded from the Group’s underlying earnings.
The impairment is non-cash in nature and will not impact the Group’s future revenues and prospects.
CORPORATE GOVERNANCE
The Board of InvestSMART is committed to achieving and demonstrating best practice standards of corporate governance compliant with
the Australian Stock Exchange (ASX) regulations. Our goal is to ensure we protect the rights and interests of all stakeholders and ensure
the company is properly managed through the implementation of sound strategies and action plans.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CHAIRMAN AND MANAGING DIRECTOR’S REPORT
We achieve this through good management and by supervising an integrated framework of controls over the company’s resources to
ensure our commitment to high standards of ethical behaviour.
Our remuneration report is enclosed in the annual report and outlines group remuneration policies, Board performance and the senior
executive remuneration policies and compensation.
GROWTH
InvestSMART’s vision is to be the country’s leading independent automated investment adviser, helping all Australians grow and protect
their wealth.
Continuing disruption in wealth management offers InvestSMART enhanced opportunities to achieve this goal. Our broad range of
innovative investment services, portfolio management tools, reporting and research attracted 6.6m website visits last financial year.
InvestSMART’s platform and reach is like no other.
Debt-free and self-funded, we’ll continue to invest in greater functionality and automation to drive member engagement, build FUM and
extend brand awareness. In coming years, our marketing efforts will further elevate InvestSMART’s recognisable consumer brand with our
target audience.
This is a path well-travelled by US online advisor Betterment, which began life in 2008 and did not launch a viable product for a further
four years. Today, Betterment has about 300,000 clients and $10bn in FUM. We believe we’re on a similar path, albeit built on a lower
population.
OUTLOOK
We expect to increase investment in the business in 2018, with a focus on marketing, technology development and distribution. This
reflects our strategic shift away from subscriptions revenue and fund manager commissions to increasing FUM revenue.
The following guidance is a reasonable expectation of what we believe InvestSMART will achieve in FY2018:
• Operating expenses to increase significantly due to higher marketing spend and product development costs.
• Operating profits expected to fall to $500,000 due to increases in expenses and a lag in FUM revenue being realised in the
accounts for FY18.
•
Funds under management expected to grow from $40m to $135m
On behalf of the Directors, we wish to thank our team for their commitment, contribution and customer focus during another exciting
year. Without their efforts our achievements would not have been possible.
We would also like to thank our members and customers for their continued support.
Paul Clitheroe AM
Chairman
Ron Hodge
Managing Director
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CORPORATE GOVERNANCE STATEMENT
Corporate governance includes the policies and practices by
•
not engage in conduct likely to bring discredit on the
which InvestSMART Group Limited (Company) and its controlled
Company;
entities (Group Entities) (collectively, Group) are effectively
•
comply with the spirit, as well as the letter of the law and
managed. Those policies and practices prescribe:
•
•
our ethics;
the accountability of the Board for financial performance
and growth; and
•
the management of the risks which are encountered
with the principles of the Code of Conduct;
•
ensure compliance with the policies and procedures of
the Company, including the Board Charter, Delegations,
Securities Trading and Prevention of Insider Trading Policy,
Staff Trading and Investment Policy, Continuous Disclosure
Policy, Human Resources Policies and Procedures and Risk
in running a company reliant upon the performance of
Management and Compliance Policies.
financial assets and investments.
The Code of Conduct can be downloaded from the Company’s
In developing corporate governance policies and practices for
website at: www.investsmart.com.au/shareholder-centre/
the Group, the Company takes into account the Constitution
governance.
of the Company (Constitution) and applicable legislation and
standards, including:
•
•
•
Corporations Act 2001 (Corporations Act);
Australian Securities Exchange Listing Rules (Listing Rules);
Corporate Governance Principles and Recommendations
with 2014 Amendments, 3rd Edition published by the ASX
Corporate Governance Council (ASXCGC); and
•
legislation governing Australian Financial Services Licences
and other licences held by members of the Group.
The information in this Statement is current as at 3 October
2017 and has been approved by the Board.
1. CODE OF CONDUCT
Directors, senior executives and employees are required
to make all disclosures, keep all records and take all steps
necessary to enable the Company to comply with all relevant
legislation, common law obligations and Company policies,
including the Code of Conduct.
2. RESPONSIBILITIES AND FUNCTIONS OF THE
BOARD AND MANAGEMENT
The Board functions in accordance with a Charter. Under that
Charter, the role of the Board is to:
•
act as an interface between the Company and its
shareholders;
•
set the goals of the Company including short, medium and
The Code prescribes that Directors, senior executives and
longer term objectives;
employees must:
•
act honestly, in good faith and in the best interests of the
Company as a whole at all times;
•
discharge their duty to use due care and diligence in
fulfilling the functions of their office and exercising the
•
•
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provide the overall strategic direction of the Company;
assess the optimal use of the Company’s capital; and
oversee the efficient management of the Company.
The Board is responsible for:
powers attached to that office;
•
consideration and approval of corporate strategy proposed
•
•
always use the powers of their office for a proper purpose;
recognise that their primary responsibility is to the
Company’s security holders as a whole but should, where
•
•
by management and monitoring its implementation;
overseeing/monitoring financial performance;
approving financial and other reporting to shareholders,
appropriate, have regard to all stakeholders of the
employees and other stakeholders of the Company;
Company;
•
ensuring that the Company has appropriate human, financial
•
not make improper use of information acquired as a
and physical resources to execute Company strategies;
Director, senior executive or employee;
•
not allow personal interests, or the interests of any
associated person, to conflict with the interests of the
Company;
•
be independent in judgment and actions and to take all
reasonable steps to be satisfied as to all decisions taken by
or on behalf of the Company;
•
•
•
•
•
reviewing the Board and management succession planning;
appointing, removing and monitoring the performance of
the Managing Director and Key Management Personnel;
appointing and removing the Company Secretary;
considering and monitoring risks;
reviewing the effectiveness of Company policies and
procedures regarding risk management;
6
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CORPORATE GOVERNANCE STATEMENT
•
reviewing the effectiveness of the Company’s internal
As at the date of this Statement, the Directors are:
control and accounting systems;
•
ensuring appropriate corporate governance structures are
in place including standards of ethical behaviour and a
culture of corporate and social responsibility
•
oversight of the Company’s continuous disclosure
Chairman:
Mr Paul Clitheroe AM
Managing Director:
Mr Ron Hodge
Lead Independent
Non-Executive Director: Mr Michael Shepherd AO
obligations;
The Company does not comply with the ASXCGC Corporate
reporting to shareholders and other stakeholders;
Governance Principles and Recommendations in relation to a
capital management.
majority of the Board and the Chairman, being independent.
•
•
The Board Charter was reviewed in April 2016. It can be
downloaded from the Company’s website at:
www.investsmart.com.au/shareholder-centre/governance.
To assist the Board to carry out its responsibilities and
functions, certain powers have been delegated to management,
including the authority to undertake transactions and incur
expenditure on behalf of the Group, up to specified thresholds.
Processes have been established to ensure that management
provides relevant information to the Board to enable the Board
to make informed decisions and effectively discharge its duties.
The Board may also request additional information where
necessary and may seek independent advice should it wish to
do so.
3. BOARD STRUCTURE
The Constitution provides for a minimum of three Directors and
a maximum of ten Directors.
Since the latter part of 2014 there have been significant
changes in the composition of the Board. These changes have
resulted in a reduction of the number of independent non-
executive Directors. The Board believes that at this time in the
development of the Company and bearing in mind the short
tenure of the Directors, the current allocation of responsibilities
among the Directors, are most practical and effective for the
Company and in the best interests of shareholders.
The Board has assessed the mix of skills which best suit the
business conducted by the Company. The Board considers the
current mix of skills among Directors as appropriate for the
Company, with the presence of core skills in financial services,
governance, marketing, digital distribution and product
development. The Board has considered expanding and
deepening core skills through the expansion of the size of the
Board. An appropriate recruitment process is underway.
The Company Secretary is accountable directly to the Board,
through the Chairman, on all matters to do with the proper
The Company undertakes appropriate checks before appointing
functioning of the Board.
a person as a Director or putting forward a person as a
candidate for election as a Director. All material information in
4. TERMS OF APPOINTMENT OF DIRECTORS
the possession of the Company, which is relevant to whether
or not a person should be elected or re-elected a Director, is
provided to shareholders prior to an election taking place.
At the date of this Statement, the Board comprises the
Chairman, an independent non-executive Director and the
Managing Director. The Chairman held the role of Executive
Chairman from 31 March 2015 to 24 February 2016 and for this
reason, is not independent.
The Directors’ Report included in the 2017 Annual Report
provides the details of the Directors in office during the year
ended 30 June 2017, together with their experience, expertise
and qualifications and the number of Board meetings each
attended during the year.
The Company issues letters of appointment to Directors, which
include:
•
•
•
•
•
•
term of appointment;
expectations regarding the Director’s involvement and time
commitment envisaged;
powers and duties of Directors;
circumstances in which the office of director will become
vacant;
remuneration and expenses;
requirements regarding interests (including the disclosure
of interests in securities) and independence;
•
compliance with Company policies, including the Board
Charter, Code of Conduct and Securities Trading Policy;
•
induction and training;
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CORPORATE GOVERNANCE STATEMENT
•
•
•
access to independent advice;
indemnification and insurance; and
confidentiality and the right of access to Company
information.
Directors appointed by the Board to fill a casual vacancy or
as an addition to existing Directors (other than a Managing
Director) are appointed only to the conclusion of the general
meeting following their appointment and must stand for
election at that general meeting. Otherwise, Directors (other
6. COMMITTEES OF THE BOARD
Under the Constitution the Directors may delegate any of
their powers to a committee or committees. Any committees
established by the Board:
•
are entitled to obtain independent professional or other
advice at the cost of the Company, unless the Board
determines otherwise;
•
are entitled to obtain such resources and information from
the Company including direct access to employees of and
than any Managing Director) retire at the later of the third
advisers to the Company as they might require; and
anniversary of their appointment or the conclusion of the
•
operate in accordance with a charter or terms of reference
third Annual General Meeting after their appointment and are
established by the Board.
available for re-election. Details of Directors, their experience,
expertise and qualifications are set out in the Directors’ Report
6.1 AUDIT, RISK AND COMPLIANCE COMMITTEE
included in the 2017 Annual Report.
The Charter of the Audit, Risk and Compliance Committee can
The appointment and removal of any Managing Director is a
matter for the Board as a whole.
5. DIRECTORS’ INTERESTS AND INDEPENDENCE
be downloaded from the Company’s website at:
www.investsmart.com.au/shareholder-centre/governance.
This Committee assists the Board to fulfil its corporate
governance and oversight responsibilities in relation to:
The Board has in place processes to ensure that conflicts of
interest are managed appropriately throughout the Group.
1. Audit – the Committee reviews the integrity of the Group’s
financial reporting and oversees the independence of the
Directors are required to immediately notify the Company of
interests or changes to interests as they arise. The Company
Secretary maintains a register of Directors’ interests. That
register is updated as interests or changes in interests are
notified and is reviewed at the commencement of each regular
Board meeting.
external auditor;
2. Compliance – the Committee reviews the integrity of the
Group’s compliance framework;
3. Risk – the Committee assists the Board in fulfilling its risk
management responsibilities as defined by applicable law
and regulations, the Constitution and other applicable
The Board undertakes an assessment of the independence
standards.
of Directors and makes a determination in respect of each
Director taking into account matters such as:
•
•
•
•
specific disclosures made by the Director;
any association with a substantial shareholder of the
Company;
employment in any other capacity by the Group;
any related party dealings which are material under
accounting standards;
•
association with a supplier, adviser, consultant to or
customer of the Group for the purposes of the ASXCGC
Corporate Governance Principles and Recommendations;
and
• whether the Director has been in their position for
such a period that their independence may have been
compromised.
The Committee consists of not less than two members appointed
by the Board. Where possible, a majority of members will be
independent non-executive Directors. The Board appoints
the Chairman of the Committee, who must be an independent
non-executive Director. Preferably, the Chairman of the Board
is not also the Chairman of the Committee.
In determining membership of the Committee, the Board seeks
to identify and appoint:
• members who can all read and understand financial
statements and are otherwise financially literate;
•
at least one member with financial expertise either as a
qualified accountant or other financial professional with
experience in financial and accounting matters; and
•
at least one member who has an understanding of the
financial services industry.
8
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CORPORATE GOVERNANCE STATEMENT
The current Chairman of the Committee is Mr Michael Shepherd
distinguishes the structure of Directors’ remuneration from that
AO and the other Committee member is Mr Paul Clitheroe AM.
of senior executives.
Details of the number of meetings of the Committee held
during the year ended 30 June 2017 are set out in the Directors’
6.3 INVESTMENT COMMITTEE
Report included in the 2017 Annual Report.
The Company has established an Investment Committee to
review and, if thought fit, approve investment portfolios for use
6.2 NOMINATION AND REMUNERATION COMMITTEE
in the suite of investment products offered by Group Entities.
The Charter of the Nomination and Remuneration Committee
can be downloaded from the Company’s website at: www.
The Committee is also responsible for the ongoing monitoring
and review of investment portfolios.
investsmart.com.au/shareholder-centre/governance.
Members of the Committee are drawn from the Board,
The Committee:
management and external advisers based on their relevant
skills and experience. The current members are Mr Paul
1.
reviews and reports/make recommendations to the Board
Clitheroe (Chairman of the Committee), , Mr Alastair Davidson,
in relation to nomination matters;
Mr Ron Hodge and Mr James Carlisle.
2. develops and recommends to the Board strategies on
gender diversity for the Board, committees of the Board
and all other levels of the Company and Group Entities.
3.
reviews and reports/make recommendations to the Board
in relation to remuneration matters;
7. SECURITIES TRADING AND PREVENTION OF
INSIDER TRADING POLICY AND STAFF TRADING AND
INVESTMENT POLICY
The Company has adopted a policy regarding trading in its
securities and the prevention of insider trading which applies to
4.
reviews and brings to the attention of the Board matters
all Directors, employees and contractors and their associates.
relating to:
•
remuneration structure including long term incentive
arrangements and participation;
This policy can be downloaded from the Company’s website at:
www.investsmart.com.au/shareholder-centre/governance.
Those covered by the policy must not trade, arrange for
•
•
•
•
senior executive and key staff succession plans;
someone else to trade, or communicate information to
recruitment, retention and termination strategies;
someone they know, or ought reasonably to know, may use
the Remuneration Report of the Company; and
the information to trade (or procure another person to
other matters identified from time to time by the Board.
trade) Company securities when they are in possession of
The Committee consists of not less than two members
appointed by the Board. Where possible, a majority of
price sensitive information relating to the Group which is not
generally available to the market.
members will be independent non-executive Directors. The
Directors and employees are generally only permitted to trade
Board appoints the Chairman of the Committee. Preferably,
in Company securities in defined open periods and then, only
the Chairman of the Board is not also the Chairman of the
if they are not in possession of price sensitive information
Committee.
The current Chairman of the Committee is Mr Michael Shepherd
relating to the Group which is not generally available to the
market and if they have prior written approval to trade.
AO and the other Committee member is Mr Paul Clitheroe AM.
The Company has also adopted a separate policy dealing
Details of the number of meetings of the Committee held
during the year ended 30 June 2017 are set out in the Directors’
Report included in the 2017 Annual Report.
Details about the Company’s remuneration policies and
practices are set out in the 2017 Remuneration Report included
in the 2017 Annual Report. The 2017 Remuneration Report
with staff trading and investment. That policy deals with the
management of actual and perceived conflicts of interest
arising where in the ordinary cause of business Group Entities
promote, analyse or report on securities.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CORPORATE GOVERNANCE STATEMENT
8. CONTINUOUS DISCLOSURE
The Board is very conscious of its disclosure obligations and
•
the requirement to comply with corporate policies,
including Delegations, Securities Trading and Prevention of
Insider Trading Policy, Staff Trading and Investment Policy,
has a Continuous Disclosure Policy. It can be downloaded
Continuous Disclosure Policy, Human Resources Policies
from the Company’s website at: www.investsmart.com.au/
and Procedures and Risk Management and Compliance
shareholder-centre/governance.
Policies; and
•
circumstances of termination and entitlements on
All Directors and the Company Secretary are responsible to
termination.
ensure that the Continuous Disclosure Policy is adhered to. The
Chairman or the Managing Director deal with media contact and
any external communications.
9. INDEPENDENT PROFESSIONAL ADVICE
Those contracts also set out the manner in which the
performance of the respective senior executive is evaluated.
Performance evaluation of senior executives was undertaken in
the reporting period.
Directors may obtain independent professional advice at the
11. GENDER DIVERSITY
Company’s expense on matters arising in the course of their
Board and Committee duties, after obtaining the Chairman’s
approval (or in the case of the Chairman, with the prior
approval of the Chairman of the Audit, Risk and Compliance
In April 2016 the Company established a Diversity Policy. It
can be downloaded from the Company’s website at: www.
investsmart.com.au/shareholder-centre/governance.
Committee). The Board requires that all Directors be provided
The Company has policies and procedures in place in relation
with a copy of such advice and be notified if the Chairman’s
to employment opportunities for women. The Board believes
approval is withheld.
10. PERFORMANCE ASSESSMENT
these policies and procedures best suit the Company given its
size and stage of development.
The Company does not currently have any women on the
The performance assessment of individual Directors,
Board or within the Key Management Personnel (as identified
Committees and the Board is included in the Board Charter.
in the 2017 Annual Report) however, 35% of the employees in
The process is aimed at ensuring individual Directors,
the Group are women. The Company will seek to maintain or
Committees and the Board as a whole work efficiently and
increase this level of women employees in the future and to
effectively. As part of that process:
reflect gender diversity within the Board and Key Management
•
the Board as a whole discusses and analyses its own
performance during the year including suggestions for
change or improvement;
•
the Chairman meets with each non-executive Director
separately to discuss individually performance, including
development areas;
•
a nominated Director leads the review of the Chairman.
Personnel.
12. DIRECTORS’ INDUCTION AND CONTINUING
EDUCATION
All Directors receive an induction after joining the Board and
have access to continuing education to update and enhance
their skills and knowledge to enable them to continue to carry
Due to the size of the Board a formal performance evaluation of
out their duties.
Directors was not undertaken in the reporting period.
Each senior executive in the Group is engaged under a written
contract which includes:
the term of appointment;
a description of the position and associated duties and
responsibilities;
reporting;
remuneration, including superannuation;
•
•
•
•
10
13. MANAGEMENT OF RISK AND INTERNAL
CONTROL FRAMEWORK
The Board is the ultimate sponsor of risk oversight within the
Group, but does so in a manner which reflects the transparent
nature of the Group’s systems. The Company pays significant
attention to risk as a consequence of its activities, which involve
dealing in financial assets.
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only CORPORATE GOVERNANCE STATEMENT
The Audit, Risk and Compliance Committee fulfils an essential
The Chairman and the Managing Director are primarily
role in the management of risk and the establishment, review
responsible for promoting effective communication with
and monitoring of internal controls. In addition, through the
shareholders and encouraging their participation at general
reporting of the Managing Director, the Board also monitors
meetings. The Board reviews the activities aimed at achieving
various measurements of absolute and relative risk. Reviews of
these outcomes. The Company Secretary and the share
the Company’s risk management framework were undertaken
registry are also available to assist shareholders. Shareholders
throughout the reporting period.
have the option to receive communications from, and send
Due to the relative small size of the Group and limited nature
of its business operations, the Company does not have an
communications to, the Company and the share registry
electronically.
Internal Audit function. This matter is reviewed periodically by
Current and archived announcements by the Company are
the Audit Risk and Compliance Committee and that Committee
available on the Company’s website at: www.investsmart.com.
makes relevant recommendations to the Board to improve the
au/shareholder-centre/announcements; or at: www.asx.com.au.
effectiveness of the Company’s risk management and internal
control processes.
The Company provides a review of operations and financial
performance in the 2017 Annual Report, which includes the
The Company has access to a series of internal and external
Company’s financial report. Results announcements to the
controls through the Managing Director, which govern the
Australian Securities Exchange, analyst presentations and the
Company’s material business risks. These controls include, but
full text of the Chairman’s address at the Company’s Annual
are not restricted to:
General Meeting are lodged with Australian Securities Exchange
•
external providers of accounting and related services to the
Company and Group Entities; and
and available on the Company’s website at: www.investsmart.
com.au/shareholder-centre/announcements; or at: www.asx.
•
regular reporting by the Managing Director to the Board.
com.au.
The Company’s exposure to economic, environmental and social
The External Auditor attends the Annual General Meeting
sustainability risks and management of those risks is disclosed
of the Company and is available to answer questions from
in the 2017 Annual Report.
shareholders relevant to the audit of the Company.
The Board received a statement in writing from the Managing
Director and the Chief Finance Officer that the declaration
provided in accordance with section 295A of the Corporations
Act is founded on a sound system of risk management and
internal control and the system is operating effectively in all
material respects in relation to financial reporting risks.
14. ENGAGING SHAREHOLDERS
The Board is committed to ensuring that the shareholders
are at all times provided with information sufficient to allow
effective monitoring of the Company’s performance, including:
•
the Annual Report which is distributed to shareholders (at
•
•
their election);
the Half Yearly Report;
periodic reports and special reports when matters of
material interest arise;
•
the Annual General Meeting and other meetings called to
obtain shareholder approval of any action as required; and
•
continuous and periodic disclosure.
11
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only D I R E C T O R S ’ R E P O R T
The Directors present their report on InvestSMART Group Limited (the Company) and its subsidiaries (collectively the Group) for the
financial year ended 30 June 2017.
DIRECTORS
The names and details of the Directors of the Company who held office during the year and at the date of this report (unless otherwise
specified) are:
Paul Clitheroe AM
(Appointed Non-Executive Chairman 26 November 2014, appointed Executive Chairman 31 March 2015,
reappointed Non-Executive Chairman 24 February 2016)
Chairman
Bachelor of Arts (UNSW), SNF Fin, CFP
Age 62
Paul Clitheroe is a founding director of leading financial planning firm ipac, and has been involved in the investment industry since he
graduated from the University of New South Wales in the late 1970s. From 1993 to 2002 Mr Clitheroe hosted the popular Channel 9
program Money. Since 1999 he has been the chairman and chief commentator of Money magazine. He writes personal finance columns
for metropolitan, suburban and regional newspapers across Australia and presents Talking Money on radio nationally. Mr Clitheroe has
been a media commentator and conference speaker for more than 30 years, and is regarded as one of Australia’s leading experts in the
field of personal investment strategies and advice.
Mr Clitheroe is Chairman of Monash Absolute Investment Company Ltd and a Director of Wealth Defender Equities Ltd, both ASX-listed
investment companies. He is also Chairman of the Australian Government Financial Literacy Board, Chairman of Financial Literacy Australia,
Chairman of the youth anti-drink driving body, RADD, and a member of the Sydney University Medical School Advisory Board. In 2012,
Macquarie University appointed Mr Clitheroe as Chair of Financial Literacy. He is a Professor with the School of Business and Economics.
Michael Shepherd AO
(Appointed 1 March 2014)
Lead Independent Non-Executive Director
Chairman of the Audit Risk and Compliance Committee
Chairman of the Nomination and Remuneration Committee
Age 67
Michael Shepherd has had a successful career in financial services over more than 40 years. He was a director of ASX Limited and
group between 1988 and 2007, including a term as Vice-Chairman between 1993 and 2007. Mr Shepherd was also Chairman of the ASX
Derivatives Board and Chairman of the ASX Market Rules Committee.
Mr Shepherd is currently Chairman of HFA Holdings Limited (a listed investment management company) and a member of the Member
Responsible Entity Compliance Committee of UBS Global Asset Management (Australia) Limited. He is also a Senior Fellow and Life
Member, Financial Services Institute of Australasia, after being a director of that body between 2001 and 2009, including 2 years as
National President.
Peter Ronald Hodge
(Appointed 1 September 2015, appointed Managing Director 24 February 2016)
Managing Director
FFin
Age 47
Ron Hodge was the founder of InvestSMART in 1999. Ron Hodge later sold this business to Fairfax Media in October 2007 where he
continued as General Manager. He has worked in financial services for over 25 years, including at UBS in Singapore and Bell Commodities
12
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only D I R E C T O R S ’ R E P O R T
in Sydney. Ron holds a Masters degree in Computer Science, Bachelor Degrees in Commerce and Economics, a Graduate Diploma in
Applied Finance and Investments and is a Graduate of the Australian Institute of Company Directors.
COMPANY SECRETARY
Peter Friend is a qualified solicitor, and was appointed Company Secretary on 10 February 2014 and held office throughout the financial
year. Peter Friend resigned on 19 July 2017 and was replaced by Grant Winberg.
INTERESTS IN THE SECURITIES OF THE COMPANY
The relevant interests of each Director in the securities of the Company shown in the Register of Directors’ Shareholdings as at the date
of this report are:
Director
Paul Clitheroe
Michael Shepherd
Peter Ronald Hodge
Ordinary Shares
5,000,000
400,000
4,766,666
Directors are not required under the Company’s constitution to hold any Shares, Options or any other Securities in the Company. A
portion of the shares held by Mr Paul Clitheroe (2,666,667), and Mr Ron Hodge (3,177,778), are subject to vesting conditions.
INTERESTS IN CONTRACTS OR PROPOSED CONTRACTS WITH THE COMPANY
None of the Directors have an interest in, or proposed interests in, contracts with the Company, other than the loans to Mr Paul Clitheroe
and Mr Ron Hodge as part of the Long Term Incentive Plan (LTIP) and Employee Share Ownership Plan (ESOP) as detailed below.
PRINCIPAL ACTIVITIES
The principal activities of the Company during the year was the provision of financial services and products under general advice to retail
investors in particular in the area of wealth management, personal insurance and funds management.
DIVIDENDS
No dividend has been declared for the financial year ended 30 June 2017 (2016: nil).
REVIEW OF OPERATIONS
Financial results for the year
The results below show the audited operating profit for the year, and are based on consolidated accounting for the years to 30 June 2017
and 30 June 2016 respectively.
Operating (loss) profit before income tax
Income tax expense
Operating (loss) profit for the year
2017
$
2016
$
(22,257,343)
253,235
(291,017)
(78,075)
(22,548,360)
175,160
The net tangible asset backing of the Company as at 30 June 2017 was $0.0269 (2016: $0.006) per share before tax. The operating loss is
attributable to a write down in the valuation of the goodwill assets of the Group of $23,610,664 at 30 June 2017. This was as a result of
the Group’s change in focus from growing subscription revenue to growing funds management revenues.
13
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ R E P O R T
Comparative Consolidated Financial Information for the prior year
The table below shows the consolidated performance of the Group for the years to 30 June 2017 and 30 June 2016 respectively. This
information only shows earnings before tax, write off and amortisation of goodwill and intangibles, and is presented to show the relative
changes in operating income over the period.
Statement of Consolidated Comprehensive Income
Continuing operations
Commission income
Subscription income
Other income
Change in fair value of financial assets at fair value through profit and loss
Total Income
Total operating expenses
Profit before income tax, amortisation and employee benefit expense
Year to
Year to
30 Jun 2017
30 Jun 2016
$
$
7,348,059
6,584,654
43,895
241,297
7,907,634
4,207,421
288,400
6,872
14,217,905
12,410,327
11,073,396
9,996,376
3,144,509
2,413,951
The major changes to revenues from 2016 were a fall in commission income over the year due to clients moving to non-commission
paying products such as MySuper, and an increase in subscription revenue due largely to the acquisition of Eureka Report in April 2016.
The subscription income results for 2016 includes Eureka Report revenues from 4 April 2016. Operating expenses are higher than 2016,
due to the inclusion of employee costs related to the Eureka Report.
The Group has substantial realised and unrealised capital tax losses that have not been recognised in the financial statements as the
Directors believe there are negligible opportunities to utilise those losses in the medium term. The Group is exposed to potential
changes in financial services regulation that may diminish its ability to collect commissions in the future.
Business strategies and prospects
The Group will increase its focus on increasing the number of users of its free portfolio management service, and the number of
investors in its fund management products, while maintaining current subscription numbers. The Group has recently been granted
authorisation under one if its AFSLs (“Australian Financial Services License”) to issue its own managed investment schemes and expects
to issue and market several investment products in the next 12 months. These initiatives will result in an estimated $1.8 million increase
in operating costs in the financial year to 30 June 2018. There is a risk of a material decline in Group revenues if there is a significant and
sustained equity market fall, however, the Group has contingency plans to reduce as many variable costs as possible in that event.
Employee Share Ownership Plan
The Company lent $1,804,200 to the Managing Director and employees of the Group to acquire 5,820,000 ordinary shares on 28
December 2016 (Grant Date) as part of the Employee Share Ownership Plan (ESOP), which was approved by shareholders at the Annual
General Meeting on 29 November 2016. The shares were issued on the Grant Date.
These shares have not vested and therefore have not been included in share capital. The shares will vest in three equal tranches on the
first, second and third anniversaries of the Grant Date. The Company estimates the fair value of this director/employee share benefit is
$329,716 at the Grant Date.
Significant Changes in State of Affairs
As announced on 30 June 2017 the Group incurred a Goodwill write down of $23,610,664 after testing for impairment under the applicable
AASB standard. The Group disclosed a change in focus from growing subscription revenue to growing fund management revenues.
There were no other significant changes in the Group affairs during the period.
14
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ R E P O R T
MEETINGS OF DIRECTORS
The number of Directors’ Meetings (including Meetings of Committees of Directors) and number of Meetings attended by each of the
Directors of the Company during the 2017 financial year were:
Directors’ Meetings
Meetings of Audit, Risk and Meetings of Nomination
Compliance Committee
and Remuneration Committee
Meetings of
Investment Committee
Meetings
eligible
to attend
Meetings
attended
Meetings
eligible
to attend
Meetings
attended
Meetings
eligible
to attend
Meetings
attended
Meetings
eligible
to attend
Meetings
attended
Paul Clitheroe
Ron Hodge
Michael Shepherd
8
8
8
7
8
8
4
4
4
4
4
4
1
–
1
1
–
1
4
4
–
4
4
–
EVENTS SUBSEQUENT TO BALANCE DATE
Since 30 June 2017, there have been no significant events up to the date of this report.
EARNINGS (LOSS) PER SHARE
Basic (loss) per share was (20.33) cents per share, and diluted (loss) per share was (20.33) cents per share, (2016: 0.16 cents per share
for basic and 0.14 cents for diluted earnings). Potential ordinary shares shall be treated as dilutive when their conversion to ordinary
shares would decrease earnings per share or increase loss per share from continuing operations.
REMUNERATION REPORT (AUDITED)
The Group’s policy is to offer a sufficient level of remuneration to attract employees and Directors who are financially literate and
knowledgeable of financial services and investment management best practice.
As the Company has a Long Term Incentive Plan (LTIP) and Employee Share Ownership Plan (ESOP) in place which is an equity-settled
share based payment to employees and Directors, the Company has effectively linked performance with compensation in relation to the
performance of the Company’s share price. The value of any benefits given to Directors or senior management is detailed below.
All Directors must have a commitment to good corporate governance. The primary role of the Non- Executive Directors is the protection
and enhancement of sustainable shareholder value through:
(a) ensuring the control and accountability framework is in place so that all significant issues relating to the operation and
performance of the Company and its subsidiary entities are brought to the attention of the Board;
(b) monitoring governance policies, practices and systems to ensure they are effective and appropriate;
(c) monitoring risk policies, practices and systems to ensure they are effective and appropriate.
Subject to the sum determined by the Company in general meeting, the Directors agree the remuneration each Director (other than
any Managing Director or Director who is a salaried officer) receives. No option or bonus plans are in place for Directors (other than the
Managing Director).
Under ASX Listing Rules, the maximum fees payable to Directors may not be increased without prior approval from the Company at a
general meeting. Directors will seek approval from time to time as deemed appropriate.
The Directors will be entitled to receive the following benefits:
(a)
the maximum total remuneration of the Directors of the Company (excluding the Managing Director) has been set at $400,000 per
annum to be divided amongst them in such proportions as they agree. Directors are not required to allocate the entire amount.
15
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ R E P O R T
(b) Mr Paul Clitheroe is eligible to participate in the Long Term Incentive Plan (LTIP) and received 4,000,000 shares at 25 cents
per share and a corresponding limited recourse loan on 26 November 2014, as approved by shareholders. 1,333,333 of these
shares vested on 30 May 2016, when the share price reached $0.33 per share. The second tranche vests when the share price
reaches $0.42 per share after 26 November 2016. The final tranche vests when the share price reaches $0.50 per share after 26
November 2017. There is no time limit for the share price to reach the vesting price.
(c) Mr Ronald Hodge, as Managing Director, is eligible to participate in the LTIP and received 4,166,666 shares at 25 cents per
share and a corresponding limited recourse loan on 8 September 2015, as approved by shareholders. Mr Hodge’s shares have
no performance conditions and the first tranche of 1,388,888 vested on 8 September 2016. The remaining shares vest in equal
tranches on 8 September 2017 and 8 September 2018 respectively. As Managing Director Mr Hodge is eligible to participate in
the ESOP and received 400,000 shares at 31 cents per share and a corresponding limited recourse loan on 28 December 2016, as
approved by shareholders. The shares will vest in three equal tranches on the first, second and third anniversaries of the Grant
Date.
Additional information on the remuneration of executive directors and key management personnel is given in Note 18 of the Financial
Statements.
The Directors’ remuneration for the year ended 30 June 2017 is detailed in the following table. There was no accrued long service leave
for the Managing Director at 30 June 2017.
Name of Director
Paul Clitheroe
Michael Shepherd
Peter Ronald Hodge
TOTAL
Base fee
$
Superannuation
$
Accrued
Annual Leave $
LTIP & ESOP
Expense $
88,048
34,246
264,252
386,546
1,952
57,369
30,518
89,839
-
-
1,576
-
(6,237)
122,874
411,407
(6,237)
124,450
594,598
Total
$
91,576
91,615
The Directors’ remuneration for the year ended 30 June 2016 is detailed in the following table.
Name of Director
Base fee
$
Superannuation
$
Accrued
Annual Leave $
LTIP
Expense $
Total
$
Paul Clitheroe
John O’Connell (resigned 31 August 2015)
Michael Shepherd
90,000
7,500
–
Peter Ronald Hodge (appointed 1 September 2015)
264,449
–
713
90,000
25,122
–
–
–
88,893
178,893
–
–
8,213
90,000
15,463
157,995
463,029
TOTAL
361,949
115,835
15,463
246,888
740,135
No Director of the Company has received or become entitled to receive a benefit, other than a remuneration benefit as disclosed in the
notes to the financial statements, by reason of a contract made by the Company or a related entity with the Director or with a firm of
which they are a member, or with a Company in which they have a substantial interest.
Key Management Personnel
The remuneration of the key management personnel who were not Directors for the year to 30 June 2017 is shown below.
Name of Key Management Personnel
Base
Remuneration $
Superannuation
$
Accrued
Annual Leave $
LTIP & ESOP
Expense $
Total
$
Nigel Poole
Alastair Davidson
214,940
192,518
20,419
30,608
3,159
374
121,715
360,233
121,715
345,215
16
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ R E P O R T
Key management personnel are on standard Group employment contracts, with the exception of termination which requires 3 months’
notice, if without cause.
The remuneration of the key management personnel who were not Directors for the year to 30 June 2016 is shown below.
Name of Key Management Personnel
Base
Remuneration $
Superannuation
$
Accrued
Annual Leave $
LTIP
Expense $
Total
$
Nigel Poole
Alastair Davidson
211,149
205,000
20,059
19,475
25,415
5,456
157,995
414,618
157,995
387,926
Shares held by Key Management Personnel and Directors
For the year ended 30 June 2017
Ordinary Shares
Paul Clitheroe
Michael Shepherd
Ron Hodge
Nigel Poole
Alastair Davidson
Balance at
1 July 2016
Shares acquired /
(disposed)
Shares
vested
Balance at
30 June 2017
2,333,333
400,000
–
–
327,624
–
–
–
–
200,000
1,388,888
–
–
1,388,888
1,388,888
2,333,333
400,000
1,588,888
1,388,888
1,716,512
Shareholdings relating to LTIP
Executive
Balance at
1 July 2016
Tranches
Shares acquired /
(disposed)
per Tranche
Approval or
Issue date
Value at
issue date
Estimated
or actual
vesting date
Balance at
30 June
2017
Paul Clitheroe
Non-Executive Chairman
2,666,667
Tranche 1
1,333,333
26/11/2014
Tranche 2
Tranche 3
1,333,333
26/11/2014
1,333,334
26/11/2014
Ron Hodge
4,166,666
Tranche 1
1,388,888
17/06/2015
Nigel Poole
4,166,666
Tranche 1
1,388,888
17/06/2015
Tranche 2
Tranche 3
1,388,888
17/06/2015
1,388,890
17/06/2015
Alastair Davidson
4,166,666
Tranche 1
1,388,888
17/06/2015
Tranche 2
Tranche 3
1,388,888
17/06/2015
1,388,890
17/06/2015
Tranche 2
Tranche 3
1,388,888
17/06/2015
1,388,890
17/06/2015
0.0542
0.0663
0.0733
0.0767
0.0826
0.0878
0.0767
0.0826
0.0878
0.0767
0.0826
0.0878
30/5/2016
–
25/11/2018
1,333,333
26/08/2020
1,333,334
8/09/2016
–
8/09/2017
1,388,888
8/09/2018
1,388,890
8/09/2016
–
8/09/2017
1,388,888
8/09/2018
1,388,890
8/09/2016
–
8/09/2017
1,388,888
8/09/2018
1,388,890
The remaining LTIP shares issued to Paul Clitheroe will vest in two equal tranches on the later of the second and third anniversary of the
grant date, or the date the share price is at or above $0.42 or $0.50 respectively for each tranche. The performance of the share price
was selected as the performance criteria as this closely aligns the rewards for performance to shareholder returns.
The remaining LTIP shares issued to Ron Hodge, Nigel Poole and Alastair Davidson vest at $0.25 per share on the dates noted above
and have no performance conditions in order to vest. These LTIP shares were issued in relation to the termination of a management
contract with one of the Group subsidiaries, and the Directors believed this compensation best aligned the executives to the interests of
shareholders.
17
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ R E P O R T
Shareholdings relating to ESOP
Executive
Balance at
1 July 2016
Tranches
Shares acquired /
(disposed)
per Tranche
Approval or
Issue date
Value at
issue date
Estimated
or actual
vesting date
Balance at
30 June
2017
Ron Hodge
–
Tranche 1
133,333
28/12/2016
Tranche 2
Tranche 3
133,333
28/12/2016
133,334
28/12/2016
Nigel Poole
–
Tranche 1
100,000
28/12/2016
Tranche 2
Tranche 3
100,000
28/12/2016
100,000
28/12/2016
Alastair Davidson
–
Tranche 1
100,000
28/12/2016
Tranche 2
Tranche 3
100,000
28/12/2016
100,000
28/12/2016
0.0499
0.0569
0.0631
0.0499
0.0569
0.0631
0.0499
0.0569
0.0631
28/12/2017
28/12/2018
28/12/2019
28/12/2017
28/12/2018
28/12/2019
28/12/2017
28/12/2018
28/12/2019
133,333
133,333
133,334
100,000
100,000
100,000
100,000
100,000
100,000
The shares issued to the Managing Director and key management personnel as part of the ESOP on 28 December 2016 are dependent on
the relevant employee not resigning, or being dismissed for cause, before each tranche vests.
Shares held by Key Management Personnel and Directors
For the year ended 30 June 2016
Ordinary Shares
Balance at
1 July 2015
Shares acquired /
(disposed)
Shares
vested
Balance at
30 June 2016
Paul Clitheroe – Non-Executive Chairman
Michael Shepherd – Non-executive director
Alastair Davidson – Chief Financial Officer
1,000,000
300,000
327,674
–
1,333,333
100,000
–
–
–
2,333,333
400,000
327,624
Shareholdings relating to LTIP
Executive
Balance at
1 July 2015
Tranches
Shares acquired /
(disposed)
per Tranche
Approval or
Issue date
Value at
issue date
Estimated
or actual
vesting date
Balance at
30 June
2016
Paul Clitheroe
Non-Executive Chairman
Ron Hodge
Chief Operating Officer
Nigel Poole
Chief Technology Officer
Alastair Davidson
Chief Financial Officer
4,000,000
Tranche 1
1,333,333
26/11/2014
Tranche 2
Tranche 3
1,333,333
26/11/2014
1,333,334
26/11/2014
4,166,666
Tranche 1
1,388,888
17/06/2015
Tranche 2
Tranche 3
1,388,888
17/06/2015
1,388,890
17/06/2015
4,166,666
Tranche 1
1,388,888
17/06/2015
Tranche 2
Tranche 3
1,388,888
17/06/2015
1,388,890
17/06/2015
4,166,666
Tranche 1
1,388,888
17/06/2015
Tranche 2
Tranche 3
1,388,888
17/06/2015
1,388,890
17/06/2015
0.0542
0.0663
0.0733
0.0767
0.0826
0.0878
0.0767
0.0826
0.0878
0.0767
0.0826
0.0878
30/05/2016
–
22/04/2017
1,333,333
22/07/2018
1,333,333
8/09/2016
4,166,666
8/09/2017
8/09/2018
8/09/2016
4,166,666
8/09/2017
8/09/2018
8/09/2016
4,166,666
8/09/2017
8/09/2018
Key management personnel transactions concerning dividends and ordinary shares are on the same terms and conditions applicable to
ordinary members.
This concludes the Remuneration Report which has been audited.
18
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ R E P O R T
INSURANCE OF DIRECTORS
During the financial year, the Company has given indemnity and paid insurance premiums to insure Directors and officers of subsidiaries
against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting
in the capacity of Directors or officers of the Company or subsidiaries, other than conduct involving a wilful breach of duty in relation
to the Company or subsidiaries. During the year, premiums were paid in respect of the key management personnel liability and legal
expenses insurance contract. Details of the nature of the liabilities covered and the amount of premiums paid have not been disclosed as
disclosure is prohibited under the terms of the contract.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit
engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to
indemnify Ernst & Young during or since the end of the financial year.
PROCEEDINGS ON BEHALF OF THE GROUP
There are no legal or other proceedings being made on behalf of the Group or against the Group as at the date of this report.
NON-AUDIT SERVICES
No non-audit services have been provided by the Auditor or by another person on the Auditor’s behalf during the year. This statement
has been made in accordance with advice provided by the Company’s audit committee and has been endorsed by a resolution of that
committee.
AUDITOR’S INDEPENDENCE DECLARATION
The auditor’s independence declaration for the year ended 30 June 2017 has been received and can be found on page 20.
Signed in accordance with a resolution of the Directors.
Paul Clitheroe AM
Chairman
Dated this 23rd day of August 2017 at Sydney
19
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
20
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017
For personal use only C O N S O L I D A T E D S T A T E M E N T O F
C O M P R E H E N S I V E I N C O M E
Commission income
Subscription income
Consulting fees
Dividend income
Interest income
Other income
Notes
4
4
2017
$
7,348,059
6,584,654
–
3,166
34,997
5 ,732
Net gain/loss on financial instruments at fair value through profit and loss
5
241,297
2016
$
7,907,634
4,207,421
40,414
–
28,928
219,058
6,872
Total Income
14,217,905
12,410,327
Accounting and administrative costs
Audit fees
Commission rebates
Directors’ fees
Employee costs
Interest expense
Legal and statutory expenses
Market data costs
Marketing and advertising expense
Other expenses
Rent
Software and website costs
Travel and accommodation
Depreciation and amortisation
Employee benefit expense
Goodwill impairment
Total expenses
(Loss)/Profit before income tax
Income tax expense
Loss for the year
Other comprehensive income, net of income tax
17
(187,305)
(133,560)
(165,831)
(126,000)
(1,983,032)
(1,862,126)
(181,616)
(188,438)
(5,747,665)
(4,830,356)
–
(92,180)
(190,223)
(832,202)
(640,864)
(367,968)
(512,509)
(89,909)
(12)
(65,215)
(196,217)
(762,833)
(874,489)
(385,070)
(393,812)
(51,917)
(1,481,023)
(1,691,899)
6
(424,528)
(562,877)
(23,610,664)
–
(36,475,248)
(12,157,092)
(22,257,343)
253,235
8a
(291,017)
(22,548,360)
–
(78,075)
175,160
–
Total comprehensive (loss)/profit for the year
(22,548,360)
175,160
Basic (loss)/earnings per share (cents per share)
Diluted (loss)/earnings per share (cents per share)
22
22
(20.33)
(20.33)
0.16
0.14
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
21
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
C O N S O L I D A T E D S T A T E M E N T O F
F I N A N C I A L P O S I T I O N
ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
Rental deposit
Financial assets at fair value through profit and loss
Fixed assets, including software less accumulated depreciation
Deferred tax asset
Intangibles
Goodwill
Total assets
LIABILITIES
Trade payables
Other payables
Subscriptions received in advance
Trail commissions to rebate
Deferred tax liability
Total liabilities
Net assets
Equity
Issued capital
Employee Benefit reserve
Retained losses
Total equity
Notes
2017
$
2016
$
7
9
10
8c
12
11
13
14
8c
15
6
16
4,935,046
4,986,827
602,697
250,516
21,372
622,379
169,760
56,264
2,053,481
1,638,448
294,478
455,311
264,340
613,248
7,622,110
8,988,770
–
23,610,664
16,235,011
40,950,700
29,189
1,971,734
2,422,358
1,209,392
2,119,333
82,964
1,786,751
4,437,135
1,339,828
2,697,185
7,752,006
10,343,863
8,483,005
30,606,837
58,522,440
58,522,440
1,089,530
665,002
(51,128,965)
(28,580,605)
8,483,005
30,606,837
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
C O N S O L I D A T E D S T A T E M E N T O F
C H A N G E S I N E Q U I T Y
Notes
Issued Capital
$
Retained losses
$
Employee Benefit Reserve
$
Total Equity
$
Balance as at 1 July 2015
15
58,522,440
(28,755,765)
102,125
29,868,800
Comprehensive income for the year
Employee benefit share reserve
Balance as at 30 June 2016
Comprehensive loss for the year
Employee benefit share reserve
6
6
–
–
175,160
–
–
562,877
175,160
562,877
58,522,440
(28,580,605)
665,002
30,606,837
–
–
(22,548,360)
–
–
(22,548,360)
424,528
424,528
Balance as at 30 June 2017
58,522,440
(51,128,965)
1,089,530
8,483,005
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
23
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
Notes
2017
$
2016
$
13,958,126
(13,488,084)
34,997
–
(276,643)
12,538,048
(9,863,762)
28,928
(12)
(32,543)
Net cash used in operating activities
21(a)
228,396
2,670,659
Cash flows from investing activities
Proceeds from sale of investments
Purchase of investments and subsidiary
Net Purchase of fixed assets
Dividends received
Rental deposit
Net cash (used in) investing activities
Cash flows from financing activities
Net cash inflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash acquired through acquisitions
210,180
(383,913)
(144,501)
3,166
34,891
100,000
(3,182,478)
(149,023)
–
37,026
(280,177)
(3,194,475)
–
–
–
–
(51,781)
(523,816)
4,986,827
3,292,828
–
2,217,815
Cash and cash equivalents at the end of the year
21(b)
4,935,046
4,986,827
The above Consolidated Statement of Cash flows should be read in conjunction with the accompanying notes.
24
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
1. REPORTING ENTITY
InvestSMART Group Limited (the “Company”) is domiciled in Australia and is the parent entity of the group which includes the entities
listed in Note 3 (the “Group”) and is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on
the Australian Securities Exchange. The consolidated financial statements of the Group are presented for the year ended 30 June 2017.
The Group is primarily involved in operating businesses delivering financial services to retail investors in Australia, primarily in wealth and
funds management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation
This general purpose financial report has been prepared in accordance with Australian Accounting Standards, including Australian
Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing
relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting
Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The financial report has been prepared on an accruals basis, and is based on historical cost, with the exception of the valuation of
financial assets as described below.
The financial statements were authorised for issue by the Directors on 23 August 2017. The directors and shareholders have the power
to amend these financial statements after issue.
The following significant accounting policies have been adopted in the preparation and presentation of the financial report. The
accounting policies have been consistently applied, unless otherwise stated.
ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
The Group has adopted all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board
that are relevant to its operations and effective for the current reporting period. The adoption of these new and revised standards and
interpretations did not have a material impact on the financial statements of the Group.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
Australian Accounting Standards and Interpretations have recently been issued or amended, but are not yet effective, which have not
been adopted by the Group in the presentation of this financial report.
AASB 15 - Revenue from Contracts with Customers
AASB 15 is applicable to annual reporting periods beginning on or after 1 January 2018.
Under the standard an entity recognises revenue by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Group has a liability to service customers who have purchased subscriptions in advance and recognises revenue when that
subscription service has been delivered. Commission income is derived from trailing commissions on funds management and insurance
products under a contract to distribute products to the InvestSMART client base. Revenue is recognised as the performance obligation is
satisfied. Management is continuing its assessment of applying the new standard on the Group’s financial statements, however, it is not
expected that it will result in a material impact.
AASB 16 – Leases
AASB 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of
more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its
right to use the underlying leased asset and a lease liability representing its obligations to make lease payments.
Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable
lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is
reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease.
This Standard is applicable to annual reporting periods beginning on or after 1 January 2019. The Group is not considering early adopting
AASB 16. An initial assessment has been performed based on leases that exist in the current reporting period. Based on this assessment
it is anticipated that there will be a material impact to the statement of financial position and equity as the Group is expected to
recognise a “right-of-use” asset and corresponding liability for operating leases. A schedule of current operating lease commitments is
disclosed in Note 26. The Group will recognise the cumulative effect of initially applying the standard as an adjustment to the opening
balance of retained earnings.
CURRENT VERSUS NON-CURRENT CLASSIFICATION
The Group presents assets and liabilities in the statement of financial position based on liquidity and not on a current versus non-current
classification.
INVESTMENTS AT FAIR VALUE
The Group’s investments are all measured at fair value through profit or loss in accordance with AASB 13: Fair Value Measurement.
The fair values of the Group’s listed investments are determined from the amount quoted on the primary exchange of the country of
domicile. If a listed investment is measured at fair value and has a bid price and an ask price, fair value is based on a price within the bid-
ask spread that is most representative of fair value and allows the use of mid-market pricing or other pricing conventions that are used
by market participants as a practical expedient for fair value measurement within a bid-ask spread. The fair value of the Group’s unlisted
investments is determined primarily using the price at which any recent transaction in the security may have been effected, adjusted
for the Directors’ view as to the likely success of the business model and discounted for the likelihood of a liquidity event occurring in
the next 3 years. Changes in the fair value of investments are recognised in the Statement of Comprehensive Income. Transaction costs
directly attributable to the acquisition of the investments are expensed in the Statement of Comprehensive Income as incurred.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 30 June 2017 and the
results of all subsidiaries for the period from 1 July 2016 to 30 June 2017, with the exception of Intelligent Investor Small Caps Fund, whose
results are included from the date of establishment, 1 February 2017. Control is achieved when the Company is exposed, or has rights, to
variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.
Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and
operating policies, generally accompanying a shareholding of more than one-half of the voting rights and excludes those subsidiaries
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
determined by the Directors to be investments held for resale. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group, or when they are established.
INTERCOMPANY TRANSACTIONS AND BALANCES
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Where there is a change in ownership interest, there will be an adjustment between the carrying amounts of the controlling and “non-
controlling” interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-
controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to the owners
of the Company.
When a Company acquires control through a change in investment policy, the entity is remeasured to its fair value with the change in
carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting
for the retained interest as an associate, jointly controlled entity or financial asset. Any amounts above net tangible assets are held as
goodwill or intangibles at that point.
If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained, only a
proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair
value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed
of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to
profit or loss.
BUSINESS COMBINATIONS AND GOODWILL
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
fair value consideration transferred, measured at acquisition date and the amount of any non-controlling interests in the acquiree.
For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at
the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in
administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for
non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s Cash-Generating Units that are
expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
The Group has determined that it operates as one Cash Generating Unit for the purposes of testing goodwill impairment.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs,
are not capitalised and the related expenditure is reflected in the consolidated statement of comprehensive income in the period in
which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over
the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied
in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting
estimates and adjusted on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the
statement of profit or loss as the expense category that is consistent with the function of the intangible assets. Gains or losses arising
from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of
the asset and are recognised in the statement of profit or loss when the asset is derecognised.
IMPAIRMENT OF FINANCIAL ASSETS
The Group assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables is
impaired. Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as
changes in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference between the asset‘s carrying amount and the present value of estimated
future cash flows (excluding future expected credit losses that have not yet been incurred) discounted using the asset‘s original effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is
recognised in the consolidated statement of comprehensive income as ‘impairment expense‘.
Impaired debt together with the associated allowance are written off when there is no realistic prospect of future recovery and all
collateral has been realised or has been transferred to the Group. If, in a subsequent period, the amount of the estimated impairment
loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment
loss is increased or reduced. If a previous write-off is later recovered, the recovery is credited to the ‘impairment expense‘.
Interest revenue on an impaired financial asset is recognised using the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
INVESTMENT INCOME
Net changes in fair value of investments
Realised and unrealised gains and losses on investments measured at fair value through profit or loss are recognised in the Statement of
Comprehensive Income.
SHARE-BASED PAYMENTS TO EMPLOYEES AND DIRECTORS
Employees (including executive directors) of the Group may receive remuneration in the form of share-based payments, where employees
render services as consideration for equity instruments (equity-settled transactions).
28
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation
model. The cost is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the
performance and/or service conditions are fulfilled in the employee benefits reserve.
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. This
cost is reversed in the event that an employee forfeits any share-based payment, when leaving the Group or other circumstances.
The expense in the consolidated statement of comprehensive income for a period represents the movement in cumulative expense
recognised as at the beginning and end of that period and is recognised in employee benefits expense.
INCOME TAX
The Group has formed a tax consolidated group and has executed tax-sharing agreements with each controlled entity. The head entity
and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group
has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to
members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the Group also recognises the current tax liabilities (or assets) and the deferred
tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The
income tax expense (revenue) for the year comprises current income tax expense and deferred tax expense or benefit.
Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities are measured at the
amounts expected to be paid to the relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as
unused tax losses. Current and deferred income tax expense is charged or credited outside profit or loss when the tax relates to items
that are recognised outside profit and loss. No deferred income tax is recognised from the initial recognition of an asset or liability,
excluding a business combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the
liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount
of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that
future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Unrecognised deferred tax
assets are reassessed at each reporting date and are recognised only to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or
simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset
where: (a) a legally enforceable right of set-off exists; (b) the deferred tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous
realisation and settlement of the respective assets and liability will occur in future periods in which significant amounts of deferred tax
assets or liabilities are expected to be recovered or settled.
REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured, regardless of when the payment is received. Revenue is measured at the fair value of the consideration received or receivable,
taking into account contractually defined terms of payment and excluding taxes or duty, and is generally recognised on an accruals basis.
29
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Subscription revenue
Subscription revenue is generally received in advance, and is recognised to the extent that the service has been delivered.
Commission revenue
Commission revenue from managed funds and life insurance products are recognised and measured as the fair value of the
consideration received or receivable to the extent that it is probable that economic benefits will flow to the Group and the revenue can
be reliably measured.
Dividend income
Dividends and distributions are recognised on the applicable ex-dividend date.
Interest income
Interest Income is recognised as it accrues.
Other income
Other income is recognised to the extent that it is probable that the economic benefits will flow to the Group and when the revenue can
be reliably measured.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits held at call with bank, other short term highly liquid investments with original
maturities of three months or less, and bank overdrafts.
For the purposes of the Statement of Cash Flows, cash includes deposits held at call with financial institutions net of bank overdrafts.
Bank overdrafts are shown within short-term borrowings in current liabilities on the Statement of Financial Position.
LONG SERVICE AND ANNUAL LEAVE PROVISIONS
The Group does not expect its long service leave or annual leave benefits to be settled wholly within 12 months of each reporting date.
The Group recognises a liability for long service leave and annual leave 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 credit method.
EXPENSES
The Group records all expenses on an accruals basis. This includes: accounting, audit, legal and administrative fees, management fees,
employee costs, marketing and advertising costs, director’s fees, travel and accommodation expense, rent expenses, commission rebates,
other expenses, market data costs, software and website costs.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is carried at historical cost less accumulated depreciation and accumulated impairment losses, if
any. 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, when it is probable that the future economic benefits
associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance
are charged to profit or loss during the reporting period in which they are incurred.
Depreciation on assets is calculated using the straight-line method to allocate their cost, net of residual value, over the estimated useful
lives as follows:
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Computer and office equipment
2–3 years
Network and production equipment
3–4 years
Leasehold improvements
Initial term of lease (approximately 4 years)
GOODS AND SERVICES TAX (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable
from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of
an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST.
EARNINGS/LOSS PER SHARE
Basic per share are calculated by dividing profit/(loss) attributable to members of the Company by the weighted average number of
ordinary shares outstanding during the year, adjusted for any bonus element, and are shown to one decimal place. Diluted earnings/
(loss) per share is calculated by dividing profit attributable to members of the Company by the total number of ordinary shares that
would be outstanding if all the LTIP and ESOP shares had vested.
SHARE CAPITAL
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.
FUNCTIONAL AND PRESENTATION CURRENCY
The functional and presentation currency of the Group is Australian dollars.
COMPARATIVES
Where necessary, comparative information has been reclassified to be consistent with the current reporting period.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of
future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Estimates of
future cash flows were used to estimate fair value of the assets acquired and liabilities assumed in the business combination. In particular,
the fair value of intangible assets was calculated using management’s estimates of future cash flows from each entity’s identified intangible
assets for the period of their expected useful life. The residual goodwill arising from a business combination is tested for impairment at
each balance date (30 June) and when circumstances indicate that the carrying value may be impaired. The Group bases its assumptions
used to test the impairment of goodwill on detailed budgets and forecasts which are prepared for the Group’s cash generating unit (CGU).
These budgets generally cover a five-year period, and a long-term growth rate (net of inflation) is used for longer periods.
Any impairment of goodwill is determined by assessing the recoverable amount of the CGU to which the goodwill relates. The Group has
determined that it has one CGU, and where the recoverable amount is less than the carrying value of goodwill, an irreversible impairment
loss is recognised.
Level 3 investments in financial assets are based on Director’s estimates of the fair value of those investments, where reliable third party
sources of valuation are not available.
The Group has not recognised deferred tax assets relating to carried forward realised capital losses on the basis that it does not expect
to derive sufficient future capital gains to utilise the current losses within a 3 to 5-year time period. The potential deferred tax asset that
could be realised is $5,166,415 at 30 June 2017.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
3. BUSINESS COMBINATIONS AND ACQUISITIONS
At 30 June 2017, the Company controlled the following subsidiaries:
Intelligent Investor Holdings Pty Ltd
InvestSMART Financial Services Pty Ltd
InvestSMART Funds Management Ltd (previously Personal Investment Direct Access Pty Ltd)
Ziel Two Pty Ltd
Yourshare Financial Services Pty Ltd
InvestSmart Insurance Pty Ltd (previously Yourshare Plus Pty Ltd)
AWI Ventures Pty Ltd
Eureka Report Pty Ltd
InvestSMART Australian Small Caps Fund
30 Jun 17
30 Jun 16
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
On 1 February 2017 the InvestSMART Australian Small Caps Fund, a unit trust, was established by payment of $350,000. InvestSMART
Funds Management Limited held 100% of all outstanding units in the fund from establishment date to year end and consolidated the
operations of the fund. The table below shows the income and expenses before tax for the fund:
Income
Dividend income
Realised gain on financial assets
Unrealised gain on financial assets
Expenses
Management and performance fees
Other expenses
Net profit
4. REVENUE FROM COMMISSIONS AND SUBSCRIPTIONS
Commission income
Subscription revenue
$
3,166
18,968
22,501
44,635
4,457
999
5,456
39,179
2017
$
2016
$
7,348,059
7,907,634
6,584,654
4,207,421
13,932,713
12,115,055
5. CHANGE IN FAIR VALUE OF FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
Net realised gain on investments
Net unrealised gain on investments
32
2017
$
69,218
172,079
241,297
2016
$
–
6,872
6,872
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
6. EMPLOYEE BENEFIT RESERVE
Long Term Incentive Plan (LTIP)
Employee Share Ownership Plan (ESOP)
Opening balance
Expense
Closing balance
2017
$
2016
$
1,022,025
562,877
67,505
–
1,089,530
562,877
665,002
424,528
1,089,530
102,125
562,877
665,002
The cost of the LTIP & ESOP shares and Company issued options have been estimated using the Monte-Carlo simulation or the Black-Scholes
methodology and amortised over the applicable vesting period. A summary of the terms of the LTIP shares issued are included in the
Directors’ Report.
7. TRADE AND OTHER RECEIVABLES
Trade receivables
2017
$
2016
$
602,697
622,379
Receivables are non-interest bearing and unsecured, and will be received within 3 months. The credit risk exposure of the Group in
relation to receivables is the carrying amount.
8. INCOME TAX
(a) Income tax (expense) recognised in the Statement of Comprehensive Income
The components of income tax expense:
Current income tax expense
R&D expenditure adjustments for prior years
Other adjustments for prior years
Deferred tax income relating to the origination and reversal of temporary differences
Change in tax rate
Total income tax (expense) benefit
2017
$
2016
$
787,655
–
(73,968)
(271,145)
(151,525)
291,017
587,024
(92,568)
(240,664)
(175,717)
–
78,075
Deferred income tax related to items charged directly to equity
–
217,856
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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8. INCOME TAX (CONTINUED)
(b) Income tax expense
A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax
expense at the entity’s effective income tax rate for the years ended 30 June 2017 and 2016 is as follows:
Prima facie income tax expense/(benefit) calculated at 30% (2016: 30%) on the operating (loss)/profit
(6,673,891)
75,970
Add/(Less) tax effect of:
Expenditure not deductible in current year
Impairment of goodwill
Change in tax rate
Adjustments for prior years
Income tax (expense)/benefit
(c) Deferred tax assets and liabilities
Deferred tax assets
The deferred tax asset balance comprises temporary differences recognised as follows:
Accruals and provisions not deductible in this period
Deductible capital expenditure
Revenue tax losses carried forward
Closing balance
Movements in deferred tax assets
Opening balance
Expense in the income statement
Deferred tax asset acquired
Deferred tax liabilities
The deferred tax liability balance comprises temporary differences recognised as follows:
Future tax expense for intangibles acquired
Prepayments not deductible in future years
Unrealised gain on investments
Closing balance
Movements in deferred tax liabilities
Opening balance
Expense in the income statement
Benefit to goodwill
134,231
7,083,199
(151,525)
191,872
–
(100,997)
(189,767)
291,017
78,075
2017
$
236,875
181,866
36,570
455,311
2016
$
267,138
303,459
42,651
613,248
613,248
765,596
(157,937)
(179,264)
–
455,311
26,916
613,248
2,096,080
2,696,632
–
23,253
553
–
2,119,333
2,697,185
2,697,185
(577,852)
2,834,310
(354,981)
_
217,856
2,119,333
2,697,185
The Group expects to be classified as a small business for tax purposes. As a result a reduced tax rate of 27.5% will apply for reporting
periods after 30 June 2017 (previously 30%).
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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9. FINANCIAL ASSETS HELD AT FAIR VALUE
AWI Ventures investee companies
Investments in Separately Managed Accounts
Investments in Equity Securities
Financial assets at fair value through profit and loss
2017
$
2016
$
1,573,000
1,510,000
182,124
298,357
128,448
–
2,053,481
1,638,448
The Separately Managed Accounts are issued by Praemium Australia Limited as the responsible entity and managed by InvestSMART
Financial Services Pty Ltd.
10. FIXED ASSETS INCLUDING SOFTWARE
Cost
Opening balance 1 July 2016
Additions
Disposals
Balance at 30 June 2017
Depreciation
Opening balance 1 July 2016
Depreciation charge for the period
Disposals
Balance at 30 June 2017
Net book value at 30 June 2016
Net book value at 30 June 2017
11. GOODWILL
Opening net carrying amount
Additions
Impairment
Closing net carrying amount
Plant and equipment
Software
$
$
185,490
145,897
(394)
330,993
10,172
79,509
–
211,790
–
–
211,790
122,768
35,856
–
Total
$
397,280
145,897
(394)
542,783
132,940
115,365
-–
89,681
158,624
248,305
175,318
241,312
89,022
53,166
264,340
294,478
2017
$
2016
$
23,610,664
21,595,696
–
2,014,968
(23,610,664)
–
–
23,610,664
Goodwill is tested for impairment at each balance date using a discounted cash flow model on the net cash flows from the business.
The Group performed its annual impairment test at 30 June 2017. The Group considers the relationship between its market capitalisation
and its book value, among other factors, when reviewing for indicators of impairment. As at 30 June 2017, the market capitalisation of the
Group was below the book value of its equity, indicating a potential impairment of goodwill. In addition, the group made a strategic decision
to focus on growing funds management products which will result in a decline in budgeted commissions and subscriptions revenue.
The Group has determined it has one cash generating unit (CGU). The recoverable amount of the CGU, as at 30 June 2017, has been
determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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11. GOODWILL (CONTINUED)
covering a five-year period. The projected cash flows have been updated to reflect a decline in commissions and subscriptions revenue
and do not incorporate future cash inflows expected to arise from future enhancements to funds management products. The pre-tax
discount rate applied to cash flow projections is 13.3% and cash flows beyond the five-year period are extrapolated using a 2.1% growth rate
that is the same as the long-term average growth rate for the financial services sector, and a long term inflation rate of 2.1%. It was concluded
that the carrying value less costs of disposal did not exceed the value in use. As a result of this analysis, management has recognised an
impairment charge of $23,610,664 in the current year against goodwill with a carrying amount of $23,610,664 as at 30 June 2017.
The calculation of value in use for the cash generating unit is most sensitive to the following assumptions:
•
Future revenue growth
• Discount rates
•
Expected growth in wages and employee costs
• Growth rates used to extrapolate cash flows beyond the forecast period
Future revenue growth – Future revenue growth is based on past experience (average declines in product revenue for the four years
preceding the end of the budget period). A large proportion of the CGU’s revenue is based on trailing commissions which are highly
correlated with the movements in the Australian share market. Commission income has been affected by legislative changes which are
not adjusted for in future cash flow projections. A change in focus from growing subscription revenue to growing fund management
revenues was taken into account when determining future revenue growth. Future cash flow projections exclude estimated future cash
inflows expected to arise from future restructurings or from improving or enhancing the CGU’s performance.
Discount rates – Discount rates represent the current market assessment of the risks specific to the CGU, taking into consideration
the time value of money and the risks incorporated in the cash flow estimates. The discount rate calculation is based on the specific
circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes
into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The
cost of debt is based on the expected cost of interest-bearing borrowings the Group may be obliged to service. The beta factors are
evaluated annually based on publicly available market data. Adjustments to the discount rate are made to factor in the specific amount
and timing of the future tax flows in order to reflect a pre-tax discount rate.
Wage and Employee cost inflation – Management has considered the possibility of greater than forecast increases in employee costs.
This may occur if inflation causes higher than forecast wage increases in the future. Forecast price inflation lies within a range of 1.5 to 2.5%.
Growth rate estimates - Rates are based on long term expected growth rates for the Australian economy. Management recognises that
the speed of technological change and the possibility of new entrants can have a significant impact on growth rate assumptions.
The Group considers no other assets to be impaired.
12. INTANGIBLES
Opening balance 1 July 2015
Acquired at 4 April 2016 in Eureka Report
Amortisation
Balance at 30 June 2016
Amortisation
Balance at 30 June 2017
36
Fund distribution contracts
Content
Subscriber lists
$
8,335,300
$
–
–
412,724
$
1,112,400
726,185
(877,400)
(412,724)
(307,715)
7,457,900
(877,400)
6,580,500
–
–
–
1,530,870
(489,260)
1,041,610
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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12. INTANGIBLES (CONTINUED)
Fund distribution contracts were acquired as intangible assets under a business combination as at 1 January 2015. Whilst they have no
expiry date, it is expected that customers on which the distribution fees are earned will leave over 10 years. Subscriber lists in Intelligent
Investor are assumed to have a 5-year life, based on the Group’s historical experience, and therefore the intangible asset arising from
those lists are amortised on a straight line basis. Subscriber lists in Eureka Report are assumed to have a 3-year life and are amortised
on a straight line over that period. Original content acquired in Eureka Report at 4 April 2016 was fully amortised at 30 June 2016.
13. TRADE PAYABLES
Trade payables
Trade payables are non-interest bearing and unsecured and are payable within 3 months.
14. OTHER PAYABLES
Annual leave provision
Long service leave provision
PAYG and superannuation payables
GST payable
Other payables
Tax payable
15. ISSUED CAPITAL
Ordinary shares
2017
$
2016
$
29,189
82,964
2017
$
208,396
65,623
136,255
252,686
542,615
766,159
2016
$
248,808
52,938
142,039
416,670
596,690
329,606
1,971,734
1,786,751
2017
$
2016
$
58,522,440
58,522,440
At 30 June 2017, 110,885,360 ordinary shares were on issue (2016: 110,885,360). An additional 16,500,000 were issued, as part of the
LTIP detailed in Note 6, of which 9,666,665 remain unvested at 30 June 2017. The vested shares have a non-recourse loan outstanding.
A portion of the Long Term Incentive Plan shares issued to Ron Hodge, Nigel Poole and Alastair Davidson issued on 8 September 2015,
vested on 8 September 2016.
Under the LTIP, the director or employee can repay the loan by forfeiting the shares issued under the plan. The shares vest when the
Company’s share price reaches certain hurdles or after certain time periods and may be forfeited prior to the loan repayment date, and
have therefore not been included in the issued share capital total.
On 28 December 2016, the Company issued 5,820,000 shares under the ESOP to the Managing Director and other employees of the
Group, which will vest over the next 3 years. Under the ESOP, the director or employee can repay the loan by forfeiting the shares issued
under the plan. The shares vest over certain time periods and may be forfeited prior to the loan repayment date, and have therefore not
been included in the issued share capital total.
(a) Terms and conditions
The Company has ordinary shares on issue. Holders of ordinary shares are entitled to receive dividends as declared from time to time
and are entitled to one vote per share at shareholder meetings.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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15. ISSUED CAPITAL (CONTINUED)
(b) Capital Management
The Group’s policy is to maintain a strong capital base so as to maintain investor and market confidence. To achieve this the Directors
monitor the monthly performance of the operating entities, the Group’s management expenses, and share price movements. The Group
is not subject to any externally imposed capital requirements. Capital relates to equity attributable to investors.
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios to support its business and
maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions.
To maintain or adjust the capital structure, the Company may adjust any dividend payment to investors, capital returns or issue new shares.
No changes were made in the objectives, policies or processes for managing capital during the years ended 30 June 2017 and 30 June 2016.
16. RETAINED LOSSES
Opening balance
(Loss)/Profit attributable to members of the group
Closing balance
17. AUDITORS REMUNERATION
Auditing and reviewing the financial reports of the Group:
Ernst & Young – audit fees
18. RELATED PARTY INFORMATION
(a) Key management personnel
2017
$
2016
$
(28,580,605)
(28,755,765)
(22,548,360)
175,160
(51,128,965)
(28,580,605)
2017
$
2016
$
133,560
126,000
The names of the persons who were key management personnel of the Group during the financial year were:
Ron Hodge
Nigel Poole
Alastair Davidson
(b) Key management personnel remuneration
Remuneration paid to key management personnel by the Group in connection with the management of affairs of the group were:
Short-term Employee Benefit
Cash Salary & Fees
Employment Benefit
Superannuation
Accrued Annual
Leave
Employee share
benefit
Total
2017
2016
671,710
680,598
81,545
64,656
(2,704)
46,334
366,304
473,985
1,116,855
1,265,573
The Directors’ remuneration excludes insurance premiums paid and payable by the Group in respect of Directors’ liability insurance.
Apart from the details disclosed in this note, no key management personnel have entered into a material contract with the Group during
the financial year.
The Directors of the InvestSMART Group Limited are responsible for determining and reviewing compensation arrangements for
the Managing Director and key management personnel. The Directors also assess the appropriateness of the nature and amount of
emoluments of each Director on a periodic basis by reference to workload and market conditions.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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18. RELATED PARTY INFORMATION (CONTINUED)
The overall objective is to ensure maximum stakeholder benefit from the retention of a high quality board whilst constraining costs.
The Directors’ remuneration has been included in the remuneration report section of the Directors Report.
On 26 November 2014 (the grant date), the Company lent $1,000,000 to the Executive Chairman, Mr Paul Clitheroe, to acquire 4,000,000
shares, as part of the Long Term Incentive Plan, subject to vesting terms, as approved by shareholders at the Annual General Meeting
in November 2014. The first tranche of these shares have vested, though the associated non-recourse loan has not been repaid, and
therefore has not been included in share capital. The remaining tranches have not vested and therefore have not been included in share
capital. The Company estimated the fair value of this director/employee share benefit was $258,400 at the grant date.
On 17 June 2015 the Company agreed to lend $3,125,000 in total to three key management personnel to acquire 12,499,968 shares, as part of
the Long Term Incentive Plan, subject to vesting terms, as approved by shareholders at the Extraordinary General Meeting in June 2015.
These shares were issued on 8 September 2015, and have not vested or had the associated non-recourse loan repaid, and therefore have not
been included in share capital. The Company estimated the fair value of this director/employee share benefit was $1,029,293 at the grant date.
On 28 December 2016 as part of the Employee Share Ownership Plan (ESOP) the Company lent $1,804,200 to the Managing Director
and employees of the Group to acquire 5,820,000 ordinary shares as approved by shareholders at the Annual General Meeting on 29
November 2016. The shares were issued on the Grant Date. These shares have not vested and therefore have not been included in
share capital. The shares will vest in three equal tranches on the first, second and third anniversaries of the Grant Date. The Company
estimates the fair value of this director/employee share benefit is $329,716 at the Grant Date.
(c) Shareholdings of key management personnel and their related entities
For the year ended 30 June 2017
Ordinary Shares
Ron Hodge
Alastair Davidson
Nigel Poole
For the year ended 30 June 2016
Ordinary Shares
Ron Hodge
Alastair Davidson
Nigel Poole
Paul Clitheroe (appointed 26 November 2015,
appointed non-executive Chairman 24 February 2016)
19. SEGMENT INFORMATION
Balance at
1 July 2016
Shares held
on appointment
Shares acquired /
(disposed)
Balance at
30 June 2017
4,166,666
4,494,340
4,166,666
-
-
-
600,000
300,000
300,000
4,766,666
4,794,340
4,466,666
Balance at
1 July 2015
Shares held
on appointment
Shares acquired /
(disposed)
Balance at
30 June 20169
4,166,666
4,494,340
4,166,666
5,000,000
-
-
-
-
-
-
-
-
4,166,666
4,494,340
4,166,666
5,000,000
The Group has only one reportable segment. The Group is engaged solely in general advice retail financial services conducted in
Australia, deriving revenue from commissions and subscriptions.
20. FINANCIAL RISK MANAGEMENT
The Group’s financial instruments consist mainly of deposits with banks, accounts receivable, accounts payable and investments in listed
and unlisted equities classified as financial assets at fair value through profit and loss.
AASB 7 Financial Instruments: Disclosures identify three types of risk associated with financial instruments (i.e. the Group’s investments,
receivables and payables).
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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20. FINANCIAL RISK MANAGEMENT (CONTINUED)
(i) Credit risk
The standard (AASB 7) defines this as the risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance
date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the
statement of financial position and notes to the financial statements. There are no other material amounts of collateral held as security
at 30 June 2017.
Credit risk is managed as shown in Note 7 and with respect to receivables, and Note 20 for cash and cash equivalents. None of these
assets are over-due or considered to be impaired.
(ii) Liquidity risk
The standard (AASB 7) defines this as the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities. Senior management monitors the Group’s cash-flow requirements daily taking into account upcoming dividends, tax payments
and investment activity.
The Group’s inward cash-flows depend upon the level of trail commission and subscription revenue received. If these decrease by a
material amount, the Group will amend its outward cash-flows accordingly. As the Group’s major cash outflows are the cost of employees
and rebates of trail commissions, the level of both of these is managed by the Board and senior management.
The tangible assets of the Group are largely in the form of unlisted securities which may be difficult to liquidate in a timely fashion, and
short-term receivables.
The table below analyses the Group’s non-derivative financial liabilities in relevant maturity groupings based on the remaining period to
the earliest possible contractual maturity date at the year-end date. The amounts in the table below are contractual undiscounted cash
flows.
At 30 June 2017
Other payables
Trail commissions due to customers
Subscriptions received in advance
Trade and other payables
Total financial liabilities
At 30 June 2016
Other payables
Trail commissions due to customers
Subscriptions received in advance
Trade and other payables
Total financial liabilities
(iii) Market risk
On-demand
Less than 3 months
3 to 12 months
1 to 5 years
$
–
–
–
–
–
–
–
–
–
–
$
1,612,234
371,347
147,396
29,189
$
293,877
838,044
$
Total
$
65,623
1,971,734
–
1,209,391
1,983,794
291,168
2,422,358
–
–
29,189
2,160,166
3,115,715
356,791
5,632,672
1,485,005
334,957
1,109,284
82,964
248,808
1,004,871
2,805,703
52,938
1,786,751
–
1,339,828
522,148
4,437,135
–
–
82,964
3,012,210
4,059,382
575,086
7,646,678
The standard (AASB 7) defines this as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices. A general fall in market prices of 5 per cent and 10 per cent, if spread equally over all investments would lead
to a reduction in the Group’s equity and increase the reported loss by $102,674 and $205,348 respectively (2016: $81,922 and $163,845
respectively).
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20. FINANCIAL RISK MANAGEMENT (CONTINUED)
The Group is also not directly exposed to currency risk as all its operations are conducted in Australian dollars. The Group is engaged in
activities conducted solely in Australia.
DERIVATIVE FINANCIAL INSTRUMENTS
A derivative is a financial contract whose value depends on, or is derived from, underlying assets, liabilities or indices. Derivative
transactions include a wide assortment of instruments, such as forwards, futures, options and swaps. The Group does not currently use
or hold derivative instruments.
Interest rate risk
The Group’s cash balances and term deposits expose it to risks associated with the effects of fluctuations in the prevailing levels of
market interest rates on its financial position and cash flows.
Sensitivity analysis – interest rate risk
An increase of 75 basis points in interest rates over the reporting period would have increased the Group’s profit by $35,902 (2016:
$37,401). A decrease of 75 basis points would have an equal but opposite effect.
As at 30 June 2017, the Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial
asset and financial liability is set out in the table below:
Financial assets
Cash assets
Trade and other receivables
Prepayments
Rental deposit
Financial assets at fair value through profit and loss
Financial liabilities
Other payables
Trail commissions due to customers
Subscriptions received in advance
Trade and other payables
Weighted average Floating interest Non-interest
interest rate (% pa)
rate $
bearing $
Total
$
0.8
4,465,970
469,076
4,935,046
–
–
–
–
602,697
250,516
21,372
602,697
250,516
21,372
2,053,481
2,053,481
4,465,970
3,397,142
7,863,112
–
–
–
–
–
1,971,734
1,971,734
1,209,391
1,209,391
2,422,358
2,422,358
29,189
29,189
5,632,672
5,632,672
Net financial assets/(liabilities)
4,465,970
(2,235,530)
2,230,440
41
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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20. FINANCIAL RISK MANAGEMENT (CONTINUED)
As at 30 June 2016, the Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial
asset and financial liability is set out in the table below:
Weighted average Floating interest Non-interest
interest rate (% pa)
rate $
bearing $
Total
$
Financial assets
Cash assets
Trade and other receivables
Prepayments
Rental deposit
Financial assets at fair value through profit or loss
Financial liabilities
Other payables
Trail commissions due to customers
Subscriptions received in advance
Trade and other payables
1.25
4,986,827
–
4,986,827
–
–
–
–
622,379
169,759
56,624
622,379
169,759
56,624
1,638,448
1,638,448
4,986,827
2,487,210
7,474,037
–
–
–
–
–
1,786,751
1,786,751
1,339,828
1,339,828
4,437,135
4,437,135
82,964
82,964
7,646,678
7,646,678
Net financial assets/(liabilities)
4,986,827
(5,159,468)
(172,641)
FAIR VALUE HIERARCHY
AASB 13 requires the Group to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs
used in making the measurements. The fair value hierarchy has the following levels:
•
•
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices).
•
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of
the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is
assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to
the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant judgement by the Directors. The Directors consider observable
data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant market.
42
INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
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20. FINANCIAL RISK MANAGEMENT (CONTINUED)
There has been no change in the Level 2 and Level 3 valuation techniques used for this report from previous reports. The table below
sets out the Group’s financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at 30 June 2017:
Level 1
$
Level 2
$
Level 3
$
Total
$
At 30 June 2017
Financial assets
Financial assets held at fair value through profit or loss
298,357
182,124
1,573,000
2,053,481
At 30 June 2016
Financial assets
Financial assets held at fair value through profit or loss
–
128,448
1,510,000
1,638,448
During the reporting period ending 30 June 2017 there were no transfers between Level 1 and Level 2 fair value measurements.
Financial instruments whose values are based on quoted market prices in active markets, and therefore classified within level 1, include
active listed equities, certain unlisted unit trusts and exchange traded derivatives.
Investments classified within level 2 have inputs based on quoted and unquoted prices. The level 2 investments held by the Group relate
to investments in Separately Managed Accounts issued by Praemium Australia Limited. The accounts hold primarily listed securities which
are valued at the last closing price on the Australian Securities Exchange.
DESCRIPTION OF SIGNIFICANT UNOBSERVABLE INPUTS TO VALUATION OF LEVEL 3 ASSETS
Through AWI Ventures Pty Ltd, the Group has investments in 10 start-up companies in the financial technology sector. These companies
have little or no revenue and therefore cannot be valued using Discounted Cash Flow. The fair value of the investee companies has been
assessed as the price at which each investee company raised a material amount of new capital, or historic cost if they have not raised a
material amount of new capital, adjusted for the Director’s view of the likely success of the business model and a liquidity discount based
on the likelihood of a liquidity event in the next 3 years.
Investments classified within level 3 have significant unobservable inputs, as they are infrequently traded. Unlisted equities are classified
within level 3.
The table below shows the assumptions used by management in assessing fair value of its investments in unlisted equities:
Valuation technique
Significant
unobservable inputs
Range
(weighted average)
Sensitivity to
fair value
AWI Ventures
Director’s valuation
Last issue price & date of
N/A
An issue of new equity, or trade
investee
companies
new equity, last traded price
of equity, Capital structure,
Directors’ qualitative
assessment of investee
business model success
in existing equity, at a higher or lower
price may have significant effect on
fair value
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
20. FINANCIAL RISK MANAGEMENT (CONTINUED)
The following table shows a reconciliation of the movement in the fair value of financial instruments categorised within level 3 between
the beginning and the end of the reporting period:
Balance at 1 July 2016
Unlisted equities disposed during the period
Gain through profit and loss
Balance at 30 June 2017
1,510,000
(125,250)
188,250
1,573,000
The credit risk exposure of the Group in relation to cash is the carrying amount and any accrued unpaid interest. Cash investments are
held with a number of banks all of which are rated AA- by Standard and Poor’s.
21. STATEMENT OF CASH FLOWS
(a) Reconciliation of net profit from ordinary activities after income tax to net cash provided by operating activities
Operating (loss)/profit
Adjustments to reconcile profit after tax to net cash flows:
Unrealised change in fair value of financial assets through profit or loss
Employee benefit expense
Depreciation and amortisation
Non–cash transactions with subsidiaries
Decrease in deferred tax asset
Decrease in deferred tax liability
Loss on disposal of fixed asset
Dividend income
Change in goodwill through income statement
Change in operating assets and liabilities:
Decrease in trade and other receivables
(Increase) in prepayments
(Decrease)/increase in trade and other payables
Less net trade payables and receivables acquired in Eureka Report
Net cash from operating activities
(b) Reconciliation of cash
2017
$
2016
$
(22,548,360)
175,160
(241,298)
424,528
(6,872)
562,877
1,481,023
1,691,899
–
157,937
(577,852)
–
152,348
–
–
72,778
(3,166)
–
23,610,664
(190,941)
19,682
(80,757)
163,520
(6,475)
(2,014,005)
2,091,116
–
(2,034,751)
228,396
2,670,659
Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to the related items in the statement of
financial position as follows:
Cash at bank
2017
$
2016
$
4,935,046
4,986,827
The credit risk exposure of the group in relation to cash is the carrying amount and any accrued unpaid interest. Cash investments are
held with a number of banks all of which are rated AA- by Standard and Poor’s.
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
22. LOSS/EARNINGS PER SHARE
Basic (loss)/earnings per share (cents per share)
Diluted (loss)/earnings per share (cents per share)
2017
cents
(20.33)
(20.33)
2016
cents
0.16
0.14
As the Group was in a loss position in 2017, share based incentive plans did not affect the diluted earnings per share calculation as
potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings
per share or increase loss per share from continuing operations.
(Loss)/earnings as per Statement of Consolidated Income
Weighted average number of ordinary shares outstanding during the year
used in calculating basic earnings per share
Weighted average number of ordinary shares outstanding during the year
used in calculating diluted earnings per share if all LTIP & ESOP shares vest
and non-recourse loans are repaid
23. FRANKING ACCOUNT
Opening balance of franking account
2017
2016
(22,548,360)
175,160
110,885,630
110,885,360
132,820,362
127,385,360
2017
$
2016
$
1,887,279
1,805,971
Adjustments for tax payment and tax payable/refundable in respect of the prior year’s profits
323,596
81,308
Adjusted franking account balance
2,210,875
1,887,279
24. PARENT ENTITY INFORMATION
Statement of Financial Position
Assets
Current assets
Investments
Total Assets
Liabilities
Current Liabilities
Total Liabilities
Net Assets
Equity
Contributed Equity
Employee benefit reserve
Retained earnings
Total Equity
Statement of Profit or Loss and other Comprehensive Income
Net loss for the year after income tax expense
Total Comprehensive loss for the year
2017
Restated 2016
As reported 2016
$
$
$
128,260
5,474,546
229,242
229,242
26,302,568
26,302,568
5,602,806
26,531,810
26,531,810
653,824
653,824
476,432
476,432
191,167
191,167
4,948,982
26,055,378
26,340,643
58,522,441
1,085,245
58,522,441
58,522,441
665,002
665,002
(54,658,704)
(33,132,065)
(32,846,800)
4,948,982
26,055,378
26,340,643
21,526,639
21,526,639
2,662,126
2,662,126
2,947,391
2,947,391
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
N O T E S T O T H E C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
24. PARENT ENTITY INFORMATION (CONTINUED)
The accounting policies of the parent entity, InvestSMART Group Limited, used in determining the financial information shown above, are
the same as those applied in the Group’s consolidated financial statements, as detailed in Note 2.
At 30 June 2017, InvestSMART Group Limited had commitments for an office lease at Level 9, 37 York Street, Sydney, and Level 4, 356
Collins St, Melbourne, for $963,789 (2016: $1,365,571).
Comparative figures have been restated for an adjustment not reflected in the Parent Entity information in the 2016 Group Financial
Report. As a result the Parent Entity Current Liabilities and Total Comprehensive Income for the year were overstated by $285,265. The
error relates only to the Parent Entity disclosure and the Group financial statements are not affected.
25. EVENTS OCCURRING AFTER REPORTING DATE
Since 30 June 2017 there have been no significant events up to the date of these financial statements.
26. CONTINGENT LIABILITIES AND COMMITMENTS
Within one year
After one year but less than five years
Total
2017
$
313,374
650,415
963,789
2016
$
395,003
1,042,909
1,437,912
At 30 June 2017, the Group had commitments of $963,789 (2016: $1,437,912) for leased premises. The Group has leases over its offices
at Level 9, 37 York St, Sydney NSW 2000, until 31 March 2020 and Level 4, 356 Collins St, Melbourne until 1 June 2021. There are no other
contingent liabilities or commitments at 30 June 2017.
27. COMPANY DETAILS
The registered office and principal place of business of the Company and subsidiaries is:
Level 9, 37 York Street
Sydney NSW 2000
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INVESTSMART GROUP LIMITED . ANNUAL REPORT 2017For personal use only
D I R E C T O R S ’ D E C L A R A T I O N
In accordance with a resolution of the Directors of InvestSMART Group Limited, I state that:
1. In the opinion of the Directors:
(a) The financial statements, notes and the additional disclosures included in the Director’s Report designated as audited, of the
Company are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Company as at 30 June 2017 and of its performance for the year
ended on that date.
(ii) complying with Australian Accounting Standards, International Financial Reporting Standards (IFRS) as disclosed in Note 2(a)
and Corporations Regulations 2001.
(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.
2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A
of the Corporations Act 2001 for the financial year ended 30 June 2017.
On behalf of the Board
Paul Clitheroe AM
Chairman
Dated this 23rd day of August 2017 at Sydney
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For personal use only A D D I T I O N A L I N F O R M A T I O N
Additional information required by the Australian Securities Exchange Listing Rules is set out below.
The security holder information set out below was current as at 11 October 2017.
DISTRIBUTION OF SHAREHOLDERS
There were 132,695,358 fully paid ordinary shares held by 1,234 shareholders, all of which were quoted on the Australian Securities
Exchange. There are no restricted shares on issue. There are no unquoted shares on issue.
Holdings Ranges
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-99,999,999,999
Totals
Holders
Total Units
Percentage
344
250
176
320
144
61,427
1,065,946
1,533,525
12,358,461
0.05%
0.80%
1.16%
9.31%
117,675,999
88.68%
1,234
132,695,358
100.00%
The number of shareholders holding less than a marketable parcel of fully paid ordinary shares is 367.
TOP 20 SHAREHOLDERS
Holder Name
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
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