Kelly Partners Group
Annual Report 2020

Plain-text annual report

KELLY PARTNERS GROUP HOLDINGS LIMITED ABN 25 124 908 363 2020 ANNUAL REPORT Kelly Partners Group Holdings Limited Contents 30 June 2020 Corporate directory Directors' report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members of Kelly Partners Group Holdings Limited Shareholder information End of annual report 2 3 23 24 25 27 28 29 71 72 76 78 1 Kelly Partners Group Holdings Limited Corporate directory 30 June 2020 Directors Brett Kelly – Chairman, Executive Director Stephen Rouvray – Deputy Chairman, Non-Executive Independent Director Ryan Macnamee – Non-Executive Independent Director Paul Kuchta – Executive Director Ada Poon - Executive Director Company secretary Joyce Au Notice of annual general meeting The details of the annual general meeting of Kelly Partners Group Holdings Limited are: Level 53 MLC Centre 19 Martin Place Sydney, NSW 2000 10 a.m. on Wednesday 25 November 2020 Registered office Share register Auditor Level 8 32 Walker Street North Sydney, NSW 2060 Telephone: (02) 9923 0800 Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney, NSW 2000 Telephone: 1300 787 272 William Buck Accountants & Advisors Level 29 66 Goulburn Street Sydney, NSW 2000 Stock exchange listing Kelly Partners Group Holdings Limited shares are listed on the Australian Securities Exchange (ASX code: KPG) since 21 June 2017 Website http://www.kellypartnersgroup.com.au Corporate Governance Statement The directors and management are committed to conducting the business of Kelly Partners Group Holdings Limited in an ethical manner and in accordance with the highest standards of corporate governance. Kelly Partners Group Holdings Limited has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Third Edition) ('Recommendations') to the extent appropriate to the size and nature of its operations. The Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year and identifies and explains any Recommendations that have not been followed, which is approved at the same time as the Annual Report can be found at: www.kellypartnersgroup.com.au/investor- centre/corporate-governance-2 2 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 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 2020. 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 Ryan Macnamee Paul Kuchta Ada Poon (appointed on 6 September 2019) Principal activities During the financial year, the principal continuing activities of the Group were the provision of chartered accounting and other professional services, predominantly to private businesses and high net worth individuals. Strategy The Company aims to build per-share intrinsic value by: ● ● ● ● ● making an occasional large acquisition (i.e. greater than $5m in revenue). improving the earning power of our subsidiaries; further increase our subsidiaries' earnings through tuck-in acquisitions; participating in the growth of our subsidiaries and developing complementary businesses; repurchasing Company’s shares when available at a meaningful discount from intrinsic value; and The following table presents the performance of the business against the comparative year in delivering the above strategy: Strategy Measure Improving the earning power of our subsidiaries EBITDA margin of operating businesses FY20 FY19 32.5% 27.7% Further increase their earnings through tuck-in acquisitions Contribution to revenue growth from acquired businesses 6.6% 6.4% Participating in the growth of our subsidiaries and developing complementary businesses Contribution to revenue growth from existing businesses 9.4% 7.5%* Repurchasing the Company's shares when available at a meaningful discount from intrinsic value Number of shares repurchased 95,000 2,181 ● ● ● ● ● Making an occasional large acquisition (i.e. greater Number of large acquisitions - - than $5m in revenue) * Excludes Sydney CBD Key financial metrics The Company uses Return on Equity ('ROE'), Return on Invested Capital ('ROIC'), Earnings Per Share ('EPS') and Owners' earnings as key financial metrics to measure the performance of the Group and its return to shareholders. The Group continues to achieve superior returns on equity and invested capital, as measured by ROE and ROIC. Return on equity = Trailing 12 months NPATA/Equity = $11,222,220 / $22,923,398 = 49.0% 3 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Return on invested capital = (Trailing 12 months NPATA + Trailing 12 months Cash Interest) / (Equity + Debt) = ($11,222,220 + $822,514) / ($22,923,398 + $19,011,843) = 28.7% Earnings per share Kelly Partners Group Holdings Limited uses Earnings Per Share (‘EPS’) as the key financial metric to measure the performance of the Group and its return to shareholders. EPS Profit attributable to owners / Weighted average number of shares $4,014,509 / 45,418,414 8.84 cents per share FY20 FY19 FY18 FY17 (IPO) Profit attributable to owners ($) 4,014,509 2,435,695 4,382,654 (2,789,526) Weighted average number of shares* 45,418,414 45,496,894 45,495,923 33,342,437 EPS (cents per share) 8.84 5.35 9.63 (8.37) Dividends (cents per share)** 5.39 4.40 4.00 N/A Dividends payout ratio*** 60.97% 82.24% 41.54% N/A * ** Shares outstanding as at 30 June 2020 is 45,400,000 shares The Group targets ordinary DPS growth at 10% per annum as well as a 50-75% through-the-cycle payout ratio, with a 3 year average payout of 61.58% since the Initial Public Offering ('IPO') in 2017 *** Dividend per share / Earning per share Owners’ earnings The Group uses owner’s earnings to measure cash flow available to the group. Owner’s earnings is a non-IFRS measure which is used to measure cash flow to the Group (after taxes and finance costs) and after taking into account the necessary: ● Additions or deductions of working capital investment (debtors, accrued Income, and other accrual movements) required as the business grows and makes acquisitions; Deductions required for the maintenance capital expenditure for the business to maintain on-going operations in the long term; and Deducting the repayment of lease liabilities from cash from operations (which AASB16 reclassifies to cash from financing activities). ● ● In FY20, Owners’ earnings for the 12 months were $12,516,188 (FY19: $9,673,451). Net cash from operating activities post implementation of AASB 16 Less: Repayment of lease liabilities Less: Maintenance capex Owners' earnings $ 14,644,222 (1,978,034) (150,000) 12,516,188 The below table shows the Owners’ earnings for the Group since IPO: FY20 FY19 FY18 Owners' earnings YOY Growth % $12,516,188 29.4% $9,673,451 53.4% $6,304,912 4 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Review of operations In the year ended 30 June 2020 ('FY20'), the Group has recorded a consolidated statutory net profit after providing for income tax of $10,359,306 (year ended 30 June 2019 ('FY19'): $7,147,654). The statutory net profit attributable to the members of the parent entity was $4,014,509 (FY19: $2,435,695), an increase of 64.8%. The directors consider Underlying Earnings Before Interest, Tax, Depreciation and Amortisation ('Underlying EBITDA') and Underlying Net Profit After Tax Before Amortisation ('Underlying NPATA') to reflect the core earnings of the Group. Underlying EBITDA and Underlying NPATA are financial measures not prescribed by Australian Accounting Standards ('AAS') and represents the profit under AAS adjusted for non-cash and other items which management consider to be one- off non-recurring in nature. Underlying EBITDA and Underlying NPATA are key measurements 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. Statutory net profit after income tax ('NPAT') Finance costs Income tax expense Depreciation and amortisation expense Consolidated 2020 $ 2019 $ 10,359,306 1,535,539 1,473,667 3,740,900 7,147,654 868,595 899,616 1,249,279 Earnings before interest, tax, depreciation and amortisation ('EBITDA') 17,109,412 10,165,144 Add: Non-recurring costs Restructuring costs Acquisition costs Other non-recurring expenses Less: Non-recurring revenue One-off government grants in relation to COVID-19 Lease standard - impact on changes on extension of options Change in fair value of contingent consideration Underlying EBITDA Impact on adoption of AASB 16 Underlying EBITDA before implementation of AASB 16 EBITDA Impact on adoption of AASB 16 EBITDA before implementation of AASB 16 165,389 540,682 - 197,952 614,882 131,721 (1,075,910) (557,012) - - - (220,463) 16,182,561 10,889,236 (2,456,469) - 13,726,092 10,889,236 17,109,412 (2,456,469) 10,165,144 - 14,652,943 10,165,144 Underlying NPATA attributable to members of the parent entity was $4,002,232 (2019: $3,193,208), an increase of 25.3%. 5 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 The following table provides a reconciliation between NPAT attributable to the owners of Kelly Partners Group Holdings Limited and Underlying NPATA attributable to owners of Kelly Partners Group Holdings Limited. Consolidated 2020 $ 2019 $ Statutory NPAT attributable to owners of Kelly Partners Group Holdings Limited Amortisation of customer relationship intangibles 4,014,509 452,728 2,435,695 363,280 NPATA attributable to owners of Kelly Partners Group Holdings Limited 4,467,237 2,798,975 Add: Non-recurring costs Restructuring costs Acquisition costs Other non-recurring costs Less: Non-recurring revenue One-off government grants in relation to COVID-19 Lease standard - impact on changes on extension of options Change in fair value of contingent consideration Less: Tax effect of non-recurring expenses 97,914 372,142 - 181,488 347,312 192,861 (592,515) (322,321) - - - (128,971) (20,225) (198,457) Underlying NPATA attributable to owners of Kelly Partners Group Holdings Limited 4,002,232 3,193,208 COVID-19 Management response and action As at 30 June 2020, the Group has not experienced a slow down in revenue or collections. Out of an abundance of prudence and caution the Group has sought to protect margins through reducing expenses and protect the balance sheet by managing working capital and maximising liquidity through increasing its bank lines of credit. Operationally the Group has as its number one priority looked to protect the physical health, safety and mental well being of its people. The Group has also sought to maximise the integration and use of technology whilst simultaneously upgrading its IT infrastructure and security. In respect of acquisitions, the Group continues to see a strong pipeline and has adjusted its commercial terms and due diligence processes to reflect the current market environment. In FY20 management undertook the following specific actions: Income and expenses ● ● Reduced parent company senior executive salaries by 20% for the months of April, May and June. Reduced ongoing expenses in both the parent and the operating businesses through renegotiating spend on overheads, advertising, marketing and other discretionary expenses. The Group has negotiated rent abatements for some of its leases where the business operating from the premise has, or is expected, to be impacted by the pandemic. Reduced team size. There was no reduction in partner numbers. This was not an easy decision for the business and management sought to limit the impact on staff through firstly reducing non-salary overheads and secondly through voluntary attrition. Received government assistance of $1,075,910 for the period 1 April 2020 to 30 June 2020. This income is non- taxable and has been excluded from underlying performance measures. Dividend grew but at a slower rate than profits with payout ratio reduced to 61.0% (FY19: 82.2%). ● ● ● ● 6 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Balance sheet ● Increased group working capital facility limits by $4,179,000 (an increase of 99% on the working capital facilities available to the group in the prior year as at 30 June 2019) to provide additional liquidity lines of credit out of an abundance of caution. There were no changes to the Group’s financial covenants as part of this arrangement and the Group’s unused limits at 30 June 2020 were $8,745,859 (30 June 19: $3,356,862). There are no facilities due for refinance prior to 30 June 2021. The implementation of AASB 16 increased headroom under the Group’s gearing covenant. The Group applied additional focus on managing the invoicing of work in progress (WIP) and the collection of debtors. Notably the Group’s Working Capital reduced by 15.4% over the year to $4,562,337 (30 June 19: $5,395,745) and runs at 35.9 days. Non-essential capital expenditure, including fit-out upgrades, have been indefinitely deferred. ● ● Financial performance Acquisitions and integration During FY20 the Group acquired two accounting businesses located in Melbourne and Glenbrook (Blue Mountains) as well as purchasing a small fee base in Bathurst. The Melbourne and Glenbrook acquisitions were both completed on 1 November 2019. These two acquisitions have contributed eight months revenue of $2,293,584 and are expected to contribute approximately $3,200,000 to $3,950,000 in recurring revenue on a full year basis. The Bathurst fee purchase was completed on 17 June 2020 and is expected to contribute $270,000 in recurring revenue on a full year basis. The Bathurst transaction is not considered to have a material impact on earnings. Strategically, the Melbourne acquisition sees Kelly Partners expand into Victoria in the highly renowned 333 Collins Street address. The Melbourne acquisition is expected to contribute $2,000,000 to $2,550,000 in annual recurring revenue to the consolidated Group and approximately $500,000 of EBITDA to the parent entity post transaction improvement. The Glenbrook acquisition, together with the Group’s offices in Penrith and Bathurst, provide a very significant presence in the outer west of Sydney, one of Sydney’s fastest growing markets. The acquisition is expected to contribute $1,200,000 to $1,400,000 in annual recurring revenue to the consolidated group and approximately $300,000 of EBITDA to the parent entity post transaction improvement. Acquired businesses generally have had lower gross margins and higher operating costs due to their smaller size. It is expected that any dilutive impact of their existing margins will reduce over time as they evolve to our more efficient business model. During FY20, the Group also benefited from the contribution for the full year from the four acquisitions made in FY19 (Inner West, Northern Beaches, North Sydney and Oran Park). Post balance date, on 6 July 2020 the Group completed the acquisition of a small fee base located in Rozelle. The Rozelle transaction is expected to contribute $120,000 in recurring revenue on a full year basis and is not considered to have a material impact on earnings. Offices and partners As at 30 June 2020, the Group operates out of 15 offices (30 June 2019: 15), having opened offices in Glenbrook and combined the Parramatta office with the Rozelle office during the first half of the financial year. The Melbourne office is now fully operational with all team members working from home through the lockdown period. As at 30 June 2020, total number of equity partners (excluding the CEO, Brett Kelly) was 44 (30 June 2019: 40) with 4 new partners promoted internally and 1 new partner as a result of acquisitions in the period. The equity partner of Kelly Partners Government Incentives & Innovation exited from the business following his successful election to Federal Parliament. The dissolution of the Kelly Partners Government Incentives & Innovation partnership is not expected to have any material or adverse impact on the Group. Post balance date, on 1 July 2020, two new partners were also promoted internally. Properties As at 30 June 2020, the Group holds controlling interests in two of the properties out of which the Group operate. These properties house the Central Coast and Central Tablelands offices which the Group acquired controlling interests in August 2019. Following a review of the property strategy, the Group has decided to unlock capital and is now aiming to sell these properties by 31 December 2020. 7 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Revenue Revenue for FY20 increased 15.9% to $46,354,466 (FY19: $39,975,031). A reconciliation of acquisition and organic growth is set out below: FY19 Revenue Accounting business growth Complementary business growth Total organic growth FY20 in year acquisitions FY19 Run Rate Acquisition revenue FY20 Revenue $ Growth rate % 39,975,031 2,666,260 1,082,742 3,749,002 2,293,584 336,849 2,630,433 - 6.7 2.7 9.4 5.7 0.8 6.5 46,354,466 15.9 Organic revenue contributed 9.4% of revenue growth, with accounting businesses contributing 6.7% and complementary businesses contributing 2.7%. Acquired revenue of $2,630,433 contributed 6.5% of revenue growth, with in year acquisitions completed in FY20 contributing $2,293,584 and run rate from four acquisition completed in FY19 contributing $336,849. Operating expenses ● ● ● Employment and related expenses are the Group’s largest expense. Whilst the expense went up 11.3% to $21,762,214, importantly, the expense fell 2.00 percentage points to 46.9% of revenue (FY19: 48.9%) driven by strong revenue growth. Of the 11.3% increase, the acquired businesses made up $1,205,544 (6.2%), and the remainder (5.1%) came from existing businesses. Rent and utilities expense have dropped from $2,500,714 to $188,704. This predominantly reflects a reclassification of expenses on implementation of AASB 16 from rent to depreciation and finance costs. Other Expenses have increased by $1,365,079 or 19.0% to $8,540,865, with acquired businesses making up $408,808 (5.7%) of the increase. The remaining increase (13.3%) includes $475,301 from existing businesses and $480,970 from the parent entity as a result of increased compliance and marketing costs. Additional information technology costs of $350,870 were incurred to strengthen the Groups’ IT infrastructure and security. These investments have allowed the businesses to operate productively with minimal interruptions during the COVID-19 period. Underlying EBITDA Underlying EBITDA (which measures EBITDA before one-off and non-recurring items) increased 48.6% to $16,182,561 (FY19: $10,889,236). The current period Underlying EBITDA is impacted by the implementation of AASB 16 and is not directly comparable to the prior period. Underlying EBITDA on a like for like basis has increased 26.1% to $13,726,092 (FY19: $10,889,236). The underlying EBITDA margin before AASB 16 has increased to 29.6% (FY19: 27.2% and FY18: 36.6%). The business continues to target Underlying EBITDA margins (before AASB 16) of 32.5%. A reconciliation of Underlying EBITDA before and after the AASB 16 leasing adjustment is set out in the table below. Underlying EBITDA AASB 16 leasing adjustment - Rent expense 2020 $ 2019 $ 2018 $ 16,182,561 (2,456,469) 10,889,236 - 14,459,699 - Underlying EBITDA before AASB 16 leasing adjustments 13,726,092 10,889,236 14,459,699 As a % of revenue 29.60% 27.20% 36.60% 8 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Additional investments in the Parent Entity The parent entity has since the IPO continued to invest significantly in growth in order to further develop the capabilities of the central services team and for the business to be positioned for long term growth as well as to grow its competitive advantage. These investments for growth have exceeded the central Services Fee and IP Fee income that the Company receives from its operating businesses, as shown in the table below. With these investments in place, the Company believes it is now well established and positioned to scale further and management intend to limit investment spend to the amount of fee income received by 30 June 2021. Additional investments 1,630,905 742,439 371,913 2020 $ 2019 $ 2018 $ Non-recurring and one-off items Total non-recurring income for the Group for the year was $1,632,922 (FY19: $220,413) and included: 1) $1,075,910 in one-off government grants in relation to COVID-19. Of this amount $776,024 was received in cash in FY20 and $299,886 is to be received in the first quarter of FY21; and $557,012 non-cash income relating to remeasurements of lease liabilities and right of use assets as a result of changes in the extension of options in a number of premise leases. 2) Non-recurring expenses for the year of $709,071 (FY19: $944,555) which included: 1) 2) $300,527 in acquisition costs relating to the Melbourne and Glenbrook acquisitions; $158,460 in non-cash adjustments in relation to interest on unwinding of the contingent consideration payable on the acquisitions, that were discounted to presented value on initial recognition per the accounting standards; $123,589 in redundancy costs following restructuring initiatives completed during COVID-19; $56,944 in costs relating to the surrender of the lease in Parramatta; and $66,551 in other non-recurring costs including legal fees. 3) 4) 5) The Group classifies costs related to successfully acquired business under non-recurring and one-off items on the basis that those specific acquisitions costs (related to specific businesses acquired) will not re-occur in future periods whilst their associated revenues and earnings are expected to continue into future periods. As part of its growth strategy, management continue to identify acquisition targets and any future acquisition expenses are expected to be accompanied by future revenues and earnings associated with those expenses. The separate classification of acquisition costs into non-recurring and one-off items provides transparency to look-through to the underlying performance of the Group. Depreciation and amortisation and finance costs Depreciation and Amortisation expense increased to $3,740,900 (FY19: $1,249,279) and includes depreciation expense of $2,816,687 (FY19: $510,666). The increase in depreciation expense is predominantly due to the implementation of AASB 16 and reclassification of rent expense to finance and depreciation costs. Finance costs increased to $1,535,539 (FY19: $868,595). The increase in finance costs is predominantly due to the implementation of AASB 16 and reclassification of rent expense to finance and depreciation costs. On a cash basis, finance costs of $822,514 is line with the prior year (FY19: $815,505). Income tax expense The Group’s Income Tax Expense has increased to $1,473,667 (FY19: $899,616). As the majority of businesses are structured as partnerships, the income tax expense attributable to the minority interests in these partnerships is not included in the consolidated accounts. Cash flow Cash from operations Receipts from customers increased 11.4% to $51,901,820 (FY19: $46,594,198) whilst payments to suppliers and employees increased by 3.6% to $35,946,225 (FY19: $34,724,287), with operating cashflow (defined as receipts from customers less payments to suppliers and employees) up 46.8% to $14,644,222. As a result of the implementation of AASB 16, the principal portion of lease payments are now disclosed separately in financing activities, while the interest portion is disclosed in finance costs paid within operating activities. Operating cashflow before AASB 16 is $12,666,189, up 27.0% from the prior year. This is predominantly attributable to increased billings as well as a $833,408 decrease in Net Working Capital Investment (defined as trade and other receivables plus accrued Income less trade payables and contract liabilities). 9 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Cash from investing activities In FY20, the Group spent $1,944,240 on property, plant and equipment capital expenditure. This included $1,459,588 on property purchases and $116,395 on leaseholds improvements and furniture and fittings to upgrade existing locations. The remaining $368,257 represents office equipment, new motor vehicles and other capital expenditures. Cash from financing activities In FY20, the Groups’ borrowings increased by $384,210 to $19,011,843 (FY19: $18,627,633). Proceeds from borrowings of $6,037,413, included $1,817,000 relating to the Melbourne and Glenbrook acquisitions, $1,361,681 related to property purchases, $1,191,000 related to partner buy-in loans, and $1,667,732 in other items. Repayment of borrowings of $5,761,572 relates to acquisition and partner-buy-in loans, with the Group maintaining a disciplined approach to the amortisation of its acquisition debt. FY20 dividends of $2,398,743 includes the special dividend of $249,881 paid in September 2019. As a result of the implementation of AASB 16, lease payments which were previously classified under cash from operations, are now disclosed separately under cash from financing activities. Working capital The Group continues to maintain a disciplined approach to managing its lockup (defined as trade receivables and accrued income less contract liabilities) , which reduced 9.8% to $6,875,094 (54.1 days) as at 30 June 2020 from $7,625,583 (70.0 days) as at 30 June 2019. This is a strong result and has been achieved despite acquisition and organic revenue growth. Capital structure The business continues to maintain an appropriately conservative capital structure. As at 30 June 2020 the Group’s Gearing Ratio (defined as Net Debt / Underlying EBITDA pre AASB 16) reduced to 1.11x (30 June 2019: 1.35x). Net Debt is a non-IFRS measure and means total borrowings less cash and cash equivalents. Equity to Total Assets ratio has decreased to 39.7% (30 June 2019: 48.7%). The decrease is predominantly due to the change in accounting standards (AASB 16). Reversing out the impact of AASB 16 on the balance sheet, the adjusted equity to adjusted total assets ratio is 46.3%, demonstrating the well capitalised nature of the balance sheet which includes $14,081,465 in issued capital and $7,028,325 in non-controlling equity interests. AASB16 It is the Group’s view that AASB16 creates a fundamental breakdown of the matching principal and does not capture the economic substance and contractual nature of the Group’s rental lease agreements. AASB16 capitalises the future rent expenses (both contracted and optioned) onto the balance sheet as both an asset and a liability. There are several issues in applying this standard to the Group, as outlined below: FY20 Balance Sheet Right-of-use assets Other assets Total assets Lease liabilities Other liabilities Total liabilities Net assets/equity Equity ratio % Reported $ Adjustment $ Adjusted $ Change $ Change % 5,895,450 51,836,993 57,732,443 (5,895,450) - (5,895,450) - 51,836,993 51,836,993 7,093,874 27,715,171 34,809,045 (7,093,870) - (7,093,870) - 27,715,171 27,715,171 - 5,895,450 5,895,450 - 7,093,874 7,093,874 - 11.40 11.40 - 25.60 25.60 22,923,398 - 24,121,822 (1,198,424) (5.00) 39.7% 46.5% (6.8)% 10 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 1) 2) 3) The standard results in an overall decrease to the Group’s equity by 5.0% (or $1,198,424) and a 6.8 percentage point decrease to the equity ratio from 46.5% to 39.7%. The is because the Right-of- use assets are expensed on a straight-line basis, whilst the Lease liability is expensed on a declining value basis and in the earlier years the Lease liability exceeds the Right-of-use asset. The standard requires management to assess whether it expects to exercise options on its property lease agreements. Whilst in the majority of cases management do expect to exercise those options, the resultant liability overlooks the (real) options in those lease agreements and instead capitalises those optioned period amounts to the balance sheet. The Group has disclosed the maturity profile of its leases, which including the option periods, have a weighted average lease expiry (WALE) of 5 years. However, excluding options, the contracted WALE is c.3 years. The contracted amounts due and payable (not taking into account the option periods) are $4,883,235 (after applying the same discount rate used in the standard). The commitment is significantly less (c. 31%) than as indicated on the balance sheet. The standard creates a liability as if it were fact, when in economic substance, it is not fact. This is because the Group maintains the ability to 1) not exercise future option periods; 2) renegotiate leases in the Group’s favour, (as has occurred during the COVID-19 period); 3) sublease space if desired; and 4) renegotiate more favourable lease agreements with landlords (as has occurred) if and when the Group’s footprint requirements change. Whilst AASB16 is here to stay, it is important that users of these accounts understand the reported impact of the standard compared to the economic substance of the underling lease agreements. The reality is there is no change to the way the cashflow of this business operates regardless of what the changes to the accounts say. Dividends Amounts recognised as dividends: For the year ended 30 June 2020: Special dividend of $0.0055 per ordinary share, paid on 18 September 2019 First interim dividend of $0.0121 per ordinary share, paid on 30 September 2019 Second interim dividend of $0.0121 per ordinary share, paid on 2 January 2020 Third interim dividend of $0.0121 per ordinary share, paid on 2 April 2020 Final dividend of $0.0121 per ordinary share, paid on 2 July 2020 For the year ended 30 June 2019: First interim dividend of $0.011 per ordinary share, paid on 30 October 2018 Second interim dividend of $0.011 per ordinary share, paid on 31 December 2018 Third interim dividend of $0.011 per ordinary share, paid on 29 March 2019 Final dividend of $0.011 per ordinary share, paid on 1 July 2019 For the year ended 30 June 2018: Final dividend of $0.01 per ordinary share, paid on 12 July 2018 Consolidated 2020 $ 2019 $ 249,881 549,737 549,340 549,340 549,340 2,447,638 - - - - - - - - - - - - 500,469 500,469 500,469 500,445 2,001,852 454,972 2,447,638 2,456,824 On 2 July 2020, the Company paid the final dividend for the year ended 30 June 2020 of $0.0121 per ordinary share. This dividend equates to a distribution of $549,340, based on the number of ordinary shares on issue as at 30 June 2020. The dividend was declared before the reporting date and is reflected in the 30 June 2020 financial statements. Significant changes in the state of affairs Acquisition During the financial year, the Company acquired two accounting businesses in Melbourne CBD and Blue Mountains which were tucked into the existing businesses. Synergies are expected to be achieved from integrating these businesses into existing Kelly Partners businesses. 11 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Share buy-back As at 30 June 2019, the Company had total shares outstanding of 45,495,000. On 17 April 2019, the Company announced a share buy-back of up to 10% of the minimum number of Company's shares outstanding in the last 12 months (being a buy-back of up to 4,549,718 shares at 17 April 2019). The Company announced the closure of this share buy-back on 2 September 2019. The Company purchased and cancelled a total of 64,372 shares during the period 17 April 2019 to 2 September 2019 including 62,191 during the financial year ended 30 June 2020. On 9 September 2019, the Company announced a new share buy-back of up to 10% of the minimum number of Company's shares outstanding in the last 12 months (being a buy-back of up to 4,543,280 shares at 9 September 2019) less shares bought back in the buy-back closed on 2 September 2019 (being 64,372 shares), therefore a total of 4,478,908 shares. During the financial year ended 30 June 2020, the Company purchased and cancelled 32,809 shares. At 30 June 2020, 4,446,099 shares are authorised for on-market buy-back. As at 30 June 2020, the Company had total shares outstanding of 45,400,000. COVID-19 Given the uncertainty regarding the duration of COVID-19 pandemic and its potential impact on trading, management have undertaken the following actions across the Group, including its controlled entities: ● ● ● The Executive Chair Brett Kelly, CFO Justin Sweeting, COO Kristian Haigh, Finance Manager Kenneth Ko have voluntarily reduced their salaries by 20%, for 3 months from 1 April 2020. The Group has reduced its headcount by 11%. There has been no reduction in partner numbers. The Group has reduced its expenses through renegotiating spend on outsourced services, advertising, marketing and other discretionary expenses. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year On 1 July 2020, Kelly Partners (Inner West) Pty Ltd acquired a fee base in the Inner West with an estimate annual recurring fee of $127,000. The transaction is expected to contribute to the growth of the Kelly Partners (Inner West) business. The Group continues to monitor the impact of COVID-19 on its operating businesses. Despite the challenges from COVID- 19, KPG remains well positioned to execute its long term growth strategy and deliver shareholder wealth. Apart from the matters discussed above, no other matter or circumstance has arisen since 30 June 2020 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 (which includes acquisitions, tuck-ins and greenfields) 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. 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. 12 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Information on directors Name: Title: Qualifications: Experience and expertise: Brett Kelly (appointed on 16 April 2017) 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 of 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 21 businesses over 15 locations to date. Brett is also the best-selling author of four books on life, business and wisdom. None Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Member of the Nomination and Remuneration Committee 23,400,000 ordinary shares None None Name: Title: Qualifications: Experience and expertise: Stephen Rouvray (appointed on 2 May 2017) Deputy Chairman and Non-Executive Independent 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 Group as a director for a number of its subsidiaries and associates. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Chairman of the Nomination and Remuneration Committee Chairman of the Audit and Risk Committee 100,000 ordinary shares None None Name: Title: Qualifications: Experience and expertise: Ryan Macnamee (appointed on 2 May 2017) Non-Executive Independent 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, with 6 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. Ryan has served as non-executive director on a number of boards, including Open Data Institute and Advanced Navigation. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Interests in rights: Contractual rights to shares: Member of the Nomination and Remuneration Committee Member of the Audit and Risk Committee 145,046 ordinary shares None None 13 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Name: Title: Qualifications: Experience and expertise: Paul Kuchta (appointed on 2 May 2017) 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. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Member of the Audit and Risk Committee 164,000 ordinary shares None None Name: Title: Qualifications: Experience and expertise: Ada Poon (appointed on 6 September 2019) Executive Director BCom, MCom, JP, Registered Tax Agent, SMSF Specialist Advisor Ada has more than 15 years' professional accountancy experience and has specialised in accounting and taxation services to Private Business Owners based in Sydney, business and personal taxation compliance self-managed super funds and outsourced finance department services. Other current directorships: None Former directorships (last 3 years): None None Special responsibilities: 326,398 ordinary shares Interests in shares: None Interests in options: None Interests in rights: Company secretary David Franks - BEc, CA, F Fin, FGIA JP (resigned on 30 April 2020) David Franks is a former principal of Franks & Associates Pty Ltd, which merged with the Automic Group in 2018. David is a Director and Principal of the Automic Group. 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 is also currently the Company Secretary for the following public entities: AUB Group Limited, Adcorp Australia Limited, Elk Petroleum Limited, JCurve Solutions Limited, Noxopharm Limited, Nyrada Inc, Tomorrow Entertainment Limited, White Energy Company Limited, White Energy Technology Limited and ZIP Co Limited. David is also a Non-Executive Director of JCurve Solutions Limited. Joyce Au - BCom, MCom, MTax, MA(Law), MAppFin. CA (appointed on 1 May 2020 as Company Secretary and General Counsel) Joyce is a solicitor admitted to the Supreme Court of NSW and a Chartered Accountant. Joyce has 15 years' experience across accounting, tax, finance, commercial law, corporate transactions and business operations. Joyce has worked with Kelly Partners for over 10 years since its inception in 2006 across a number of roles including accounting, audit, finance and operations. Most recently she worked as the Corporate Advisor and Investment Analyst in KP Corporate Advisory and KP Investment Office businesses, covering due diligence, transactions management, financial analysis and fund administration. Prior to that, Joyce practised commercial law for several years advising on corporate structures & transactions, taxation and Corporations Act matters. Joyce is an alumni of the University of Cambridge and have graduated with a first class honours in law. She also holds Masters degrees in Accounting, Tax and Applied Finance. 14 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 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 2020, and the number of meetings attended by each director were: Nomination and Full Board Attended Held Remuneration Committee Audit and Risk Committee Attended Attended Held Held Brett Kelly Stephen Rouvray Ryan Macnamee Paul Kuchta Ada Poon* 4 6 6 6 2 6 6 6 6 4 1 1 1 - - 1 1 1 - - - 3 3 3 - - 3 3 3 - Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. * Appointed on 6 September 2019. 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 Paul Kuchta 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 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; and 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. 15 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 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; and 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; and 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 $160,000 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; and 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. Employee Incentive Plan ('EIP') In December 2019, the Board approved the establishment of the EIP. The EIP is designed to assist in the attraction, motivation, retention and reward of employees by allowing them to participate in the overall success and growth of the Group. The EIP is also designed to align the interests of employees with the interests of shareholders by providing an opportunity for the participants to receive an equity interest in the Company. In FY2020 the EIP Trust purchased 9,729 shares on market for a total of $7,500 with an average share price of $0.77. As at 30 June 2020, the shares continue to be held in trust and have not been allocated to any employees. Group performance and link to remuneration For the year ended 30 June 2020 there was no link between Group performance and key management personnel remuneration. 16 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Use of remuneration consultants During the financial year ended 30 June 2020, the Group engaged Egan Associates, remuneration consultants, to review its existing remuneration policies and provide recommendations on short term incentive ('STI') and long term incentive ('LTI') programs. A total amount of $10,710 was paid to engage Egan Associates. The Board was satisfied that the remuneration recommendation received was free from undue influence by members of the key management personnel to whom the recommendation relates, because of strict protocols observed and complied with regarding any interaction between Egan Associates and management, and because all remuneration advice was provided to the Nomination and Remuneration Committee. At the date of the report, no recommendations have been implemented. Voting and comments made at the Company's 2019 Annual General Meeting ('AGM') The motion was carried on a show of hands and for the record the show of hands and proxy portion were in excess of 75% in favour of the resolution. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in this section. 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 Independent Director Paul Kuchta - Executive Director Ryan Macnamee - Non-Executive Independent Director Ada Poon - Executive Director (appointed on 6 September 2019) Pauline Michelakis – Chief Financial Officer (resigned on 26 March 2019 with a 6 month notice period) Short-term benefits Post employ- ment benefits Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Share- based payments Equity- settled $ Leave Annual /long service $ 27,397 27,397 321,351 9,132 9,132 394,409 - - - - - - - - 2,603 2,603 - - 31,567 - - 31,567 21,003 868 868 27,945 67,646 - - 67,646 - - - - - - Total $ 30,000 30,000 441,567 10,000 10,000 521,567 2020 Non-Executive Directors: Stephen Rouvray Ryan Macnamee Executive Directors: Brett Kelly* Paul Kuchta** Ada Poon** * ** Brett Kelly voluntarily received a 20% reduction in his base salary from 1 April 2020 to 30 June 2020 in response to the uncertainty of COVID-19. The Nomination and Remuneration Committee approved an annual director fee of $12,000 inclusive of superannuation for executive directors Paul Kuchta and Ada Poon, commencing September 2019. 17 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Short-term benefits Post employ- ment benefits Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Share- based payments Equity- settled $ Leave Annual /long service $ 27,397 27,397 339,509 316,513 112,956 823,772 - - - - - - - - 2,603 2,603 - - 63,511 - 20,531 15,131 10,839 (1,308) - 63,511 5,400 46,268 (467) 9,064 - - - - - - Total $ 30,000 30,000 434,390 330,336 117,889 942,615 2019 Non-Executive Directors: Stephen Rouvray Ryan Macnamee Executive Directors: Brett Kelly Pauline Michelakis* Other Key Management Personnel: Pauline Michelakis* Details of Paul Kuchta and Ada Poon's remuneration are outlined below under 'Service agreements'. * Pauline resigned as the Chief Financial Officer on 26 March 2019 with a 6 month notice period. The amount set out in the table represents her remuneration from the beginning of the financial year till the end of her notice period. The fixed and the variable at risk proportions of remuneration are as follows: Name Non-Executive Directors: Stephen Rouvray Ryan Macnamee Executive Directors: Brett Kelly Paul Kuchta Ada Poon Pauline Michelakis Fixed remuneration 2019 2020 At risk - STI At risk - LTI 2020 2019 2020 2019 100% 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: Brett Kelly Chairman, Chief Executive Officer, Executive Director 16 May 2017 No fixed period Base salary of $360,000 p.a. inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. Terms include a 12 month termination notice by either party, non-solicitation and non-compete clauses. 18 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Stephen Rouvray Deputy Chairman, Non-Executive Independent Director 2 May 2017 No fixed period Director fees $30,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. Ryan Macnamee Non-Executive Independent 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. Paul Kuchta Executive Director 2 May 2017 No fixed period Director fees of $12,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. 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. Ada Poon Executive Director 6 September 2019 No fixed period Director fees of $12,000 inclusive of superannuation, to be reviewed annually by the Nomination and Remuneration Committee. Ada Poon is an Operating Business Owner in the Kelly Partners North Sydney Partnership and receives a base distribution plus a distribution of profits from that Operating Business in accordance with the terms of the Partnership Agreement. 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 2020. 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 2020. Additional information The earnings of the Group for the four years to 30 June 2020 are summarised below: Revenue and other gains EBITDA Profit after income tax 2020 $ 2019 $ 2018 $ 2017 $ 48,148,806 17,109,412 10,359,306 40,342,134 10,165,144 7,147,654 40,824,551 13,553,603 9,964,034 30,331,286 2,914,140 1,085,446 19 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 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) 2020 2019 2018 2017 0.88 8.84 8.84 0.89 5.35 5.35 1.23 9.63 9.63 1.42 (8.37) (8.37) 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: Ordinary shares Brett Kelly Stephen Rouvray Ryan Macnamee Paul Kuchta Ada Poon Pauline Michelakis Balance at the start of the year 23,276,378 50,000 125,046 164,000 - 1,000,000 24,615,424 Additions* Other** 123,622 50,000 20,000 - 326,398 - 520,020 - - - - - (1,000,000) (1,000,000) Balance at the end of the year 23,400,000 100,000 145,046 164,000 326,398 - 24,135,444 * ** There were no shares received as part of remuneration. Pauline is no longer a key management personnel as at 30 June 2020 and hence her shareholding is not disclosed. Loans to key management personnel and their related parties Loans to directors: Balance at the beginning of the year - loans advanced - interest on loans - repayment of loans advanced Balance at the end of the year $ - 333,623 11,220 (326,700) 18,143 On 18 March 2020, the Board of Directors resolved and approved the advancing of a short term loan facility between the Group and an associated entity of Brett Kelly and David Irwin, the Operating Partner in the Kelly Partners Inner West Partnership, to assist with the purchase of 766 Darling St, Rozelle ('the Rozelle Property'). The facility is unsecured, repayable on demand and interest is charged at commercial rates. As at 30 June 2020, there was $18,143 owing on this facility. The Kelly Partners (Inner West) Property Trust business operates out of the Rozelle Property. As at 30 June 2020, the operating business continues under the lease which was in place prior to the sale and purchase of the Rozelle Property. 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 2020 and up to the date of this report. 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. 20 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 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. 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 (including Independence Standards) 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 William Buck Accountants & Advisors There are no officers of the Company who are former partners of William Buck Accountants & Advisors. 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 William Buck Accountants & Advisors was appointed as auditor during the year and continues in office in accordance with section 327 of the Corporations Act 2001. The appointment follows the resignation of Deloitte Touche Tohamatsu in accordance with section 329(5) of the Corporation Act 2001. 21 Kelly Partners Group Holdings Limited Directors' report 30 June 2020 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 and Chief Executive Officer 21 August 2020 Sydney 22 Kelly Partners Group Holdings Limited Auditor’s independence declaration under section 307c of the Corporations Act 2001 I declare that, to the best of my knowledge and belief, during the year ended 30 June 2020 there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and — no contraventions of any applicable code of professional conduct in relation to the audit. William Buck Accountants & Advisors ABN: 16 021 300 521 L.E. Tutt Partner Sydney, 21 August 2020 23 ACCOUNTANTS & ADVISORSSydney Office Level 29, 66 Goulburn Street Sydney NSW 2000Parramatta Office Level 7, 3 Horwood Place Parramatta NSW 2150Telephone: +61 2 8263 4000williambuck.comWilliam Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation.(WB013_2007)Kelly Partners Group Holdings Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Revenue Professional services revenue Other income Total revenue and other income Expenses Employment and related expenses Rent and utilities Other expenses Business acquisition and restructuring costs Depreciation and amortisation expense Finance costs Total expenses Profit before income tax expense Income tax expense Profit after income tax expense for the year Other comprehensive income Consolidated Note 2020 $ 2019 $ 6 7 8 8 8 9 46,354,466 1,794,340 48,148,806 39,975,031 367,103 40,342,134 (21,762,214) (188,704) (8,540,865) (547,611) (3,740,900) (1,535,539) (36,315,833) (19,555,935) (2,500,714) (7,175,786) (944,555) (1,249,279) (868,595) (32,294,864) 11,832,973 8,047,270 (1,473,667) (899,616) 10,359,306 7,147,654 Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax 1,440 1,440 1,585 1,585 Total comprehensive income for the year 10,360,746 7,149,239 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 6,344,797 4,014,509 4,711,959 2,435,695 10,359,306 7,147,654 6,345,531 4,015,215 4,712,736 2,436,503 10,360,746 7,149,239 Cents Cents Basic earnings per share Diluted earnings per share 28 28 8.84 8.84 5.35 5.35 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 24 Kelly Partners Group Holdings Limited Consolidated statement of financial position As at 30 June 2020 Assets Current assets Cash and cash equivalents Trade and other receivables Lease receivables Accrued income Other financial assets Other assets Total current assets Non-current assets Lease receivables Financial assets Other financial assets Property, plant and equipment Right-of-use assets Intangible assets Other assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Borrowings Lease liabilities Current tax liabilities Provisions Contingent consideration Other financial liabilities Other liabilities Total current liabilities Non-current liabilities Borrowings Lease liabilities Deferred tax liabilities Provisions Contingent consideration Other financial liabilities Other liabilities Total non-current liabilities Total liabilities Net assets Consolidated Note 2020 $ 2019 $ 10 11 12 13 14 15 12 16 14 17 18 19 15 20 21 22 9 23 24 25 26 21 22 9 23 24 25 26 3,779,132 5,782,772 92,956 1,656,656 903,610 635,113 12,850,239 3,955,119 6,099,138 - 2,009,017 1,704,255 687,972 14,455,501 180,298 11,637 2,865,078 5,188,052 5,895,450 30,299,572 442,117 44,882,204 - 15,481 3,212,503 3,957,842 - 27,227,897 633,005 35,046,728 57,732,443 49,502,229 2,312,757 564,334 6,291,235 1,742,850 886,105 2,202,475 637,256 10,992 - 14,648,004 2,229,838 482,572 5,874,545 - 570,187 1,981,007 - - 193,991 11,332,140 12,720,608 5,351,024 307,394 237,313 808,544 689,914 46,244 20,161,041 12,753,088 - 412,468 285,385 544,719 - 46,244 14,041,904 34,809,045 25,374,044 22,923,398 24,128,185 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 25 Kelly Partners Group Holdings Limited Consolidated statement of financial position As at 30 June 2020 Equity Issued capital Reserve Retained profits Equity attributable to the owners of Kelly Partners Group Holdings Limited Non-controlling interest Total equity Consolidated Note 2020 $ 2019 $ 27 29 14,081,465 1,514 1,812,094 15,895,073 7,028,325 14,169,601 808 698,437 14,868,846 9,259,339 22,923,398 24,128,185 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 26 Kelly Partners Group Holdings Limited Consolidated statement of changes in equity For the year ended 30 June 2020 Consolidated Issued capital $ Reserve $ Retained profits $ Non- controlling interest $ Total equity $ Balance at 1 July 2018 14,171,477 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share buy-back (note 27) Adjustment to non-controlling interest Amounts recognised as dividends (note 30) Distributions to non-controlling interests - - 808 808 719,566 9,228,760 24,119,803 2,435,695 4,711,959 7,147,654 - 777 1,585 2,435,695 4,712,736 7,149,239 - - - (1,876) - - - - - - - - - (2,456,824) - - 65,846 - (4,748,003) (1,876) 65,846 (2,456,824) (4,748,003) Balance at 30 June 2019 14,169,601 808 698,437 9,259,339 24,128,185 Consolidated Issued capital $ Reserve $ Retained profits $ Non- controlling interest $ Total equity $ Balance at 1 July 2019 14,169,601 808 698,437 9,259,339 24,128,185 Adjustment for change in accounting policy (note 4) - - (453,214) (488,852) (942,066) Balance at 1 July 2019 - restated 14,169,601 808 245,223 8,770,487 23,186,119 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share buy-back (note 27) Amounts recognised as dividends (note 30) Distributions to non-controlling interests - - - - 4,014,509 6,344,797 10,359,306 706 706 - 734 1,440 4,014,509 6,345,531 10,360,746 (88,136) - - - - - - (2,447,638) - - - (8,087,693) (88,136) (2,447,638) (8,087,693) Balance at 30 June 2020 14,081,465 1,514 1,812,094 7,028,325 22,923,398 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 27 Kelly Partners Group Holdings Limited Consolidated statement of cash flows For the year ended 30 June 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Government grants received Finance costs paid Income taxes paid Consolidated Note 2020 $ 2019 $ 51,901,820 (35,946,225) 776,024 (822,514) (1,264,883) 46,594,198 (34,724,287) - (819,926) (1,076,534) Net cash from operating activities 40 14,644,222 9,973,451 Cash flows from investing activities Payment for purchase of business Payment in respect of contingent consideration Payments for property, plant and equipment Payments for intangibles Loans to partners - loans advanced Loans to partners - proceeds from repayments Proceeds from disposal of property, plant and equipment Proceeds from release of deposits Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payments for share buy-backs Dividends paid Distributions paid to non-controlling interests Repayment of lease liabilities Proceeds from sub lease Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 38 40 40 27 40 (2,531,000) - (1,944,240) (236,438) (305,009) 2,153,985 20,000 190,888 (2,827,771) (231,418) (2,223,624) (163,702) (2,371,809) 1,000,900 167,804 65,440 (2,651,814) (6,584,180) 6,037,413 (5,761,572) (88,136) (2,398,743) (8,087,693) (2,158,946) 180,913 6,506,684 (3,201,279) (1,876) (1,956,379) (4,748,003) - - (12,276,764) (3,400,853) (284,356) 1,428,680 (11,582) 1,440,262 Cash and cash equivalents at the end of the financial year 10 1,144,324 1,428,680 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 28 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 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 21 August 2020. 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, amendments and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards, amendments or Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards, amendments and Interpretations adopted during the year are most relevant to the Group: AASB 16 Leases The Group has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 'Leases' and for lessees eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in depreciation and amortisation expense) and an interest expense on the recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results improve as the operating expense is now replaced by interest expense and depreciation in profit or loss. For classification within the statement of cash flows, the interest portion is disclosed in operating activities and the principal portion of the lease payments are separately disclosed in financing activities. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. Refer to note 4 for impact of adoption of AASB 16 Leases. AASB 2020-4 Amendment to Australian Accounting Standards - Covid-19-Related Rent Concessions The Group has early adopted the amendment to AASB 16 from 1 July 2019. The amendment provides a practical expedient for lessees to account for COVID-19-related rent concessions that: result in lease payments that are substantially the same as, or less than, the consideration for the lease immediately prior to the change; where any reduction in the lease payments affects only payments originally due on or before 30 June 2021; and where there is no substantive change to other terms and conditions of the lease. The practical expedient allows an entity not to assess rent concessions meeting the criteria as a lease modification. As a result, to the extent that lease concessions represent a forgiveness or waiver of lease payments, such concessions are treated as variable lease payments recognised in profit or loss with a corresponding adjustment to the lease liability. The Group has applied the practical expedient to all rent concessions that meet the above mentioned criteria and the profit or loss impact from the adoption is minimal. 29 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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 and financial liabilities 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 2020 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. 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. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Kelly Partners Group Holdings Limited's functional and presentation currency. 30 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Foreign currency transactions Foreign currency transactions are translated into the entity's functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability. Provision of services Revenue from a contract to provide services is recognised over time as the services are rendered based on either a fixed price or an hourly rate. Commissions and other income Commissions and other income is recognised when it is received or when the right to receive the payment is established. Government grants Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. 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. 31 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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. 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. 32 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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 allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Accrued income An accrued income asset arises where the Group has performed by transferring goods or services to a customer prior to the receipt of consideration from the customer or prior to payment becoming due and represents the Group's right to consideration for the transferred good or service. When a customer pays in advance, the amount received by the Group is recognised as a contract liability until the service has been provided to the customer. 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. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets mandatorily measured at fair value through other comprehensive income, the loss allowance is recognised in other comprehensive income with a corresponding expense through profit or loss. In all other cases, the loss allowance reduces the asset's carrying value with a corresponding expense through 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. 33 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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: Land and 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 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. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 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. 34 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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. Contract liabilities Contract liabilities represent the Group's obligation to transfer services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the services to the customer. 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 and borrowings are classified as non-current. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Variable lease payments include rent concessions in the form of rent forgiveness or a waiver as a direct consequence of COVID-19 and which relate to payments originally due on or before 30 June 2021. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Group as a lessor When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease. 35 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Leases in which the Group transfers substantially all the risks and rewards incidental to the ownership of an asset are classified as a finance lease, where the asset is recognised on the statement of financial position and presented as a lease receivable at an amount equal to the net investment in the lease. The interest rate implicit in the lease is used to measure the net investment in the lease. Initial direct costs are included in the initial measurement of the net investment in the lease. Finance costs All finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. 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. 36 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Share buy-back Where any group company purchases the Company’s equity instruments, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of Kelly Partners Group Holdings Limited as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of Kelly Partners Group Holdings Limited. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the financial year but not distributed at the reporting date. 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. 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. 37 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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 2020. 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. Conceptual Framework for Financial Reporting (Conceptual Framework) The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards. Where the Group has relied on the existing framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian Accounting Standards, the Group may need to review such policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to have a material impact on the Group's financial statements. 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. COVID-19 Judgement has been exercised in considering the impacts that COVID-19 has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavourably as at the reporting date or subsequently as a result of COVID-19. 38 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 3. Critical accounting judgements, estimates and assumptions (continued) Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on shared credit risk characteristics and on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include past default experience of the debtor profile and an assessment of the historical loss rates. Accrued income An accrued income asset arises where the Group has performed by transferring goods or services to a customer prior to the receipt of consideration from the customer and represents the Group’s right to consideration for the transferred good or service. While assessing the accrued income balance, a degree of estimation needs to be applied on its recoverability and the assessment is primarily based on the Operating Business Owner’s professional judgement on the proportionate completion of the performance obligations in comparison to the transaction price stated in the contract . 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. Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the Group's operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The Group reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the Group estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. Business combinations As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. Note 4. Impact of adoption of AASB 16 Leases AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not been restated. The impact of adoption on opening retained earnings as at 1 July 2019 was as follows: 39 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 4. Impact of adoption of AASB 16 Leases (continued) Operating lease commitments as at 30 June 2019 Discounted using the Group's incremental borrowing rate of 4.63% - 5.13% Add: finance lease liabilities recognised as at 1 July 2019 Less: short-term leases recognised on a straight-line basis as expense Add: adjustments as a result of a different treatment of extension and termination options Lease liabilities recognised at 1 July 2019 Right-of-use assets Lease receivable Lease liabilities Deferred rent liability Tax effect on the above adjustments Reduction in retained profits as at 1 July 2019 Note 5. Operating segments The Group is organised into two reportable segments: (1) Accounting and (2) Other services. 1 July 2019 $ 11,896,194 (1,636,026) 93,433 (37,445) 909,233 11,225,389 1 July 2019 $ 9,413,661 454,167 (11,225,389) 193,912 221,583 (942,066) The principal products and services of each of these operating segments are as follows: Accounting Accounting and taxation services, corporate secretarial, outsourced CFO, audits, business structuring, bookkeeping, and all other accounting related services. Financial broking services, wealth management, corporate advisory, investment office and all other non-accounting services. Other services The operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. Operating reportable segment information Year ended 30 June 2020: Revenue EBITDA Profit before income tax expense Segment assets, liabilities and net assets at 30 June 2020: Current assets Non-current assets Current liabilities Non-current liabilities Net assets 40 Accounting $ Other services $ Total $ 43,396,473 15,745,339 10,500,324 2,957,993 1,364,073 1,332,649 46,354,466 17,109,412 11,832,973 12,080,406 44,837,660 (14,157,099) (20,137,154) 22,623,812 769,833 44,544 (490,905) (23,887) 299,586 12,850,239 44,882,204 (14,648,004) (20,161,041) 22,923,398 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 5. Operating segments (continued) Year ended 30 June 2019: Revenue EBITDA Profit before income tax expense Segment assets, liabilities and net assets at 30 June 2019: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Note 6. Professional services revenue Accounting $ Other services $ Total $ 38,099,780 9,726,049 7,626,128 1,875,251 439,095 421,142 39,975,031 10,165,144 8,047,270 13,893,346 35,029,513 (11,188,084) (13,945,216) 23,789,560 562,155 17,215 (144,056) (96,688) 338,625 14,455,501 35,046,728 (11,332,140) (14,041,904) 24,128,185 Professional services revenue Timing of revenue recognition The revenue from provision of services from contracts with customers is recognised over time. Refer to note 5 for revenue by operating segments. Note 7. Other income Government grants Remeasurement of lease liabilities Change in fair value of contingent consideration Commissions Other income Other income Consolidated 2020 $ 2019 $ 46,354,466 39,975,031 Consolidated 2020 $ 2019 $ 1,075,910 557,012 - 109,238 52,180 - - 220,463 110,667 35,973 1,794,340 367,103 Government grants Of the $1,075,910 recognised in government grants relating to the Australian Governments’ supporting measures in response to COVID-19, $776,024 has been received in cash and $299,886 has been accrued relating to FY20 amounts expected to be received in FY21. 41 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 8. Expenses Profit before income tax includes the following specific expenses: Depreciation and amortisation Depreciation right-of-use of assets Depreciation property, plant and equipment Amortisation Finance costs Interest and finance charges paid/payable on lease liabilities Interest on bank overdrafts and loans Interest on unwinding retention Net loss on disposal Net loss on disposal of property, plant and equipment Leases (included in rent and utilities expense) Minimum lease payments Short-term lease payments Employment and related expenses Salaries, wages and contractors Superannuation Other on costs Employee leave Total employment and related expenses Consolidated 2020 $ 2019 $ 2,102,657 714,030 924,213 - 510,666 738,613 3,740,900 1,249,279 554,565 822,514 158,460 - 815,505 53,090 1,535,539 868,595 20,488 26,971 - 55,026 2,092,480 - 55,026 2,092,480 19,763,668 1,391,764 877,256 (270,474) 17,314,745 1,330,840 846,612 63,738 21,762,214 19,555,935 42 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 9. Income tax Income tax expense Current tax Origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 27.5% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Other non-taxable items Adjustment recognised for prior periods Distributions to non-controlling interests Change in tax rate to 27.5% Income tax expense Consolidated 2020 $ 2019 $ 1,596,483 (57,578) (65,238) 1,497,755 (634,585) 36,446 1,473,667 899,616 11,832,973 8,047,270 3,254,068 2,212,999 (226,345) (58,207) 3,027,723 (65,238) (1,488,818) - 2,154,792 36,446 (1,196,562) (95,060) 1,473,667 899,616 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. Net deferred tax liability Amounts recognised in profit or loss: Accrued expenses Income assessable on receipt Differences between accounting and tax depreciation Customer relationship intangibles Expenses deductible over five years Leases Deferred tax liability Movements: Opening balance Credited to profit or loss Additions through business combinations (note 38) Other movements Closing balance 43 Consolidated 2020 $ 2019 $ (425,655) 297,771 242,097 594,596 (212,015) (189,400) (431,982) 374,723 67,388 754,646 (352,307) - 307,394 412,468 412,468 (57,578) 223,643 (271,139) 827,427 (634,585) 235,134 (15,508) 307,394 412,468 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 9. Income tax (continued) Provision for income tax Provision for income tax Note 10. 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: Balances as above Bank overdrafts (note 21) Balance as per statement of cash flows Note 11. Trade and other receivables Current assets Trade receivables Less: Allowance for expected credit losses Other receivables Consolidated 2020 $ 2019 $ 886,105 570,187 Consolidated 2020 $ 2019 $ 3,779,132 3,955,119 3,779,132 (2,634,808) 3,955,119 (2,526,439) 1,144,324 1,428,680 Consolidated 2020 $ 2019 $ 5,738,538 (253,954) 5,484,584 6,424,827 (339,956) 6,084,871 298,188 14,267 5,782,772 6,099,138 Allowance for expected credit losses The Group has written off a loss of $60,059 (2019: $79,282) in respect of credit losses during the year ended 30 June 2020. The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue Expected credit loss rate 2020 % 2019 % Carrying amount 2019 $ 2020 $ Allowance for expected credit losses 2020 $ 2019 $ 0.88% 6.17% 43.09% 1.17% 5.59% 42.50% 4,939,036 362,767 436,735 4,945,247 939,921 539,659 43,398 22,376 188,180 58,037 52,552 229,367 5,738,538 6,424,827 253,954 339,956 44 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 11. Trade and other receivables (continued) The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward- looking information that is available. As at 30 June 2020 the historic roll rates, including those roll rates through the COVID- 19 pandemic period, do not indicate a slow down in collections. Furthermore management are not aware of forward looking information which indicates or identifies a slow down in collection rates in its 30 June 2020 trade receivables balance and as such, the calculation of expected credit loss is based on the historic roll rates without further adjustments. Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Reductions in provisions recognised Receivables written off during the year as uncollectable Closing balance Note 12. Lease receivables Current assets Lease receivables Non-current assets Lease receivables Note 13. Accrued income Current assets Accrued income Note 14. Other financial assets Current assets Loans to partners Non-current assets Loans to partners 45 Consolidated 2020 $ 2019 $ 339,956 - (25,943) (60,059) 261,958 157,280 - (79,282) 253,954 339,956 Consolidated 2020 $ 2019 $ 92,956 180,298 273,254 - - - Consolidated 2020 $ 2019 $ 1,656,656 2,009,017 Consolidated 2020 $ 2019 $ 903,610 1,704,255 2,865,078 3,212,503 3,768,688 4,916,758 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 14. Other financial assets (continued) Loans to partners primarily represents amounts of money which have first been borrowed on the balance sheet of various controlled entities, and then secondly on lent to partners to assist them with their purchase of equity into that entity. This results in the controlled entity having both a financial liability to the financier, and a corresponding financial asset to the partner. These loans are typically repaid over a four to eight year period. As the loans are repaid by the partners and the financial asset amortises, there is a corresponding amortisation in the financial liability. Repayment of these loans is typically from partner equity distributions. Note 15. Other assets Current assets Prepayments Non-current assets Deposits Consolidated 2020 $ 2019 $ 635,113 687,972 442,117 633,005 1,077,230 1,320,977 Deposits primarily comprise of amounts used as security for bank guarantees. Refer to note 34 for further information on guarantees. Note 16. Financial assets Non-current assets Shares in listed entities - at fair value Note 17. Property, plant and equipment Non-current assets Land and 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 46 Consolidated 2020 $ 2019 $ 11,637 15,481 Consolidated 2020 $ 2019 $ 2,085,413 625,825 3,172,594 (1,274,334) 1,898,260 3,127,492 (960,322) 2,167,170 2,133,789 (1,326,961) 806,828 1,879,397 (1,074,484) 804,913 624,503 (226,952) 397,551 581,842 (221,908) 359,934 5,188,052 3,957,842 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 17. 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 2018 Additions Disposals - written down value Depreciation expense Balance at 30 June 2019 Additions Disposals - written down value Other movements Depreciation expense Land and buildings $ Leasehold improve- ments $ Plant and equipment $ Motor vehicles $ 625,825 - - - 625,825 1,459,588 - - - 751,237 1,646,533 (5,893) (224,707) 2,167,170 98,974 (11,554) (1,000) (355,330) 626,061 409,486 (10,072) (220,562) 804,913 333,523 (43,852) 702 (288,458) 436,536 167,605 (178,810) (65,397) 359,934 141,546 (37,345) 3,658 (70,242) Total $ 2,439,659 2,223,624 (194,775) (510,666) 3,957,842 2,033,631 (92,751) 3,360 (714,030) Balance at 30 June 2020 2,085,413 1,898,260 806,828 397,551 5,188,052 Note 18. Right-of-use assets Non-current assets Land and buildings - right-of-use assets Less: Accumulated depreciation Plant and equipment - right-of-use Less: Accumulated depreciation Consolidated 2020 $ 2019 $ 13,432,769 (7,597,420) 5,835,349 174,247 (114,146) 60,101 5,895,450 - - - - - - - The Group leases land and buildings for its offices under agreements of between 1 to 7 years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. The Group also leases office equipment under agreements of between 2 to 5 years. Reconciliations Reconciliations of the written down values at the beginning and end of the current financial year are set out below: 47 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 18. Right-of-use assets (continued) Balance at 1 July 2019 Recognised on adoption of AASB 16 Additions through business combinations (note 38) Disposals Adjustments as a result of a different treatment of extension and termination options Depreciation expense Note 19. Intangible assets Non-current assets Goodwill - at cost Brand names and intellectual property - at cost Customer relationships - at cost Less: Accumulated amortisation Computer software - at cost Less: Accumulated amortisation Land and buildings $ Plant and equipment $ Total $ - 9,325,329 587,611 (114,884) - 88,332 8,623 - - 9,413,661 596,234 (114,884) (1,896,904) (2,065,803) - (36,854) (1,896,904) (2,102,657) 5,835,349 60,101 5,895,450 Consolidated 2020 $ 2019 $ 22,438,348 20,211,955 3,300,000 3,300,000 9,359,097 (4,916,586) 4,442,511 7,605,813 (4,053,672) 3,552,141 221,986 (103,273) 118,713 218,771 (54,970) 163,801 30,299,572 27,227,897 48 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 19. 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 Balance at 1 July 2018 Additions Additions through business combinations (note 38) Disposals Amortisation expense Balance at 30 June 2019 Additions Additions through business combinations (note 38) Disposals Amortisation expense Brand names and intellectual property $ Goodwill $ Customer relationships $ Computer Software $ Total $ 17,847,638 - 3,300,000 - 2,651,958 35,750 77,261 130,249 23,876,857 165,999 2,364,317 - - - - - 1,561,634 - (697,201) - (2,297) (41,412) 3,925,951 (2,297) (738,613) 20,211,955 - 3,300,000 - 3,552,141 344,198 163,801 21,144 27,227,897 365,342 2,226,393 - - - - - 1,409,086 - (862,914) - (4,933) (61,299) 3,635,479 (4,933) (924,213) Balance at 30 June 2020 22,438,348 3,300,000 4,442,511 118,713 30,299,572 Brand names and intellectual property have indefinite useful lives and are not amortised. Impairment testing In disclosing the carrying amount of goodwill allocated to each cash-generating units ('CGU'), a materially threshold of 10% of the total value of goodwill was used. Any individual CGU with a carrying amount of goodwill under the threshold is grouped in the "Other partnerships" category. The aggregate carrying amount of goodwill allocated to each CGU is: 2020 - Consolidated Kelly Partners (Sydney) Pty Ltd Kelly Partners South West Sydney Partnership Kelly Partners Wollongong Partnership Other partnerships Brand names and intellectual property $ Total $ 520,354 771,621 498,815 1,509,210 4,058,501 6,018,257 3,890,507 11,771,083 Goodwill $ 3,538,147 5,246,636 3,391,692 10,261,873 22,438,348 3,300,000 25,738,348 49 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 19. Intangible assets (continued) 2019 - Consolidated Kelly Partners (Sydney) Pty Ltd Kelly Partners South West Sydney Partnership Kelly Partners Wollongong Partnership Other partnerships Brand names and intellectual property $ Total $ Goodwill $ 3,538,147 5,246,636 3,391,692 8,035,480 577,672 856,617 553,761 1,311,950 4,115,819 6,103,253 3,945,453 9,347,430 20,211,955 3,300,000 23,511,955 The recoverable amount of each CGU 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 reasonable possible change in any of the key assumptions used would cause the carrying value of the unit to materially exceed its recoverable amount. The following assumptions were used in the calculations: Terminal growth rate Post-tax discount rate Consolidated 2020 % 2019 % 2.5% 11.3% 2.5% 16.5% The post-tax discount rate is calculated using the Weighted Average Cost of Capital (WACC) of the Group, taking into account the Group's sources of capital including listed equity, unlisted equity and bank debt. Note 20. Trade and other payables Current liabilities Trade payables GST payable Sundry payables and accrued expenses Refer to note 31 for further information on financial instruments. Consolidated 2020 $ 2019 $ 479,951 914,711 918,095 352,791 838,331 1,038,716 2,312,757 2,229,838 50 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 21. Borrowings Current liabilities Bank overdrafts Bank loans Non-current liabilities Bank loans Consolidated 2020 $ 2019 $ 2,634,808 3,656,427 2,526,439 3,348,106 6,291,235 5,874,545 12,720,608 12,753,088 19,011,843 18,627,633 Refer to note 31 for further information on financial instruments. Controlled entities' facilities The Group has banking facilities in place with Westpac for all of its operating businesses. The facilities consist of overdraft facilities, term loans, bank guarantees and other ancillary facilities. In June 2020, the Group’s financier approved working capital facility increases in aggregate of $4,179,000 across the operating businesses. The Group requested the facility increases out of an abundance of caution to provide additional lines of liquidity in response to the COVID-19 related slow down to the economy. The additional facilities are in place for 12 months. As part of the approved facilities there were no changes to the Group’s financial covenants or existing amortisation arrangements which continue to be met. The Group considers the additional working capital lines to be both precautionary and prudent. The Group has not taken up any of the banks, COVID-19 Customer Support packages or deferral of interest payments. As at the date of this report, these additional working capital lines have not been utilised. In the prior year ended 30 June 2019, the Group commenced restructuring its debt facilities with Westpac. As at 30 June 2020, all subsidiaries had entered into the new facility structure. The facilities provide the Group with consistent terms and conditions, consistent reporting and undertaking requirements, consistent risk margins and a consistent security structure across its subsidiaries. Each subsidiaries debt facilities is granted security by that entity, the corporate partners of that entity, limited personal guarantees of the operating business owners, and a guarantee provided by the parent over all existing and future assets and undertakings. Subsidiaries also have bilateral arrangements in place with Westpac and other financiers for other facilities including credit cards, equipment finance, and bank guarantees. These facilities and their securities are permitted under the Westpac arrangements. Parent entity facilities As at 30 June 2020, the parent has a $2,000,000 revolving line of term credit, as well as a $894,976 term amortising loan. The debt facilities are granted security over the parent entity, as well as the guarantor group which comprises Kelly Partners Group Holdings Limited and the majority of its wholly owned subsidiaries. The guarantor group does not include the local owner-driven operating partnerships. The parent entity also has bilateral arrangements in place with Westpac and other financiers for ancillary facilities including credit cards, equipment finance, and bank guarantees. These facilities and their securities are permitted under the Westpac arrangements. Covenants The Group’s financier have financial covenants in place, which may act to limit the total indebtedness of the Group under certain circumstances, such as if there were a significant drop in earnings. As at balance date, the Group is in compliance with its financial covenants. 51 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 21. Borrowings (continued) Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank overdraft Bank loans Used at the reporting date Bank overdraft Bank loans Unused at the reporting date Bank overdraft Bank loans Note 22. Lease liabilities Current liabilities Lease liabilities Non-current liabilities Lease liabilities Consolidated 2020 $ 2019 $ 10,559,000 17,198,702 27,757,702 4,224,506 17,759,989 21,984,495 2,634,808 16,377,035 19,011,843 2,526,439 16,101,194 18,627,633 7,924,192 821,667 8,745,859 1,698,067 1,658,795 3,356,862 Consolidated 2020 $ 2019 $ 1,742,850 5,351,024 7,093,874 - - - Refer to note 31 for further information on financial instruments. Contractual maturities of lease liabilities at 30 June 2020 is set below: Consolidated Lease liabilities 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ 1,742,850 1,301,710 2,924,862 1,124,452 7,093,874 52 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 23. Provisions Current liabilities Employee entitlements Dividends Lease make good Non-current liabilities Employee entitlements Note 24. Contingent consideration Current liabilities Contingent consideration Non-current liabilities Contingent consideration Consolidated 2020 $ 2019 $ 1,453,135 549,340 200,000 1,480,562 500,445 - 2,202,475 1,981,007 237,313 285,385 2,439,788 2,266,392 Consolidated 2020 $ 2019 $ 637,256 - 808,544 544,719 1,445,800 544,719 Contingent consideration relates to the fair value of the contingent component of the purchase price of the acquisitions completed in the current and prior period(s). A reconciliation of the movement in contingent consideration for the financial year is set out below: Opening balance Recognition on acquisition Change in fair value of contingent consideration Settled in cash Unwinding of interest over contingent period Consolidated 2020 $ 2019 $ 544,719 742,621 - - 158,460 231,418 716,513 (220,463) (231,418) 48,669 1,445,800 544,719 53 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 25. Other financial liabilities Current liabilities Loans from partners Non-current liabilities Loans from partners Refer to note 14 for details on loans to and from partners. Note 26. Other liabilities Current liabilities Deferred rent Non-current liabilities Deposits held Note 27. Issued capital Consolidated 2020 $ 2019 $ 10,992 689,914 700,906 - - - Consolidated 2020 $ 2019 $ - 193,991 46,244 46,244 46,244 240,235 Ordinary shares - fully paid 45,400,000 45,495,000 14,081,465 14,169,601 Movements in ordinary share capital Consolidated 2020 Shares 2019 Shares 2020 $ 2019 $ Details Balance Share buy-back Balance Share buy-back Share buy-back Share buy-back Share buy-back Share buy-back Share buy-back Share buy-back Share buy-back Balance Date Shares Issue price $ 1 July 2018 14 May 2019 45,497,181 (2,181) $0.860 14,171,477 (1,876) 30 June 2019 01 July 2019 20 August 2019 27 August 2019 28 August 2019 29 August 2019 30 August 2019 21 October 2019 22 October 2019 45,495,000 (4,353) (40,647) (1,000) (1,000) (1,000) (14,191) (25,745) (7,064) 30 June 2020 45,400,000 $0.830 $0.900 $0.930 $0.880 $0.880 $0.930 $0.970 $1.010 14,169,601 (3,613) (36,582) (930) (879) (880) (13,158) (24,960) (7,134) 14,081,465 54 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 27. Issued capital (continued) Ordinary shares Ordinary shares entitle the holder to participate in any dividends and any proceeds attributable to shareholders should the company be wound up, in proportions that consider both the number of shares held and the extent to which those shares are paid up. 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 On 9 September 2019, the Company announced a new share buy-back of up to 10% of the minimum number of Company's shares outstanding in the last 12 months (being a buy-back of up to 4,543,280 shares at 9 September 2019) less shares bought back in the buy-back closed on 2 September 2019 (being 64,372 shares), therefore a total of 4,478,908 shares. During the financial year ended 30 June 2020, the Company purchased and cancelled 32,809 shares. At 30 June 2020, 4,446,099 shares are authorised for on-market buy-back. On 17 April 2019, the Company announced a share buy-back of up to 10% of the minimum number of Company's shares outstanding in the last 12 months (being a buy-back of up to 4,549,718 shares at 17 April 2019). The Company announced the closure of this share buy-back on 2 September 2019. The Company purchased and cancelled a total of 64,372 shares during the period 17 April 2019 to 2 September 2019 including 62,191 during the financial year ended 30 June 2020. Capital risk management Management controls the capital of the Group in order to maintain acceptable debt to equity and debt to EBITDA ratios, 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 capital includes ordinary share capital and financial liabilities. There are no externally imposed capital requirements other than the financial covenants outlined in note 21. 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. Note 28. Earnings per share Profit after income tax Non-controlling interest Consolidated 2020 $ 2019 $ 10,359,306 (6,344,797) 7,147,654 (4,711,959) Profit after income tax attributable to the owners of Kelly Partners Group Holdings Limited 4,014,509 2,435,695 Weighted average number of ordinary shares used in calculating basic earnings per share 45,418,414 45,496,894 Weighted average number of ordinary shares used in calculating diluted earnings per share 45,418,414 45,496,894 Number Number Basic earnings per share Diluted earnings per share Cents Cents 8.84 8.84 5.35 5.35 55 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 29. Reserve Foreign currency reserve Consolidated 2020 $ 2019 $ 1,514 808 Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. Movements in reserve Movements in reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2018 Foreign currency translation Less: share of non-controlling interest Balance at 30 June 2019 Foreign currency translation Less: share of non-controlling interest Balance at 30 June 2020 Note 30. Dividends Amounts recognised as dividends: For the year ended 30 June 2020: Special dividend of $0.0055 per ordinary share, paid on 18 September 2019 First interim dividend of $0.0121 per ordinary share, paid on 30 September 2019 Second interim dividend of $0.0121 per ordinary share, paid on 2 January 2020 Third interim dividend of $0.0121 per ordinary share, paid on 2 April 2020 Final dividend of $0.0121 per ordinary share, paid on 2 July 2020 For the year ended 30 June 2019: First interim dividend of $0.011 per ordinary share, paid on 30 October 2018 Second interim dividend of $0.011 per ordinary share, paid on 31 December 2018 Third interim dividend of $0.011 per ordinary share, paid on 29 March 2019 Final dividend of $0.011 per ordinary share, paid on 1 July 2019 For the year ended 30 June 2018: Final dividend of $0.01 per ordinary share, paid on 12 July 2018 Foreign currency $ - 1,585 (777) 808 1,440 (734) 1,514 Consolidated 2020 $ 2019 $ 249,881 549,737 549,340 549,340 549,340 2,447,638 - - - - - - - - - - - - 500,469 500,469 500,469 500,445 2,001,852 454,972 2,447,638 2,456,824 On 2 July 2020, the Company paid the final dividend for the year ended 30 June 2020 of $0.0121 per ordinary share. This dividend equates to a distribution of $549,340, based on the number of ordinary shares on issue as at 30 June 2020. The dividend was declared before the reporting date and is reflected in the 30 June 2020 financial statements. 56 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 30. Dividends (continued) Franking credits Consolidated 2020 $ 2019 $ Franking credits available for subsequent financial years 2,293,566 1,678,058 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 market risk in relation to the prices it charges for the provision of professional services. 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 on the net result for the year and equity to a reasonably possible change in interest rates of +1% and -1% (2019: +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. 57 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 31. Financial instruments (continued) Borrowings Bank overdrafts Bank loans Weighted average interest rate % 2020 +1% $ Weighted average interest rate % -1% $ 2019 +1% $ -1% $ 4.16% 4.27% (26,348) (163,770) 26,348 163,770 5.07% 4.73% (25,264) (161,012) 25,264 161,012 Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward- looking information that is available. As at 30 June 2020 the historic roll rates, including those roll rates through the COVID- 19 pandemic period, do not indicate a slow down in collections. Furthermore management are not aware of forward looking information which indicates or identifies a slow down in collection rates in its 30 June 2020 trade receivables balance and as such, the calculation of expected credit loss is based on the historic roll rates without further adjustments. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan and no active enforcement activity. 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 and available facilities to meet its liquidity requirements for up to a minimum 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: 58 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 31. Financial instruments (continued) Consolidated - 2020 Non-derivatives Non-interest bearing Trade payables Other payables Contract liabilities Contingent consideration Interest-bearing Bank overdrafts Bank loans* Lease liabilities 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 $ - - - - 479,951 1,832,806 564,334 637,256 - - - 789,532 - - - 19,012 - - - - 479,951 1,832,806 564,334 1,445,800 4.16% 4.27% 5.05% 2,634,808 3,656,427 1,742,850 11,548,432 - 7,262,412 1,301,710 9,353,654 - 5,458,196 2,924,862 8,402,070 - - 1,124,452 1,124,452 2,634,808 16,377,035 7,093,874 30,428,608 Lease liabilities of $1,742,850 includes $1,083,770 payable within 6 months. * As at 30 June 2020, bank loans of $3,568,388 represents the current portion of long term debt which is being repaid under scheduled amortisation repayments, and is not expected to be refinanced or face refinance risk. Consolidated - 2019 Non-derivatives Non-interest bearing Trade payables Other payables Contract liabilities Contingent consideration Interest-bearing Bank overdraft 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 $ - - - - 352,791 1,877,047 482,572 - - - - 544,719 - - - - 5.07% 4.73% 2,526,439 3,348,106 8,586,955 - 6,295,308 6,840,027 - 6,457,780 6,457,780 - - - - - - - 352,791 1,877,047 482,572 544,719 2,526,439 16,101,194 21,884,762 * As at 30 June 2019, bank loans of $3,348,106 represents the current portion of long term debt which is being repaid under scheduled amortisation repayments, and is not expected to be refinanced or face refinance risk. 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. 59 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 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 Consolidated 2020 $ 2019 $ 490,486 26,208 4,873 895,142 46,268 1,205 521,567 942,615 Other key management personnel transactions For details of other transactions with key management personnel, refer to note 36. Note 33. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by William Buck Accountants & Advisors, the auditor of the Company, and unrelated firms: Consolidated 2020 $ 2019 $ Audit services - William Buck Accountants & Advisors (2019: Deloitte Touche Tohmatsu) Audit or review of the financial statements 53,800 147,000 Other services - William Buck Accountants & Advisors (2019: Deloitte Touche Tohmatsu) Other services Audit services - unrelated firms (Deloitte Touche Tohmatsu) Audit or review of the financial statements Note 34. Contingent liabilities 7,900 7,000 61,700 154,000 60,587 - Bank guarantees totalling $806,339 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. Guarantees have been provided in relation to the banking facilities of the operating businesses by the parent entity. These guarantees will only be payable in specific circumstances, such as when the operating business is unable to meet its repayment obligations. Contingent considerations in respect of acquisitions are carried on balance sheet and are not classified as contingent liabilities by the management. Except as noted above, in the opinion of the directors, the Group did not have any contingencies at 30 June 2020 (30 June 2019: $766,000). 60 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 35. Commitments Short-term lease commitments Committed at the reporting date but not recognised as liabilities, payable: Within one year Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Land and buildings Capital commitments in FY2019 relate to two property purchases made in FY2020. 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. Consolidated 2020 $ 2019 $ 8,845 - - 1,332,745 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. On 18 March 2020, the Board of Directors resolved and approved the sale of the Group's 51 units (representing 51%) in the Kelly Partners (Inner West) Property Trust ('KP(IW)PT') for consideration of $1.00 (actual) to an associated entity of Brett Kelly and David Irwin, the Operating Partner in the Kelly Partners Inner West Partnership. At the time of sale, the net assets of KP(IW)PT were $nil, the transaction was completed on arms length terms and the Group made a gain on sale of $1.00. On 28 June 2019, the Bathurst Property was leased to Kelly Partners (Central Tablelands) Pty Ltd under a short term lease. The Board of Directors approved the related party lease noting that the lease was on market terms and was short term in nature. The lease was terminated when settlement on the Bathurst Property occurred on 13 August 2019. On 27 June 2019, the Board of Directors resolved and approved the purchase of 89 William Street, Bathurst NSW ('the Bathurst Property'), by the Kelly Partners (Central Tablelands) Property Trust, from an associated entity of Brett Kelly and Anna Lewis, the Operating Business Owner in the Kelly Partners Blue Mountains and Tablelands Partnership. The purchase price was $599,000 and settlement occurred on 13 August 2019. The transaction was completed at market value and there was no gain on sale made by the associated entity of Brett Kelly. 61 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 36. Related party transactions (continued) Loans (to)/from related parties Key management personnel Loans to directors: Balance at the beginning of the year - loans advanced - interest on loans - repayment of loans advanced Balance at the end of the year 2020 $ 2019 $ - 333,623 11,220 (326,700) 18,143 - - - - - On 18 March 2020, the Board of Directors resolved and approved the advancing of a short term loan facility between the Group and an associated entity of Brett Kelly and David Irwin, the Operating Partner in the Kelly Partners Inner West Partnership, to assist with the purchase of 766 Darling St, Rozelle ('the Rozelle Property'). The facility is unsecured, repayable on demand and interest is charged at commercial rates. As at 30 June 2020, there was $18,143 owing on this facility. The KW(IW)PT business operates out of the Rozelle Property. As at 30 June 2020, the operating business continues under the lease which was in place prior to the sale and purchase of the Rozelle Property. Partners Loans (to)/from partners are set out in note 14 and note 25. Direct interest in subsidiaries The following related parties hold a direct interest in the respective subsidiary of the Group: Related party Paul Kuchta Ada Poon Subsidiary 2020 2019 Interest held Interest held Kelly Partners Norwest Partnership Kelly Partners North Sydney Partnership 25.50% 10.00% 25.50% 12.25% 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 after income tax Total comprehensive income 2020 $ 2019 $ 3,537,134 2,265,359 3,537,134 2,265,359 62 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 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 Total equity 2020 $ 2019 $ 6,752,174 5,297,300 25,154,690 24,283,099 1,832,525 3,604,531 7,002,102 8,963,742 18,152,588 15,319,357 14,081,465 4,071,123 14,169,601 1,149,756 18,152,588 15,319,357 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries In the financial year ended 30 June 2019, the Group commenced restructuring its debt facilities with Westpac. The facility restructure was completed in November 2019. The facility restructure provides the Group with consistent and improved terms and conditions, consistent and reduced reporting and undertaking requirements, consistent risk margins and a consistent security structure across its subsidiaries. Each subsidiary's debt facilities are granted security by that entity, the corporate partners of that entity, limited personal guarantees of the operating business owners, and a guarantee provided by the parent over all existing and future assets and undertakings. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 and 30 June 2019. 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 Acquisitions during the year ended 30 June 2020 Kelly Partners Melbourne CBD On 1 November 2019, Kelly Partners (Melbourne CBD) Pty Ltd acquired an accounting business in Melbourne, VIC. The acquired business contributed revenues of $1,636,214 and net profit before tax of $60,962 to the Group for the period from 1 November 2019 to 30 June 2020. The profit includes one off transaction and implementation costs. The business continues to be integrated in to the Kelly Partners group and management expect the business to be profitable on a full 12 month basis. 63 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 38. Business combinations (continued) Details of the acquisition are as follows: Customer relationships Deferred tax liabilities Employee benefits Provisions Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash to vendor Contingent consideration Fair value $ 771,176 (113,841) (143,953) (67,500) 445,882 1,741,460 2,187,342 1,811,733 375,610 2,187,343 Kelly Partners Blue Mountains & Central Tablelands On 1 November 2019, Kelly Partners (Blue Mountains & Central Tablelands) Pty Ltd acquired an accounting business in Glenbrook, NSW. The acquired business contributed revenues of $657,370 and net profit before tax of $65,976 to the Group for the period from 1 November 2019 to 30 June 2020. The profit includes one off transaction and implementation costs. The business continues to be integrated in to the Kelly Partners group and management expect the business to be profitable on a full 12 month basis. Details of the acquisition are as follows: Right-of-use assets Customer relationships Deferred tax liabilities Employee benefits Lease liabilities Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid to vendor Contingent consideration 64 Fair value $ 596,234 637,910 (109,802) (50,733) (596,234) 477,375 484,933 962,308 719,267 243,041 962,308 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 38. Business combinations (continued) Acquisitions during the year ended 30 June 2019 Kelly Partners North Sydney On 1 September 2018, Kelly Partners (North Sydney) Pty Ltd acquired an accounting business in North Sydney, NSW. The acquired business contributed revenues of $965,688 and profit before tax of $123,080 to the Group for the period from 1 September 2018 to 30 June 2019. Customer relationships Deferred tax liabilities Employee benefits Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid to vendor Contingent consideration Fair value $ 835,023 (117,112) (30,277) 687,634 822,551 1,510,185 1,289,722 220,463 1,510,185 Kelly Partners Inner West On 4 September 2018, Kelly Partners (Inner West) Pty Ltd acquired an accounting business in Rozelle, NSW. The acquired business contributed revenues of $879,493 and profit before tax of $120,764 to the Group for the period from 4 September 2018 to 30 June 2019. Details of the acquisition are as follows: Customer relationships Deferred tax liabilities Employee benefits Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid to vendor Contingent consideration 65 Fair value $ 437,958 (66,812) (61,424) 309,722 788,065 1,097,787 825,147 272,640 1,097,787 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 38. Business combinations (continued) Kelly Partners Northern Beaches On 3 December 2018, Kelly Partners (Northern Beaches) Pty Ltd acquired an accounting business in Warriewood, NSW. The acquired business contributed revenues of $502,857 and profit before tax of $42,609 to the Group for the period from 3 December 2018 to 30 June 2019. Details of the acquisition are as follows: Customer relationships Deferred tax liabilities Employee benefits Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid to vendor Contingent consideration Fair value $ 130,947 (43,591) (18,365) 68,991 607,359 676,350 488,409 187,941 676,350 Kelly Partners Oran Park On 1 February 2019, Kelly Partners (Oran Park) Pty Ltd acquired an accounting business in South West Sydney, NSW. The acquired business contributed revenues of $158,758 and a net loss before tax of $16,076 to the Group for the period from 1 February 2019 to 30 June 2019. Details of the acquisition are as follows: Customer relationships Deferred tax liabilities Employee benefits Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid to vendor Contingent consideration 66 Fair value $ 157,706 (7,619) (36,467) 113,620 146,342 259,962 224,493 35,469 259,962 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 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 Country on incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia KP GH NS Pty Ltd Kelly Partners North Sydney Partnership KP GH CC Pty Ltd Kelly Partners Central Coast Partnership KP GH WS Pty Ltd Kelly Partners (Western Sydney) Partnership KP GH SWS Pty Ltd Kelly Partners South West Sydney Partnership Kelly Partners Management Services Pty Ltd Kelly Partners Services Trust KP GH NW Pty Ltd Kelly Partners Norwest Partnership KP GH TC Pty Ltd Kelly Partners Tax Consulting Partnership Kelly Partners (Strategy Consulting) Pty Ltd KP GH BMCT Pty Ltd (formerly KP GH CT Pty Ltd) Kelly Partners Blue Mountains & Central Tablelands Partnership (formerly Kelly Partners Central Tablelands Partnership) KP GH WO Pty Ltd Kelly Partners Wollongong Partnership KP GH NB Pty Ltd Kelly Partners Northern Beaches Partnership KP GH SH Pty Ltd Kelly Partners Southern Highlands Partnership Kelly Partners (South West Sydney) Trust Kelly Partners Oran Park Partnership Super Certain Pty Ltd Kelly Partners Management Services (Hong Kong) Limited KP GH FIN Pty Ltd KP GH WM Pty Ltd KP GH HK Pty Ltd Kelly Partners Finance Partnership Kelly Partners Private Wealth Sydney Partnership (formerly Kelly Partners Wealth Management Partnership) Kelly Partners Marketing Advisory Pty Ltd Australia (deregistered) Australia Kelly Partners Property Group Holdings Pty Ltd Australia Kelly Property Group Pty Ltd Australia Kelly Partners (Central Coast) Property Trust Australia KP GH SYD CBD Pty Ltd Australia Kelly Partners (Sydney) Pty Ltd Australia KP GH IW Pty Ltd Australia Kelly Partners Inner West Partnership Australia Kelly Partners (Tax Legal) Pty Ltd Kelly Partners (Sydney) Audit Partnership Australia Kelly Partners Private Wealth Group Holdings Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Hong Kong Australia Australia Australia Australia 67 Ownership interest 2019 2020 % % 100.00% 58.25% 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% 68.00% 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% 68.00% 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% 51.00% 100.00% 100.00% 51.00% 100.00% 50.05% 100.00% 51.00% 51.00% 50.04% 100.00% 51.00% 100.00% 100.00% 51.00% 100.00% 50.05% 100.00% 51.00% 51.00% 50.04% 100.00% Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 39. Interests in subsidiaries (continued) Name Country on incorporation Australia Australia Australia New Zealand New Zealand Australia Australia KP GH MCBD Pty Ltd (formerly KP GH WM MCBD Pty Ltd) Kelly Partners Private Wealth Melbourne Partnership (did not commence operation) KP GH CA Pty Ltd Kelly Partners Corporate Advisory Partnership KP GH NZ Pty Ltd Kelly Partners New Zealand Partnership KP GH GII Pty Ltd (deregistered) Kelly Partners Government, Incentives & Innovation Partnership (dissolved) 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 Kelly Partners (Melbourne CBD) Pty Ltd (formerly Australia Kelly Partners Private Wealth (Melbourne) Pty Ltd) Kelly Partners Private Wealth (International) Pty Ltd Australia Australia Kelly Partners (Estate Office) Pty Ltd KP GH ES Pty Ltd Australia Kelly Partners Private Wealth Wholesale Partnership Australia Australia Australia Australia Australia Australia Australia Australia Australia Ownership interest 2019 2020 % % 100.00% 100.00% - 100.00% 51.00% 100.00% 51.00% - - 100.00% 75.50% 100.00% 100.00% 100.00% 100.00% 51.00% 100.00% 100.00% 100.00% 100.00% 51.00% 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% 100.00% 100.00% 100.00% 100.00% - 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 2020 $ 2019 $ 22,005,678 6,344,797 8,087,693 6,100,394 12,230,579 (2,606,778) (6,036,802) 9,687,393 18,745,766 4,711,959 4,748,003 4,472,327 15,320,414 (1,878,047) (6,322,736) 11,591,958 (c) Consequences of changes in a parent's ownership in a subsidiary that do not result in a loss of control There were no material 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. 68 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 40. Cash flow information Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year 10,359,306 7,147,654 Consolidated 2020 $ 2019 $ Adjustments for: Depreciation and amortisation Loss on disposals Net fair value gain on other financial assets Change in fair value of contingent consideration Repayments of lease liabilities Unwinding of interest on contingent consideration Other non-cash movements Change in operating assets and liabilities: Decrease in trade and other receivables Increase in deferred tax assets Increase in trade and other payables Increase in provision for income tax Net cash from operating activities Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2018 Proceeds from borrowings Repayment of borrowings Balance at 30 June 2019 Net cash used in financing activities Proceeds from borrowings Repayment of borrowings Leases recognised on the adoption of AASB 16 Acquisition of leases Adjustments as a result of a different treatment of extension and termination options 3,740,900 - - - (1,978,034) 158,460 785,190 1,249,279 26,971 (701) (220,463) - 48,669 - 803,348 (105,074) 564,208 315,918 1,772,387 (650,093) 126,573 473,175 14,644,222 9,973,451 Bank loans $ Lease liabilities $ Total $ 12,795,789 6,506,684 (3,201,279) 16,101,194 - 6,037,413 (5,761,572) - - - - - 12,795,789 6,506,684 (3,201,279) - (2,158,946) - - 11,225,389 596,234 16,101,194 (2,158,946) 6,037,413 (5,761,572) 11,225,389 596,234 - (2,568,803) (2,568,803) Balance at 30 June 2020 16,377,035 7,093,874 23,470,909 69 Kelly Partners Group Holdings Limited Notes to the consolidated financial statements 30 June 2020 Note 41. Events after the reporting period On 1 July 2020, Kelly Partners (Inner West) Pty Ltd acquired a fee base in the Inner West with an estimate annual recurring fee of $127,000. The transaction is expected to contribute to the growth of the Kelly Partners (Inner West) business. The Group continues to monitor the impact of COVID-19 on its operating businesses. Despite the challenges from COVID- 19, KPG remains well positioned to execute its long term growth strategy and deliver shareholder wealth. Apart from the matters discussed above and dividend declared as disclosed in note 30, no other matter or circumstance has arisen since 30 June 2020 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. 70 Kelly Partners Group Holdings Limited Directors' declaration 30 June 2020 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 2020 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 and Chief Executive Officer 21 August 2020 Sydney 71 Kelly Partners Group Holdings Limited Independent auditor’s report to members Report on the Audit of the Financial Report Opinion We have audited the financial report of Kelly Partners Group Holdings Limited (the Company and its subsidiaries [the Group]), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of comprehensive income, the consolidated 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 other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (ii) Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including independence standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 72 ACCOUNTANTS & ADVISORSSydney Office Level 29, 66 Goulburn Street Sydney NSW 2000Parramatta Office Level 7, 3 Horwood Place Parramatta NSW 2150Telephone: +61 2 8263 4000williambuck.comWilliam Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation.(WB013_2007)KEY AUDIT MATTER Recovery of Goodwill and Intangible Assets Refer also to note 19 How our audit addressed it The Group has $30,299,572 of intangible assets including: — Goodwill of $22,438,348 — Brand names and intellectual property of $3,300,000 — Customer relationships of $4,442,511 — Computer software of $118,713 The Group has assessed that the customer relationships and computer software have finite lives and are amortising these assets over their useful lives. The other intangible assets have indefinite lives. The carrying values of the identifiable intangible assets are contingent on future cash flows and there is a risk that, if these cash flows do not meet the Group’s expectations, the assets might be impaired. These recoverable amounts use cash flow forecasts in which the Directors make judgements over certain key inputs, for example, but not limited to, revenue growth, discount rates applied, long term growth rates and inflation rates. We have performed procedures to respond to the risk of misstatement of Goodwill and Intangible Assets, these procedures included: — Assessing the Group’s determination of finite and indefinite lives of intangible assets; — Evaluating the Group’s budgeting procedures (upon which the forecasts are based); — Assessing the principles and integrity of the cash flow models; — Consulting our own valuation specialists when considering the appropriateness of the discount rates and the long-term growth rates; — Testing the sensitivity of the value in use calculations to variations in the underlying assumptions; — Reviewing the historical accuracy by comparing actual results with the original forecasts; and — Assessing the amortisation rates used for customer relationships and computer software as well as testing the corresponding charges made in the year. We have also assessed the adequacy of the Group’s disclosures in respect of the intangible assets. Other Information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2020 but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. 73 In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has 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. A further description of our responsibilities for the audit of these financial statements is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our independent auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 15 to 20 of the directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Kelly Partners Group Holdings Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. 74 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. William Buck Accountants & Advisors ABN: 16 021 300 521 L.E. Tutt Partner Sydney, 21 August 2020 75 Kelly Partners Group Holdings Limited Shareholder information 30 June 2020 The shareholder information set out below was applicable as at 22 July 2020. 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 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 Sandhurst Trustees Ltd Kalumic Pty Ltd BNP Paribas Nominees Pty Ltd IB AU Noms Retail Client DRP Eric Golf Pty Ltd Gildale Super Fund Pty Ltd David Bullock + Kay Bullock + Anthony Bullock BNP Paribas Nominees Pty Ltd Hub24 Cust Serv Ltd DRP Dr David John Ritchie + Dr Gillian Joan Ritchie Kenneth Ko J P Morgan Nominees Australia Pty Limited Mikalu Pty Ltd ACLC Super Pty Ltd Brojo Investments Pty Ltd Skyplaza Investments Pty Ltd BRJT Accounting Pty Ltd Winda Holdings Pty Ltd David Bullock + Kay Bullock + Anthony Bullock Scott Elwin Family Co Pty Ltd Unquoted equity securities There are no unquoted equity securities. 76 Number of holders of options over ordinary shares Number of holders of ordinary shares 212 137 78 143 40 610 27 - - - - - - - Ordinary shares Number held % of total shares issued 23,276,378 5,010,424 1,442,655 636,000 504,932 491,338 466,420 458,984 455,446 400,000 393,504 371,450 364,000 336,000 326,767 300,000 286,120 278,172 264,263 264,263 36,327,116 51.27 11.04 3.18 1.40 1.11 1.08 1.03 1.01 1.00 0.88 0.87 0.82 0.80 0.74 0.72 0.66 0.63 0.61 0.58 0.58 80.01 Kelly Partners Group Holdings Limited Shareholder information 30 June 2020 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: Ordinary shares Number held % of total shares issued 23,276,378 5,010,424 51.27 11.04 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. 77 KELLY PARTNERS GROUP HOLDINGS LIMITED Office - Level 8/32 Walker Street, North Sydney, NSW 2060 78 

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