Kelly Partners Group
Annual Report 2018

Plain-text annual report

Annual Report 2018 Insight 1 It’s not the big who beat the small anymore, but the fast who beat the slow. Insight 2 It’s not the amount of marble in your reception, but the relevance of your insight. Insight 3 It’s not an accident who succeeds today, but the deliberate choice of a capable team. Private Businesses Private Clients Family Office Private Businesses Private Clients Family Office Private Businesses Private Clients Family Office Insight 4 It’s not the latest management fad, but proven principles. Insight 5 It’s not those who talk about business, but those who, like you, are doing the business. Insight 6 Kelly+Partners Chartered Accountants, we help business owners who want to go somewhere. Private Businesses Private Clients Family Office Private Businesses Private Clients Family Office Private Businesses Private Clients Family Office Values Kelly+Partners is guided by a set of principles that define our character and culture, forming the core of our business vision. These universal principles are the shared convictions that we bring to our professional and personal conduct and are the fundamental strength of our business. Our values drive how we do things. Client Obsessed Want the best for others We are distinguished by thinking and acting in the interest of others, taking the time to know people and always seeking to be helpful. We do what we say We do what we say – our word is our bond and we deliver what we promise. Every client a referrer We like our clients and we want them to be happy. Each client is important and if they’ve got a problem that needs solving, we’re there to help fix it. Better Together One team, one best way Brightness of future We care for our colleagues, treating each other like family. We’ve got each other’s backs and we work with the Kelly+Partners system in ‘One Best Way’. Our team personally demonstrate that they contribute to making Kelly+Partners a great place to work. Committed to Lead Profit leader Better off Profit is essential to a sustainable business. We want to demonstrate the quality of our advice by earning it in our business. We help Private Business Owners who want to be ‘better off' by delivering trusted and convenient compliance and forward-looking advisory services. 4 KELLY+PARTNERS ANNUAL REPORT 2018 Values Mission Why we exist. To help private business owners, private clients and families maintain control of their financial universe and be better off by delivering the Kelly+Partners Financial Advice System. Vision What we want to be. The first choice advisor for business owners. n o i s i V d n a n o i s s i M , s e u l a V 5 Contents MESSAGE FROM THE CHAIRMAN & CEO STRATEGIC INTENT ASX RELEASED PERFORMANCE HIGHLIGHTS BOARD OF DIRECTORS AND SENIOR MANAGEMENT 2018 FINANCIAL REPORT 9 13 17 21 25 s t n e t n o C 7 Message from the Chairman & CEO 6 Central Tablelands 3 Western Sydney 10 Hong Kong Central Coast 2 Norwest 5 12 Parramatta 15 Inner West 9 Oran Park Northern Beaches North Sydney 1 8 Sydney CBD 13 South West Sydney 4 11 Southern Highlands Wollongong 7 Melbourne CBD 14 6 Central Tablelands Central Coast 2 3 Western Sydney Norwest 5 12 Parramatta 15 Inner West 9 Oran Park Northern Beaches 8 North Sydney 1 Sydney CBD 13 South West Sydney 4 11 Southern Highlands Wollongong 7 Dear Shareholders, 10 Hong Kong Our commitment to helping our clients' accounting, tax, audit and advisory needs (principally SME and mid-market businesses) via our 15 office locations delivered continued growth across all our business areas. During the financial year, Kelly Partners Group Holdings made significant progress. The 2018 financial year saw the Group deliver its Prospectus forecasts. In summary: + + + + + + + + KPG has exceeded Prospectus forecasts for FY18. Consolidated FY18 Underlying NPATA1 of $10.2m, up 20% on FY17 Consolidated FY18 Underlying revenue1 of $39.6m, up 11% on FY17 Consolidated FY18 Underlying EBITDA1 of $13.4m, up 17% on FY17 Underlying FY18 EBITDA1 attributed to shareholders of $6.4m, up 9% on FY17 Underlying FY18 NPATA1 attributed to shareholders of $4.3m, up 27% on FY17 Statutory FY18 NPAT attributed to shareholders of $4.4m, up 257% on FY17 Statutory FY18 Earnings per Share of 9.63c, up 215% on FY17 1 Underlying P&L metrics exclude amortisation of intangibles and non-recurring items including shares issued to employees under the Employee Share Scheme as well as the final costs relating to the Jun-17 IPO, restructuring costs and change in fair value of contingent consideration. Underlying revenue, EBITDA, NPATA and EPS are all measures used by Kelly+Partners management to assess the operational performance of the business. Mission - A key differentiator for the business is the clarity of understanding as to our mission and strategy. We focus on helping clients realise a stronger financial future by delivering coordinated financial advice. Strategy - We remain laser-like focussed on the SME private business owner market. Our service offering has been focused again to include Chartered Accounting, Tax Legal, Private Wealth and Family Office. Structure - Our business structure delivers alignment of interests of our partners, people, clients and shareholders and this team based approach has, and we believe will continue, to drive superior opportunity and performance in the businesses. Outlook - Our first year as a public company has gone smoothly. We are looking to accelerate our continued growth via top quartile industry organic growth and a very active acquisition program. I remain extremely humbled by the quality of the KPGH team and its partners, for their dedication and willingness to embrace change as we continue to grow and evolve. Melbourne CBD 14 Brett Kelly Founder & Executive Chairman Kelly Partners Group Holdings Limited O E C & n a m r i a h C e h t m o r f e g a s s e M 11 Strategic Intent Strategic Intent Helping clients realise a stronger financial future through integrated financial advice. 1. Maximise the Owner-Driver Model 2. Fully deliver the Kelly+Partners Advice System 3. Growth at >10% per annum t n e t n I c i g e t a r t S 15 ASX Released Performance Highlights ASX Released Performance Highlights Full Year Financial Highlights Strong growth in Underlying Pro forma FY18 P&L metrics compared to prior year. Underlying Pro forma FY18 P&L metrics above prospectus forecasts. EBITDA margins above prior year. Reported NPAT attributed to shareholders up 257% on FY17. Strong Revenue Growth $m FY18 FY17 % Change Underlying Pro forma Consolidated Revenue* Number of Offices Number of Operating Business Number of Operating Partners Number of Total Team $39.6m $35.7m 16 21 43 203 13 16 38 192 11% 23% 31% 13% 6% * Underlying Pro forma revenue includes Sydney CBD business for a full 12 months for FY17. 18 KELLY+PARTNERS ANNUAL REPORT 2018 Underlying Pro forma FY18 NPATA* attributable to Shareholders Underlying Pro forma FY18 EBITDA* attributable to Shareholders Underlying Pro forma FY18 EPS* attributable to Shareholders Underlying Consolidated Pro forma FY18 Total Revenue Underlying Pro forma EBITDA Margin $4.3m 27% on prior year 5% on prospectus $6.4m 9% on prior year 0% on prospectus 9.5cps 25% on prior year 5% on prospectus $39.6m 11% on prior year 8% on prospectus 33.9% 31.8% in prior year 35.1% in prospectus Reported FY18 NPAT attributable to Shareholders $4.4m ($2.8m) in prior year 257% * Underlying Reported P&L metrics have been derived from the audited financial statements and exclude amortisation of intangibles and non-recurring items including: IPO costs, acquisition expenses, and convertible note exercise. Proforma Adjustments include the pro forma contribution from Kelly Partners Sydney CBD as if the acquisition had occurred on 1 July 2015. Plus other normalised items as outlined in the KPGH prospectus. Underlying Pro forma results comprise Underlying Reported results, adjusted to include the pro forma contribution from Kelly Partners Sydney CBD as if the acquisition had occurred on 1 July 2015. These metrics are used by management to assess the operational performance of the business. s t h g i l i h g H e c n a m r o f r e P d e s a e l e R X S A 19 Board of Directors and Senior Management Board of Directors and Senior Management Board of Directors The Board comprises an Executive Chairman, a non-Executive Deputy Chairman, one non-Executive Director and two Executive Directors. The Directors bring to the Board relevant skills and experience, including industry and business knowledge, financial management and corporate governance experience. Director details Expertise and experience Brett Kelly BBus, CA, MTax, DipFS, RTA, JP Founder, Executive Chairman and Chief Executive Officer Non Independent Stephen Rouvray BEc, CA Deputy Chairman and Non-Executive Director Appointed 2017 Independent Brett is the founder and CEO of Kelly+Partners. He has more than 20 years commercial and professional accountancy experience, specialising in assisting private clients, private business owners and families. He commenced his career as a Chartered Accountant with 5 years at Price Waterhouse, and then worked at 3 mid-sized accounting firms. In 2006, Brett founded Kelly+Partners with accounting businesses in North Sydney and the Central Coast, before building out the network to 21 businesses over 15 locations to date. Brett is also the best- selling author of four books on life, business and wisdom. Stephen has over 45 years experience in financial services across many senior leadership roles. He was Chief Financial Officer, Company Secretary and Manager of Investor Relations for AUB Group (formerly Austbrokers) from 2005 until 2015. Prior to this, he was General Manager for ING Australia Holdings from 2002 to 2005 having joined ING’s predecessor company, Mercantile Mutual, in 1985. Over this 20 year period, Stephen held the position of Group Company Secretary, which included its subsidiary companies operating in the life and general insurance, investment management, funds management and banking sectors. At the start of his career, he worked in the accountancy profession from 1971 to 1984. Since retiring as CFO, Stephen continues to represent AUB as a Director for a number of its subsidiaries and associates. 22 KELLY+PARTNERS ANNUAL REPORT 2018 Director details Expertise and experience Pauline Michelakis BCom (Hons), CA Executive Director and Chief Financial Officer Appointed 2017 Non Independent Pauline joined Kelly+Partners in 2013 as Group CFO. She has more than 20 years experience in senior financial roles in financial services and investment companies. Pauline is a Chartered Accountant who commenced her career in 1981 as an auditor with Arthur Young & Company (now Ernst & Young), In 1986 she joined listed international investment company AFP Group in an executive role. In total, Pauline worked for the group for 10 years, including 5 years as General Manager Finance of Lang Corporation, the ASX-listed Australian spin-off (subsequently renamed Patrick Corporation Limited). She also held chief financial roles at Kaplan Funds Management and Committed Capital Limited, before joining Kelly+Partners. Paul Kuchta BBus, CA, FTIA, DipFP, RTA, JP Executive Director Appointed 2017 Non Independent Paul is a Chartered Accountant with more than 17 years accounting experience specialising in the provision of accounting, compliance, tax and advisory services to private SMEs and their owners. He commenced his career with Farrar & Company Chartered Accountants in 1998, where he worked for 10 years. Paul then joined Crowe Horwath in 2008 for a further 4 years. He was a founding partner of Kelly Partners Norwest when the business was launched in 2012. Ryan Macnamee BCom, GACID Non-Executive Director Appointed 2017 Independent Ryan is an experienced business technology executive with over 25 years of IT management experience. He has been Chief Information Officer (CIO) at Laing O’Rourke since 2012, including 3.5 years as the Global CIO. Ryan is responsible for all IT functions within Laing O’Rourke with a focus on strategic objectives, global alignment and delivering business value. Prior to his current role, he held several senior IT management positions at Woolworths from 2008 to 2012. Earlier in his career, Ryan undertook various senior IT positions at financial, insurance, construction and retail operations globally. He is also on the board of the Open Data Institute, a position he has held since 2014. t n e m e g a n a M r o i n e S d n a s r o t c e r i D f o d r a o B 23 23 Senior Management Key Manager details Expertise and experience David Franks BEc, CA, FFin, JP Company Secretary Appointed 2017 David has over 20 years experience in finance and accounting, initially qualifying as a Chartered Accountant with Price Waterhouse in their Business Services and Corporate Finance Divisions. Since that time, he has been CFO, Company Secretary and / or Director for numerous ASX listed and unlisted public and private companies, in a range of industries covering energy, retail, transport, financial services, mineral exploration, technology, automotive, software development and healthcare. Kenneth Ko BBus, CA, HKICPA Group Finance Manager Appointed 2015 Kenneth joined Kelly+Partners in 2015 as Finance Manager. He is a Chartered Accountant with more than 10 years chartered and commercial accounting experience. He commenced his career with BDO Chartered Accountants in 2007, and then joined Chandler Macleod in 2011 in a commercial accounting role. In 2013, he moved to Coca Cola Amatil to lead their financial accounting team. Kenneth joined Kelly+Partners’ head office in North Sydney as Finance Manager in 2015. He subsequently founded the Hong Kong business in 2016, maintaining his role as Finance Manager. 24 KELLY+PARTNERS ANNUAL REPORT 2018 2018 Financial Report Kelly Partners Group Holdings Limited ABN 25 124 908 363 Financial Report 30 June 2018 26 KELLY+PARTNERS ANNUAL REPORT 2018 Contents CORPORATE DIRECTORY DIRECTORS' REPORT AUDITOR'S INDEPENDENCE DECLARATION 28 29 40 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 41 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS' DECLARATION INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF KELLY PARTNERS GROUP HOLDINGS LIMITED SHAREHOLDER INFORMATION 42 43 44 45 76 77 81 t r o p e R l a i c n a n i F 8 1 0 2 27 Kelly Partners Group Holdings Limited Corporate directory 30 June 2018 Directors Brett Kelly – Chairman, Executive Director Stephen Rouvray – Deputy Chairman, Non-Executive Director Pauline Michelakis – Executive Director Paul Kuchta – Executive Director Ryan Macnamee – Non-Executive Director Company secretary David Franks Registered office Share register Auditor Level 8 32 Walker Street North Sydney NSW 2060 Telephone: (02) 9923 0800 Computershare Investor Services Pty Limited Level 4 60 Carrington Street Sydney NSW 2000 Telephone: 1300 787 272 Deloitte Touche Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Stock exchange listing Kelly Partners Group Holdings Limited shares are listed on the Australian Securities Exchange (ASX code: KPG) Website http://www.kellypartnersgroup.com.au Business objectives Kelly Partners Group Holdings Limited has used cash and cash equivalents held at the time of listing, in a way consistent with its stated business objectives. Corporate Governance Statement Kelly Partners Group Holdings’ Corporate Governance Statement and ASX Appendix 4G detailing compliance with the third edition of the ASX Corporate Governance Principles and Recommendations is available on the website www.kellypartnersgroup.com.au/investor-centre/corporate-governance-2 28 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Kelly Partners Group Holdings Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2018. Directors The following persons were directors of Kelly Partners Group Holdings Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Brett Kelly - Chairman Stephen Rouvray - Deputy Chairman Pauline Michelakis Paul Kuchta Ryan Macnamee Principal activities During the financial year the principal continuing activities of the Group were the provision of chartered accounting services, predominantly to private businesses and high net worth individuals. Dividends Dividends paid during the financial year were as follows: Special Interim dividend for the year ended 30 June 2017 of $1.76 per ordinary share, paid prior to the Company listing on the Australian Stock Exchange First interim dividend for the year ended 30 June 2018 of $0.01 per ordinary share, paid on 16 November 2017 Second interim dividend for the year ended 30 June 2018 of $0.01 per ordinary share, paid on 16 February 2018 Third interim dividend for the year ended 30 June 2018 of $0.01 per ordinary share, paid on 16 May 2018 Consolidated 2017 $ 2018 $ - 3,548,160 454,972 454,972 454,972 - - - 1,364,916 3,548,160 On 12 July 2018, the Company paid the final dividend for the year ended 30 June 2018 of $0.01 per ordinary share. This dividend equates to a distribution of $454,972, based on the number of ordinary shares on issue as at 30 June 2018. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports. Review of operations In the year ended 30 June 2018, the Group has recorded a consolidated statutory net profit after providing for income tax of $9,964,034 (2017: $1,085,446). The statutory net profit attributable to members of the parent entity was $4,382,654 (2017: loss of $2,789,526). Financial performance Revenue and other gains for the year totalled $40,824,551 which was up 34.6% from $30,331,286 in 2017. The directors consider Earnings Before Interest, Tax, Depreciation and Amortisation ('EBITDA') to reflect the core earnings of the Group. EBITDA is a financial measure which is not prescribed by Australian Accounting Standards (‘AAS’) and represents the profit under AAS adjusted for non-cash and significant expenses. Underlying EBITDA is a key measurement used by management and the board to assess and review business performance and accordingly the following table provides a reconciliation between profit after income tax expense and underlying EBITDA. t r o p e R l a i c n a n i F 8 1 0 2 2929 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Profit after income tax expense for the year Finance costs Income tax expense Depreciation and amortisation expense EBITDA Add: non-recurring expenses Restructuring costs Shares issued to employees under ESS as part of IPO Initial public offering and other acquisition costs Fair value adjustment on conversion of convertible notes Impairment of loan receivable Other non-recurring expenses Less: non-recurring revenue Change in fair value of contingent consideration Net non-recurring items Consolidated 2017 $ 2018 $ 9,964,034 611,208 1,941,144 1,037,217 1,085,446 651,662 341,536 835,496 13,553,603 2,914,140 515,375 247,029 143,692 - - 172,932 1,693,042 - 2,137,247 1,625,000 349,261 - (1,201,200) (122,172) - 5,804,550 Underlying EBITDA 13,431,431 8,718,690 Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year On 12 July 2018, the Company paid the final dividend for the year ended 30 June 2018 of $0.01 per ordinary share. This dividend equates to a distribution of $454,972, based on the number of ordinary shares on issue as at 30 June 2018. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports. On 16 August 2018, an acquisition agreement was signed for the Company to acquire an accounting firm in the Inner West of Sydney with the structure following KPG’s standard 51% Owner-Driver Model. The business will commence trading as Kelly Partners (Inner West) from 4 September 2018. On 22 August 2018, an acquisition agreement was signed for Kelly+Partners North Sydney, a subsidiary of Kelly Partners Group Holdings Limited, to acquire a 100% interest in an accounting firm in North Sydney to assist in the retirement and succession of the senior practitioner. The business will be tucked into the existing Kelly+Partners North Sydney business to create synergies and operating leverage. The business will operate as part of Kelly+Partners North Sydney from 1 September 2018. No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations The Group will continue to pursue its policy of increasing the profitability and market share in the markets within which it operates during the next financial year. The Group’s growth plan is based on a three-pronged strategy: organic growth, network expansion and the introduction of new services. Economic, environmental and social sustainability risks The operations of the Group are not subject to any particular or significant Commonwealth, State or Territory environmental regulations. 30 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Accounting services, which require associated expert advice typically provided by accountants, are important particularly in the case of small and medium enterprises where the complexity of taxation and other compliance requirements are increasing, and therefore it is unlikely that there would be a material risk in relation to economic sustainability. Risks that may arise include rapidity in changes in technology and simplification of tax legislation. The risks in relation to economic sustainability are considered as part of determining strategy and management regularly monitor market developments. Part of the Group’s commitment to managing these risks is ensuring that it has governance systems, structures, values, principles, frameworks and policies to define its decision making context for managing its business sustainably. Information on directors Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Brett Kelly Executive Chairman and Chief Executive Officer BBus, CA, MTax, DipFS, RTA, JP Brett is the Founder and CEO of Kelly+Partners. He has more than 20 years commercial and professional accountancy experience, specialising in assisting private clients, private business owners and families. He commenced his career as a Chartered Accountant with 5 years at PwC Australia, and then worked at 3 mid- sized accounting firms. In 2006, Brett founded Kelly+Partners with accounting businesses in North Sydney and the Central Coast, before building out the network to 15 businesses over 13 locations to date. Brett is also the best-selling author of four books on life, business and wisdom. None None Member of the Nomination and Remuneration Committee 23,253,378 ordinary shares None None Stephen Rouvray Deputy Chairman and Non-Executive Director BEc, CA Stephen has over 45 years’ experience in financial services across many senior leadership roles. He was Chief Financial Officer, Company Secretary and Manager of Investor Relations for AUB Group (formerly Austbrokers) from 2005 until 2015. Prior to this, he was General Manager for ING Australia Holdings from 2002 to 2005 having joined ING’s predecessor company, Mercantile Mutual, in 1985. Over this 20 year period, Stephen held the position of Company Secretary which included its subsidiary companies operating in the life & general insurance, investment management, funds management and banking sectors. At the start of his career, he worked in the accountancy profession from 1971 to 1984. Since retiring as CFO, Stephen continues to represent AUB as a director for a number of its subsidiaries and associates. None None of Nomination Chairman the Chairman of the Audit and Risk Committee 50,000 ordinary shares None None and Remuneration Committee t r o p e R l a i c n a n i F 8 1 0 2 31 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Contractual rights to shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Pauline Michelakis Chief Financial Officer and Executive Director BCom (Hons), CA Pauline joined Kelly+Partners in 2013 as Group CFO. She has more than 20 years’ experience in senior financial roles in financial services and investment companies. Pauline is a Chartered Accountant who commenced her career in 1981 as an auditor with Arthur Young & Company (now EY). In 1986 she joined listed international investment company AFP Group in an executive role. In total, she worked for the group for 10 years, including 5 years as General Manager Finance of Lang Corporation, the ASX-listed Australian spin-off (subsequently renamed Patrick Corporation Limited). She also held CFO roles at Kaplan Funds Management and Committed Capital Limited before joining Kelly+Partners. None None Member of the Audit and Risk Committee 937,061 ordinary shares None None Paul Kuchta Executive Director BBus, CA, FTIA, DipFP, RTA, JP Paul is a Chartered Accountant with more than 17 years accounting experience specialising in the provision of compliance, tax and advisory services to private SME’s and their owners. He commenced his career with Farrar & Company Chartered Accountants in 1998, where he worked for 10 years. Paul then joined Crowe Horwath in 2008 for a further 4 years. He was a founding partner of Kelly+Partners Norwest when the practice was launched in 2012. None None 152,995 ordinary shares None None Ryan Macnamee Non-Executive Director BCom, GACID Ryan is an experienced business technology executive with over 25 years of IT management experience. He has been Chief Information Officer (CIO) at Laing O’Rourke since 2012, including 3.5 years as the Global CIO. Ryan is responsible for all IT functions within Laing O’Rourke with a focus on strategic objectives, global alignment and delivering business value. Prior to his current role, he held several senior IT management positions at Woolworths from 2008 to 2012. Earlier in his career, Ryan undertook various senior IT positions at financial, insurance, construction and retail operations globally. He is also on the Board of the Open Data Institute, a position he has held since 2014. None None of the Member Member of the Nomination and Remuneration Committee 125,046 ordinary shares None None Audit and Risk Committee Company secretary David Franks (BEc, CA, FFin, FGIA, JP) has held the position of Company Secretary since 1 February 2017. 32 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 David is a Chartered Accountant, Fellow of the Financial Services Institute of Australia, Fellow of the Governance Institute of Australia, Justice of the Peace, Registered Tax Agent and holds a Bachelor of Economics (Finance and Accounting) from Macquarie University. With over 20 years in finance and accounting, initially qualifying with Price Waterhouse in their Business Services and Corporate Finance Divisions, David has been CFO, Company Secretary and/or Director for numerous ASX listed and unlisted public and private companies, in a range of industries covering energy retailing, transport, financial services, mineral exploration, technology, automotive, software development and healthcare. David Franks is currently the Company Secretary for the following public entities: Adcorp Australia Limited, Consolidated Operations Group Limited, Elk Petroleum Limited, Kelly Partners Group Holdings Limited, Noxopharm Limited, White Energy Company Limited and White Energy Technology Limited. David is also a Senior Executive of Automic Group Pty Ltd. Meetings of directors The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2018, and the number of meetings attended by each director were: Full Board Attended Held Nomination and Remuneration Committee Attended Held Audit and Risk Committee Attended Held Brett Kelly Stephen Rouvray Pauline Michelakis Paul Kuchta Ryan Macnamee 9 9 9 9 8 9 9 9 9 9 1 1 - - 1 1 1 - - 1 - 5 5 - 5 - 5 5 - 5 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Committee membership As at the date of this report, the Company had an Audit and Risk Committee and a Nomination and Remuneration Committee. Members acting on the Committees of the Board during the year were: Audit and Risk Committee Nomination and Remuneration Committee Stephen Rouvray (Chairman) Ryan Macnamee Pauline Michelakis Stephen Rouvray (Chairman) Ryan Macnamee Brett Kelly Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● ● ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Additional disclosures relating to key management personnel t r o p e R l a i c n a n i F 8 1 0 2 33 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Principles used to determine the nature and amount of remuneration The objective of the Group's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: competitiveness and reasonableness ● acceptability to shareholders ● performance linkage / alignment of executive compensation ● transparency ● The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: ● ● having economic profit as a core component of plan design focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value attracting and retaining high calibre executives ● Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. A maximum annual aggregate remuneration of $70,000 is currently in place. Executive remuneration The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: ● ● ● ● base pay and non-monetary benefits short-term performance incentives share-based payments other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. The Group may introduce incentive arrangements in the future in order to attract, motivate and retain its executives. 34 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Group performance and link to remuneration For the year ended 30 June 2018 there was no link between Group performance and key management personnel remuneration. Use of remuneration consultants During the financial year ended 30 June 2018, the Group did not engage remuneration consultants to review its existing remuneration policies. Voting and comments made at the Company's 2017 Annual General Meeting ('AGM') At the 2017 AGM, 94.30% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2017. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. The key management personnel of the Group consisted of the following directors of Kelly Partners Group Holdings Limited: ● ● ● ● ● Brett Kelly – Chairman, Chief Executive Officer, Executive Director Stephen Rouvray – Deputy Chairman, Non-Executive Director Pauline Michelakis – Chief Financial Officer, Executive Director Paul Kuchta – Executive Director Ryan Macnamee – Non-Executive Director 2018 Non-Executive Directors: Stephen Rouvray Ryan Macnamee Executive Directors: Brett Kelly Pauline Michelakis Cash salary and fees $ 27,397 27,397 339,950 304,850 699,594 Short-term benefits Post- employment benefits Cash Super- Non- bonus monetary annuation $ $ $ Share- based payments Equity- settled $ Total $ Leave Annual/ long service leave $ - - - - - - - 2,603 2,603 - - 29,011 - 29,011 20,049 20,049 45,304 39,467 27,940 67,407 - - - - - 30,000 30,000 428,477 352,839 841,316 Refer to the section 'Service agreements' for Paul Kuchta's remuneration. t r o p e R l a i c n a n i F 8 1 0 2 35 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Short-term benefits Post- employment benefits Leave Share - based payments 2017 Cash salary and fees $ Non-Executive Directors: Stephen Rouvray (i) Ryan Macnamee (i) 4,566 4,566 Cash bonus monetary annuation Super- Non- $ - - $ - - $ 434 434 Annual/long service leave $ Equity- settled $ Total $ - - - - 5,000 5,000 Executive Directors: Brett Kelly (ii) Pauline Michelakis (iii) 44,075 280,860 334,067 - 75,000 75,000 41,597 - 41,597 4,187 19,616 24,671 6,782 18,561 25,343 - 151,186 151,186 96,641 545,223 651,864 Refer to the section 'Service agreements' for Paul Kuchta's remuneration. (i) (ii) Represents remuneration from the date of appointment Cash salary and fees represents remuneration from 16 May 2017, the date of appointment as CEO. The director did not previously draw a salary. (iii) Represents remuneration for the full financial year The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Stephen Rouvray Ryan Macnamee Executive Directors: Brett Kelly Pauline Michelakis Fixed remuneration 2017 2018 At risk - STI At risk - LTI 2018 2017 2018 2017 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - - - - - Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Brett Kelly Chairman, Chief Executive Officer, Executive Director 16 May 2017 No fixed period Base salary of $360,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. 12 month termination notice by either party, non-solicitation and non-compete clauses. Stephen Rouvray Deputy Chairman, Non-Executive Director 2 May 2017 No fixed period Director fees $30,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. 36 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Pauline Michelakis Chief Financial Officer, Executive Director 16 May 2017 No fixed period Base salary $325,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. 6 month termination notice by either party, non-solicitation and non-compete clauses. Paul Kuchta Executive Director Not applicable Not applicable Paul Kuchta is an Operating Business Owner in the Kelly Partners Norwest Partnership and receives a base distribution plus a distribution of profits from that Operating Business in accordance with the terms of the Partnership Agreement. Ryan Macnamee Non-Executive Director 2 May 2017 No fixed period Director fees of $30,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2018. Options There were no options over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at 30 June 2018. Additional information The earnings of the Group for the two years to 30 June 2018 are summarised below: Revenue and other gains EBITDA Profit after income tax 2018 $ 2017 $ 40,824,551 30,331,286 13,553,603 2,914,140 9,964,034 1,085,446 The factors that are considered to affect total shareholders return ('TSR') are summarised below: Share price at financial year end ($) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 2018 2017 1.23 9.63 9.63 1.42 (8.37) (8.37) t r o p e R l a i c n a n i F 8 1 0 2 37 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of Received as part the year of remuneration Additions Balance at Disposals/ the end of the year other Ordinary shares Brett Kelly Stephen Rouvray Pauline Michelakis Paul Kuchta Ryan Macnamee 23,253,378 50,000 937,061 152,995 125,046 24,518,480 - - - - - - - - - - - - - 23,253,378 50,000 - 937,061 - 152,995 - 125,046 - - 24,518,480 This concludes the remuneration report, which has been audited. Shares under option There were no unissued ordinary shares of Kelly Partners Group Holdings Limited under option outstanding at the date of this report. Shares issued on the exercise of options There were no ordinary shares of Kelly Partners Group Holdings Limited issued on the exercise of options during the year ended 30 June 2018 and up to the date of this report. Employee share plan The Company has adopted an Employee Share Scheme in order to assist in the motivation and retention of selected employees of the Company. The Employee Share Scheme is designed to align the interest of eligible employees more closely with the interest of Shareholders, by providing an opportunity for eligible employees to receive equity interest in the Company. On 3 July 2017, 1,000 shares were issued to each of the 153 employees who were eligible under the Employee Share Scheme as outlined in Section 9.7 of the Prospectus. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. 38 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Directors' report 30 June 2018 Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 33 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 33 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. ● Officers of the Company who are former partners of Deloitte Touche Tohmatsu There are no officers of the Company who are former partners of Deloitte Touche Tohmatsu. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Brett Kelly Executive Chairman & CEO 27 August 2018 Sydney t r o p e R l a i c n a n i F 8 1 0 2 39 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney, NSW, 2000 Australia Deloitte Touche Tohmatsu ABN 74 490 121 060 Phone: +61 2 9322 7000 Grosvenor Place www.deloitte.com.au 225 George Street Sydney, NSW, 2000 Australia Phone: +61 2 9322 7000 www.deloitte.com.au Kelly Partners Group Holdings Limited Level 8, 32 Walker Street North Sydney NSW 2000 Kelly Partners Group Holdings Limited Level 8, 32 Walker Street 27 August 2018 North Sydney NSW 2000 Dear Board Members 27 August 2018 Kelly Partners Group Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following Dear Board Members declaration of independence to the directors of Kelly Partners Group Holdings Limited. Kelly Partners Group Holdings Limited As lead audit partner for the audit of the financial statements of Kelly Partners Group Holdings Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following contraventions of: declaration of independence to the directors of Kelly Partners Group Holdings Limited. (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; As lead audit partner for the audit of the financial statements of Kelly Partners Group Holdings Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: and (ii) any applicable code of professional conduct in relation to the audit. (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and Yours sincerely (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Alfie Nehama Partner Chartered Accountants Alfie Nehama Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited KELLY+PARTNERS ANNUAL REPORT 2018 40 Kelly Partners Group Holdings Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2018 Revenue Other gains Expenses Depreciation and amortisation expense Employment and related expenses Rent and utilities Initial public offering and other transaction costs Business acquisition and restructuring costs Fair value adjustment on conversion of convertible notes Employee shares issued and related expenses Other expenses Finance costs Total expenses Profit before income tax expense Income tax expense Note Consolidated 2017 $ 2018 $ 5 39,468,666 30,198,254 6 7 7 7 7 1,355,885 133,032 (1,037,217) (835,496) (17,776,114) (13,967,944) (2,288,742) (2,140,933) (143,692) (2,137,247) (515,375) (1,693,042) - (1,625,000) - (6,299,996) (5,852,980) (651,662) (28,919,373) (28,904,304) (611,208) (247,029) 11,905,178 1,426,982 8 (1,941,144) (341,536) Profit after income tax expense for the year 9,964,034 1,085,446 Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of Kelly Partners Group Holdings Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Kelly Partners Group Holdings Limited - - 9,964,034 1,085,446 5,581,380 3,874,972 4,382,654 (2,789,526) 9,964,034 1,085,446 5,581,380 3,874,972 4,382,654 (2,789,526) 9,964,034 1,085,446 Cents Cents Basic earnings per share Diluted earnings per share 29 29 9.63 9.63 (8.37) (8.37) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes t r o p e R l a i c n a n i F 8 1 0 2 41 Kelly Partners Group Holdings Limited Consolidated statement of financial position As at 30 June 2018 Assets Current assets Cash and cash equivalents Trade and other receivables Other financial assets Other assets Total current assets Non-current assets Financial assets Other financial assets Property, plant and equipment Intangible assets Other assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions Contingent consideration Other liabilities Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Contingent consideration Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Retained profits/(accumulated losses) Equity attributable to the owners of Kelly Partners Group Holdings Limited Non-controlling interest Total equity Note Consolidated 2017 $ 2018 $ 9 10 11 12 3,410,934 10,086,644 626,925 481,870 3,212,746 7,793,561 548,211 180,074 14,606,373 11,734,592 13 14 15 16 17 14,780 2,853,078 2,439,659 24,993 3,297,177 2,495,730 23,876,857 24,423,046 501,369 29,882,819 30,742,315 698,445 44,489,192 42,476,907 18 19 20 21 22 2,795,950 4,627,422 97,012 1,181,645 231,418 152,721 4,376,867 4,459,553 67,194 1,159,336 - 147,656 9,086,168 10,210,606 23 24 25 26 27 10,139,039 10,497,486 306,414 149,498 1,432,618 46,244 11,283,221 12,432,260 827,427 270,511 - 46,244 20,369,389 22,642,866 24,119,803 19,834,041 28 14,171,477 13,988,051 719,566 (2,298,172) 14,891,043 11,689,879 8,144,162 9,228,760 24,119,803 19,834,041 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 42 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Consolidated statement of changes in equity Kelly Partners Group Holdings Limited For the year ended 30 June 2018 Consolidated statement of changes in equity For the year ended 30 June 2018 Consolidated Consolidated Balance at 1 July 2016 Balance at 1 July 2016 Profit/(loss) after income tax expense for the year Profit/(loss) after income tax expense for the year Other comprehensive income for the year, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Transactions with owners in their capacity as owners: Acquisition of subsidiary Acquisition of subsidiary Conversion of convertible note to ordinary shares Conversion of convertible note to ordinary shares Shares issued to employees Shares issued to employees Shares issued on IPO Shares issued on IPO Shares issued pre-IPO Shares issued pre-IPO Share issue costs, net of tax Share issue costs, net of tax Distributions to non-controlling interests Distributions to non-controlling interests Dividends paid (note 30) Dividends paid (note 30) Balance at 30 June 2017 Balance at 30 June 2017 Consolidated Consolidated Balance at 1 July 2017 Balance at 1 July 2017 Profit after income tax expense for the year Profit after income tax expense for the year Other comprehensive income for the year, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Transactions with owners in their capacity as owners: Shares issued to employees Shares issued to employees Share issue costs Share issue costs Distributions to non-controlling interests Distributions to non-controlling interests Dividends paid (note 30) Dividends paid (note 30) Balance at 30 June 2018 Balance at 30 June 2018 Issued Accumulated Issued Accumulated losses capital losses capital $ $ $ $ 4,039,514 1,684,411 4,039,514 1,684,411 (2,789,526) - (2,789,526) - - - - - (2,789,526) - (2,789,526) - - - 8,125,000 8,125,000 453,500 453,500 2,884,000 2,884,000 1,835,500 (994,360) 1,835,500 (994,360) - - - - 13,988,051 13,988,051 Issued capital Issued capital $ $ 13,988,051 13,988,051 - - - - - - - - - - - - - - - - - - - - (3,548,160) (3,548,160) (2,298,172) (2,298,172) Retained profits Retained profits $ $ (2,298,172) (2,298,172) 4,382,654 4,382,654 - - 4,382,654 4,382,654 Non- controlling Non- interest controlling interest $ $ 3,611,062 3,611,062 3,874,972 3,874,972 - - 3,874,972 3,874,972 Total equity Total equity $ $ 9,334,987 9,334,987 1,085,446 1,085,446 - - 1,085,446 1,085,446 4,254,000 4,254,000 - - - - - - - - - - - - 4,254,000 4,254,000 8,125,000 8,125,000 453,500 453,500 2,884,000 2,884,000 1,835,500 1,835,500 (994,360) (3,595,872) (3,595,872) (994,360) (3,595,872) (3,595,872) (3,548,160) (3,548,160) 8,144,162 19,834,041 8,144,162 19,834,041 Non- controlling Non- interest controlling interest $ $ Total equity Total equity $ $ 8,144,162 19,834,041 8,144,162 19,834,041 9,964,034 5,581,380 9,964,034 5,581,380 - - - - 9,964,034 5,581,380 9,964,034 5,581,380 220,473 (37,047) 220,473 (37,047) - - - - 14,171,477 14,171,477 - - - - - - (1,364,916) (1,364,916) 719,566 719,566 - - - - - - 220,473 220,473 (37,047) (4,496,782) (4,496,782) (37,047) (4,496,782) (4,496,782) (1,364,916) (1,364,916) 9,228,760 24,119,803 9,228,760 24,119,803 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes t r o p e R l a i c n a n i F 8 1 0 2 43 Kelly Partners Group Holdings Limited Consolidated statement of cash flows For the year ended 30 June 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Finance costs paid Income taxes paid Note Consolidated 2017 $ 2018 $ 41,277,137 35,330,709 (32,670,704) (27,475,337) (651,662) (284,633) (611,208) (1,390,313) Net cash from operating activities 40 6,604,912 6,919,077 Cash flows from investing activities Payment for purchase of business, net of cash acquired Payments for investments Payments for property, plant and equipment Payments for intangibles Deposits refunded Loans to related parties - loans advanced Loans to related parties - proceeds from repayments Loans to partners - loans advanced Loans to partners - proceeds from repayments Proceeds from disposal of investments Net cash used in investing activities Cash flows from financing activities Net proceeds from the issue of equity instruments, net of transaction costs Proceeds from issue of convertible notes Proceeds from borrowings Distributions paid to non-controlling interests Dividends paid Repayment of borrowings Repayment of finance lease Share issue transaction costs Net cash (used in)/from financing activities 38 15 16 - (6,202,672) - (4,918) (390,420) (1,282,120) (105,290) (36,266) (197,076) - - (1,491,338) - 2,130,746 (450,559) (1,163,074) 815,944 1,071,764 10,000 - (317,401) (6,977,878) 30 - - 3,695,310 3,625,141 6,500,000 7,229,385 (4,496,782) (3,595,872) (1,364,916) (3,548,160) (3,831,299) (7,377,946) - (8,252) (37,047) - (6,034,734) 2,824,296 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 252,777 2,765,495 1,187,485 (1,578,010) Cash and cash equivalents at the end of the financial year 9 1,440,262 1,187,485 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 44 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 1. General information The financial statements cover Kelly Partners Group Holdings Limited (the 'Company' or 'parent entity') and its controlled entities as a consolidated entity consisting of Kelly Partners Group Holdings Limited and the entities (the 'Group') it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Kelly Partners Group Holdings Limited and its controlled entities functional and presentation currency. Kelly Partners Group Holdings Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 8, 32 Walker Street North Sydney NSW 2060 A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 27 August 2018. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention except for certain financial assets at fair value. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 37. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Kelly Partners Group Holdings Limited as at 30 June 2018 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. t r o p e R l a i c n a n i F 8 1 0 2 45 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Provision of services Provision of services revenue is recognised by reference to the stage of completion of the services. Where the contract outcome can be estimated reliably, revenue associated with the transaction is recognised in the income statement by reference to the stage of completion at the year end, provided that a right to consideration has been obtained through performance. Consideration accrues as contract activities progress by reference to the value of work performed. Hence, the proportion of revenue recognised in the year equates to the proportion of cost incurred to total anticipated cost, less amounts recognised in previous years where relevant. Where the outcome of a transaction cannot be reliably estimated, revenue is only recognised to the extent of the recoverable costs incurred to date. No revenue is recognised where there are significant uncertainties regarding recovery of the consideration due or where the right to receive payment is contingent on events outside the control of the Group. Expected losses are recognised as soon as they become probable based on latest estimates of revenue and costs. Unbilled and unearned revenue is included in trade and other receivables. Commissions and other income Commissions and other income is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. 46 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Kelly Partners Group Holdings Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non- current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. t r o p e R l a i c n a n i F 8 1 0 2 47 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) Other receivables are recognised at amortised cost, less any provision for impairment. Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired. Impairment of financial assets The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised had the impairment not been made and is reversed to profit or loss. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Buildings Leasehold improvements Plant and equipment Motor vehicles Not depreciated 3-10 years 3-7 years 8 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. 48 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight- line basis over the term of the lease. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Brand names and intellectual property Brand names and intellectual property have indefinite useful lives and are not amortised. Customer relationships Customer contracts acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 3 to 7 years. Software - Computer software Significant costs associated with computer software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 1 to 3 years. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. Finance costs All finance costs are expensed in the period in which they are incurred. t r o p e R l a i c n a n i F 8 1 0 2 49 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Equity-settled compensation Equity-settled compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Issued 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. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. 50 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Kelly Partners Group Holdings Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2018. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. t r o p e R l a i c n a n i F 8 1 0 2 51 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 2. Significant accounting policies (continued) AASB 9 introduces new requirements for classifying and measuring financial assets as follows: ● Debit instruments meeting both a 'business model' test and a 'cash flow characteristics' test are measured at amortised cost (the use of fair value is optional in some limited circumstances) Investments in equity instruments not held for trading can be designated as 'fair value through other comprehensive income' with only dividends being recognised in profit or loss All other instruments (including derivatives) are measured at fair value with changes recognised in the profit or loss ● ● The revised financial liability provisions maintain the existing amortised cost measurement basis for most liabilities. New requirements apply where an entity chooses to measure a liability at fair value through profit and loss – in these cases, the portion of the change in fair value related to changes in the entity’s own credit risk is presented in other comprehensive income rather than within profit or loss, unless it creates a mismatch in profit or loss. A new impairment model based on expected credit losses will apply to debt instruments measured at amortised cost or fair value through other comprehensive income, contract assets and written loan commitments and financial guarantee contracts. The loan loss allowance will be for either 12 month expected losses or lifetime expected losses. The latter applies if credit risk has increased significantly since initial recognition of the financial instrument. From the Group’s assessment of the requirements of AASB 9, the Group does not expect that the Group’s financial statements will be materially impacted upon adoption. AASB 15 Revenue from Contracts with Customers This standard is currently applicable to annual reporting periods beginning on or after 1 January 2018. AASB 15 replaces all current guidance on revenue recognition from contracts with customers. It requires identification of discrete performance obligations within a transaction and an associated transaction price allocation to these obligations. Revenue is recognised upon satisfaction of these performance obligations, which occur when control of the goods or services are transferred to the customer. Revenue received for a contract that includes variable amount is subject to revised conditions for recognition, whereby it must be highly probable that no significant reversal of the variable component may occur when the uncertainties around its measurement are removed. The Group derives revenue from the provision of chartered accounting services, and has performed an analysis of the impact of the new standard on each of the Group’s material revenue streams. This analysis included identifying the performance obligations in each revenue stream, and reviewing engagement letter terms where necessary to ascertain whether services revenue should be recognised at a point in time or over time. From the analysis performed, the Group does not expect that at transition the Group’s financial statements will be materially impacted upon adoption. AASB 16 Leases This standard is currently applicable to annual reporting periods beginning on or after 1 January 2019. AASB 16 replaces the current AASB 117 'Leases' standard and sets out a comprehensive model for identifying lease arrangement and the subsequent measurement. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time. The majority of leases from the lessee perspective within the scope AASB 16 will require the recognition of a 'right of use' asset and a related lease liability, being present value of future lease payments. This will result in an increase in the recognised assets and liabilities in the Statement of Financial Position as well as a change in expense recognition, with interest and depreciation replacing lease expense, with the exception of for leases of low value assets and leases with a term of 12 months or less. The Group expects to adopt the standard from 1 July 2019 and the primary impact from adoption will be the treatment of premises and leased office equipment across the Group. The adoption of the standard will increase net current assets and lease liabilities due to the recognition of the lease liability and right of use asset; expense relating to minimum lease payments will reduce and there will be an increase in interest expense. The quantum of these changes is currently being determined. IASB revised Conceptual Framework for Financial Reporting The revised Conceptual Framework has been issued by the International Accounting Standards Board ('IASB'), but the Australian equivalent has yet to be published. The revised framework is applicable for annual reporting periods beginning on or after 1 January 2020 and the application of the new definition and recognition criteria may result in future amendments to several accounting standards. Furthermore, entities who rely on the conceptual framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting Standards may need to revisit such policies. The Group will apply the revised conceptual framework from 1 July 2020 and is yet to assess its impact. 52 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in- use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Note 4. Operating segments The Group has only one reportable segment. The Group primarily provides accounting and tax services to small and medium enterprises predominantly in Australia. This assessment is based on the internal reports that are reviewed by the Board of Directors (identified as the Chief Operating Decision Maker) in assessing performance and in determining allocation of resources. The operating segment information is the same information as provided throughout the financial statements and are therefore not duplicated. No revenue from a single customer exceeds 10% of group revenue. Note 5. Revenue Provision of services Note 6. Other gains Change in fair value of contingent consideration Commissions Other income Other gains Consolidated 2017 $ 2018 $ 39,468,666 30,198,254 Consolidated 2017 $ 2018 $ 1,201,200 113,688 40,997 - 104,293 28,739 1,355,885 133,032 t r o p e R l a i c n a n i F 8 1 0 2 53 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 7. Expenses Profit before income tax includes the following specific expenses: Impairment of financial assets Trade receivables Loan receivable Total impairment Depreciation and amortisation Depreciation Amortisation Total depreciation and amortisation Finance costs Interest on bank overdrafts and loans Net loss on disposal Net loss on disposal of property, plant and equipment Rental expense relating to operating leases Minimum lease payments Employment and related expenses Salaries and wages Superannuation Other on costs Employee leave Total employment and related expenses Consolidated 2017 $ 2018 $ 460,499 - 223,049 349,361 460,499 572,410 385,738 651,479 415,935 419,561 1,037,217 835,496 611,208 651,662 60,753 - 2,089,822 1,727,222 15,654,722 12,463,725 830,627 596,310 77,282 1,167,849 825,937 127,606 17,776,114 13,967,944 54 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 8. Income tax expense Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Deferred tax included in income tax expense comprises: Increase/(decrease) in deferred tax liabilities (note 24) Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Fair value adjustment on conversion of convertible note IPO related and other transaction costs Other non-allowable items Adjustment recognised for prior periods Distributions to non-controlling interests Income tax expense Consolidated 2017 $ 2018 $ 1,480,699 523,407 (62,962) 596,131 (250,992) (3,603) 1,941,144 341,536 523,407 (250,992) 11,905,178 1,426,982 3,571,553 428,095 - - (219,888) 487,500 301,000 57,825 3,351,665 (62,962) (1,347,559) 1,274,420 (3,603) (929,281) 1,941,144 341,536 As the majority of operating businesses are structured as partnerships, the income tax expense attributable to the minority interests in these partnerships are not included in the consolidated accounts. This is with the exception of subsidiaries that are in a corporate structure where the consolidated income tax expense is included in the profit attributable to minority interests in these subsidiaries. The remaining balance of the consolidated income tax expense is included in the profit attributable to the shareholders in the parent entity. Note 9. Current assets - cash and cash equivalents Cash at bank and in hand Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Consolidated 2017 $ 2018 $ 3,410,934 3,212,746 Balances as above Bank overdrafts (note 19) Balance as per statement of cash flows 3,410,934 3,212,746 (1,970,672) (2,025,261) 1,440,262 1,187,485 t r o p e R l a i c n a n i F 8 1 0 2 55 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 10. Current assets - trade and other receivables Trade receivables Less: Provision for impairment of receivables Accrued income Other receivables Consolidated 2017 $ 2018 $ 6,858,723 (261,958) 6,596,765 6,596,354 (245,814) 6,350,540 3,484,037 5,842 1,443,021 - 10,086,644 7,793,561 Impairment of receivables The Group has recognised a loss of $460,499 (2017: $223,049) in profit or loss in respect of impairment of receivables for the year ended 30 June 2018. The ageing of the impaired receivables provided for above are as follows: 91+ days Movements in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Unused amounts reversed Closing balance Consolidated 2017 $ 2018 $ 261,958 245,814 Consolidated 2017 $ 2018 $ 245,814 245,101 (52,812) (176,145) 28,927 243,238 (17,354) (8,997) 261,958 245,814 Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $1,953,486 as at 30 June 2018 ($1,623,678 as at 30 June 2017). The ageing of the past due but not impaired receivables are as follows: 61-90 days 91+ days Consolidated 2017 $ 2018 $ 523,493 1,429,993 435,722 1,187,956 1,953,486 1,623,678 56 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 11. Current assets - other financial assets Loans to partners Note 12. Current assets - other assets Prepayments Note 13. Non-current assets - financial assets Shares in listed entities - at fair value Shares in non-listed entities - at cost Note 14. Non-current assets - other financial assets Loans to partners Note 15. Non-current assets - property, plant and equipment Buildings - at cost Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation Consolidated 2017 $ 2018 $ 626,925 548,211 Consolidated 2017 $ 2018 $ 481,870 180,074 Consolidated 2017 $ 2018 $ 14,780 - 14,993 10,000 14,780 24,993 Consolidated 2017 $ 2018 $ 2,853,078 3,297,177 Consolidated 2017 $ 2018 $ 625,825 571,396 1,968,640 1,765,045 (1,217,403) (1,056,405) 708,640 751,237 2,044,946 1,784,215 (1,418,885) (1,099,058) 685,157 626,061 664,032 (227,496) 436,536 665,307 (134,770) 530,537 2,439,659 2,495,730 t r o p e R l a i c n a n i F 8 1 0 2 57 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 15. Non-current assets - property, plant and equipment (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2016 Additions Additions through business combinations Disposals - written down value Depreciation expense Balance at 30 June 2017 Additions Disposals - written down value Depreciation expense Leasehold improve- ments $ Plant and equipment $ Motor vehicles $ Buildings $ Total $ - 571,396 - - - 571,396 54,429 - - 478,271 270,595 - (5,566) (34,660) 708,640 88,582 - (45,985) 485,528 264,466 198,040 (4,397) (258,480) 685,157 203,975 (22,483) (240,588) 477,669 175,663 - - (122,795) 1,441,468 1,282,120 198,040 (9,963) (415,935) 530,537 43,434 (38,270) (99,165) 2,495,730 390,420 (60,753) (385,738) Balance at 30 June 2018 625,825 751,237 626,061 436,536 2,439,659 Note 16. Non-current assets - intangible assets Goodwill - at cost Consolidated 2017 $ 2018 $ 17,847,638 17,847,638 Brand names and intellectual property - at cost 3,300,000 3,300,000 Customer relationships - at cost Less: Accumulated amortisation Computer software - at cost Less: Accumulated amortisation 6,008,429 5,957,719 (3,356,471) (2,717,664) 3,240,055 2,651,958 93,904 (16,643) 77,261 43,832 (8,479) 35,353 23,876,857 24,423,046 58 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 16. Non-current assets - intangible assets (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Brand names and intellectual property $ Goodwill $ Customer relation- ships $ Computer Software $ Total $ Balance at 1 July 2016 Additions Additions through business combinations Amortisation expense 12,525,784 - 5,321,854 - 3,300,000 - - - 275,540 - 3,381,983 (417,468) 36,267 - 1,179 16,102,503 36,267 8,703,837 (419,561) (2,093) Balance at 30 June 2017 Additions Amortisation expense 17,847,638 - - 3,300,000 - - 3,240,055 50,710 (638,807) 35,353 24,423,046 105,290 54,580 (12,672) (651,479) Balance at 30 June 2018 17,847,638 3,300,000 2,651,958 77,261 23,876,857 Brand names and intellectual property have indefinite useful lives and are not amortised. Impairment testing For the purpose of impairment testing, goodwill and other indefinite life intangibles are allocated to cash-generating units ('CGU') which are based on the Group's operating divisions. The aggregate carrying amount of goodwill allocated to each CGU is: Kelly Partners (Sydney) Pty Ltd Kelly Partners South West Sydney Partnership Kelly Partners Wollongong Partnership Other partnerships Total Consolidated 2017 $ 2018 $ 3,538,147 5,001,779 3,391,692 5,916,020 3,538,147 5,001,779 3,391,692 5,916,020 17,847,638 17,847,638 The carrying value of indefinite life intangibles is $3,300,000 (2017: $3,300,000). The recoverable amount of each cash-generating unit above is determined based on value in use calculations. These calculations use cashflow projections over a five year period, based on financial budgets approved by management. These budgets use historical growth rates to project revenue. Costs are calculated taking into account historical gross margins as well as estimated inflation rates over the period which are consistent with inflation rates applicable to the locations in which the CGU operates. With regard to the assessment of the CGU's, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount. The following assumptions were used in the calculations: Growth rate Discount rate Consolidated 2017 % 2018 % 2.5% 16.5% 2.5% 16.5% t r o p e R l a i c n a n i F 8 1 0 2 59 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 17. Non-current assets - other assets Deposits Note 18. Current liabilities - trade and other payables Trade payables GST payable Sundry payables and accrued expenses Refer to note 31 for further information on financial instruments. Note 19. Current liabilities - borrowings Bank overdrafts Bank loans Refer to note 31 for further information on financial instruments. Note 20. Current liabilities - provisions Employee entitlements Note 21. Current liabilities - contingent consideration Contingent consideration Refer to note 26 for details of the nature of contingent consideration. 60 KELLY+PARTNERS ANNUAL REPORT 2018 Consolidated 2017 $ 2018 $ 698,445 501,369 Consolidated 2017 $ 2018 $ 389,572 857,393 1,548,985 809,148 608,160 2,959,559 2,795,950 4,376,867 Consolidated 2017 $ 2018 $ 1,970,672 2,656,750 2,025,261 2,434,292 4,627,422 4,459,553 Consolidated 2017 $ 2018 $ 1,181,645 1,159,336 Consolidated 2017 $ 2018 $ 231,418 - Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 22. Current liabilities - other liabilities Deferred rent Note 23. Non-current liabilities - borrowings Bank loans Refer to note 31 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bank overdrafts Bank loans Consolidated 2017 $ 2018 $ 152,721 147,656 Consolidated 2017 $ 2018 $ 10,139,039 10,497,486 Consolidated 2017 $ 2018 $ 1,970,672 2,025,261 12,795,789 12,931,778 14,766,461 14,957,039 The Group has debt facilities in place for each of its operating businesses with the loans of each operating business being non-recourse to the cash flows and assets of the parent entity. The loans comprise of overdraft facilities, term loans and equipment finance facilities. Typically each operating business’ debt facilities are granted security by that entity as well as having personal guarantees from the operating business owners. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank overdrafts Bank loans Used at the reporting date Bank overdrafts Bank loans Unused at the reporting date Bank overdrafts Bank loans Consolidated 2017 $ 2018 $ 2,552,000 2,963,334 14,127,364 16,186,317 16,679,364 19,149,651 1,970,672 2,025,261 12,795,789 12,931,778 14,766,461 14,957,039 581,328 1,331,575 1,912,903 938,073 3,254,539 4,192,612 t r o p e R l a i c n a n i F 8 1 0 2 61 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 24. Non-current liabilities - deferred tax liabilities Net deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit or loss: Accrued expenses Income assessable on receipt Differences between accounting and tax depreciation Customer relationship intangibles Expense deductible over five years Deferred tax liability Movements: Opening balance Charged/(credited) to profit or loss (note 8) Credited to equity (note 8) Additions through business combinations (note 38) Other movements Closing balance Note 25. Non-current liabilities - provisions Employee entitlements Note 26. Non-current liabilities - contingent consideration Contingent consideration Consolidated 2017 $ 2018 $ (401,179) 954,713 14,587 782,918 (523,612) (371,938) 400,760 20,122 930,685 (673,215) 827,427 306,414 306,414 523,407 - - (2,394) (124,334) (250,992) (276,154) 904,066 53,828 827,427 306,414 Consolidated 2017 $ 2018 $ 270,511 149,498 Consolidated 2017 $ 2018 $ - 1,432,618 Prior year contingent consideration comprised the contingent consideration component of the purchase price for Kelly Partners Southern Highlands and Kelly Partners Sydney. A reconciliation of the movement in contingent consideration (current and non-current) for the financial year is set out below: Opening balance Recognition on acquisition (note 38) Change in fair value of contingent consideration Settled in cash 62 KELLY+PARTNERS ANNUAL REPORT 2018 Consolidated 2017 $ 2018 $ 1,432,618 - (1,201,200) - 100,551 1,432,618 - (100,551) 231,418 1,432,618 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 27. Non-current liabilities - other liabilities Deposits held Note 28. Equity - issued capital Consolidated 2017 $ 2018 $ 46,244 46,244 2018 Shares 2017 Shares Consolidated 2017 $ 2018 $ Ordinary shares - fully paid 45,497,181 45,344,181 14,171,477 13,988,051 Movements in ordinary share capital Details Date Shares Issue price $ Balance Share split: 1 share to 1,000 shares Shares issued pre-IPO Share split: 1 share to 15.9 shares Shares issued during the year: Shares issued to employees Conversion of convertible note to ordinary shares Shares issued on IPO Transaction costs arising on share issue, net of tax 1 July 2016 2 November 2016 14 June 2017 2,016 2,013,984 115,522 31,750,159 $0.000 $15.889 $0.000 1,684,411 - 1,835,500 - 453,500 8,125,000 2,884,000 - $1.000 $1.000 $1.000 $0.000 453,500 8,125,000 2,884,000 (994,360) Balance Shares issued to employees Transaction costs arising on share issue, net of tax 30 June 2017 3 July 2017 45,344,181 153,000 - 13,988,051 220,473 (37,047) $1.441 $0.000 Balance 30 June 2018 45,497,181 14,171,477 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders and partners with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group's debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the Group's capital by assessing the Group's financial risks and adjusting its capital structure in response to changes in these risks and the market. These responses include the management of debt levels, distributions to shareholders and partners and share issues. There have been no changes to the strategy adopted by management to manage the capital of the Group since the prior year. t r o p e R l a i c n a n i F 8 1 0 2 63 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 29. Earnings per share Profit after income tax Non-controlling interest Consolidated 2017 $ 2018 $ 9,964,034 1,085,446 (5,581,380) (3,874,972) Profit/(loss) after income tax attributable to the owners of Kelly Partners Group Holdings Limited 4,382,654 (2,789,526) Weighted average number of ordinary shares used in calculating basic earnings per share 45,495,923 33,342,437 Weighted average number of ordinary shares used in calculating diluted earnings per share 45,495,923 33,342,437 Number Number Basic earnings per share Diluted earnings per share Note 30. Equity - dividends Dividends Dividends paid during the financial year were as follows: Special Interim dividend for the year ended 30 June 2017 of $1.76 per ordinary share, paid prior to the Company listing on the Australian Stock Exchange First interim dividend for the year ended 30 June 2018 of $0.01 per ordinary share, paid on 16 November 2017 Second interim dividend for the year ended 30 June 2018 of $0.01 per ordinary share, paid on 16 February 2018 Third interim dividend for the year ended 30 June 2018 of $0.01 per ordinary share, paid on 16 May 2018 Cents Cents 9.63 9.63 (8.37) (8.37) Consolidated 2017 $ 2018 $ - 3,548,160 454,972 454,972 454,972 - - - 1,364,916 3,548,160 On 12 July 2018, the Company paid the final dividend for the year ended 30 June 2018 of $0.01 per ordinary share. This dividend equates to a distribution of $454,972, based on the number of ordinary shares on issue as at 30 June 2018. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports. Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% 1,464,371 1,215,268 Consolidated 2017 $ 2018 $ 64 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 30. Equity - dividends (continued) The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: ● franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date ● ● Note 31. Financial instruments Financial risk management objectives The Group is exposed to a variety of financial risks through its use of financial instruments: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Group‘s overall risk management plan seeks to minimise potential adverse effects due to the unpredictability of financial markets. The Group does not use derivative financial instruments or speculate in financial assets. Risk management is carried out by senior management under policies approved by the Board of Directors ('the Board'). The policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Management identifies and evaluates financial risks within the Group's businesses and reports to the Board on a regular basis. The Group's financial instruments consist mainly of deposits with banks, accounts receivable and payable, bank loans and overdrafts, loans to and from subsidiaries, and leases. Market risk Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group is exposed to interest rate risk as funds are borrowed at floating and fixed rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's policy is to minimise interest rate cash flow risk exposures on long-term financing. At the reporting date, the Group is exposed to changes in market interest rates through its bank borrowings, which are subject to variable interest rates. The following table illustrates the sensitivity of the net result for the year and equity to a reasonably possible change in interest rates of +1% and -1% (2017: +1% and -1%), with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on the financial instruments held at each reporting date. All other variables are held constant. Weighted average interest rate % 2018 +1% $ Weighted average interest rate % -1% $ 2017 +1% $ -1% $ 5.02% 5.24% (19,980) (128,637) 19,980 128,637 5.23% 5.00% (21,323) (119,798) 21,323 119,798 Borrowings Bank overdrafts Bank loans Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposure to clients, including outstanding receivables and committed transactions. t r o p e R l a i c n a n i F 8 1 0 2 65 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 31. Financial instruments (continued) The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The utilisation of credit limits by customers is regularly monitored by line management. Customers who subsequently fail to meet their credit terms are required to make purchases on a prepayment basis until creditworthiness can be re-established. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically provided for. The Board receives monthly reports summarising the turnover, trade receivables balance and aging profile of each of the key customers individually and the Group's other customers analysed by division as well as a list of customers currently transacting on a prepayment basis. Management considers that all the financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The Group maintains cash to meet its liquidity requirements for up to a 30-day period. The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-by-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day periods are identified monthly. At the reporting date, these reports indicate that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The Group‘s liabilities have contractual maturities which are summarised below: Consolidated - 2018 Non-derivatives Non-interest bearing Trade payables Other payables Contingent consideration Interest-bearing Bank overdrafts Bank loans Total non-derivatives Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - - - 389,572 2,406,378 231,418 - - - - - - - - - 389,572 2,406,378 231,418 5.02% 5.24% 1,970,672 2,656,750 7,654,790 - 3,261,459 3,261,459 - 6,144,861 6,144,861 - 1,970,672 732,719 12,795,789 732,719 17,793,829 66 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 31. Financial instruments (continued) Consolidated - 2017 Non-derivatives Non-interest bearing Trade payables Other payables Contingent consideration Interest-bearing Bank overdrafts Bank loans Total non-derivatives Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - - - 809,148 3,567,719 - - - 1,432,618 - - - - - - 809,148 3,567,719 1,432,618 5.23% 5.00% 2,025,261 2,434,292 8,836,420 - 2,434,292 3,866,910 - 8,063,194 8,063,194 - 2,025,261 - 12,931,778 - 20,766,524 Fair value of financial instruments The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The carrying value less impairment provision of trade and other receivables and of trade and other payables is a reasonable approximation of their fair values due to the short-term nature of these balances. Note 32. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Other key management personnel transactions For details of other transactions with key management personnel, refer to note 36. Consolidated 2017 $ 2018 $ 782,541 45,304 13,471 - 469,655 24,671 6,352 151,186 841,316 651,864 t r o p e R l a i c n a n i F 8 1 0 2 67 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 33. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the Company: Audit services Audit or review of the financial statements Other services Due diligence services IPO-related services IPO related services: reviewing the financial report Consolidated 2017 $ 2018 $ 140,000 90,000 - - - - 93,840 375,000 55,000 523,840 140,000 613,840 Note 34. Contingent liabilities Bank guarantees have been provided in relation to the leases of various premises by the Group. These guarantees will only be payable in specific circumstances, such as failure to meet rental liabilities. In the opinion of the directors, no loss will result to the Group as a result of these guarantees. Except as noted above, in the opinion of the directors, the Group did not have any contingencies at 30 June 2018 (30 June 2017: None). Note 35. Commitments Operating leases have been taken out for office premises and office equipment. Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years The above balances are gross of sublease income of: Within one year One to five years More than five years Consolidated 2017 $ 2018 $ 2,449,126 9,379,540 1,500,550 2,185,998 6,202,550 834,846 13,329,216 9,223,394 295,683 514,401 16,413 168,368 171,634 - 826,497 340,002 Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Property, plant and equipment 1,107,626 - 68 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 36. Related party transactions Parent entity Kelly Partners Group Holdings Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 39. Key management personnel Disclosures relating to key management personnel are set out in note 32 and the remuneration report included in the directors' report. Transactions with related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Loans to related parties Key management personnel: Loans to directors Balance at the beginning of the year - loans advanced - repayment of loans advanced Balance at the end of the year 2018 $ 2017 $ - (639,408) - (1,491,338) - 2,130,746 - - The Company acquired a 100% interest in Kelly Partners Strategy Consulting, an entity related to Brett Kelly, on 1 April 2017. The consideration of $1,137,670 was determined by an independent valuation and was settled through a partial set off of loans owing to the Company. The following related parties hold a direct interest in the respective subsidiary of the Group: Related party Subsidiary 2018 Interest held 2017 Interest held Pauline Michelakis Paul Kuchta Kelly Partners Private Wealth Sydney Kelly Partners Norwest Partnership 7.50% 25.50% 10.00% 44.00% Note 37. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive income 2018 $ 2017 Restated $ 3,164,443 (2,132,529) 3,164,443 (2,132,529) t r o p e R l a i c n a n i F 8 1 0 2 69 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 37. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Net assets Equity Issued capital Retained profits/(accumulated losses) Total equity 2018 $ 2017 Restated $ 5,849,107 3,297,763 23,966,944 23,051,311 3,449,523 2,847,363 8,454,246 9,495,641 15,512,698 13,555,670 14,171,477 13,988,051 (432,381) 1,341,221 15,512,698 13,555,670 Comparatives During the financial year a reconciliation of deferred tax balances was performed which identified that the parent entity’s deferred tax asset has been previously understated. As a consequence, the parent entity’s comparative figures for 2017 have been restated. The restatement resulted in an increase in non-current assets of $705,778, a decrease in the accumulated losses of $705,778, a decrease in loss for the year of $705,778 and a decrease in total comprehensive loss of $705,778 for the year ended 30 June 2017. The restatement did not impact the consolidated financial statements for the year ended 30 June 2018. Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2018 and 30 June 2017. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and 30 June 2017. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Note 38. Business combinations Kelly Partners Southern Highlands On 1 July 2016, the Group obtained control of Gillespies Southern Highlands under the terms of an acquisition agreement. The goodwill is attributable to synergies expected to be achieved from integrating the business into the Group's existing business. 70 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 38. Business combinations (continued) Details of the acquisition are as follows: Customer relationships Deferred tax liability Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash payable to vendor Deferred consideration Fair value $ 400,718 (120,215) 280,503 711,487 991,990 760,572 231,418 991,990 $231,418 of the purchase price has been paid in cash in August 2018. Kelly Partners (Sydney) In January 2017, the Group acquired a controlling interest in Kelly Partners (Sydney) Pty Ltd. The purchase price was settled through the payment of cash and a contingent amount payable upon achieving an agreed revenue target. The acquired business contributed revenues of $4,840,193 and profit before tax of $1,412,929 to the Group for the period from 1 January 2017 to 30 June 2017, after expensing its costs for restructuring. The contribution to profit before tax attributable to members of the parent entity is $574,038 for the 2017 financial year. Details of the acquisition are as follows: Receivables and accrued revenue Property, plant and equipment Customer relationships Deferred tax asset Deferred tax liability Payroll accruals Other liabilities Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash payable to vendor Contingent consideration Non-controlling interest Fair value $ 5,085,950 198,040 2,981,295 100,558 (894,389) (370,110) (831,261) 6,270,083 3,538,117 9,808,200 4,353,000 1,201,200 4,254,000 9,808,200 Contingent consideration The Group has agreed to pay the selling shareholder additional consideration based upon achieving an agreed revenue target for the calendar year ending 31 December 2018. The fair value of this obligation at the acquisition date is $1,201,200 and is included in the total consideration transferred as disclosed in the above table. t r o p e R l a i c n a n i F 8 1 0 2 71 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 38. Business combinations (continued) Acquisition costs In acquiring both Kelly Partners Sydney and Kelly Partners Southern Highlands, the Group incurred acquisition costs of $963,645. These have been included in business acquisition expenses in the 2017 financial year. Kelly Partners Strategy Consulting On 1 April 2017 Kelly Partners Group Holdings Pty Limited acquired 100% of the interest in Kelly Partners Strategy Consulting Pty Limited. The purchase price of $1,137,160 included net assets of $44,328. Refer to note 36 for details of the settlement of the consideration. Note 39. Interests in subsidiaries (a) Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name Principal place of business / Country on incorporation Ownership interest 2017 % 2018 % KP GH NS Pty Limited Kelly Partners North Sydney Partnership KP GH CC Pty Limited Kelly Partners Central Coast Partnership KP GH WS Pty Limited Kelly Partners (Western Sydney) Partnership KP GH SWS Pty Limited Kelly Partners South West Sydney Partnership Kelly Partners Management Services Pty Limited Kelly Partners Services Trust KP GH NW Pty Limited Kelly Partners Norwest Partnership KP GH TC Pty Limited Kelly Partners Tax Consulting Partnership Kelly Partners Strategy Consulting Pty Ltd KP GH CT Pty Limited Kelly Partners Central Tablelands Partnership KP GH WO Pty Limited Kelly Partners Wollongong Partnership KP GH NB Pty Limited Kelly Partners Northern Beaches Partnership KP GH SH Pty Limited Kelly Partners Southern Highlands Partnership Kelly Partners (South West Sydney) Trust Kelly Partners Oran Park Partnership Super Certain Pty Limited Kelly Partners Management Services (Hong Kong) Limited KP GH FIN Pty Ltd KP GH WM Pty Ltd KP GH HK Pty Limited Kelly Partners Finance Partnership Kelly Partners Private Wealth Sydney Partnership (previously Kelly Partners Wealth Management Partnership) Kelly Partners Marketing Advisory Pty Ltd (previously Round 12 Collective Pty Ltd) Kelly Partners Property (Central Coast) Pty Ltd Kelly Partners Property Group Holdings Pty Ltd Kelly Property Group Pty Ltd Kelly Partners (Central Coast) Property Trust KP GH SYD CBD Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Hong Kong Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 72 KELLY+PARTNERS ANNUAL REPORT 2018 100.00% 58.50% 100.00% 50.10% 100.00% 51.00% 100.00% 50.50% 100.00% 100.00% 100.00% 51.00% 100.00% 51.00% 100.00% 100.00% 51.00% 100.00% 51.00% 100.00% 51.00% 100.00% 51.00% 50.50% 25.30% 50.50% 51.00% 100.00% 100.00% 100.00% 51.00% 100.00% 58.50% 100.00% 50.10% 100.00% 51.00% 100.00% 50.50% 100.00% 100.00% 100.00% 51.00% 100.00% 51.00% 100.00% 100.00% 51.00% 100.00% 51.00% 100.00% 51.00% 100.00% 51.00% 50.50% 25.30% 50.50% 51.00% 100.00% 100.00% 100.00% 51.00% 51.00% 51.00% 100.00% 100.00% 51.00% 100.00% 51.00% 51.00% 100.00% 100.00% 51.00% 100.00% Australia 51.00% 51.00% Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 39. Interests in subsidiaries (continued) Name Principal place of business / Country on incorporation Ownership interest 2017 % 2018 % Australia Australia Australia Australia Australia Australia Kelly Partners (Sydney) Pty Limited KP GH PM Pty Limited Kelly Partners Parramatta Partnership Kelly Partners (Tax Legal) Pty Ltd Kelly Partners (Sydney) Audit Partnership KP GH LM Pty Ltd Kelly Partners Lifestyle Management Services Partnership Australia Kelly Partners Private Wealth Group Holdings Pty Ltd Australia Australia KP GH WM MCBD Pty Ltd Kelly Partners Private Wealth Melbourne Partnership Australia Australia KP GH CA Pty Ltd Australia Kelly Partners Corporate Advisory Partnership New Zealand KP GH NZ Pty Ltd New Zealand Kelly Partners New Zealand Partnership Australia KP GH GII Pty Ltd Kelly Partners Government, Incentives & Innovation Partnership Kelly Partners SMSF Advisory Pty Ltd Kelly Partners (Investment Office) Pty Ltd Kelly Partners Legacy Team Pty Ltd Kelly Partners (Sports & Entertainment) Pty Ltd Kelly Partners (Private Wealth) Pty Ltd KP GH MEL Pty Ltd Kelly Partners Melbourne CBD Partnership Australia Australia Australia Australia Australia Australia Australia Australia 50.50% 100.00% 51.00% 51.00% 50.04% 100.00% 51.00% 100.00% 100.00% 51.00% 100.00% 51.00% 100.00% 51.00% 100.00% 51.00% 100.00% 75.50% 100.00% 100.00% 100.00% 100.00% 51.00% 50.05% 100.00% 51.00% - - - - - - - - - - - - - - - - - - - - The percentage of ownership interest held is equivalent to the percentage voting rights for all subsidiaries. The Group has control over the Kelly Partners Oran Park Partnership because it controls the controlling partner of the partnership, the Kelly Partners (South West Sydney) Trust. (b) Subsidiaries with non-controlling interests The following table summarises the aggregate financial information in relation to the share of the Group's subsidiaries held by non-controlling interests. The information is before inter-company eliminations with other companies within the Group. Revenue Profit attributable to non-controlling interests Distributions to non-controlling interests Current assets Non-current assets Current liabilities Non-current liabilities Net assets Consolidated 2017 $ 2018 $ 5,581,380 4,496,782 7,320,580 19,569,897 14,801,149 3,874,972 3,595,872 5,588,724 12,455,315 14,331,633 (3,255,324) (4,021,267) (4,931,628) (5,280,290) 11,588,943 10,618,800 (c) Consequences of changes in a parent's ownership in a subsidiary that do not result in a loss of control There were no changes to the parent entity's ownership in subsidiaries during the current and prior financial year. (d) Significant restrictions There are no significant restrictions on the ability of the holding company or its subsidiaries to access or use the assets and settle the liabilities of the Group. t r o p e R l a i c n a n i F 8 1 0 2 73 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 40. Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Net loss on disposal of property, plant and equipment Net fair value loss on other financial assets Impairment of trade receivables Impairment of loan receivable Fair value loss on conversion of convertible notes Shares issued to employees Change in fair value of contingent consideration Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease in deferred tax assets Increase/(decrease) in trade and other payables Increase/(decrease) in provision for income tax Net cash from operating activities Note 41. Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2016 Proceeds from borrowings Repayment of borrowings Repayment of finance lease Balance at 30 June 2017 Proceeds from borrowings Repayment of borrowings Balance at 30 June 2018 Consolidated 2017 $ 2018 $ 9,964,034 1,085,446 1,037,217 60,753 213 460,499 - - 220,473 (1,201,200) 835,496 9,963 - 223,049 349,361 1,625,000 453,500 - (2,293,083) 521,013 (2,194,825) 29,818 1,198,680 430,748 1,064,817 (356,983) 6,604,912 6,919,077 Bank loans $ Lease liability $ Total $ 13,080,339 7,229,385 (7,377,946) - 12,931,778 3,695,310 (3,831,299) 8,252 13,088,591 - 7,229,385 - (7,377,946) (8,252) (8,252) - 12,931,778 - 3,695,310 - (3,831,299) 12,795,789 - 12,795,789 Note 42. Events after the reporting period On 12 July 2018, the Company paid the final dividend for the year ended 30 June 2018 of $0.01 per ordinary share. This dividend equates to a distribution of $454,972, based on the number of ordinary shares on issue as at 30 June 2018. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports. On 16 August 2018, an acquisition agreement was signed for the Company to acquire an accounting firm in the Inner West of Sydney with the structure following KPG’s standard 51% Owner-Driver Model. The business will commence trading as Kelly Partners (Inner West) from 4 September 2018. On 22 August 2018, an acquisition agreement was signed for Kelly+Partners North Sydney, a subsidiary of Kelly Partners Group Holdings Limited, to acquire a 100% interest in an accounting firm in North Sydney to assist in the retirement and succession of the senior practitioner. The business will be tucked into the existing Kelly+Partners North Sydney business to create synergies and operating leverage. The business will operate as part of Kelly+Partners North Sydney from 1 September 2018. 74 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2018 Note 42. Events after the reporting period (continued) No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. t r o p e R l a i c n a n i F 8 1 0 2 75 Kelly Partners Group Holdings Limited Directors' declaration 30 June 2018 In the directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Brett Kelly Executive Chairman & CEO 27 August 2018 Sydney 76 KELLY+PARTNERS ANNUAL REPORT 2018 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Deloitte Touche Tohmatsu Sydney, NSW, 2000 ABN 74 490 121 060 Australia Grosvenor Place 225 George Street Phone: +61 2 9322 7000 Sydney, NSW, 2000 www.deloitte.com.au Australia Phone: +61 2 9322 7000 www.deloitte.com.au Independent Auditor’s Report to the Members of Kelly Partners Group Holdings Limited Independent Auditor’s Report to the Members of Kelly Partners Group Holdings Limited Opinion We have audited the financial report of Kelly Partners Group Holdings Limited (the “Entity”), and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June Opinion 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated We have audited the financial report of Kelly Partners Group Holdings Limited (the “Entity”), and its statement of changes in equity and the consolidated statement of cash flows for the year then ended, and subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June notes to the financial statements, including a summary of significant accounting policies, and the directors’ 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated declaration. statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act declaration. 2001, including: In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial (i) 2001, including: performance for the year then ended; and (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial complying with Australian Accounting Standards and the Corporations Regulations 2001. performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion (ii) We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those Basis for Opinion standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the of our report. We are independent of the Group in accordance with the auditor independence requirements of financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Code. Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the We confirm that the independence declaration required by the Corporations Act 2001, which has been given Code. to the directors of the Entity, would be in the same terms if given to the directors as at the time of this auditor’s report. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Entity, would be in the same terms if given to the directors as at the time of this We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditor’s report. opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our Key Audit Matters opinion. Key audit matters are those matters that, in our professional judgement, were of most significance in our Key Audit Matters audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate Key audit matters are those matters that, in our professional judgement, were of most significance in our opinion on these matters. audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited t r o p e R l a i c n a n i F 8 1 0 2 77 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Recoverability of Goodwill and Intangible Assets As at 30 June 2018 the Group has recognised goodwill of $17,847,638 and other intangibles of $2,651,958 as a result of acquisitions over a number of years as disclosed in Note 16. The directors’ assessment of the recoverability of goodwill requires the exercise of significant judgement, including:   Identifying the cash generating units (CGU’s) to which the goodwill has been allocated; and Estimating the future growth rates, nominal discount rates and expected cash flows of each CGU. Our procedures included, but were not limited to:  Assessing the Group’s categorisation of CGU’s and the allocation of goodwill to the carrying value of the CGU’s based on our understanding of the Group’s business,  Challenging management’s ability to accurately forecast cash flows by assessing the precision of the prior year forecasts against actual outcomes, and  Engaging our valuation specialists to assist with: o Comparing the discount rate utilised by management to an independently calculated discount rate, o Comparing the Group’s forecast cash flows for each CGU to the budgets, and challenging the growth rates used, and o Performing sensitivity analysis on the growth and discount rates.  We also assessed the appropriateness of the disclosures in Note 16 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report, Corporate Directory and Additional Information for Listed Public Companies, which we obtained prior to the date of this auditor’s report, and also includes additional information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon), which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the additional other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. 78 KELLY+PARTNERS ANNUAL REPORT 2018 Responsibilities of the Directors for the Financial Report The directors are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. t r o p e R l a i c n a n i F 8 1 0 2 79 We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 33 to 38 of the Director’s Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Kelly Partners Group Holdings Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of Kelly Partners Group Holdings Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Alfred Nehama Partner Chartered Accountants Sydney, 27 August 2018 80 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly Partners Group Holdings Limited Shareholder information 30 June 2018 The shareholder information set out below was applicable as at 30 September 2018. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Number of holders Number of options over ordinary shares of holders of ordinary shares 192 148 91 142 38 611 15 - - - - - - - Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Kelly Investments 1 Pty Ltd HSBC Custody Nominees (Australia) Limited National Nominees Limited Kalumic Pty Ltd Aust Executor Trustees Ltd Hampton Pty Ltd BNP Paribas Noms Pty Ltd Gildale Family Company Pty Ltd David Bullock + Kay Bullock + Anthony Bullock Dr David John Ritchie + Dr Gillian Joan Ritchie Kenneth Ko BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP Brojo Investments Pty Ltd BRJT Accounting Pty Ltd Winda Holdings Pty Ltd David Bullock + Kay Bullock + Anthony Bullock Scott Elwin Family Co Pty Ltd Mrs Penelope Alice Marjorie Seidler Halcycon Pty Ltd Mrs Sunaina Kalra Unquoted equity securities There are no unquoted equity securities. Ordinary shares Number held % of total shares issued 23,253,378 6,127,288 900,000 787,007 663,474 609,400 500,000 466,420 458,984 400,000 393,504 378,156 326,767 286,120 278,172 264,263 264,263 250,054 225,054 225,000 51.11 13.47 1.98 1.73 1.46 1.34 1.10 1.03 1.01 0.88 0.86 0.83 0.72 0.63 0.61 0.58 0.58 0.55 0.49 0.49 37,057,304 81.45 n o i t a m r o f n I r e d l o h e r a h S 81 Kelly Partners Group Holdings Limited Shareholder information 30 June 2018 Substantial holders Substantial holders in the Company are set out below: Kelly Investments 1 Pty Ltd HSBC Custody Nominees (Australia) Limited Voting rights The voting rights attached to ordinary shares are set out below: Number of shares held 23,253,378 6,185,000 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. 82 KELLY+PARTNERS ANNUAL REPORT 2018 Kelly+Partners Team Brett Kelly Scott Elwin Craig Bullock Ada Poon Charbel Geagea Rex Hoeben Sam Gorgi Adam Quinn Anna Lewis Peter Campbell Albert Cachia Ben Twyford Bill Bartlett Lauren Helmrich Andrew Howe Joel Russell Kenneth Ko Linda Chapman Trent Doughty Paul Kuchta Vanessa Sirotic Barry Frank Mark Prag Suketu Majithia Tony Nunes Peter Dawkins Andew Zoghbi Kim Meredith Shane Hay Tony Eagar Brendan Lyons Ryan McCabe Ming Lew Paula Booth Darren Hodgson Daniel Kuchta Troy Marsh Apps David Irwin Daniel Chiha Chris Dent Scott Coombes James Russell David Duff Peter Cohilj Kim Lim Elisha Hill David Le Page Karina Rauch Michelle Irwin Pauline Michelakis Family Business Insight 1 Family businesses with a long term focus, outperform those with a short term view. Family Business Insight 2 Very few people understand wealth. Even less people understand families. Family Business Insight 3 Family advice needs a team approach. Generations of benefit will follow. Private Businesses Private Clients kellypartners.com.au Private Businesses Private Clients Family Office kellypartners.com.au Private Businesses Private Clients Family Office kellypartners.com.au 2 3 Family Business Insight 4 Family Business Insight 5 Clarity of direction yields results. We help family businesses stay true to their values. Family businesses need long term relationships. We strive to make our clients ‘better off’. Family Business Insight 6 Generous parents leave their wealth to grateful children. We help manage a smooth transition. Private Businesses Private Clients Family Office kellypartners.com.au Private Businesses Private Clients Family Office kellypartners.com.au 4 Private Businesses Private Clients kellypartners.com.au 5 

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