2019 Steadfast Group Annual Report 01 Steadfast Group Annual Report 2019 Values We are united We achieve We are strong None of us is as good as all of us Steadfast Group Annual Report 2019 Contents 02 03 04 07 08 10 12 Our key market Our clients Our business Our partners 13 14 16 18 Message from the Chairman Message from the Managing Director & CEO Message from the Chief Financial Officer Board of Directors Key strategy: our insurTech 20 Senior Management Team Key strategy: international growth 22 Corporate and Social Responsibility, Environmental, Social and Governance 2019 financial highlights 39 2019 financial report Vision: Continually grow shareholder value through our leading general insurance distribution model and related businesses domestically and internationally. Mission: Deliver value to our broker network by being a market leader and an innovator in insurance broking. Steadfast Group Key market Steadfast Group was established in 1996 and is the The intermediated general insurance market consists largest general insurance broker network and the of insurance brokers and underwriting agencies. Australia largest underwriting agency group in Australasia, with is Steadfast Group’s largest market, with intermediated growing operations in Asia and Europe. We have grown gross written premium of $22 billion generated in 2018, the Steadfast Network to 398 brokerages (of which of which our Network and agencies have a 31% share. We are a key distribution channel for our insurer partners as the Steadfast Network has a large and diverse client base across Australia. Steadfast Group has equity in 65), built a portfolio of 26 underwriting agencies and we have a 40% interest in the unisonSteadfast network of 267 brokerages. Our business model is designed to allow us to achieve sustainable growth via our Network brokerages and the equity positions we hold within the Network. Our Steadfast Underwriting Agencies offer cover for the entire market and are also supported by the Steadfast Network. Australian intermediated general insurance market1 $22bn intermediated market Steadfast N e t w o r k brokers FY19 $ 5 . 7 b n ) Intermediate d ($ 2 n b 4 ealth $ 2 te h a v i r P $97bn Australian insurance market d e t a i d e m r e t n i - n o N L if e $ 25bn n N o 2 b n ) G e n e r a l $ 4 8 b n n b 6 2 $ ( ) t c - i n t e r m ediated (dire 1 APRA Quarterly General Insurance Performance Statistics (March 2019), Steadfast Group and APRA Intermediated General Insurance Performance Statistics (December 2018). 02 26% Steadfast brokers' share of the Australian market Our clients Steadfast Group is primarily focused on the small-to- medium enterprise (SME) market. The SME market is advice-driven, which means that client relationships are key to Steadfast Network brokers, and the Underwriting Agencies who provide niche advice and products for brokers. These relationships ensure that the SME market is more stable than the sometimes fickle corporate market. Diversified product offering and client base Steadfast Network brokers and Underwriting Agencies offer a diverse range of general insurance products to their clients across Australasia. This diversity of product and client base supports sustainable sales growth. 84% of Steadfast Network clients are small-to-medium enterprises and 12% are retail. Diversified by client base Diversified by client base Diversified by product Diversified by product Diversified by geography Diversified by geography Small-to-medium enterprises (SMEs) 84% Business pack Retail – home and motor Corporate Retail – other 11% 4% 1% Commercial motor Retail Commercial property and ISR Liability Professional risks Statutory covers Strata Rural and farm Construction and engineering Other 20% 14% 12% 10% 9% 8% 7% 6% 4% 4% 6% VIC NSW QLD WA NZ SA TAS ACT NT 33% 21% 16% 13% 7% 5% 3% 1% 1% 03 Steadfast Group Annual Report 2019 Our business Steadfast Group has three business streams focused on servicing general insurance clients. Steadfast Group (listed on the ASX) 1. Steadfast Network 2. Steadfast Underwriting Agencies 3. Complementary businesses 398 general insurance brokerages with over 1,900 offices 26 underwriting agencies 7 businesses supporting the Steadfast Network and Steadfast Underwriting Agencies Steadfast Group has equity holdings in 65 brokerages Steadfast Group has equity holdings in all 26 underwriting agencies Mixture of wholly owned, part- owned and joint venture businesses 267 brokers in the unisonSteadfast Network (see page 11) 1. Steadfast Network As the largest general insurance broker network in Australasia, brokerages receive superior market access and exclusive products and services backed by the scale and expertise of the Group. This allows them to focus on servicing the clients’ insurance and risk management needs. 04 Why use an insurance broker? Insurance brokers are qualified professionals who advise their clients on their risk management needs. Brokers act on behalf of their clients to arrange appropriate coverage with insurers and assist clients with any claims process. Steadfast Group Annual Report 2019 Worldwide office network (excluding unisonSteadfast) 1 UK 47 Asia 16 NT 381 QLD WA 200 117 SA 545 NSW 478 ACT 27 VIC 30 TAS 97 North Island 23 South Island 1.Steadfast Network Key benefits to brokers include: Steadfast Network GWP ($bn)1 Market-leading policy wordings Exclusive access to Steadfast proprietary technology 398 brokers in the Steadfast Network 160+ exclusive products Tools and support and services $bn 6 5 4 3 2 1 0 6.1 5.3 5.0 4.4 4.5 4.1 3.9 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1Excludes unisonSteadfast 05 2. Steadfast Underwriting Agencies Steadfast Underwriting Agencies is the largest underwriting agency group in Australasia. The agencies extend our intermediated general insurance distribution by offering brokers, inside and outside of the Steadfast Network, specialised products and capacity in niche markets. 06 Steadfast Underwriting Agencies GWP ($m) 1,173 914 745 777 $m 1200 1000 800 600 400 200 145 385 0 FY14 FY15 FY16 FY17 FY18 FY19 3. Complementary businesses Seven complementary businesses support the operations of the Steadfast Network and Steadfast Underwriting Agencies and provide an EBITA contribution to the Group. Our partners Major insurer partners Over our 23 year history, Steadfast Group has developed strong relationships with carefully selected insurers, underwriting agencies, premium funding and strategic partners that support the Steadfast Network. Strategic partner Premium funding partners 07 Steadfast Group Annual Report 2019 Client Steadfast Network Brokers Client relationship management and back office system Powered by Steadfast Client Trading Platform Contestable digital marketplace Powered by Insurer partners Steadfast Underwriting Agencies Powered by Key strategy: our insurTech Steadfast Technologies provides exclusive, market-leading technology to support broker and underwriting agency operations and facilitate interactions with our insurer partners to support client outcomes. This technology positions us as a global leader in insurance technology (insurTech) and facilitates our strong market position. Virtual Underwriter: powers the Steadfast Client Trading Platform (SCTP), a contestable digital marketplace giving brokers automated access to all insurers who connect to the platform allowing comparison of policies and prices on a single screen. Insight: client relationship management and back office system for brokers offering a single view of their business. UnderwriterCentral: underwriting agency management system which manages the entire policy lifecycle. A global leader in insurance technology. 08 Steadfast Group Annual Report 2019 SCTP benefits for clients: SCTP benefits for brokers: SCTP benefits for insurers: Contestable digital marketplace Automated market access to Automated access to Steadfast generating improved pricing leading insurers. Network for all policies placed competition and coverage. Market-leading policy wordings. Market-leading policies. Fixed commission, same Instant policy issue, maintenance for all insurers. and renewal, all on a market contestable basis. Linked and supported by the Steadfast claims triage team. In-depth data analytics. Stimulates advisory discussions with clients on their insurance programs with the major market players. on the platform. Significantly reduced technology and distribution costs. Data analytics and market insights, live at all times . Updated policy wordings, based on prior claims scenarios. General insurance lines live on SCTP Business pack Strata (in beta testing) Professional risks Domestic home Commercial property and Domestic motor industrial special risks Landlords Liability Commercial motor Major insurer partners and Underwriting Agencies live on the SCTP 2023 platform target 60% of 80% of available GWP to be transacted on SCTP. 09 Key strategy: international growth Expanding our markets While we are primarily focused on our Australian and New Zealand markets, we are also growing our international presence to create geographically diverse revenue streams. We are doing so with a low-risk, ‘capital-light’ strategy where we either build revenue streams to self-fund expansion or acquire an equity stake in an existing global network (unisonSteadfast). 62 network brokers in New Zealand and Asia 2 3 Replicating our model in New Zealand The Steadfast Network model has been successfully replicated in jurisdictions where there is a similar insurance market, strong regulatory framework and demand from brokers to join a network offering market-leading policy wordings, market competitive pricing and a range of products and services that give them a competitive edge. Agreements with insurer partners create professional services fees with additional products and services made available to each jurisdiction as demand grows. Asia is our next market to roll out the Steadfast model with variations according to geographic requirements. 10 1 Steadfast offices: 1. New Zealand 2. Asia 3. London unisonSteadfast A global broker network to access new markets for the Steadfast Network via inbound and outbound insurance placements. Steadfast Group has a 40% stake in unisonSteadfast which is one of the largest global networks of general insurance brokerages with 267 brokerages across 135 countries. 267 brokerages 135 countries Head office: Hamburg, Germany Recent developments GWP aggregation – analysis of global GWP generated by unisonSteadfast brokers. Global insurers – meetings held with senior executives at global insurers to discuss improved distribution through unisonSteadfast network. Seeking to increase professional indemnity (PI) cover for unisonSteadfast brokers - creation of first new product for unisonSteadfast brokers. 600+ referrals between the Steadfast Network and unisonSteadfast 11 Steadfast Group Annual Report 2019 2019 financial highlights Underlying NPAT Underlying EPS (NPAT) Total dividend $89m up 19% year-on-year 11.3cps 8.5cps up 16% year-on-year up 13% year-on-year Underlying revenue $688m up 21% year-on-year Total billings $m 800 700 600 500 400 300 688 567 491 459 299 200 156 173 100 0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 $8.4bn+ Steadfast Network brokers, Steadfast Underwriting Agencies GWP plus fees, levies, taxes Underlying EBITA, excluding impact from dividend income and mark-to- market adjustments for JLG investments $193m up 18% year-on-year $m 200 150 100 50 0 193 164 143 130 90 62 57 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Steadfast Network GWP $6.1bn up 16% year-on-year Steadfast Underwriting Agencies GWP $1,173m up 28% year-on-year Steadfast Client Trading Platform GWP $440m up 91% year-on-year 6.1 5.3 5.0 4.4 4.5 4.1 3.9 $m 1200 1000 800 600 400 200 114 145 1,173 914 777 745 385 FY13 FY14 FY15 FY16 FY17 FY18 FY19 0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 500 400 300 200 100 0 440 231 98 40 FY16 FY17 FY18 FY19 $m 7 6 5 4 3 2 1 0 12 corporate activity, as at 30 June 2019. This excludes the debt referable to IQumulate Premium Funding which is ring-fenced (i.e not cross-collateralised) from the rest of the Group (as the debt has corresponding premium funding receivables that act as security against the premium funding lending). Governance Steadfast Group continues to adhere to the corporate governance principles as set out by the ASX Corporate Governance Council. Our governance framework and robust risk management strategies are set out in more detail on page 37 and I am pleased to note another year in which there were no material departures from these principles. Message from the Chairman Recent initiatives Since year end, Steadfast has announced the launch of The Directors are pleased to report a FY19 result at its takeover offer for IBNA Limited which has the potential the top end of our guidance range, as upgraded in to add an additional 79 members to the network. This will October 2018. This was driven by an 18% increase involve the issue of up to $70 million of shares (at $3.28) in underlying earnings before interest, tax and with a potential annualised uplift to underlying EBITA of amortisation (EBITA) and a 19% increase in underlying $8 million. net profit after tax (NPAT). Pleasingly, we reported underlying earnings per share of 11.27 cents, an uplift of 16%, which places us in the top quartile of ASX200 peers. These excellent results continue the Group's strong performance since listing in 2013. Our total shareholder return was 28% for the year and since listing has been 239%. Dividend The Board has declared a fully-franked final dividend of 5.3 cps, up 13% from last year. This takes the total dividend to 8.5 cps (fully-franked). The 2019 total dividend represents a payout ratio of 76%, in-line with our target range of 65% – In addition we have offered Steadfast Network brokers the opportunity to forego future rebates of professional service fees in exchange for shares or cash using an 8.32 times multiple and a $3.28 share price. Given the above, and the pipeline of acquisitions, the Board has announced a fully underwritten placement to raise approximately $100 million and an accompanying Share Purchase Plan. The impact of these initiatives to the outlook are covered on page 15 in the Managing Director & CEO's message. The accounting treatment is covered on page 16 in the Chief Financial Officer's message. 85% of underlying net profit after tax, adjusting for non- Thank you trading items. Capital management We continue to be prudent with our capital as we assess potential acquisition opportunities against disciplined criteria. We made a total investment of $136 million during FY19. This included 7 new acquisitions and 12 increases in our equity holdings in Steadfast Network brokerages and underwriting agencies. Our total Group gearing ratio is 23.9% which is within the Board-mandated Group maximum of 30%. Long-term corporate debt facilities of $385 million are in place with $90 million of unutilised capacity available to fund future I would like to thank all of our employees, led by our highly experienced Managing Director & CEO Robert Kelly, for their amazing efforts to deliver such excellent results for our shareholders. This performance would not have been possible without the contribution from Steadfast brokers, Steadfast Underwriting Agencies and complementary businesses. I would also like to extend my gratitude to my fellow Board Directors who continue to be focused on strong governance and driving shareholder value. We look forward to another great year ahead. Frank O’Halloran, AM Chairman 13 Steadfast Group Annual Report 2019 Message from the Managing Director & CEO I’m pleased to report that FY19 was another record Takeover offer for IBNA year for Steadfast Group. We reported underlying IBNA is an outstanding Australian general insurance broker earnings before interest, tax and amortisation (EBITA) network with 79 brokers placing $1.25bn of GWP annually. of $193 million and underlying net profit after tax We recently announced a takeover offer for IBNA to (NPAT) of $89 million. This strong performance was support its brokerages to join the Steadfast Network. IBNA driven by organic and acquisition growth from our brokerages have expressed interest in joining our Network Steadfast brokerages and underwriting agencies. to take advantage of the 160 products and services that Steadfast Network We grew Steadfast Network gross written premium we offer to support their businesses, particularly our insurance technology (“insurTech”). (GWP) to $6.1 billion in FY19, up from $5.3 billion in FY18. We look forward to welcoming these brokerages to our This was driven by continuing moderate premium price Network as we continue to grow our presence as the rises and new brokerages joining the Network. largest general insurance broker network in Australasia1. We now have 398 brokerages in the Network with Steadfast Underwriting Agencies 21 having joined in FY19. We have 336 brokerages in The Steadfast Underwriting Agencies generated over Australia and have continued to grow our international $1.17 billion of GWP, a 28% uplift over FY18. Their niche presence with 48 in New Zealand and 14 in Singapore. expertise allowed them to grow market share which, We also have a 40% interest in unisonSteadfast Network combined with a rising premium price environment, of 267 brokerages across the globe. led to underlying EBITA growth of 25%. 1 Steadfast Group and APRA Intermediated General Insurance Performance Statistics (December 2018). 14 We now have 26 agencies since the additional of heavy Outlook vehicle specialists, HMIA, to our portfolio during FY19. We saw moderate premium price increases by strategic Our insurTech Our market-leading technology continues to gain traction with our broker network. Over $400 million of partners across our key market in FY19. We expect this trend to continue through FY20 as insurers look to improve their profitability. GWP was transacted on the Steadfast Client Trading We will continue to focus on rolling out and driving Platform (SCTP) in FY19 as brokers took advantage of the usage of our technology as we target 60% of the 80% of efficiency and full market view that the platform offers. available GWP that can be transacted via the SCTP. This As the final few major insurer partners join the platform, will drive improved outcomes for clients and offer fixed brokers will continue to increase their usage. remuneration for brokers via all insurers that participate. Acquisitions Our acquisitions made a solid contribution to underlying EBITA growth in FY19. Of particular note were our acquisitions of Community Broker Network (CBN) and the remaining 50% of Macquarie Pacific Funding Our FY20 guidance is underlying EBITA of between $215 million and $225 million, underlying NPAT of between $100 million and $110 million. This equates to 5% to 10% growth in underlying earnings per share (NPAT)1 : (renamed IQumulate), thus growing our presence in the Strategic partners continuing to drive moderate strategically important authorised representative and premium price increases; premium funding markets. Increased contribution from insurTech; Steadfast Client Trading Platform GWP ($m) Ongoing technology investment; 500 400 300 200 100 0 440 231 98 40 FY16 FY17 FY18 FY19 $6.1bn Steadfast Network GWP $89m Underlying NPAT Minimum 80% acceptance of IBNA takeover offer; PSF Rebate Acquisition proceeds with minimum 33% take up by Network brokers (of which 20% requesting cash)2; and Completion of a fully underwritten placement to raise approximately $100 million and accompanying Share Purchase Plan. Refer to pages 48 to 52 on key risks. Thank you I would like to thank our employees, Board members, Steadfast Network brokers, Steadfast Underwriting Agencies, complementary business and strategic partners for contributing to our record performance this year. I would also like to thank all our shareholders for their ongoing support. We have had another great year but there is much more to achieve and I look forward to working with all of our stakeholders for many years to come. Robert Kelly Managing Director & CEO 1 Includes allowance for issue of new shares for the equity raising and IBNA and Steadfast Network transactions. 2 The PSF Rebate Acquisition and its structure should it proceed, remains subject to further consideration and approval of the Board. 15 Steadfast Group Annual Report 2019 Message from the Chief Financial Officer FY19 was another record year for Steadfast Group where we delivered strong shareholder returns whilst maintaining our solid balance sheet. Earnings per share and dividend growth Strong organic (+11%) and acquisition (+7%) underlying EBITA growth drove underlying diluted EPS (NPAT) of 11.27 cents per share (+16%) allowing the Board to declare a total dividend of 8.5 cents per share (+13%). This was achieved while we continue to invest in our market-leading technology platform to enhance the Group’s long-term offering and earnings potential. As expected for a working capital and capital expenditure-light business, the earnings were translated into cash flow throughout the year. This cash has been utilised to fund further acquisitions and pay increased dividends to shareholders. Balance sheet We continue to invest in our market-leading technology platform to enhance the Group’s long-term offering and earnings potential. IQumulate acquisition We acquired the remaining 50% of Macquarie Premium Funding (renamed IQumulate) in FY19. This will bring further debt onto the Group's balance sheet which will be offset by premium funding receivables that act as security for these loans. The premium funding debt and assets are ring-fenced (i.e not cross-collateralised) from the Group's corporate borrowings. Reconciliation of earnings Steadfast Group’s balance sheet remains strong, during Page 17 shows the reconciliation of earnings between FY19 we increased our debt facilities by $100 million to the statutory profit and the underlying earnings. $385 million. These facilities have now been extended to August 2021. On the assumption that the IBNA Limited takeover and the Steadfast Network brokers offer proceeds, it is With our recent initiatives including the takeover offer for anticipated that, under Australian Accounting Standards, IBNA Limited and the opportunity for Steadfast Network any consideration paid will be expensed in the Group’s brokerages to capitalise their PSF rebates, together with FY20 statutory accounts (and could result in a statutory our continual strong pipeline of acquisitions, we have loss). This will, however, be excluded from normalised announced a fully underwritten placement to raise underlying earnings. approximately $100 million with an accompanying Share Purchase Plan. 18% underlying EBITA growth FY19 19% underlying NPAT growth FY19 16 This expense (which is expected to cause a statutory loss) FY19 underlying EBITA mix (IFRS) will be normalised in Steadfast Group's FY20 financial results to reflect the true underlying position of the business. Our financiers have agreed that this expense will not be counted for financial covenant purposes. Our ability to pay franked dividends in FY20 will be unaffected, as they can be funded via the Undistributed Profits reserve. Year ended 30 June, $million 2019 2018 Underlying Revenue Underlying EBITA Underlying NPAT Underlying NPATA Underlying EPS (NPAT) 688.3 193.3 89.2 114.1 11.27 567.0 164.1 75.0 97.3 9.71 Underlying EPS (NPATA) 14.42 12.60 Reconciliation of earnings: Statutory comprehensive income after tax Change in value and sale of investments Share-based payment expense on share options and executive loans and shares Deferred acquisition adjustments Impairments Non-recurring costs from closure of residential builders agency Other Underlying NPAT Underlying NPAT growth Amortisation Underlying NPATA1 Underlying NPATA growth 103.8 75.9 (14.6) (0.2) – 0.1 – – (0.1) 89.2 (0.4) (3.1) 2.3 0.5 - 75.0 19.0% 12.9% 24.9 114.1 22.3 97.3 17.3% 11.6% *For further information refer note 4 to the accounts. Thank you Significant time and effort go into the collation of the financial data for the Group, including from across a number of businesses, so that stakeholders obtain quality, reliable and timely data. My thanks go to all who have participated in their collation. Stephen Humphrys Chief Financial Officer Investments in Steadfast equity brokers 48% Investments in Steadfast Underwriting Agencies Earnings from other businesses 44% 8% Underlying earnings per share (NPAT) and dividend growth (cents per share) 12 12 10 10 8 8 11.3 11.3 8.5 8.5 9.7 9.7 8.9 8.9 7.5 7.5 7.0 7.0 8.1 8.1 7.2 7.2 6.2 6.2 6.0 6.0 6 6 5.4 5.4 5.0 5.0 4.5 4.5 4 4 2 2 0 0 FY13 FY13 FY14 FY14 FY15 FY15 FY16 FY16 FY17 FY17 FY18 FY18 FY19 FY19 Underlying earnings per share (NPAT) Dividend per share Underlying net profit after tax ($m) $m 100 80 60 40 20 0 89.2 75.0 66.4 60.4 42.1 32.4 28.1 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1Calculated on consistent basis since IPO 17 Steadfast Group Annual Report 2019 Board of Directors 18 Frank O’Halloran, AM Non-Executive Chairman (independent) Frank had over 35 years’ experience at QBE where he was Group CEO from 1998 until 2012. He also worked with Coopers & Lybrand for 13 years where he started his career as a Chartered Accountant. Frank was President of the Insurance Council of Australia from 1999 to 2000 and was inducted into the International Insurance Hall of Fame in 2010. He was the Chairman of The Salvation Army Sydney Appeal and Fund Development Committee from 2013 to 2019. Robert Kelly Managing Director & CEO Robert co-founded Steadfast and has over 50 years’ experience in the insurance industry. He is ranked the second most influential person in insurance by Insurance News, and was awarded the ACORD Rainmaker Award in 2014. Robert is a Qualified Practising Insurance Broker, a Fellow of NIBA, a Senior Associate of ANZIIF, a Certified Insurance Professional, Graduate member of the Australian Institute of Company Directors and sits on the ACORD Board in New York. Robert is also a Director of ASX-listed Johns Lyng Group Limited and not-for-profit organisation KidsXpress. David Liddy, AM Non-Executive Director (independent) David has over 40 years’ experience in banking, including postings in London and Hong Kong. He was Managing Director of Bank of Queensland from 2001 to 2011. David is a Director of EML Payments Limited. He is a Fellow of the Australian Institute of Company Directors. Gai McGrath Non-Executive Director (independent) Gai has over 30 years’ experience in the financial services and legal industries. This includes 12 years with Westpac Group where she was General Manager of Westpac’s retail banking business in Australia from 2012 to 2015 and in New Zealand from 2010 to 2012. Gai is a Director of Genworth Mortgage Insurance Australia Limited (where she also chairs the Audit Committee), IMB Bank (where she chairs the People & Culture Committee and Financial Planning Committee), HBF Health Limited and Toyota Finance Australia Limited. Anne O’Driscoll Non-Executive Director (independent) Anne has over 30 years' business experience. A Chartered Accountant since 1984, she was CFO of Genworth Australia from 2009 to 2012 following more than 13 years with IAG. Anne is on the Board of Infomedia Limited, FINEOS Corporation Holdings Plc, Commonwealth Bank’s insurance subsidiaries (CommInsure) and MDA National Insurance Pty Ltd. She is a Fellow of ANZIIF, a Graduate member of the Australian Institute of Company Directors and a graduate of Harvard’s Advanced Management Program. Philip Purcell Non-Executive Director (independent) Philip has over 40 years’ experience in the insurance and legal industries. He has been a partner at Dunhill Madden Butler, PricewaterhouseCoopers Legal and Ebsworth & Ebsworth, and has held two Board positions with GE in Australia. Philip consults to clients who are engaged in commercial transactions or mediation of commercial disputes. Greg Rynenberg Non-Executive Director (independent) Greg has over 40 years' experience in the general insurance broking industry with 35 years spent running his own business, East West Group. East West Group is a Steadfast Network Broker not owned by Steadfast and includes an underwriting agency which provides services to Steadfast Network Brokers. Greg is a Qualified Practising Insurance Broker, Fellow of NIBA and an Associate of ANZIIF. He holds an Advanced Diploma in Financial Services (General Insurance Broking) and was named NIBA Queensland Broker for 2014. 19 Steadfast Group Annual Report 2019 Senior Management Team Robert Kelly Managing Director & CEO Stephen Humphrys Chief Financial Officer Samantha Hollman Chief Operating Officer Robert co-founded Steadfast and has over 50 years’ experience in the insurance industry. He is ranked the second most influential person in insurance by Insurance News, and was awarded the ACORD Rainmaker Award in 2014. Robert is a Qualified Practising Insurance Broker, a Fellow of NIBA, a Senior Associate of ANZIIF, a Certified Insurance Professional, Graduate member of the Australian Institute of Company Directors and sits on the ACORD Board in New York. Robert is also a Director of ASX-listed Johns Lyng Group Limited and not-for-profit organisation KidsXpress. Stephen joined Steadfast in 2013 and has over 30 years’ experience as a Chartered Accountant and extensive experience in acquisitions and integrations. As Managing Director of Moore Stephens Sydney for 10 years and Chairman of Moore Stephens Australasia for three, Stephen played a key role in placing Moore Stephens into the top 10 accounting firms in Australia. Stephen is a Fellow of Australia and New Zealand Chartered Accountants. Samantha has 25 years' experience in the insurance industry including 19 years at Steadfast. She was promoted to COO in September 2016 to direct and manage operational activities of the organisation and to ensure the implementation of the overall strategy. Samantha works closely with the Managing Director & CEO and the Board to implement strategic initiatives for the Group on a national and international level. Samantha sits on the unisonSteadfast Supervisory Board. Simon Lightbody Chief Executive Officer Steadfast Underwriting Agencies Allan Reynolds Executive General Manager Direct, New Zealand & Asia Nick Cook Executive General Manager Partner & Broker Services Simon has worked in the insurance industry for over 25 years in both the UK (at Lloyd’s of London) and Australia, including nine years within his own business, Miramar Underwriting Agency (Miramar). Steadfast entered into the underwriting agency market in 2005 as a 50% joint venture partner of Miramar and acquired the remaining balance in August 2013. Allan joined Steadfast in 2002, and in April 2015 took on the Direct, New Zealand & Singapore portfolios. With a background in product development and distribution, corporate strategy and portfolio management, Allan has more than 40 years' experience in general insurance. He holds a Diploma of Business Studies (Insurance), is a Certified Insurance Professional and is a Fellow, honorary member and Chairman of ANZIIF. Nick, who joined Steadfast in February 2015, had over 15 years’ experience at Zurich Financial Services, including three as the Head of Customer & Proposition Development (where he was responsible for the performance of Zurich products & propositions in the marketplace) and nine years as a distribution manager. He is an Associate ANZIIF member and has graduated from both the AGSM Leadership Program and the Prosci Organizational Change Management Program. 20 Peter Roberts Executive General Manager Business Solutions John O'Herlihy Executive General Manager - Operations & Acquisitions Jeff Papps Executive General Manager - Operations & Acquisitions Peter joined Steadfast in 2013 and focuses on back office outsourcing opportunities for the Group. He was also Managing Director of White Outsourcing until stepping down on 30 June 2016 to concentrate on his role at Steadfast Business Solutions. Peter has over 25 years’ experience in accounting and back office services to the financial services sector, is a member of Australia and New Zealand Chartered Accountants, and commenced his career in accounting with KPMG. Peter is a company secretary of Steadfast. John joined Steadfast in 2012 and is joint lead of the Operations and Acquisitions team. Having completed his professional accounting training with KPMG in 1996, John has spent over 15 years working within the insurance industry. During this time he has held a number of senior finance and operational roles in both North America and Australia specialising in corporate transactions. John is now a Fellow of the Institute of Chartered Accountants Ireland. Jeff joined Steadfast in 2012 and is joint lead of the Operations and Acquisitions team. Prior to joining Steadfast, Jeff worked for PwC specialising in financial services. After transferring from London to Sydney in 1998, he focused on mergers and acquisitions, leading domestic and cross border transactions and listings across Australia, Asia, Europe and North America. Jeff is a Member of the Institute of Chartered Accountants in England and Wales. Duncan Ramsay General Counsel Duncan began with Steadfast in June 2014 after 20 years at QBE. He was Group General Counsel and Company Secretary. Duncan's career commenced in 1986 with Freehills in Sydney. He holds degrees in commerce and law, and a graduate certificate in applied risk management. Duncan is a Fellow of ANZIIF and the Governance Institute of Australia, as well as a graduate of the Australian Institute of Company Directors. Linda Ellis Group Company Secretary & Corporate Counsel Martyn Thompson Executive General Manager - Corporate Development Linda is Group Company Secretary & Corporate Counsel at Steadfast Group Limited and has been part of the Executive team since 2013. Before joining Steadfast, she specialised in mergers and acquisitions and worked in Sydney and London at global law firms. Linda is a Graduate member of the Australian Institute of Company Directors, holds a BEc and LLB (Hons I) from The University of Sydney and is on the boards of Abbotsleigh School for Girls, Mosman Preparatory School and the advisory board of Heads Over Heels. Martyn recently joined Steadfast with over 35 years’ experience as an Insurance Broker, the previous 29 years working in senior roles for the global Broker, Willis Towers Watson. During this tenure he was National Client Service Director responsible for implementing service platforms and standards across the network including providing risk and insurance solutions to many ASX companies, government and Multi-National organisations. He is a Senior Associate ANZIIF, holds a Diploma of Financial Services and a Graduate Certificate in Business Administration. 21 Steadfast Group Annual Report 2019 As part of our culture, a commitment to doing the right thing and acting responsibly are key planks of our commitment to CSR and ESG standards. 22 Corporate and Social Responsibility (CSR), Environmental, Social and Governance (ESG) Our approach to CSR and ESG Steadfast’s long term sustainability is enhanced by our CSR program and by our focus on ESG considerations. Our Board considers that CSR and ESG are important elements of acting in the best interests of our shareholders as we continue to develop our long term sustainability as a business. As part of our culture, a commitment to doing the right thing and acting responsibly are key planks of our commitment to CSR and ESG standards. In the process: We engage our people. We demonstrate that we care about them and the issues that are important to them. Our businesses feel proud of being part of the Steadfast Group. Client outcomes are better when culture is ethical and responsible. We make a positive impact in our communities. We have better long term sustainability and performance in the best interests of our stakeholders. 23 Steadfast Group Annual Report 2019 i o n c t a e t ntribute to cli m a o C Help red u c e p o v e r t y E n c o u r a g e h e a lt h a n d wellbeing Steadfast's Corporate and Social Responsibility Program Promote gender e q u a l y t i S u p p o r t w o r k o p p o r t u n i t y 24 Our CSR framework We have considered how we can help make a difference to some of the world's most pressing environmental and social challenges, through our CSR program to our business and sphere of influence. We have formulated five principles which align with our business and culture and where we can have the most impact. Steadfast’s CSR program is centred on these five principles: Contribute to climate action Promote gender equality Our relationship with Sustainability Ambassador, We are committed to gender equality as a sound Tim Jarvis AM, provides Steadfast with an opportunity business practice and because it is the right thing to do. to contribute on climate change and the transition to a Diversity and inclusion is important in our business and lower-carbon economy. we also promote gender equality through supporting Steadfast Sustainability Ambassador: Tim Jarvis AM. Energy efficiency. Carbon offsetting. initiatives outside Steadfast. Diversity & inclusion. Heads Over Heels. Dive In festival. Woman in Insurance. Wear it Purple. Help reduce poverty Support work opportunity Insurance protects individuals and businesses when Insurance is a key factor in enabling sustainable economic disaster strikes, providing a safety net against poverty and growth. We provide insurance products that support building financial wellbeing. Our brokers and underwriting decent work such as through our workers’ compensation agencies are proud to provide their clients with insurance solutions business, accident & health solutions and life solutions and advice. Our brokers, underwriting agencies and their clients. Salvation Army Red Shield Appeal Sydney Launch sponsor. Steadfast Foundation. Encourage health and wellbeing Steadfast is committed to good health and wellbeing outcomes for our people and much of our charity giving is directed to improving health outcomes in our community. Employee attraction, retention and engagement. Health, safety & wellbeing. Steadfast Foundation. insurance solutions. Our support for Indigenous people aims to provide opportunities for work and growth. Our brokers and their clients. Industry engagement & leadership. Reconciliation Action Plan. Indigenous Engagement Ambassador. Investment in Origin Insurance. Human rights and modern slavery. Governance framework. Date protection & privacy. ESG Our ESG approach is evolving. Our ESG initiatives overlap with our CSR framework and we set them out under the three pillars of environmental, social and governance in the following pages. 25 Steadfast Group Annual Report 2019 Environmental Steadfast’s Sustainability Ambassador, Tim Jarvis AM Tim Jarvis AM wears many hats and one of those is Steadfast’s sustainability ambassador. Tim is a polar explorer, environmental scientist, author, public speaker and film maker. Tim holds Masters degrees in environmental science and environmental law. He was conferred a Member of the Order of Australia (AM) for services to the environment, community and exploration in the 2010 Australian honours list and was voted Conservationist of the Year in 2016 by the Australian Geographic Society. In 2013, Tim successfully recreated Sir Ernest Shackleton's epic crossing of the Southern Ocean. Tim speaks regularly to Steadfast businesses, highlighting the importance of environmental sustainability and providing practical guidance on what steps individuals and businesses can take to become more environmentally sustainable. Energy efficiency We look for opportunities to reduce our environmental impact and improve energy efficiency. An example of a recent initiative is changing over the lighting in head office to Light Emitting Diode (LED) to reduce greenhouse gas emissions. Despite the considerable up front cost, there was a compelling business case due to the reduction in ongoing energy and maintenance costs. Carbon offsetting Steadfast demonstrates its commitment to minimising the impact we have on the environment by offsetting the carbon emissions of the Senior Management Team’s corporate travel. Our carbon offsets reflect Steadfast’s CSR priorities. We direct our carbon offsetting to support local communities in Africa with a focus on empowering women and addressing the effects of climate change on local communities. 26 South Georgia, 2018 Credit: Miles Rowland Tim speaks regularly to Steadfast businesses, highlighting the importance of environmental sustainability and providing practical guidance on what steps individuals and businesses can take to become more environmentally sustainable. Steadfast Convention, Gold Coast, 2019 Social Our culture and values Building a culture that supports and enables us to possible. Tools include access to helplines, calculators, achieve our purpose, vision and strategy in an ethical legal and compliance advice and broker development and responsible manner is a strategic priority for support. We provide advice and services including Steadfast. Culture is key to ensuring that how we go webinars and professional development days to support about doing our work is just as important as what gets our brokers in meeting their regulatory obligations, both achieved. All our people undertake training on the under their Australian Financial Services Licences (AFSL) standards of behaviour that are expected and these and generally at law. are also encapsulated in our corporate governance policies such as our code of conduct. All our people have culture and values KPIs and the Board has charged the executives with the responsibility of setting the tone from the top in all aspects of their interactions and work. Our brokers and their clients We prioritise what matters to our brokers and strive to deliver an outstanding broker service to enable Steadfast Our Steadfast Client Trading Platform (SCTP) provides Steadfast brokers and their clients with choice across leading insurers and ‘best in class’ product wordings. The SCTP provides real time, full policy life cycle capability accessed through the Steadfast Virtual Underwriter. This ensures our brokers can provide clients with insurance solutions from a range of insurers quickly and efficiently. Network brokers to thrive. We provide over 160 products Steadfast performs an annual ‘Your Shout’ survey of its and services to enable them to provide best in class brokers. Our brokers indicate that they continue to be solutions for their clients and run the best business very pleased with the products and service offerings Steadfast provides. We strive for continual improvement in levels of broker satisfaction. 27 Steadfast Group Annual Report 2019 Social Continued The Steadfast Convention is the largest insurance industry convention in Australia. In 2019, we celebrated the 21st Steadfast Convention. The Marketplace is always a hive of activity, this year made up of 9 gold sponsors, 10 silver sponsors and 86 exhibitors. A key focus of the convention presentations was the themes of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission), including the importance of always working in the best interest of customers and adhering to best practice standards. Industry engagement and leadership A number of our senior executives hold leadership roles within the industry such as serving on the board of industry bodies. Our executives contribute by speaking an industry events and judging industry awards. Our executives are recognised throughout the industry and receive accolades for their leadership and contribution. Working with the industry body, National Insurance Brokers Association, Steadfast continues to play a leading role in seeking to ensure that the insurance broker industry stays strong, delivers excellent outcomes for customers and meets its legal and ethical obligations from a regulatory perspective. Steadfast welcomed the final report of the Royal Commission. It did not generally raise concerns of misconduct within insurance broking of general insurance. Nonetheless, the Royal Commission and its implications provide an opportunity for the industry, including Steadfast, to reflect on our practices. We will continue to make adjustments to our practices, and lead the way, on our journey of continual improvement as best practice in insurance broking continues to evolve. Steadfast sponsors a number of industry awards and functions including the ANZIIF awards, Mansfield Awards, the Northern Territory Insurance Conference and the NIBA Conference. 28 Building a culture that supports and enables us to achieve our purpose, vision and strategy in an ethical and responsible manner Diversity and Inclusion Steadfast is committed to increasing and supporting diversity. This flows naturally from our values and is an important part of our culture. Steadfast believes that we perform better as a business with diverse people and an inclusive culture. It helps us attract, retain and motivate the best people. We are proud of our considerable gender, ethnic and age diversity and are committed to inclusion at all levels regardless of sexual orientation, gender identity, age, disability, ethnicity, religious beliefs, cultural background or socio-economic background. We do not tolerate discrimination, harassment or vilification and staff undergo training to support our commitment to inclusion. Steadfast offers flexible work practices to assist our people fulfil their responsibilities outside work. We have training programs to prepare our people, particularly those we have identified as high potential, for senior positions and we actively create opportunities such as appointing them to boards within the Steadfast Group, to assist professional development. We are formulating specific numerical targets to further improve gender diversity. Our Board receives regular gender diversity reporting and gender diversity is an important consideration in executive development and succession planning. Steadfast undertakes regular gender pay equity audits and acts to remedy any inconsistencies to drive gender pay equity. Steadfast is currently furbishing a parents’ room in our head office. This will be of great practical support for the increasing number of new parents in our team and ease their transition back to work. Gender We are committed to gender diversity at all levels Non-executive directors Key management personnel Senior executives Female Male 30% 70% Female Male 20% 80% Female Male 31% 69% Group-wide employees Promotions and transfers Participants in our manager development program Female Male 55% 45% Female Male 70% 30% Female Male 60% 40% Ethnic Steadfast has considerable ethnic diversity Head office employees place of birth Workforce language diversity Born outside of Australia Born in Australia 52% 48% Non-English speaking background 40% English speaking background 60% Age We have excellent age diversity Age diversity (Group wide) Under 30 years old Between 30 and 50 years old Over 50 years old 28% 61% 21% Social Continued Head Over Heels Portfolio Event, March 2019, Sydney Jobsupport Head Over Heels Dive In Steadfast employs two people from Steadfast supports gender diversity Steadfast supports Dive In – an annual Jobsupport who are making a valuable through its sponsorship of Heads Over weeklong festival for diversity and contribution to the day-to-day running Heels. Two of our executives also sit on inclusion in insurance. Dive In is a global of our head office. Jobsupport is the the Heads Over Heels advisory council. movement in the insurance sector to leading employment service for people Heads over Heels is a not-for-profit support the development of inclusive with intellectual disability in Australia organisation that actively supports women workplace cultures. Its mission is to enable and specialises in providing high quality entrepreneurs through providing access to people to achieve their potential by raising solutions for employers and support influential business networks. Its mission is awareness of the business case and for job seekers and employees with to eliminate the discrimination and gender promoting positive action for diversity in intellectual disability. inequality faced by women entrepreneurs all its forms. in Australia through enabling access to the business connections they need to grow their companies. Women in Insurance Wear it Purple Steadfast supports Women In Insurance, Steadfast supports Wear It Purple Day a not-for-profit organisation which was which strives to foster supportive, safe, established to provide a forum to support empowering and inclusive environments and develop women working in the for rainbow young people. Wear it Purple was founded in 2010 in response to global stories of real teenagers, real heartache and several young people taking their own lives following bullying and harassment resulting from the lack of acceptance of their sexuality or gender identity. insurance industry. 30 Support for Aboriginal & Torres Strait Islander peoples Reconciliation Action Plan Steadfast has committed to the development of our first It is through these relationships that we seek to have a Reconciliation Action Plan (RAP) as part of our broader positive impact within our sphere of influence. commitment to CSR and diversity and inclusion. We intend to explore opportunities to assist Aboriginal Steadfast’s RAP commitment lays the foundations for and Torres Strait Islander peoples within our sphere of us to establish meaningful and long-term relationships influence – particularly employment and enterprise. and contribute to reconciliation in a structured, relevant As well as seeking to employ more Aboriginal and and respectful way. We recognise that the pillars Torres Strait Islander peoples, we have invested in a of reconciliation include respect, relationships and business, Origin Insurance. It was founded and is run and opportunities and these are our guiding principles as we majority-owned by Aboriginal and Torres Strait Islander begin our reconciliation journey. people who we are supporting and we envisage it will We are committed to raising awareness and encouraging a deeper understanding of Aboriginal and Torres Strait continue to have a strong positive impact for Indigenous Australians as it grows. Islander peoples - including their culture, history, Steadfast has an entrepreneurial culture and we intend achievements and aspirations - throughout Steadfast. In to continue to explore opportunities to act within our this way we are building respect which will be critical to sphere of influence, and through our relationships, to achieving positive results. help forge reconciliation. We are both using existing relationships and forging new relationships, with Aboriginal and Torres Strait Islander communities through our business relationships. Indigenous Engagement Ambassador Steadfast has appointed David Liddiard OAM as our Indigenous Engagement Ambassador. For the past three decades, David has been committed to closing the education, health and wellbeing and employment gaps between Indigenous and non-Indigenous Australians. David is a Ngarabal from Northern NSW and a well-known passionate advocate of Indigenous Australians. David’s role includes representing Steadfast’s Indigenous commitment and programs, providing advice and facilitating Indigenous engagement and supporting the business interests of Steadfast. 31 David Liddiard OAM Steadfast Group Annual Report 2019 Social Continued Support for Indigenous children to participate in sport Underwriting Agencies of Australia (UAA), a Steadfast business, is a platinum partner of Central Coast Academy of Sport. UAA is in its fifth year of sponsoring the annual Indigenous Talent Program to ‘unearth’ local Indigenous talent from the Central Coast region and then provide scholarships to CCAS sports programs. The scholarships provide a localised training environment for eligible aspiring Aboriginal and Torres Strait Islander youth to access quality development opportunities and support for a number of sports. Each year, UAA provides 16 scholarships. Thousands of young Indigenous youth have benefitted from the program since inception. We are committed to raising awareness and encouraging a deeper understanding of Aboriginal and Torres Strait Islander peoples. UAA is a platinum partner of Central Coast Academy of Sports 32 Human Rights and Modern Slavery Steadfast rejects any form of modern slavery such as slavery, servitude, human trafficking and forced labour. We are committed to implementing controls to ensure it does not occur in our business and raising awareness about it in our own business and supply chain. We respect the human rights of our employees, customers and those of our suppliers and business partners. We aim to identify and manage risks related to human rights across our business and through our supply chain management. We manage and mitigate emerging threats, including cyber threats, by seeking to adhere to all legislation and appropriate risk management standards. Steadfast is committed to complying with relevant laws, community expectations and ethical standards related Privacy and security to human rights and modern slavery in respect of our Security of data and information is integral to building employees and business. Employees are encouraged and maintaining trust with our brokers and strategic to report any genuine concerns about modern slavery partners and is critical for our brokers to build relating to our people, business or supply chain. relationships with their customers. We are committed Steadfast acknowledges the potential for modern slavery to occur in our supply chains. Our suppliers are expected to manage their business in an ethical manner respecting human rights. In particular, suppliers are expected to ensure that all employees and contractors are legally entitled to work and no bonded, forced or involuntary labour, child labour, human trafficking or other forms of slavery employed in the delivery of their products and services to Steadfast. to protecting privacy and data security through implementing appropriate policies and procedures throughout our business, including in our technology platforms such as INSIGHT, our broker operating system. We manage and mitigate emerging threats, including cyber threats, by seeking to adhere to all legislation and appropriate risk management standards. 33 Steadfast Group Annual Report 2019 Social Continued Employee attraction, retention and engagement We are very proud of our culture and our approach to We test our employee engagement through annual CSR, including diversity and inclusion. We know that engagement surveys and analysis of retention and these are important to our people. They are important turnover, using the insights to find out what is important aspects of our employee attraction, retention and to our people and how we can keep improving. Our engagement strategy. We invest in developing our people. Steadfast has a formal talent development strategy and we actively develop our people. We have a dedicated training and development manager who delivers a substantial employee engagement surveys continue to place Steadfast in the ‘highly engaged’ zone of the engagement spectrum and is 10% above the Australian industry norm. Our levels of both voluntary and involuntary staff turnover are well below the industry average. number of training programs throughout the year at Steadfast offers an Additional Leave Purchase Scheme all levels. Steadfast’s College of Leadership offers our enabling our people to salary sacrifice to acquire current and future leaders the opportunity to develop additional annual leave to facilitate a better balance while exposing them to forward-thinking, relevant and between professional and personal lives. practical leadership methodology and application. In addition to leadership and management training, our people participate in annual development planning to ensure their continued technical and non-technical development. Steadfast has introduced a Short-Term Employee Incentive Scheme to increase market competitiveness and attract, retain and motivate our people. The scheme has been designed to ensure goal alignment throughout the business and also provides our people with the We continue to implement initiatives designed to opportunity to receive shares in Steadfast. As well as engage employees and build relationships, such as our salary and incentive arrangements, Steadfast offers a intranet, regular staff meetings and briefings, a formal wide-reaching benefits program for our people including performance review process, participation in a number travel insurances and discounts on a wide range of of community events, social activities and an off-site consumer goods and cars. bi-annual workshop. We have a graduate program and a school leavers’ Steadfast has a volunteer day. We encourage our people summer intern program. We are delighted in the quality to volunteer, on a day of paid employment, at a charity of people who have joined us, and stayed, through these of their choice. This initiative also strengthens the link programs. between Steadfast and the Steadfast Foundation as we encourage our people to volunteer for a charity supported by the Steadfast Foundation. 34 Health, safety and wellbeing We actively promote the health, safety and wellbeing of our people. We have had no material work, health and safety incidents. Our Board receives regular work, health and safety (WHS) reports and we are in the process of undergoing a comprehensive WHS external audit to review and practices and procedures and recommend improvements in these and WHS Board reporting. We have recently engaged with businesses within our Group to review their WHS compliance. We have a work, health and safety committee to provide a forum for our people to suggest initiatives and raise any concerns. We have recently renovated one floor of our head office. This has produced a fresh and innovative office space that boosts employee wellbeing through a better working environment. Our office layouts encourage collaboration and interaction, making it easier to exchange information and share ideas. Each desk in the new fitout is a sit and stand desk to promote better health. We arrange regular visits by ergonomic consultants to help employees set up their desks and provide ongoing guidance on posture. Steadfast has implemented a comprehensive health and wellbeing program. Some of our initiatives include complimentary: Life, total & permanent disability insurance. Health assessments and flu shot. Access to confidential external Employee Assistance. Programs (EAPs) for counselling to support mental health. Workplace health and safety training. A range of education and awareness of key health and wellbeing issues including physical fitness, nutrition, mental health and stress management. On-site yoga classes. Participation in the City 2 Surf. Fresh fruit bowls. Red Shield Appeal 2019 – Sydney Launch Event Steadfast Foundation The Steadfast Foundation is in its 8th year. In 2018, a second Foundation was also established by our New Zealand businesses to support local charities. Steadfast created the Steadfast Foundation to facilitate grants and charitable contributions that support charities helping people to overcome adversity, with approximately $470,000 donated during the 2018/19 financial year. Charities are often chosen based on the recommendations of Steadfast brokers, and include cancer research and support, mental health, children’s Steadfast supports flexible workplace initiatives to causes and charities supporting domestic violence, the recognise and respond to people’s different needs at homeless and disadvantaged. Some of the charities different stages of their lives and to help our people the Steadfast Foundation supported this year include: balance personal obligations with their careers. We offer Assistance Dogs; Breast Cancer WA; Cancer Patients paid parental leave at 12 weeks’ full pay. We engage Foundation; Create Foundation; EB Research; Make with our people when they are on parental leave, if they A Wish; Mary’s House; McGrath Foundation; Prostate wish, to maintain a sense of connectedness and ease Cancer; Salvation Army and Starlight Children’s’ the transition back to work. Foundation. 35 Steadfast Group Annual Report 2019 One example of a Steadfast business giving back is Community Broker Network (CBN). One of the ways CBN supports the community is through its support of Lifeline. CBN employees are encouraged to volunteer at Lifeline and the CBN conference in July 2019 raised $53,000 for Lifeline in donations from CBN authorised brokers. Lifeline is a national charity providing all Australians experiencing a personal crisis with access to 24 hour crisis support and suicide prevention services. Steadfast’s CEO Robert Kelly at St Vincent’s de Paul’s 2019 CEO Sleepout 36 Social Continued Other charities we support Steadfast has sponsored the Sydney Launch of the Red Shield Appeal for four years. This partnership with the Salvation Army has helped raised vital funds for The Salvation Army, as well as helping to raise awareness of The Salvation Army’s biggest fundraising campaign, the Red Shield Appeal. Each year The Salvation Army appeals to the Australian community to ensure The Salvation Army can give hope where it is needed most through the Salvos’ social welfare and community service programs. This includes providing shelter for people experiencing homelessness, assisting families in crisis through practical support and financial counselling, and guiding people with addictions through to a clean, healthy lifestyle. Steadfast supports Vinnies CEO Sleepout. Our MD & CEO, Robert Kelly, participated for his second time in 2019 and was the highest fundraiser at the Sydney event. Steadfast is proud to support his efforts to assist Australians experiencing homelessness, to raise awareness and bring home the realities of homelessness. Steadfast supports the Starlight Children’s Foundation. Each year Steadfast is represented at the Starlight Ball and we donate to support the Starlight Children’s Foundation in fulfilling its mission ‘To brighten the lives of seriously ill children and their families”. Many Steadfast businesses also have their own social responsibility programs and actively support and donate to community causes. In aggregate, businesses within our Group gave approximately $180,000 to charity in the FY19 year. In addition, $275,000 was raised at the Steadfast Convention to support Black Dog Institute from the generous donations of Steadfast brokers, our strategic partners and individuals. Governance Our governance framework Steadfast is committed to high standards of corporate governance so that our decisions and actions are based on the principles of transparency, integrity, responsibility and performance which promote the long term sustainability and ongoing success of our business. We strive to maintain a compliant and ethical culture in our business practices. Steadfast’s governance framework is crucial for the continuing success of its operations and long term viability and for protecting the interests of shareholders and other stakeholders. Our governance framework is explained in our Corporate Governance Statement. Our Board and Committee charters and corporate governance policies form part of our governance framework. These are all available on the corporate governance section of our investor website. Our Board Steadfast has a strong Board and Chairman. All of our non-executive directors (NEDs) are independent. All of our NEDs are also on each of our board committees: Audit & Risk Committee. Nomination Committee and Remuneration. Succession Planning Committee. Our Board is responsible for demonstrating leadership, defining Steadfast’s purpose and setting its strategic objectives. The Board oversees management’s implementation of our strategy, performance generally and instilling of values and culture. The Board monitors the effectiveness of Steadfast’s governance practices. The Board charter sets out the respective roles of the Board and management. The Board is structured to collectively have the skills, experience and industry knowledge to enable it to add value and discharge its duties effectively. Our Senior Management Team is responsible for implementing strategy and instilling and reinforcing our values and culture within our governance framework. Code of conduct Steadfast is committed to maintaining high ethical standards in how we conduct our business. Our code of conduct sets the standards we expect of our directors, employees and contractors and the expectation that employees act at all times consistently with Steadfast’s values and ethical standards, including in a legal, ethical and responsible manner. Material breaches of our code of conduct carry serious consequences and are reported to the Board. Whistleblowing Steadfast encourages employees to speak up when they see wrongdoing. We are committed to maintaining and continuously improving our strong legal, ethical and responsible culture. Whistleblowing plays an important role in increasing transparency and improving our culture. Our whistleblower policy sets out how employees can report concerns they may have about misconduct involving Steadfast or any of its related companies. It also sets out our approach to supporting whistleblowers and how Steadfast will protect them from harm. It explains what steps Steadfast will take to investigate a whistleblower’s concerns. Anti-bribery & corruption Steadfast prohibits the giving of bribes or other improper payments to public officials as these are serious criminal offences and can damage our reputation and are contrary to our legal, ethical and responsible culture. Steadfast has controls around the giving and receiving of gifts and hospitality and provides training for staff about how to recognise and deal with bribery or corruption. Material breaches of the policy carry serious consequences and are reported to the Board. 37 Steadfast Group Annual Report 2019 Governance Continued Compliance with law Executive remuneration Steadfast is subject to extensive legal and regulatory requirements and obligations, and business and ethical standards across our business activities. Compliance with these is critical to enable us to deliver our strategy and create long- term value for our shareholders. Our people must comply with all relevant laws and regulations as well as the technical and ethical requirements of relevant regulatory and professional bodies. Remuneration is a key driver of culture and a focus for investors. Steadfast aims to reward its executives with a level of remuneration commensurate with their responsibilities and position and their ability to influence shareholder value creation. Our incentive schemes are designed to align the interests of shareholders and executives, attract and retain high quality executives and encourage executives to strive to ensure that Steadfast outperforms the market on an ongoing basis without Steadfast provides mandatory compliance rewarding conduct that is contrary to training so that our employees understand Steadfast’s values or risk appetite. Steadfast all relevant laws, regulations and internal policies and how to adhere to them and sets key performance indicators for each executive which are linked to our culture apply them in their daily work. Employees and aligned to our strategic plan. must report all actual and potential breaches of law or regulations immediately. Risk management Steadfast has a sound risk management framework and regularly reviews the Succession planning Steadfast has a Board committee responsible for remuneration and effectiveness of that framework. We have succession planning. The Board takes a board committee which oversees risk, succession planning and executive and is chaired by an independent director employee development very seriously and whose members are all independent – for the Board, the Senior Management directors. Steadfast considers that Team as well as for the leaders of our recognising and managing risk is a crucial businesses. Senior management is responsible for succession planning throughout the business. Succession planning and executive and employee development is critical for the long term success of Steadfast. role of both the Board and management. Tax Steadfast has set a low tolerance for tax risk and seeks to comply with all applicable tax laws, regulations and disclosure requirements and to pay the amount that is legally required to be paid in all jurisdictions in which we operate. The Board has oversight of tax governance and the CFO is responsible for tax risk management and ensuring implementation of Steadfast’s tax risk framework. 38 2019 Financial Report Directors’ report Remuneration report – audited Lead auditor’s independence declaration Financial statements 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 financial statements Note 1. General information Note 2. Significant accounting policies Note 3. Critical accounting judgements, estimates and assumptions Note 4. Operating segments Note 5. Earnings per share Note 6. Dividends Note 7. Intangible assets and goodwill Note 8. Borrowings Note 9. Notes to the statement of changes in equity and reserves Note 10. Business combinations Note 11. Subsidiaries Note 12. Investments in associates Note 13. Investment in joint ventures Note 14. Trade and other receivables Note 15. Property, plant and equipment Note 16. Financial instruments Note 17. Contingencies Note 18. Commitments Note 19. Events after the reporting period Note 20. Share-based remuneration Note 21. Taxation Note 22. Notes to the statement of cash flows Note 23. Related party transactions Note 24. Parent entity information Note 25. Remuneration of auditors Directors’ declaration Independent auditor’s report Shareholders' information 40 56 79 80 82 84 86 87 87 97 99 103 104 106 108 111 113 117 120 122 123 124 124 127 127 127 128 130 133 133 135 136 137 138 143 3939 Directors’ Report The Directors present their report together with the consolidated financial statements of Steadfast Group Limited (Steadfast or the Company), its subsidiaries and interests in associates and joint ventures (collectively Steadfast Group or the Group) for the financial year ended 30 June 2019 (FY19) and the auditor’s report thereon. DIRECTORS The Directors of the Company at any time during or since the end of the financial year are as follows. Directors were in office for the entire period unless otherwise stated. Name CHAIRMAN Frank O’Halloran, AM MANAGING DIRECTOR & CEO Robert Kelly OTHER DIRECTORS David Liddy, AM Gai McGrath Anne O’Driscoll Philip Purcell Greg Rynenberg Date of appointment 21 October 2012 18 April 1996 1 January 2013 1 June 2018 1 July 2013 1 February 2013 10 August 1998 DIRECTORSHIPS OF OTHER LISTED COMPANIES Directorships of other listed companies held by the Directors in the three years preceding the end of the financial year are as follows: Name Frank O’Halloran, AM Robert Kelly David Liddy, AM Gai McGrath Anne O’Driscoll Philip Purcell Greg Rynenberg Company None Period of directorship Johns Lyng Group Limited Since 16 November 2017 Collection House Limited March 2012 to November 2016 EML Payments Limited Genworth Mortgage Insurance Australia Limited Since April 2012 Since August 2016 Investa Office Fund Infomedia Limited None None October 2017 to December 2018 Since December 2014 Particulars of the Directors’ qualifications and experience are set out under Board of Directors on page 18. Particulars of the Company Secretaries’ qualifications and experience are set out under Senior Management Team on page 21. 40 DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year were as follows: Board 8 Audit & Risk Committee Nomination Committee Remuneration & Succession Planning Committee 4 4 5 Eligible to attend as a member Attended as a member Eligible to attend as a member Attended as a member Eligible to attend as a member Attended as a member Eligible to attend as a member Attended as a member 8 8 8 8 8 8 8 8 8 8 8 8 8 8 4 - 4 4 4 4 4 4 - 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 - 5 5 5 5 5 5 - 5 5 5 5 5 Total number of meetings held Director Frank O’Halloran, AM Robert Kelly David Liddy, AM Gai McGrath Anne O’Driscoll Philip Purcell Greg Rynenberg Particular details of the responsibilities of the members of the Board and the various committees are set out in the Corporate Governance Statement in this report, and are also available in the corporate governance section of the Steadfast Investor website (http://investor.steadfast.com.au/). PRINCIPAL ACTIVITIES The principal activities of the Group during the financial year were the provision of services to Steadfast Network brokers, the distribution of insurance policies via insurance brokerages and underwriting agencies, and related services. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group. The Group continued to acquire insurance brokers and underwriting agencies during the year, as well as acquiring the remaining 50 percent interest in IQumulate Premium Funding Pty Ltd (formerly Macquarie Premium Funding Pty Limited). Refer Note 10. 41 Steadfast Group Annual Report 2019 Directors’ Report continued OPERATING AND FINANCIAL REVIEW A. OPERATING RESULTS FOR THE YEAR The trading results for the year are summarised as follows (refer Note 4): Revenue – consolidated entities Expenses – consolidated entities EBITA* – consolidated entities Share of EBITA from associates and joint ventures EBITA before non-trading items and adjustments for investment in listed securities Dividends and mark to market adjustments for investment in listed securities EBITA before non-trading items Finance costs Amortisation expense Profit before income tax before non-trading items Income tax expense on profit before non-trading items Profit after income tax before non-trading items Non-controlling interests in profit after tax before non-trading items Underlying net profit after income tax attributable to owners of Steadfast Group Limited (Underlying NPAT) Non-trading items: Income Expenses Income tax benefit/(expense) on non-trading items Non-controlling interests 2019 $’000 2018 $’000 688,263 567,014 (519,903) (427,511) 168,360 139,503 24,969 24,567 193,329 164,070 820 1,500 194,149 165,570 (14,610) (28,648) (10,578) (25,219) 150,891 129,773 (43,986) (40,844) 106,905 (17,708) 88,929 (13,967) 89,197 74,962 15,018 - (89) (281) 4,193 (3,026) 255 (530) Net profit after income tax attributable to owners of Steadfast Group Limited (NPAT) 103,845 75,854 Other comprehensive income/(expense) attributable to owners of Steadfast Group Limited 1,508 (200) Total comprehensive income after income tax attributable to owners of Steadfast Group Limited 105,353 75,654 Underlying diluted earnings per share (cents per share) Statutory diluted earnings per share (cents per share) 11.27 13.12 9.71 9.83 * EBITA refers to earnings before finance costs, tax and amortisation of acquired intangible assets. Refer Note 4 for reconciliation of underlying earnings (i.e. before non-trading items) to statutory earnings. The underlying profit attributable to the Group after income tax, before non-trading items was $89.197 million compared to $74.962 million in 30 June 2018. The increase was mainly due to: • revenue and profit growth generated by the existing businesses; • improved margins in these businesses derived through overall premium rate increases and efficiency gains; • increased professional services fee revenue in Australia and New Zealand; and • acquisitions of interests in further businesses. This additional profit was partially offset by higher income tax expense mainly from higher earnings. There was an increase in non-trading net gains during the year. Included in non-trading net gains are: • profits recognised as a result of re-measuring to fair value the equity interests in businesses that changed from associates or joint ventures to subsidiaries; • profit on sale of investments; and • income reported from downwards revised estimates of deferred acquisition payments where earnout arrangements existed. 42 Some of the financial data in section A on the previous page, namely the EBITA-related and non-trading items, are not disclosed in accordance with current Australian Accounting Standards requirements. However, all financial data is based on the information disclosed in the audited financial statements and notes to the financial statements of the Group and follow the recognition requirements of Australian Accounting Standards. B. REVIEW OF FINANCIAL CONDITION I. Financial position The total assets of the Group as at 30 June 2019 were $2,157.197 million compared to $1,745.265 million as at 30 June 2018. The increase was mainly attributable to the addition of assets from acquired businesses throughout the year as detailed in Note 10 to the financial statements and the growth of the business. Total liabilities of the Group as at 30 June 2019 were $1,061.945 million compared to $688.286 million as at 30 June 2018. The increase was mainly attributable to the assumption of liabilities from the newly acquired businesses and the additional debt utilised to fund the acquisitions, and the growth of the business. The increase in the Group’s equity from $1,056.979 million at 30 June 2018 to $1,095.252 million at 30 June 2019 largely reflects the retention of profits (net of dividends paid) and the reduction in retained earnings as a result of adopting new accounting standards. Refer Note 2B. The Group increased the multibank syndicated facility by $100.000 million to $385.000 million during FY19. As at balance date the Group had the capacity to borrow an additional $90.472 million from this facility. Subsequent to balance date this facility was extended by one year to August 2021. During the financial year the Group acquired the remaining interest of joint venture IQumulate Premium Funding Pty Ltd (IQumulate), previously Macquarie Premium Funding Pty Limited. IQumulate became the lender of record for its premium funding receivables in late June 2019. As new loans are written, this will bring all premium funding receivables onto the consolidated statement of financial position as receivables with the corresponding indebtedness to financiers recognised as a liability. The Group has applied AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 July 2018. The implementation of AASB 9 and AASB 15 resulted in the reduction of $1.699 million and $15.145 million respectively, to both retained earnings and net assets as at 1 July 2018. In addition, as part of the project undertaken in relation to the adoption of AASB 15 and AASB 9, including a comparison to global practices, the Group has also determined that it should no longer recognise a receivable in relation to the insurance premiums owed by policyholders upon entering into a policy. This is in recognition of the role of the Group’s insurance intermediaries and as such, they are not liable as principals for the insurance premiums. Similarly, the Group will not recognise a liability for insurance premiums payable to the insurer until cash is received from the policyholder. The impact of the change is a reduction in receivables from broking/underwriting agency operations and a reduction in payables on broking/underwriting agency operations. Fee and commission receivable is now included in trade and other receivables. The consolidated statement of financial position comparatives have been restated for this change in presentation. The change has no impact on the net assets of the Group. II. Cash from operations The net inflows of $161.348 million include net inflows from operating activities of $117.650 million and a net inflow of $43.698 million to broking accounts. The net operating cash flows, before broking trust account movements of $117.650 million, are 22% higher than those for the prior period, reflecting the continued growth of the Group. This amount represents the continued strong conversion of profit into cash inflows from which the dividends paid were funded, leaving the remaining free cash flow available for corporate activities, including acquisition of further business interests. III. Capital management As at 30 June 2019, the Company had a total of 793.036 million ordinary shares on issue which is unchanged from 30 June 2018. Shares were acquired on market for shareholders who opted to reinvest under the Company’s dividend reinvestment plan (DRP). The Company also funded the on market acquisition of shares by an employee share trust holding shares to meet obligations to Key Management Personnel (KMP) under share-based remuneration. The Board leverages the Group’s equity, adopting a maximum 30.0% total gearing ratio excluding premium funding operations. The total gearing ratio is defined as total borrowings of the Company and its subsidiaries excluding premium funding borrowings: total Group equity and total borrowings of the Company and its subsidiaries excluding premium funding borrowings. As at 30 June 2019, the Group’s total gearing ratio was 23.9% (2018: 17.5%). Refer Note 9C. 43 Steadfast Group Annual Report 2019 Directors’ Report continued STRATEGY AND PROSPECTS Steadfast’s business strategy is to continually grow shareholder value through continued expansion of the Steadfast insurance distribution model and related businesses domestically and internationally. The table below details the key strategies of the Group together with FY19 accomplishments and prospects for future years. Considerable achievements were delivered on each of the ongoing strategic objectives. Steadfast Group has a robust risk management framework which includes regularly assessing industry and Company-specific risks relevant to the Group and its prospects. The assessment of key risks and the strategies in place to manage them are detailed in the next section. The table below details the key strategies of the Group in FY19 together with FY19 accomplishments to date and future prospects. Strategy FY19 achievements Prospects and strategic initiatives • Refreshed services to Network based on • Continue to create competition for products for the benefit of the Network’s clients • Continue to develop the Steadfast brand • Continue to enhance and communicate the Network value proposition • Continue to attract new brokers to the Network • Provide marketing and business development initiatives to the Network • Continue to expand the services offered • Maintain the Steadfast Convention as the premier event in general insurance in Australia • Continue to grow Steadfast Direct • Continue to improve back and middle office functionality • Continued product development • Continued expansion of Steadfast Business Solutions • Continued provision of risk management services to the Network • Continue to grow the Superbinder • Continue to negotiate, and seek new opportunities with strategic partners including expanding our product range • Continue to develop international in-bound and out-bound referrals • Continue to develop Steadfast Placement Solutions • Launch Steadfast London broker • Continue to grow Steadfast Asia • Continue SCTP and technology initiatives • Continue FY19 strategic initiatives and build on FY19 achievements annual “Your Shout” survey including broker playbook & broker best practice Professional Development (PD) series & webinars supporting Network brokers through the post Hayne regulatory environment • Substantially increased broker usage of services • Regular communication with Network brokers further enhanced, including Town Hall meetings, training workshops, webinars, The Cover, which is distributed fortnightly • Extensive interaction between state-based Broker Network team and Network brokers • Steadfast Convention — again managed entirely in-house and continues to be the premier event in general insurance in Australia • Broker tools continue to be delivered across the Network • Continue to expand middle and back office services to Network via Steadfast Business Solutions • Enhanced risk management tools • Partnerships between underwriting agencies and strategic partners enhanced and working effectively • Product range with strategic partners expanded • SCTP and technology developments • Steadfast New Zealand and Asia highlighted below • New strategic partners continue to provide the Network with products and services to the Network that support the broker • Steadfast Convention continues to be extremely well supported by strategic partners • New strategic partners added to SCTP panel • Superbinder – added more syndicates and expanded capacity Maintain and develop premier service offering to Steadfast Network brokers Maintain, build and enhance our strategic relationships 44 Strategy FY19 achievements Prospects and strategic initiatives Drive growth organically and through acquisitions • 12 new Australian brokers joined the • Continue to apply strict cultural, risk and financial acquisition guidelines • Continue to implement management buy- ins, hubbing and the co-owner model • Continue to enhance and communicate the Network value proposition • Proactively seek out acquisition opportunities including from the broader broker market • Add new brokers to the Network • Drive increased profitability in some of the underlying businesses • High customer retention strategies • Moderate price increases from strategic partners to continue Network; 9 new brokers joined the Network outside of Australia • Organic EBITA growth of $17.9m • Acquisition EBITA growth of $11.3m • $117m net total investment in businesses • Initiatives executed to drive increased profitability in underlying businesses and support organic growth • Acquisition of equity in 4 new brokers/ underwriting agencies & increased holding in 12 equity brokers/underwriting agencies • Indirect investments in 3 additional brokerages and ARs which were acquired by existing equity investments (bolt-ons) • 3 equity investments in new start-ups • Additional brokers added to SBS accounting services • All acquisitions executed against disciplined criteria • Continued to assess potential acquisitions in the acquisition pipeline • Formation of Steadfast Risk Services to provide Engineering Survey Reports as well as Risk Advisory Services Expand and solidify our international reach • Continued underlying business expansion • Continue to investigate potential equity offshore opportunities offshore • Develop Steadfast Asia network • Continue to leverage strategic relationships to expand offshore • Continue to expand operating businesses offshore • Maximise the value of the unisonSteadfast relationship • Continue to expand and promote the London office and Steadfast’s Lloyd’s broker to the Network • Further grow Superbinder GWP including through our international network • New Zealand: 7 new brokers joined the Network • Launched the first ever contestable platform for SME business in New Zealand, with NZI and Ando • Established NZ Foundation for charity • Steadfast Asia: additional broker joined Network, number of brokerages is 14, represented by 47 offices • Continued collection and collation of GWP data for unisonSteadfast to understand footprint • unisonSteadfast relationship further enhanced and developed • Outbound and inbound placement requests increased through unisonSteadfast • Extensive engagement with global strategic partners about offshore expansion opportunities • Lloyd’s broker licence successfully completed • London office: placement services expanded and increasing business being placed for Steadfast and non-Steadfast brokers • Superbinder renewed and writing increasing GWP including through SCTP 45 Steadfast Group Annual Report 2019 Directors’ Report continued Strategy FY19 achievements Prospects and strategic initiatives Grow the Steadfast Client Trading Platform (SCTP) • SCTP rollout and growth continued • $440m GWP placed on SCTP, increased 91% • Drive superior client outcomes through increased SCTP usage year on year • Continue to develop and add further • 8 strategic partners live on panel for product lines Continue to develop and rollout our technology platforms Business Pack • 15 strategic partners live on SCTP • Further wordings developed and in review with strategic partners • Steadfast broker SCTP site enhancement • Bulk import team successfully supported brokers in migrating to SCTP • Ongoing training and support for brokers using SCTP • SCTP Liability auto-rating in Pilot with launch to Network in July 2019 • Implemented enhanced security policies and procedures • Enhanced efficiency projects • SCTP: see above • INSIGHT enhancements continued, further broker migrations completed, training provided • UnderwriterCentral: enhancements and further development continued, new products delivered, further migrations completed, business processes improved • Launched new investor relations website • Continue to add new strategic partners • Continue implementation of auto-rating interfaces with strategic partners • Continue to provide training and support to brokers including importing broker business • Successful completion of IBNA acquisition will provide further SCTP volumes • Continue to focus on delivering strong outcomes for our businesses and their clients • Continue to enhance security and efficiency • INSIGHT: continue to enhance and drive migrations • UnderwriterCentral: continue to enhance, expand and complete further rollouts 46 Strategy FY19 achievements Prospects and strategic initiatives Continue to enhance organisational capability and sustainability • FY19 financial results within guidance range • Continue FY19 strategic initiatives and build provided to shareholders on FY19 achievements • Executed $100m increase in syndicated • Further develop a culture of excellence debt facility to $385m, within Group gearing tolerance • MD & CEO agreed to remain in his role until end 2022 • Efficiencies driven with various internal initiatives successfully executed • Broker and underwriting agency margins further improved • Continuous review of industry and implications of the Royal Commission final report to ensure Steadfast remains industry leader • Engagement on issues of conflicted remuneration where they exist in general insurance in anticipation of the review recommended by the Royal Commission • Strong corporate governance and ongoing improvements in risk management and governance policies and procedures • Brand kept reputable and strong, brand that drives business performance including further enhancing systems and structures for staff development, succession planning, TOGETHER behaviour initiative, 360 degree assessment and appraisal • Optimise funding structure and financing • Continue to drive further efficiencies and challenge expense base • Continue to improve margins in underlying businesses • Continue to engage and prepare for review into conflicted remuneration recommended by Royal Commission • Continue Human Resources initiatives to further enhance Steadfast as an employer of choice that fosters the development and wellbeing of staff • Further create brand awareness, promote and protect brand • Meet or exceed expectations of all key awareness grown stakeholders • Continue to promote strong corporate governance including risk management and sustainability • Continue to promote an ethical culture • Provide technology solutions that support the key strategies and promote ongoing sustainability of Steadfast • Ensure remuneration practices are designed to retain and attract quality staff • Continue to build talent pipeline • Continue to be an industry leader in innovation and seek opportunities to ensure Steadfast remains strong and viable • Contribute to the community by supporting charities through the Steadfast Foundation, sponsorships and other initiatives • Strong, dynamic, ethical culture continues. Review of culture and values undertaken • Further developed a culture of excellence that drives business performance including further enhancing programs for staff and leadership development and training, succession planning and appraisal • Substantial contribution to community through corporate and social responsibility initiatives including Steadfast Foundation, Aboriginal reconciliation initiatives • Substantial contribution to the industry through sponsorships and other initiatives including Women in Insurance and the Dive In Festival supporting diversity and inclusion • A highly engaged workforce: engagement survey results in highly engaged zone • Delivered on numerous effective employee engagement and development strategies, health & wellbeing strategies • Recruited numerous new roles and awarded promotions; graduate program continues successfully 47 Steadfast Group Annual Report 2019 Directors’ Report continued RISKS In seeking to achieve its strategic goals, Steadfast is subject to a number of risks that may materially adversely affect operating and financial performance. Steadfast adopts a rigorous risk management process, which is an integral part of the Company’s corporate governance structure, and monitors those risks to which it is exposed that are outside the Group’s control. Some of the key risks include: Risk Description Risk management strategies Investment and acquisition risk: A. Acquiring and holding equity in operating businesses • Insufficient funding to capitalise on • Ongoing monitoring of available capital and opportunities resources • Deficiencies in due diligence by Steadfast • Transition to new owners may be disruptive and costly • Potential unknown or contingent liabilities • Reliance on partners performing satisfactorily • Experienced management team to assess opportunities and risks • Stringent due diligence • Selecting acquisitions that are expected to transition well and have good cultural fit • Tight acquisition and shareholders’ agreements • Thorough transition management • Close oversight of ongoing operations, profit and profit margins, including continual reporting and reviews • Business continuity planning • Earn-out / deferred consideration arrangements B. Investment impairment risk • Investments that are subject to a permanent decrease in value, with the subsequent impairment resulting in an expense for the Group • Close monitoring of investments • Steadfast works with management of businesses in which Steadfast is invested to optimise results 48 Risk Description Risk management strategies Reduction in income caused by: A. Loss of Steadfast Network brokers B. Reduction in Professional Services fees, commission or advice fees • Network brokers can leave the Steadfast Network at any time, potentially resulting in a reduction in Professional Services fees for Steadfast • Strategic partners may seek to reduce Professional Services fees paid to Steadfast • Strategic partners may seek to reduce remuneration paid to brokers and/or agencies • Potential reduction in remuneration if strategic partners are lost and not replaced within appropriate timeframe • Potential reduction in broker remuneration due to change in remuneration structures driven by strategic partners, clients or regulators. C. Reduction in GWP in the Australian and New Zealand general insurance markets • Steadfast Group has a number of revenue sources linked to size and growth of GWP in the Australian and New Zealand markets • GWP is influenced by factors including pricing decisions by strategic partners and level of demand for general insurance products (which can be influenced by economic conditions) • Any softening in local and global economic conditions would be expected to lead to a softening in the level of GWP Loss of capacity for underwriting agencies • Risk the underwriter withdraws capacity for strategic reasons (exit of lines of business or country exit) • Risk an underwriter withdraws due to uneconomic underwriting results • Provision of excellent services and support to Steadfast Network brokers, including Steadfast Client Trading Platform (SCTP) • Considerable ongoing engagement with Network brokers, including seeking and addressing feedback • Conversion of Network brokers to Steadfast proprietary INSIGHT broking system • Continue to provide excellent value proposition and service to clients • Diversity of earnings via a number of revenue sources, e.g. Professional Services fees, profits from operating businesses derived from commission, fees and other revenue • Continue to engage strategic partners and offer a powerful value proposition to them (including SCTP) to justify the Professional Services fees and commission rates • Operating businesses seek to increase fees to mitigate any loss of commission arising from reduced premiums • Significant effort expended in maintaining and strengthening relationships with strategic partners, most of whom are longstanding • Continually adding new strategic partners • Initiatives to increase the size of the Steadfast Network, make further investments in insurance brokers and underwriting agencies and other strategic initiatives (including increasing fee income) have the capacity to partially offset pressure on profitability of any softening in GWP • Small-to-medium enterprises (SMEs) sector, which accounts for 85%+ of Steadfast’s total GWP sold through the Steadfast Network, has historically experienced higher growth in GWP with less volatility compared to the large corporate sector • Growth opportunities in other markets, e.g. Steadfast Direct, Asia and other international markets • Longstanding delivery of acceptable results to underwriters • Longstanding strong relationships with both incumbent underwriters and/or alternative capacity to ensure replacement capacity is available • Steadfast Underwriting Agencies (SUA) has a diverse range of specialist products and capacity providers • Establishment of London Superbinder provides better access to deeper insurance markets 49 Steadfast Group Annual Report 2019 Directors’ Report continued Risk Description Risk management strategies Increased competition or industry disruption: A. Increased competition or market change • Increased competition from new entrants and existing market participants, including increased commoditisation of business insurance products • Diversity in investments (i.e. portfolio of underwriting agencies, premium funding and complementary services as well as insurance broking) • Changes in the remuneration model for insurance brokers or underwriting agencies • Increased competition or change in market • Diversity in earnings (e.g. Professional Services fees as well as profits from investments) structure for premium funding • Geographical spread of the businesses of • More customers buying direct from subsidiaries and associates strategic partners through the internet • Continue to develop the Steadfast Direct offering • Provide leading technology solutions to retain and attract customers B. Disruption risk • Risk of business model disruption due to • Steadfast constantly monitors and evaluates external factors including, but not limited to technological developments, new business models developed by existing competitors and regulation changes international and local developments impacting the Steadfast business model and other industries to learn about disruption opportunities as they emerge • Develop leading technology offering to enable intermediaries to be more efficient and effective C. Regulatory risk • The Hayne Royal Commission has • Work with key industry groups to proactively recommended that the Government in consultation with ASIC review the effectiveness of measures that have been implemented by Government, regulators and financial services entities to improve quality of financial advice. This review is to be undertaken by December 2022. The review will consider whether each remaining exemption to the ban on conflicted remuneration (specifically commissions) remains justified, including the exemptions for general insurance products and consumer credit insurance products. These changes may impact Steadfast Group’s remuneration structure. • Risk that Steadfast’s subsidiaries and associates may not individually comply with their Australian Financial Services Licence requirements or financial services regulation more generally and their licence may be in the worst case suspended or withdrawn • Risk that regulatory changes may impact the Group’s or entities within the Group’s business model either through costly and burdensome regulations or from the structure and management of the operations. engage with the Government and regulators on the benefits to clients of the current operating model for our industry • Along with other broker representative organisations, the Group monitors and consults on regulatory changes with regulators to ensure changes are introduced in the most efficient way for the industry and to minimise unintended consequences • Continue to implement Steadfast Client Trading Platform, a contestable marketplace with consistent commission rates • Initial due diligence on acquisitions includes reviews of historical and current compliance. Steadfast also provides a range of services to advise and assist the entities within the Group with regulatory change and compliance • Continue to monitor the entities within the Group from an operations viewpoint • An ongoing internal audit program, which includes a review of compliance 50 Risk Description Risk management strategies International expansion risk • Steadfast business model, skills, services and experience may not be transferable and successful in other countries • Seek to invest in offshore opportunities in a capital-light manner whilst proving business opportunity • Management may lose focus on domestic • Due diligence is performed on each operations resulting in missed opportunities or operational issues may not be addressed on a timely basis Technology & Cyber security • Cybercrime targeting Steadfast may materially negatively impact the ability to deliver services to clients and to safeguard broker, agency and client data • Failure of key internal and cloud systems would be detrimental to business performance and ability to deliver services • Migration, implementation or other IT failure issues for INSIGHT and UnderwriterCentral systems may adversely impact business growth country to ensure Steadfast will add value to the country. Steadfast takes time to assemble a compelling deliverable offer for each new market • Appropriate resources engaged in both domestic and international operations. Resource levels regularly monitored and operating performance levels reviewed using internal and external inputs • Monitoring percentage of funds invested overseas including regional allocation • A security roadmap underpinned by an ongoing improvement program that is led by an IT security officer is in place to minimise the occurrence and the impact of cybercrime • Processes in place and being further developed based on industry best practice, which are designed to maintain system availability and support ongoing business operations • Dedicated teams focussing on migration, implementation, continued development and support are in place with processes validated through a program for external compliance audits aimed at sustainable performance • Cyber insurance policies held 51 Steadfast Group Annual Report 2019 Directors’ Report continued Risk Description Risk management strategies People, conduct and culture risk: A. Loss of key people • Loss of key executives • Loss of key individuals in operating businesses with consequential material business interruption • Potential loss of key customer relationships B. Fraud or • Fraud or embezzlement embezzlement of Group or client funds C. Conduct and culture risk • Employees may act in a way that is not consistent with the expected behaviours, culture and values of the Group. This can result in financial loss or reputational damage that impacts the relationship with clients, brokers, partners, regulators and/or stakeholders. • Succession planning • Appropriate earn-outs, shareholdings and restraints to protect ongoing business • Market competitive remuneration • Career development opportunities • Long-term incentive arrangements • Appropriate policies and procedures implemented and regularly reviewed • Fidelity insurance held • INSIGHT broker system improving day-to- day broker transparency, system controls and audit trails • Established internal audit program across investees • Effective tone set from the top • Employ people who fit the culture • Regular performance reviews and feedback for staff • Staff training • Regular monitoring and governance • 360 degree assessments, based on TOGETHER initiative, Steadfast’s core cultural behaviours 52 DIVIDENDS Details of dividends paid or declared by the Company are set out in Note 6 to the financial statements. During the financial year ended 30 June 2019, a final dividend for 2018 of 4.7 cents per share and an interim dividend for 2019 of 3.2 cents per share were declared and paid, both fully franked. EVENTS AFTER THE REPORTING PERIOD • On 20 August 2019, the Board declared a final dividend for 2019 of 5.3 cents per share, 100% franked. The dividend will be paid on 20 September 2019. • The $385.000 million multibank syndicated facility (corporate facility) with Macquarie Bank and ANZ Banking Group was extended a further year in August 2019 with a revised maturity date of August 2021. • Steadfast Group has launched a takeover bid for Insurance Brokers Network Australia Limited (IBNA), with up to $70.000 million of scrip to be issued to IBNA members should the offer be accepted. This is expected to produce an additional circa $8.000 million in annual pre-tax underlying earnings to the Group. The consideration paid will be expensed in accordance with accounting standards in the Group's FY20 statutory accounts (and could cause a statutory loss) and will be excluded from normalised underlying earnings. • In July 2019 the Group announced that it will seek expressions of interest from Steadfast Network brokerages in Australia and New Zealand to receive either cash or shares in exchange for renouncing rights to rebates from professional service fees (PSF rebate) from 1 July 2019. The outcome is yet to be determined. It is anticipated that any consideration to be paid (being the issue of shares or payment of cash) will be expensed in accordance with accounting standards in the Group's FY20 statutory accounts (and could cause a statutory loss) and will be excluded from normalised underlying earnings. • The premium funding debt facility of IQumulate that commenced in June 2019 has continued to be drawn upon, with a corresponding increase in premium funding receivables as security against these loans. • The Group is undertaking a fully underwritten placement to raise approximately $100.000 million together with an accompanying Share Purchase Plan. LIKELY DEVELOPMENTS The Group’s ongoing business strategy is to grow shareholder value through maintaining and growing its market position in the provision of insurance and related services, with a core focus on general insurance intermediation. Please refer to the Strategy and Prospects section of the Directors’ report. The Group continues to work closely with the management team of each acquired business, and allow each business to operate in a manner consistent with the Group’s co-ownership model. In most cases, this model involves ongoing equity participation of key management personnel in the business acquired. Our FY20 guidance* is underlying EBITA of between $215.000 million and $225.000 million and underlying NPAT of between $100.000 million and $110.000 million. This equates to 5% to 10% growth in underlying earnings per share (NPAT). This is subject to: • strategic partners continuing to drive moderate premium price increases; • increasing contribution from Steadfast Client Trading Platform; • ongoing technology investment; • a minimum 80% acceptance of the proposed Insurance Brokers Network Australia Limited (IBNA) takeover offer; • a minimum 33% acceptance of the proposed PSF rebate capitalisation offer through the issuance of ordinary shares; and • the completion of the fully underwritten placement to raise approximately $100.000 million and accompanying Share Purchase Plan. *Refer to pages 48 to 52 on key risks. 53 Steadfast Group Annual Report 2019 Directors’ Report continued ENVIRONMENTAL REGULATION The Group’s operations are not subject to any particular significant environmental regulations under a law of the Commonwealth or under State or Territory legislation. INDEMNIFICATION AND INSURANCE OF OFFICERS In accordance with its Constitution, and where permitted under relevant legislation or regulation, the Company indemnifies the Directors and Officers against all liabilities to another person that may arise from their position as Directors or Officers of the Company and its subsidiaries, except if, in the Board’s reasonable opinion, the liability arises out of conduct that is fraudulent, criminal, dishonest or a wilful default of the Directors’ or Officers’ duties. In accordance with the provisions of the Corporations Act 2001, the Company has insured the Directors and Officers against liabilities incurred in their role as Directors and Officers of the Company. The terms of the insurance policy, including the premium, are subject to confidentiality clauses and therefore the Company is prohibited from disclosing the nature of the liabilities covered and the premium paid. NON-AUDIT SERVICES During the financial year, KPMG, the Group’s auditor, performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided by the auditor and is satisfied that the provision of those non-audit services is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services engagements were subject to the corporate governance procedures adopted by the Group, and have been reviewed by the Audit & Risk Committee to ensure they do not affect the integrity and objectivity of the auditor; and • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its network firms, for audit and non-audit services provided during the financial year are provided in Note 25 to the financial statements. LEAD AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration is set out on page 79 and forms part of the Directors’ Report for the year ended 30 June 2019. 54 Dear Shareholders On behalf of Steadfast Group Board, I am pleased to present the Remuneration Report for the year ended 30 June 2019. The purpose of this report is to outline Steadfast Group’s approach to remuneration for Executives and Non-Executive Directors, and in particular, the links between Steadfast Group’s remuneration framework and business strategy, performance and reward. The Group reported underlying earnings before interest, tax and amortisation (EBITA) of $193 million and underlying net profit after tax (NPAT) of $89 million. This represents an 18% increase in underlying EBITA and a 19% increase in underlying NPAT over the prior year; and is at the top end of Steadfast Group’s guidance range which was upgraded in October 2018. Steadfast Group is committed to ensuring its remuneration framework rewards decision making by Executives that is aligned with the long-term interests of shareholders. This is achieved through allowing Steadfast Group’s people to be rewarded financially in the form of both short and long-term remuneration as shareholder value is created. The objectives of Steadfast Group’s remuneration framework are to: • maintain market competitive remuneration that enables the Group to attract and retain key talent; • align remuneration to the Group’s strategic and business objectives and the creation of shareholder value; • be fair, transparent and easily understood by all stakeholders; and • be acceptable to shareholders and meet community expectations. The Board continually reviews Steadfast Group’s existing remuneration arrangements to ensure that our framework is fit- for-purpose and continues to support our strategic and business objectives. In particular, the Board focuses on ensuring the remuneration framework supports sustainable long-term value creation for Steadfast Group shareholders while also retaining and attracting Executives in a dynamic business environment. In making any adjustments, our remuneration principles of simplicity, fair and transparent, shareholder aligned and competitive are followed. We believe our remuneration structure has clearly demonstrated delivering Group results in the best interests of our shareholders. I am pleased to report that the Group’s underlying EPS growth for the financial year was 16% or 11.27 cents per share. The Total Shareholder Return (TSR) since listing in 2013 has been 239%. There were no significant adjustments made to remuneration outcomes in the current year under review. No material changes in our remuneration structure have been proposed for the 2019/20 year. In summary, the Board has sought to ensure our Key Management Personnel (KMP) think and act like owners of Steadfast Group, and so rather than pay out cash rewards for STI and LTI, the majority of our rewards are made in equity. We welcome any feedback you may have on our remuneration framework as we continue to ensure it is meeting the needs and expectations of our shareholders, employees and other stakeholders. On behalf of the Board, we recommend this report to you. David Liddy AM Chairman, Remuneration and Succession Planning Committee 55 Steadfast Group Annual Report 2019 Remuneration Report 1. 1.1 2. 2.1 Introduction Key management personnel Remuneration outcomes for 2019 Link between Steadfast’s performance and remuneration 2.2 Maximum potential and actual STI and LTI outcomes 2.3 2.4 3. 3.1 Targeted maximum potential and actual remuneration mix STI and LTI vesting information 2019 Remuneration explained Remuneration framework 3.1.1 Target remuneration mix 3.2 3.3 3.4 3.5 Fixed remuneration Short-term incentives Long-term incentives Keeping executives’ and shareholders’ interest aligned 4.0 Remuneration in detail 4.1 4.2 4.3 Statutory remuneration disclosure Conditional rights Executive service agreements 4.3.1 Retrenchment entitlements 4.3.2 Termination under other situations 5. 5.1 Non-Executive Director remuneration Fee structure and policy 5.2 Minimum shareholding requirement 5.3 Remuneration details for Non-Executive Directors 6. 6.1 Additional information Remuneration governance 6.1.1 Role of the Remuneration & Succession Planning Committee 6.1.2 Use of remuneration consultant 6.2 6.3 6.4 6.5 Valuation of conditional rights Shareholdings Executive loans Related party transactions 57 57 58 58 62 63 63 64 65 65 67 67 68 70 71 71 72 72 72 72 73 73 73 74 74 74 74 75 75 76 77 78 5656 Remuneration Report – Audited 1. INTRODUCTION The Remuneration Report outlines Steadfast’s remuneration philosophy, framework and outcomes for the financial year ended 30 June 2019 (FY19) for all key management personnel (KMP), including all Non-Executive Directors and the Executive Team made up of the Managing Director & Chief Executive Officer (MD & CEO) and certain direct reports. KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly and indirectly. 1.1 Key management personnel The current KMP of the Group for the entire financial year unless otherwise stated, are as follows: Name Role Date of appointment Non-Executive Directors Frank O’Halloran, AM(a)(d) Chairman, Non-Executive Director David Liddy, AM(b)(d) Non-Executive Director Gai McGrath(d) Non-Executive Director Anne O’Driscoll(c)(d) Non-Executive Director Philip Purcell(d) Non-Executive Director Greg Rynenberg(d) Non-Executive Director Executive Director 21 October 2012 1 January 2013 1 June 2018 1 July 2013 1 February 2013 10 August 1998 Robert Kelly Managing Director & CEO 18 April 1996 Other key management Stephen Humphrys Chief Financial Officer Samantha Hollman Chief Operating Officer CEO, Steadfast Underwriting Agencies Executive General Manager – Direct, New Zealand & Asia 5 December 2002 Group Company Secretary & Corporate Counsel 3 June 2013 2 January 2013 4 January 2000 1 January 2015 Simon Lightbody Allan Reynolds Linda Ellis Table notes (a) Frank O’Halloran is Chairman of the Nomination Committee. (b) David Liddy is Chairman of the Remuneration & Succession Planning Committee. (c) Anne O’Driscoll is Chairman of the Audit & Risk Committee. (d) All Non-Executive Directors listed in the table above are independent directors. 57 Steadfast Group Annual Report 2019 Directors’ Report continued 2. REMUNERATION OUTCOMES FOR 2019 The following table outlines the returns the Group delivered to its shareholders. 2.1 Link between Steadfast’s performance and remuneration Earnings per share (EPS) is used as a core financial measure for determining incentives payable to the Executive Team for FY19, and together with achievement against annual individual key performance objectives, remains the financial performance measure for short-term incentives (STI). The EPS used in determining STI and the long-term incentive plan (LTI) for FY19 excludes non-trading income and expenses approved by the Board. This is consistent with prior year calculations. In addition to EPS growth, the Board has adopted Total Shareholder Return (TSR) as a second financial performance measure for LTI awarded in August 2016 and beyond. This is a result of the Board’s ongoing review of remuneration strategy to further strengthen the alignment between shareholder returns and executive remuneration. There were no changes in FY19. TSR is calculated as the change in share price plus dividends declared and any capital returns measured over the financial year together with a future three-year vesting period. 58 Historical data pertaining to the key financial metrics involved in calculating STI and LTI are shown in the table below. Reported net profit attributable to owners of the Company 42,104 73,480 66,792 75,854 103,845 2015 $'000 2016 $'000 2017 $'000 2018 $'000 2019 $'000 The reconciliation on the reported EPS to the underlying EPS used for STI and LTI is as follows: 2015(a) $’000 2016 $’000 2017 $’000 2018 $’000 2019 $’000 Reported net profit attributable to owners of the Company Less: non-trading income (Note 4 (i)) Add: non-trading expenses (Note 4 (i)) Less: non-trading tax effect (Note 4 (i)) Less: non-controlling interests in non-trading items (net of tax) Less: share of EBITA from associates and joint ventures Underlying net profit attributable to owners of the Company (Note 4) Underlying diluted EPS (cents per share) (Note 5A) Growth from prior financial year (%) Growth required for minimum STI (%) Growth required for maximum STI (%)(c) UBS weighted EPS growth for industrial companies (%)(b) UBS weighted EPS growth for finance sector (%)(b) Opening share price ($) Closing share price ($) Change in share price (cents per share) Dividends declared per share (cents per share) TSR for the year (cents per share) TSR for the year (%) Dividend paid Table notes 75,854 103,845 42,104 (3,186) 3,302 (126) - - 73,480 (27,173) 18,572 (4,551) 119 - 66,792 (8,449) 7,866 884 (4,193) 3,026 (255) (554) 530 (147) - (15,018) - 89 281 - 42,094 60,447 66,392 74,962 89,197 7.24 16.4% 5.0% 15.0% 5.8% 3.6% 1.26 1.62 36.0 5.0 41.0 32.5% 23,611 8.09 11.8% 5.0% 12.5% (3.0%) (4.6%) 1.62 1.98 36.0 6.0 42.0 8.87 9.6% 5.0% 10.0% 6.4% 3.0% 1.98 2.66 68.0 7.0 75.0 25.9% 40,297 37.9% 46,485 9.71 9.5% 5.0% 10.0% 6.8% (1.8%) 2.66 2.81 15.0 7.5 22.5 8.5% 55,195 11.27 16.1% 5.0% 10.0% 0.3% (0.9%) 2.81 3.51 70.0 8.5 78.5 27.9% 62,649 (a) The diluted EPS is adjusted for the bonus element of the rights issue completed in March 2015. (b) Data sourced from Australian Equity Strategy report published by UBS in July 2019. Figures shown for 2018 above are actual (figures in 2018 Annual Report were estimates). Figures shown for 2019 are estimates. (c) Figures represent growth required for maximum STI granted in August 2015, 2016, 2017, 2018 and 2019. 59 Steadfast Group Annual Report 2019 Directors’ Report continued Underlying diluted EPS (cents per share) The graph below shows the base, minimum, maximum and actual underlying diluted EPS (cents per share) used for determining STI and LTI for the financial years ended 30 June 2013 to 30 June 2019. The underlying diluted EPS for the prior financial year is the base used for calculating growth for the following financial year. No STI is payable if the growth in underlying diluted EPS is less than 5%. The maximum STI is awarded if the underlying diluted EPS growth is 15% or higher for the awards granted in August 2014 and 2015; 12.5% or higher for awards granted in August 2016; 10% or higher for awards granted in August 2017, 2018 and 2019. Underlying diluted EPS growth accounts for 75% weighting on LTI awards granted in August 2016 and beyond (previously: 100%), which is not payable unless at least 5% straight line growth is achieved over a future three-year vesting period for the LTI awards in August 2017 and beyond (previously: 5% compound growth). The underlying diluted EPS growth in FY19 was 16.1%, which was well ahead of initial expectations due to actions taken by management during the year, including: • outperformance by a number of our businesses particularly underwriting agencies with strong market share growth; • strategic acquisitions; and • continued growth of the Steadfast Network. Underlying diluted EPS (for awards granted in August of the financial year) 11.27 9.71 8.87 8.09 7.24 6.22 5.22 FY13* FY14 FY15 FY16 FY17 FY18 FY19 Base EPS Min 5% growth Max 10-15% growth Actual EPS * FY13 data is based on pro-forma financial information as if the Group operations, which listed in August 2013, had operated as the Group for FY13. 60 Total Shareholder Return (TSR) The graph below shows the Company’s TSR in FY19 as well as the cumulative TSR since FY17, compared against the median TSR of the top 200 ASX companies excluding those in the mining industry (peer group). TSR accounts for 25% weighting on LTI award granted in August 2016 and beyond (previously: nil weighting), which is not payable unless at least at or above 50th percentile (August 2016 grants: at average) of the peer group is achieved over the reporting year and the future three-year vesting period. 100.0% FY19 TSR FY18 - FY19 TSR FY17 - FY19 TSR 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% TSR = 88.9% 11.6% 77.3% TSR = 27.9% 3.0% 24.9% 75th percentile 23.2% 50th percentile 5.5% TSR = 38.0% 6.0% 32.0% 75th percentile 38.1% 50th percentile 12.8% FY19 SDF Share price Dividend FY18-FY19 SDF FY17-FY19 SDF 75th percentile 57.3% 50th percentile 32.4% 61 Steadfast Group Annual Report 2019 Directors’ Report continued 2.2 Maximum potential and actual STI and LTI outcomes All participants of the STI and LTI schemes have to achieve at least 60% of their annual key performance objectives to be eligible for any incentive payments. The MD & CEO’s performance against his annual key performance indicators (KPIs) set at the beginning of FY19 is set out below: FY19 performance measures Weighting % Achieved % Comments • Achieve or exceed budgeted growth of 11.3% in underlying NPAT • Maintain or improve EBITA margin (aggregated) of 31% • Further development of key staff including increased delegation of responsibilities • Achieve FY19 target for net improvement over prior year in NPAT of $1.5m from Steadfast Client Trading Platform (SCTP) • Achieve organic growth in revenue of at least 5% • Grow Steadfast Network • Generate new fee revenue from the Singapore Network and unisonSteadfast • Successful implementation of INSIGHT and back office technologies to improve efficiencies 20 15 15 10 10 10 10 10 100 20 Actual growth is 19% in underlying NPAT Traditional brokers 32%, reduced to 29% in total due to acquisitions Material progress in developing key staff and delegation increased 12 10 SCTP slightly behind target due to delays from strategic partners 5 10 Achieved 12.6% organic growth in revenue Steadfast Network brokers grew from 377 to 398 Some new fee revenue generated but progress is slow Continued strong progress in broker participation 10 5 8 80 The above scorecard shows more than 60% of KPIs were achieved. The table below provides details of maximum potential STI and LTI, and actual STI and LTI awarded to KMP. Maximum STI potential (% of fixed pay) Actual STI outcome(a) (% of fixed pay) STI – cash outcome (60% of outcome) $ Fixed pay $ STI – deferred equity award outcome (40% of outcome) $(b) Maximum LTI potential (% of fixed pay) Actual LTI outcome(a) (% of fixed pay) LTI – deferred equity award outcome $(b) Robert Kelly 1,015,000 150.00% 150.00% 913,500 609,000 100.00% 100.00% 1,015,000 Stephen Humphrys 557,000 100.00% 100.00% 334,200 222,800 Samantha Hollman 463,500 100.00% 100.00% 278,100 185,400 Simon Lightbody 479,000 100.00% 100.00% 287,400 191,600 Allan Reynolds Linda Ellis Table notes 430,000 260,750 50.00% 50.00% 50.00% 129,000 86,000 50.00% 78,225 52,150 75.00% 50.00% 50.00% 50.00% 50.00% 75.00% 417,750 50.00% 231,750 50.00% 239,500 50.00% 215,000 50.00% 130,375 (a) All participants of the FY19 STI and LTI schemes have exceeded the 60% non-financial performance hurdle and therefore are eligible. (b) The number of conditional rights to be granted to the Executive Team has been determined by the dollar value of the deferred equity award (DEA) outcome divided by the weighted average share price over the five trading days prior to the date of this report. The LTI award outcome is subject to meeting future financial performance hurdles detailed in Section 3.4. 62 2.3 Targeted maximum potential and actual remuneration mix for FY19 Robert Kelly Targeted Maximum Robert Kelly Actual Stephen Humphrys Targeted Maximum Stephen Humphrys Actual Samantha Hollman Targeted Maximum Samantha Hollman Actual Simon Lightbody Targeted Maximum Simon Lightbody Actual Allan Reynolds Targeted Maximum Allan Reynolds Actual Linda Ellis Targeted Maximum Linda Ellis Actual 29% 29% 36% 36% 25% 25% 22% 22% 17% 17% 15% 15% 40% 40% 40% 40% 50% 50% 50% 50% 24% 24% 24% 24% 15% 15% 15% 15% 16% 16% 16% 16% 10% 10% 10% 10% 29% 29% 27% 27% 20% 20% 20% 20% 25% 25% 25% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fixed remuneration At risk – STI cash At risk – STI deferred At risk – LTI 2.4 STI and LTI vesting information Summary of vesting conditions on the STI and LTI plans are as detailed below: STI LTI Vesting conditions • Tenure of employment • No material adverse change to the FY19 reported results over the retention period of three years • Refer Section 3.3 for more details including award conditions • Awarded in August 2018 • Tenure of employment • Achieve at least 60% of the annual key performance objectives • 75% based on average diluted EPS increasing by a straight line 5% to 10% per annum over a three-year vesting period: vesting made on a 50-100% straight line basis. • 25% based on minimum TSR measured against 50th to 75th percentile of the peer group • Refer Section 3.4 for more details including award conditions 63 Steadfast Group Annual Report 2019 Directors’ Report continued The vesting schedule for DEAs of conditional rights to convert to Steadfast ordinary shares that were on foot during the financial year or granted since is set out below, subject at all time to the vesting conditions being met (refer Section 6.2 for the vesting date of the STI and LTI conditional rights): DEA awarded August 2018 August 2019 August 2020 August 2021 August 2022 August 2014 August 2015 August 2016 August 2017 August 2018 August 2019 STI LTI STI LTI STI LTI STI LTI STI LTI STI LTI Vesting occurs three years after grant date Vesting occurs five years after grant date Vesting occurs in three equal tranches after one, two, and three years from grant date Details of the Steadfast ordinary shares transferred to the relevant Executive Team members (at nil cost to them) for the DEAs that vested during the current financial year are set out in Section 6.3. 3. 2019 REMUNERATION EXPLAINED The listing of the Company necessitated the introduction of a remuneration structure that aligns with ASX Corporate Governance Principles & Practice (3rd edition) and commenced from 1 July 2013. The Group aims to reward executives with a level of remuneration commensurate with their responsibilities and position within the Group and their ability to influence shareholder value creation. The incentive schemes are designed to encourage participants to strive to ensure Steadfast outperforms the market on an ongoing basis (refer table 2.1 for EPS growth comparison against the finance sector and broader market). The remuneration framework links rewards with the strategic goals and performance of the individual and the Group and provides a market competitive mix of both fixed and variable rewards. To retain and attract high calibre employees, the Group has adopted an approach to position fixed remuneration and total remuneration around the 75th percentile. Key Performance Indicators (KPIs) together with weightings are established for each individual and are aligned to the Group’s strategic objectives. The key elements of the executive remuneration are: • fixed remuneration consisting of cash salary, superannuation and non-monetary benefits (Section 3.2); • an annual incentive referred to as short-term incentive (STI) plan (Section 3.3); and • a long-term incentive referred to as long-term incentive (LTI) plan (Section 3.4). Refer Section 2.3 for targeted maximum remuneration mix. 64 3.1 Remuneration framework The objective of the Group’s executive remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of sustainable long-term value for shareholders and conforms to market practice for delivery of remuneration. The incentive schemes are designed to incentivise performance that is better than market. The Board embodies the following principles in its remuneration framework: • a performance based reward structure; • competitive and reasonable rewards to attract and retain high calibre executives; • strong links between executive rewards and shareholder value; • a significant proportion of executive remuneration is at risk, and is linked to achievement of pre-determined individual KPIs and financial performance targets; and • transparent reward structures. 3.1.1 Target remuneration mix The Board believes that the fundamental driver for executive remuneration should be long-term financial performance that generates value for Steadfast shareholders. The at risk (or variable) remuneration components of the Executive Team are set by referencing regulation and current market practices. To ensure the Executive Team remain focused on long-term outcomes without encouraging excessive risk taking, the following conditions apply: • financial performance hurdles: – diluted EPS growth has been chosen to meet and align with shareholders’ objectives. This measure was chosen by the Board after considering alternatives such as return on capital employed (ROCE), or return on equity (ROE). The Board considers that EPS is, on balance, the best driver of executive behaviour that achieves superior performance outcomes for Steadfast and its shareholders. It is also a relatively simple and transparent measure that is easily reconciled to reported net profit (see Section 2.1). As funding mix can impact EPS, it is noted that the Board has approved a maximum total Group gearing ratio of 30.0% excluding premium funding borrowings. The total Group gearing ratio at year end was 23.9%; – TSR was first introduced as the second financial performance hurdle for LTI awarded in August 2016. This measure was added by the Board as a result of their ongoing review of the remuneration framework, current market practice and market feedback. The Board considers TSR is an effective way to incentivise and measure long-term shareholder value creation; • non-financial performance hurdle – each member of the Executive Team is set annual performance objectives known as KPIs with weightings aligned to the Group’s strategic objectives, and must achieve at least 60% of those objectives to be eligible for any STI and LTI; • 40% of the STI is granted as deferred equity awards (DEA) and is intended to be satisfied by the issue or transfer of ordinary shares in the capital of the Company over a three-year period from the grant date – being one-third at the end of years one, two and three; • subject to meeting the individual and Group financial objectives, vesting of the LTI occurs after three years from the grant date and is satisfied by the issue or transfer of ordinary shares in the capital of the Company; and • the Board retains the discretion to adjust any unpaid or unvested performance related remuneration (such as STI – Cash, STI – DEA and LTI) downwards if it is appropriate to do so. This discretion applies to all the STI and LTI awards on applicable dates for vesting of share-based payment awards. The Board has set the total remuneration of the Managing Director & CEO at a level to correspond to the 75th percentile of CEO remuneration of a comparator group of companies. The 75th percentile was chosen in light of the considerable experience of the Managing Director & CEO and his very strong performance in the role, including the very strong financial performance of Steadfast since its initial public offering (IPO) in August 2013 as demonstrated by the Company achieving: • a 16.1% underlying diluted EPS growth in FY19; • a 100.9% underlying diluted EPS growth for the period since the IPO; and • a TSR of 239% for the period since the IPO, inclusive of FY19 final dividend of 5.3 cents per share payable in September 2019. 65 Steadfast Group Annual Report 2019 Directors’ Report continued As part of the ongoing review of remuneration, the STI and LTI plans are continuously refined to ensure incentives are aligned with the Group’s remuneration philosophy, market competitiveness and market feedback on the incentive schemes. The Board has determined that no material changes to STI or LTI terms will be made for the financial year ending 30 June 2020. The FY20 key terms for the STI and LTI plans are as follows: Remuneration changes STI LTI FY19 terms (awarded August 2018) FY20 new terms (awarded August 2019) Maximum STI awarded when diluted EPS growth of 10.0% is achieved. Maximum STI awarded when diluted EPS growth of 10.0% is achieved. 75% based on average diluted EPS increasing by a straight line 5% to 10% per annum over a future three-year vesting period. The vesting schedule is outlined below: 75% based on average diluted EPS increasing by a straight line 5% to 10% per annum over a future three-year vesting period. The vesting schedule is outlined below: Straight line diluted EPS growth Vesting outcome Straight line diluted EPS growth Vesting outcome Below 5% At 5% 5% to 10% 0% 50% Straight line between 50% to 100% Below 5% At 5% 5% to 10% 0% 50% Straight line between 50% to 100% 10% or higher 100% 10% or higher 100% 25% based on Total Shareholder Return (TSR)(a) measured against Top 200 ASX companies excluding those in the mining industry (peer group). 25% based on Total Shareholder Return (TSR)(a) measured against Top 200 ASX companies excluding those in the mining industry (peer group). TSR Vesting outcome TSR Vesting outcome Less than 50th percentile of peer group 0% At 50th percentile of peer group 50% Between 50th and 75th percentile of peer group Straight line between 50% to 100% Exceeding 75th percentile of peer group 100% Equal to or less than 50th percentile of peer group 0% Greater than 50th but less than 75th percentile of peer group Equal to or exceeding 75th percentile of peer group Exceeding 75th percentile of peer group Straight line between 50% to 100% 100% 100% (a) TSR is calculated as the change in share price plus dividends declared and any capital returns measured over the financial year together with a future three-year vesting period. 66 3.2 Fixed remuneration for FY19 The table below outlines the key details of executives’ fixed remuneration. Component Details Description Cash salary, superannuation, and non-monetary benefits. Purpose and link to strategy Operation Helps to attract and retain high calibre executives. Reflects individual role, experience and performance. Reviewed annually by the Remuneration & Succession Planning Committee and fixed for 12 months (unless there is a significant role change), with any changes effective from 1 July each financial year. Decision influenced by: - role, experience and performance; - reference to comparative remuneration in the market; and - total organisational salary budgets. The Executive Team is provided with cash salary, superannuation, and other non-monetary benefits such as car parking, income protection and life insurances. Potential reward Fixed remuneration targeted at 29%-50% of total remuneration. 3.3 Short-term incentives for FY19 The table below outlines the key details of the STI plan. STI awards in FY19 are summarised in Section 2.2 of the Remuneration Report. Component Details Purpose and link to strategy Recognises the contributions and achievements of the Executive Team and helps to attract and retain talent. Operation STI Plan consisting of cash and deferred equity award. Potential reward STI awards are performance based, at risk reward arrangements with Board discretion. The combined total of at risk remuneration (STI and LTI combined) is targeted at 50%-70% of total remuneration. Performance metrics STI – Cash award (60% of total STI); Deferred equity award (40% of total STI) • Continuous employment for the vesting period for deferred equity awards split one-third over one, two and three years; • vesting is subjected to future performance hurdles below; and • no negative material deterioration in reported results in the subsequent year. Performance measures Non-financial measures Personal objectives (KPIs) as agreed with the Board. At least 60% of the objectives must be achieved by the members of the Executive Team to be eligible for any STI. The MD & CEO achieved a substantial majority of his FY19 non-financial objectives with weightings (refer Section 2.2). Financial measures relating to awards issued during FY19 (awarded in August 18) No STI is payable unless at least 5% EPS growth is achieved against the base underlying EPS. Maximum STI can be awarded if the EPS growth is 10.0% or higher. Potential maximum STI MD & CEO can earn up to 150% of his annual fixed remuneration. Approval of the STI The other executives within the Executive Team can earn 50% to 100% of their annual fixed remuneration. The MD & CEO’s STI is recommended by the Remuneration & Succession Planning Committee based on the Group’s financial and his non-financial performance outcomes and approved by the Board. The STI of other members of the Executive Team is recommended by the MD & CEO to the Remuneration & Succession Planning Committee, based on the Group’s financial and their non- financial performance outcomes. It is recommended by the Remuneration & Succession Planning Committee and approved by the Board. 67 Steadfast Group Annual Report 2019 Directors’ Report continued 3.3 Short-term incentives for FY19 continued Component Details Rationale for choosing performance measures The non-financial measures are chosen to ensure each member of the Executive Team delivers outcomes that support the success of Steadfast. Forms of STI reward elements The financial measure of EPS growth is chosen to ensure long-term shareholder value is increased. 60% is paid as cash, normally in September following the end of financial year. 40% is granted as deferred equity award (DEA) of conditional rights to Steadfast ordinary shares and vesting over a three-year tenure hurdle from the grant date. The conditional rights will vest in three equal tranches after one, two and three years from the grant date. Key terms of DEA DEA is normally granted on the date the audited financial results are announced. These rights are granted to the participants at no cost, to the dollar value of their DEA. The number of conditional rights granted is calculated based on the weighted average share price over the five trading days before the grant date. The participants in the STI Plan become eligible to receive one Steadfast ordinary share per conditional right, subject to their continuing employment with the Group over the vesting period post grant date, and no material adverse change to the reported results. The Remuneration & Succession Planning Committee noted there had not been any negative material deterioration in EPS from prior year adjustments in the subsequent year. These rights will accrue notional dividends and may accrue, subject to Board discretion, any bonus element inherent in any rights issue, which will be paid as additional shares upon vesting. Forfeiture conditions The Board retains the discretion to adjust any unpaid or unvested performance related remuneration (such as STI – Cash, STI – deferred portion) downwards if it is appropriate to do so. The conditional rights will be forfeited if the executive resigns before the vesting date. When an executive ceases employment in special circumstances, such as genuine retirement, redundancy or ill health, any unvested rights may be paid in cash and/or Steadfast ordinary shares, subject to Board discretion. 3.4 Long-term incentives for FY19 The table below outlines the key details of the LTI plan. LTI awards in FY19 are summarised in Section 2.2 of the Remuneration Report. Component Details Purpose and link to strategy Provides opportunity for the Executive Team to acquire equity in the Company as a reward for increasing EPS and TSR over the longer term and helps to attract and retain talent. Operation LTI Plan consisting of DEA. Potential reward LTI awards are discretionary, performance based, at risk reward arrangements. The combined total of at risk remuneration (LTI and STI combined) is targeted at 50%-70% of total remuneration. Performance metrics LTI – Deferred equity award (100%) • Continuous employment and performance rating to be met for the three-year vesting period; • vesting is subjected to future performance hurdles below; and • no negative material deterioration in reported results in the subsequent year. 68 Component Details Future performance hurdles Non-financial measures: Personal objectives (KPIs) as agreed with the Board. At least 60% of the objectives must be achieved by the members of the Executive Team to be eligible to any LTI. The MD & CEO achieved a substantial majority of his FY19 non-financial objectives with weightings (refer Section 2.2). Financial measures relating to awards issued during FY19 (awarded in August 2018): • 75% is based on average underlying diluted EPS growth, which is not payable unless at least 5% straight line growth is achieved over a future three-year vesting period. The vesting schedule is outlined below: Average diluted EPS growth Vesting outcome Below 5% At 5% 5% to 10% 10% or higher and 0% 50% Straight line between 50% to 100% 100% • 25% is based on TSR measured against the top 200 ASX companies excluding those in the mining industry (peer group), which is not payable unless TSR exceeds the median of the peer group. TSR is calculated as the change in share price plus dividends declared and any capital returns measured over the financial year together with a future three-year vesting period. The vesting schedule is outlined below: TSR Vesting outcome Less than 50th percentile of peer group At 50th percentile of peer group 0% 50% Between 50th and 75th percentile of peer group Straight line between 50% to 100% Exceeding 75th percentile of peer group 100% Potential maximum LTI The MD & CEO can earn up to 100% of his annual fixed remuneration. The other executives within the Executive Team can earn 50% to 75% of their annual fixed remuneration. Approval of the LTI Forms of LTI reward The Board approves the LTI based on the financial and non-financial performance outcome as recommended by the Remuneration & Succession Planning Committee. DEA of conditional rights to Steadfast ordinary shares and vesting after a three-year tenure hurdle and meeting future performance hurdles from the grant date. Rationale for choosing performance measures The financial measures of EPS growth and TSR are chosen to ensure long-term shareholders' value is increased. The non-financial measures are chosen to ensure each member of the Executive Team delivers outcomes that support the success of Steadfast. Key terms of DEA DEA is normally granted on the date the audited financial results are announced. These rights are granted to the participants (at no cost), to the dollar value of a percentage of their fixed remuneration in accordance with the LTI Plan. The number of conditional rights granted is calculated based on the weighted average share price over the five trading days before the grant date. The participants in the LTI Plan become eligible to receive one Steadfast ordinary share per conditional right, subject to their continuing employment with the Group for the three-year period from the grant date and meeting performance hurdles, subject to Board discretion. These rights will not accrue notional dividends and may accrue, subject to Board discretion, any bonus element inherent in any rights issue, which will be paid as additional shares upon vesting. Forfeiture conditions The Board retains the discretion to adjust any unpaid or unvested LTI downwards if it is appropriate to do so. The conditional rights will be forfeited if the executive resigns before the vesting date. When an executive ceases employment in special circumstances, such as genuine retirement, redundancy or ill health, any unvested rights may be paid in cash and/or Steadfast shares subject to Board discretion. 69 Steadfast Group Annual Report 2019 Directors’ Report continued 3.5 Keeping executives’ and shareholders’ interest aligned Component Details Shareholding requirements There is no specific policy requiring the Executive Team to hold any of Steadfast’s ordinary shares. However, the Executive Team have acquired Steadfast’s ordinary shares through the following means: • shares allocated to three executives either directly or through loans, which have since been repaid by the executives (for further details, refer Section 6.4 Executive loans); • allotment of ordinary shares to Mr Lightbody as part consideration for the acquisition by Steadfast, as part of the IPO in August 2013, of Miramar, an underwriting agency business then partly owned by Mr Lightbody; • subscription for ordinary shares as part of the Company’s IPO and subsequent rights issues; • participation in the Company’s Dividend Reinvestment Plan; • conditional rights converting into ordinary shares; • potential vesting of DEAs granted through the STI and LTI Plans in the financial years from 1 July 2014 onwards (refer Sections 3.3 and 3.4 for further details of the STI and LTI Plans); and • purchase of shares on market within trading windows. Section 6.3 provides movements of Steadfast’s ordinary shares held by the Executive Team during the current financial year. 70 4. REMUNERATION IN DETAIL 4.1 Statutory remuneration disclosure The table below provides remuneration details for the Executive Team (including the MD & CEO and his direct reports). No executive was newly appointed to the Executive Team during either financial year. (1) Cash salary and leave accruals $ Short-term employment benefits (3) (2) Non- Cash monetary short-term benefits incentive $ $ Post- employment benefits (4) Super- annuation $ Other long-term employment benefits (5) Long service leave accruals $ Subtotal (excluding share-based payments) Share-based payments (6) Total $ $ $ Key Management Personnel (including Managing Director & CEO) Robert Kelly, Managing Director & CEO 2019 2018 982,116 973,871 913,500 808,763 Stephen Humphrys, Chief Financial Officer 2019 2018 569,625 334,200 537,837 301,576 Samantha Hollman, Chief Operating Officer 2019 2018 444,672 437,626 278,100 250,965 19,270 29,821 37,095 36,530 29,880 28,682 Simon Lightbody, CEO – Steadfast Underwriting Agencies 2019 2018 462,054 448,285 287,400 196,137 25,707 15,897 20,531 20,049 20,531 20,049 20,531 20,049 20,531 20,049 Allan Reynolds, Executive General Manager – Direct, New Zealand & Singapore 2019 2018 420,542 372,118 129,000 108,642 21,160 24,246 20,531 20,049 Linda Ellis, Group Company Secretary & Corporate Counsel(7) 2019 2018 258,769 214,345 78,225 62,040 27,468 24,568 19,907 18,710 19,689 8,310 11,466 3,721 Table notes 23,505 1,958,922 1,624,000 3,582,922 27,803 1,860,308 1,210,646 3,070,954 10,364 9,793 971,815 905,785 640,550 1,612,365 575,897 1,481,682 8,005 7,149 11,140 10,947 781,188 744,471 417,150 1,198,338 280,257 1,024,728 734,982 691,314 431,100 1,237,932 152,564 843,878 610,922 533,365 301,000 339,663 911,922 873,028 395,835 323,384 182,525 200,946 578,360 524,330 (1) Cash salary includes amounts paid in cash plus any salary sacrifice items. Annual leave accruals are determined in accordance with Accounting Standard, AASB 119 Employee Benefits. (2) The 2019 short-term incentive (STI) represents 60% of the total STI awarded and approved by the Board and will be paid in cash in September 2019. (3) The Executive Team is provided with cash salary, superannuation, and other non-monetary benefits such as car parking, income protection and life insurances. (4) Superannuation contributions are paid in line with legislative requirements. (5) Long service leave accruals are determined in accordance with AASB 119 Employee Benefits. (6) Share-based payments represent the expense amount accrued in the year for deferred equity awards (both STI and LTI). The 2019 expense is higher than prior year due to the cumulative effect of prior years’ grants plus increased probability of meeting vesting conditions. (7) Mrs Ellis was employed on a 60% of full-time basis from 1 July 2018 to 31 December 2018 and on an 80% of full-time basis from 1 January 2019 to 30 June 2019. 71 Steadfast Group Annual Report 2019 Directors’ Report continued 4.2 Conditional rights The table below provides the number of conditional rights held by members of the Executive KMP at 30 June 2018 and 30 June 2019. These are aggregate holdings of unvested DEAs from the various grants that remain on foot (see chart in section 2.4). Balance 30 June 2018 STI granted during FY19 LTI granted during FY19 DRP granted STI/LTI vested and/ or transferred during FY19(a) Balance 30 June 2019 1,428,907 175,925 746,422 332,514 200,394 480,048 268,522 65,600 54,591 42,664 23,632 13,495 318,128 132,329 73,414 75,861 61,994 35,402 17,295 (509,520) 1,430,735 8,065 4,215 1,901 5,061 2,887 (251,645) (99,168) (20,688) (163,481) (101,494) 700,771 365,566 300,132 407,254 218,812 3,456,807 375,907 697,128 39,424 (1,145,996) 3,423,270 Robert Kelly Stephen Humphrys Samantha Hollman Simon Lightbody Allan Reynolds Linda Ellis Table note (a) The third tranche of the STI DEAs granted in August 2015, the second tranche of the STI DEAs granted in August 2016, the first tranche of the STI DEAs granted in August 2017 and the LTI DEAs granted in August 2015 were vested in the current financial year. In accordance with the terms of the STI and LTI plans, eligible participants of the plans received one Steadfast ordinary share per conditional right at nil cost to them upon vesting. Refer Section 6.2 for the fair value of the conditional rights awarded in August 2018. 4.3 Executive service agreements Steadfast has ongoing executive service agreements (Executive Agreements) with each of the members of the Executive KMP. These Executive Agreements may be terminated by written notice from either party or by the Company making a payment in lieu of notice. The Executive Agreements outline the components of remuneration paid to executives and require the remuneration of executives to be reviewed annually. The Executive Agreements do not require the Company to increase base salary, pay a short-term incentive or offer a long-term incentive in any given year. The table below contains the key terms of the Executive KMP’s Executive Agreements. The Executive Agreements do not provide for any termination payments, other than payment in lieu of notice by the Company. Name Robert Kelly* Stephen Humphrys Samantha Hollman Simon Lightbody Allan Reynolds Linda Ellis Notice period from the Company Notice period from the employee Termination provisions in relation to payment in lieu of notice 12 months 6 months 6 months 6 months 6 months 6 months 12 months 6 months 6 months 6 months 6 months 6 months 12 months fixed remuneration 6 months fixed remuneration 6 months fixed remuneration 6 months fixed remuneration 6 months fixed remuneration 6 months fixed remuneration * Mr Kelly has agreed not to terminate his employment contract before 31 December 2022. In accordance with the requirements of Corporations Act 2001, termination provisions could include the payment of unused annual leave and long service leave accruals where applicable. 4.3.1 Retrenchment entitlements In the event of redundancy, Mr Kelly will be paid an amount equal to 12 months fixed remuneration. 4.3.2 Termination under other situations In the event of gross negligence or gross misconduct, the Company may terminate the Executive Agreement immediately by notice in writing and without payment in lieu of notice. 72 5. NON-EXECUTIVE DIRECTOR REMUNERATION 5.1 Fee structure and policy Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is reviewed periodically and recommended for approval by shareholders. The fee structure is designed to provide the Group with the ability to attract and retain directors of the highest calibre. The aggregate amount of remuneration sought to be approved by shareholders and the manner in which it is paid to Directors is reviewed annually. The Board considers advice from external consultants as well as fees paid to Non-Executive Directors of comparable companies when undertaking the review process. An external remuneration consultant, Egan Associates, was engaged during the financial year to conduct remuneration benchmarking for the Non-Executive Directors. Independent and non-independent Non-Executive Director remuneration consists of three elements: • Board fees; • committee fees; and • superannuation, which is paid in line with legislative requirements. Directors do not receive retirement benefits beyond superannuation contributions and do not participate in any incentive programs. Directors may also be reimbursed for travel and other expenses incurred in attending to the Company’s affairs. At the Annual General Meeting held on 18 October 2018, the shareholders approved the maximum aggregate Directors’ fee pool of $1,100,000 per annum for each financial year effective from and including the financial year commenced on 1 July 2018. The table below contains the annual fee structure for the Steadfast Board and committees (inclusive of superannuation). Chairman Members 2019 2018 2019 2018 Board $ 275,000 231,750 135,000 118,450 Audit & Risk Committee $ Remuneration & Succession Planning Committee $ Nomination Committee $ 30,000 20,600 7,500 5,150 27,500 20,600 7,500 5,150 - - - - No additional remuneration will be paid for the Chairman and members of the Nomination Committee nor any directorships of subsidiaries. The Directors have determined that fees for the financial year ended 30 June 2020 will not be increased. 5.2 Minimum shareholding requirement Non-Executive Directors are not required under the Company’s constitution to hold any of Steadfast’s ordinary shares. However, contained in each Director’s letter of appointment from the Company is a term and condition that the Non- Executive Directors must hold an amount equal to 50% of their annual remuneration in the Company’s ordinary shares by the end of their second year in office. Refer Section 6.3 for details of Steadfast’s ordinary shares held by the Non-Executive Directors. 73 Steadfast Group Annual Report 2019 Directors’ Report continued 5.3 Remuneration details for Non-Executive Directors The table below provides remuneration details of the Non-Executive Directors on the Company’s Board. Short-term employment benefits Post-employment benefits Board fees $ Committee fees $ Superannuation $ Current Non-Executive Directors Frank O’Halloran, AM 2019 2018 David Liddy, AM 2019 2018 Gai McGrath 2019 2018(a) Anne O’Driscoll 2019 2018 Philip Purcell 2019 2018 Greg Rynenberg 2019 2018 254,469 211,701 123,288 108,174 135,000 9,014 123,288 108,174 123,288 108,174 123,288 108,174 - 10,300 31,963 23,516 15,000 784 34,247 23,516 13,699 9,406 13,699 9,406 20,531 20,049 14,749 12,511 - 931 14,965 12,511 13,013 11,170 13,013 11,170 Total $ 275,000 242,050 170,000 144,201 150,000 10,729 172,500 144,201 150,000 128,750 150,000 128,750 (a) Gai McGrath was appointed to the Board effective 1 June 2018. 6. ADDITIONAL INFORMATION 6.1 Remuneration governance This report meets the remuneration reporting requirements of the Corporations Act 2001 and Accounting Standard AASB 124 Related Party Disclosures. The term remuneration used in this report has the same meaning as compensation as prescribed in AASB 124. 6.1.1 Role of the Remuneration & Succession Planning Committee The Remuneration & Succession Planning Committee of the Board is responsible for reviewing and determining remuneration arrangements for the Non-Executive Directors and the Executive Team made up of the Managing Director & CEO and his direct reports listed in the KMP table in Section 1.1. 74 6.1.2 Use of remuneration consultant The Remuneration & Succession Planning Committee directly engages and considers market remuneration data from remuneration consultants as required. The data provided by remuneration consultants is used as a guide for remuneration decisions with respect to the Executive Team. Remuneration consultants are engaged no less than every three years to provide information on fixed remuneration packages and incentives to the Remuneration & Succession Planning Committee. No remuneration recommendations as defined by the Corporations Act 2001 were provided during this financial year. 6.2 Valuation of conditional rights The table below details the fair value of conditional rights issued affecting remuneration of KMP in the previous, current or future reporting periods: Description Recipient Grant date Vesting date October 2018 STI conditional rights(a) MD & CEO 18 October 2018 24 August 2019 October 2018 STI conditional rights(a) MD & CEO 18 October 2018 24 August 2020 October 2018 STI conditional rights(a) MD & CEO 18 October 2018 24 August 2021 August 2018 STI conditional rights(a) Other executives 24 August 2018 24 August 2019 August 2018 STI conditional rights(a) Other executives 24 August 2018 24 August 2020 August 2018 STI conditional rights(a) Other executives 24 August 2018 24 August 2021 October 2017 STI conditional rights(a) MD & CEO 26 October 2017 23 August 2018 October 2017 STI conditional rights(a) MD & CEO 26 October 2017 23 August 2019 October 2017 STI conditional rights(a) MD & CEO 26 October 2017 23 August 2020 August 2017 STI conditional rights(a) Other executives 23 August 2017 23 August 2018 August 2017 STI conditional rights(a) Other executives 23 August 2017 23 August 2019 August 2017 STI conditional rights(a) Other executives 23 August 2017 23 August 2020 October 2016 STI conditional rights(a) MD & CEO 27 October 2016 24 August 2017 October 2016 STI conditional rights(a) MD & CEO 27 October 2016 24 August 2018 October 2016 STI conditional rights(a) MD & CEO 27 October 2016 24 August 2019 August 2016 STI conditional rights(a) Other executives 24 August 2016 24 August 2017 August 2016 STI conditional rights(a) Other executives 24 August 2016 24 August 2018 August 2016 STI conditional rights(a) Other executives 24 August 2016 24 August 2019 October 2015 STI conditional rights(a) MD & CEO 30 October 2015 24 August 2016 October 2015 STI conditional rights(a) MD & CEO 30 October 2015 24 August 2017 October 2015 STI conditional rights(a) MD & CEO 30 October 2015 24 August 2018 August 2015 STI conditional rights(a) Other executives 24 August 2015 24 August 2016 August 2015 STI conditional rights(a) Other executives 24 August 2015 24 August 2017 August 2015 STI conditional rights(a) Other executives 24 August 2015 24 August 2018 October 2018 LTI conditional rights MD & CEO 18 October 2018 24 August 2021 August 2018 LTI conditional rights Other executives 24 August 2018 24 August 2021 October 2017 LTI conditional rights MD & CEO 26 October 2017 23 August 2020 August 2017 LTI conditional rights Other executives 23 August 2017 23 August 2020 October 2016 LTI conditional rights MD & CEO 27 October 2016 24 August 2019 August 2016 LTI conditional rights Other executives 24 August 2016 24 August 2019 October 2015 LTI conditional rights MD & CEO 30 October 2015 24 August 2018 Volume weighted average share price (VWAP)(c) $ Fair value at grant date(b) $ 2.9486 2.9403 2.9252 3.0045 2.9922 2.9737 2.7389 2.7318 2.7175 2.6053 2.5945 2.5771 2.1292 2.1234 2.1128 2.1264 2.1179 2.1047 1.4992 1.4939 1.4841 1.4519 1.4442 1.4323 2.7609 2.7771 2.5581 2.3879 1.9834 1.9500 1.4841 3.0648 3.0648 3.0648 3.0648 3.0648 3.0648 2.8170 2.8170 2.8170 2.8170 2.8170 2.8170 2.1858 2.1858 2.1858 2.1858 2.1858 2.1858 1.4881 1.4881 1.4881 1.4881 1.4881 1.4881 3.0648 3.0648 2.8170 2.8170 2.1858 2.1858 1.4881 75 Steadfast Group Annual Report 2019 Directors’ Report continued 6.2 Valuation of conditional rights continued Description Recipient Grant date Vesting date August 2015 LTI conditional rights Other executives 24 August 2015 24 August 2018 October 2014 STI conditional rights MD & CEO 29 October 2014 25 August 2017 August 2014 STI conditional rights Other executives 25 August 2014 25 August 2017 October 2014 LTI conditional rights MD & CEO 29 October 2014 25 August 2019 August 2014 LTI conditional rights Other executives 25 August 2014 25 August 2019 Table notes Volume weighted average share price (VWAP)(c) $ 1.4881 1.3960 1.3960 1.3960 1.3960 Fair value at grant date(b) $ 1.4323 1.4312 1.3253 1.4001 1.2908 (a) The STI conditional rights granted in October 2018, August 2018, October 2017, August 2017, October 2016, August 2016, October 2015 and August 2015 all vest in three equal tranches after one, two and three years from the grant date. (b) The fair value at grant date is determined in accordance with Accounting Standard, AASB 2 Share-based Payment. (c) To calculate the number of conditional rights to be granted, the award value is divided by the volume weighted average share price of Steadfast shares over the five trading days on the Australian Securities Exchange prior to Steadfast announcing its full year results. 6.3 Shareholdings The table below summarises the movement in holdings of ordinary shares during the year and the balance at the end of the financial year both in total and held nominally by related parties of Non-Executive Directors and KMPs. Total shares held at 1 July 2018 Shares transferred upon vesting of DEA Shares allocated via DRP Total shares held at 30 June 2019 Shares held nominally at 30 June 2019(a) Sales/ Reductions Purchases Frank O’Halloran, AM(b) 1,619,646 182,000 Robert Kelly(b) David Liddy, AM(b) Gai McGrath(b) Anne O’Driscoll(b) Philip Purcell(b) Greg Rynenberg(b) Stephen Humphrys Samantha Hollman Simon Lightbody Allan Reynolds Linda Ellis Table notes 5,933,163 255,455 10,500 168,498 160,142 846,385 400,000 316,307 1,476,874 1,051,576 165,000 - - 9,250 - - - - - - - - - 509,520 - - - - - 251,645 99,168 20,687 163,481 101,494 - - - - - - (651,107) 1,150,539 749,432 (3,380,474) 3,062,209 - (105,455) 150,000 150,000 - - - 19,750 168,498 160,142 22,291 (10,000) 858,676 - (251,645) 400,000 9,940 (196,700) 228,715 - - 1,497,561 5,545 (265,000) 955,602 - (203,494) 63,000 19,750 168,498 160,142 858,676 - 172,596 455,314 46,089 - (a) Shares held nominally are included in the column headed ‘Total shares held at 30 June 2019’. Total shares are held directly by the KMP and indirectly by the KMP’s related parties, inclusive of domestic partner, dependants and entities controlled, jointly controlled or significantly influenced by the KMP. (b) For the Directors, total shares held directly and nominally also represented the relevant interest in the listed securities, being ordinary shares of the Company, as notified by the Directors to the ASX in accordance with section 205G(1) of the Corporations Act 2001, at the date of this Directors’ Report. 76 6.4 Executive loans In the Extraordinary General Meeting held on 14 June 2013, the shareholders approved the making by the Company of full recourse loans to three continuing KMP. All Executive loans were fully repaid during the financial year ended 30 June 2019. The table below provides the amount of the Executive loans provided to three Executives and the fair value at the drawn down date and movement during the financial year. Face value of Executive loans $ Fair value of Executive loans drawn down at start of the year $ Deemed interest income during the year $ Repayment during the year $ Fair value of Executive loans at the end of the year $ Robert Kelly Stephen Humphrys Allan Reynolds 5,000,000 1,000,000 900,000 6,900,000 3,704,258 140,693 666,900 4,511,851 - - - - (3,704,258) (140,693) (666,900) (4,511,851) - - - - 77 Steadfast Group Annual Report 2019 Directors’ Report continued 6.5 Related party transactions The following transactions occurred with Directors’ (Robert Kelly and Greg Rynenberg) related parties, which are part of Steadfast Network but are not part of Steadfast Group: 2019 $ 2018 $ i. Sale of goods and services Marketing and administration fees received from Directors' related entities on normal commercial terms 20,610 26,348 ii. Payment for goods and services Estimated Steadfast Network broker rebate expense to Directors' related entities on the basis as determined by the Board 51,663 28,344 The following balances are outstanding at the reporting date in relation to transactions with related parties: iii. Current receivable from related parties Trade receivables from Directors' related entities ROUNDING 80,119 71,434 The Group is of the kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities & Investments Commission. In accordance with that Instrument, amounts in the Directors’ Report and financial report have been rounded to the nearest thousand dollars, unless otherwise stated. Signed at Sydney on 20 August 2019 in accordance with a resolution of the Directors. Frank O’Halloran, AM Chairman Robert Kelly Managing Director & CEO 78 LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF CORPORATIONS ACT 2001 TO THE DIRECTORS OF STEADFAST GROUP LIMITED I declare that, to the best of my knowledge and belief, in relation to the audit of Steadfast Group Limited for the financial year ended 30 June 2019 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Scott Guse Partner Sydney 20 August 2019 79 Steadfast Group Annual Report 2019 Steadfast Group Limited Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2019 REVENUE Fee and commission income Less: brokerage commission paid Net fee and commission income Professional services fees Premium funding income Interest income Share of profits of associates accounted for using the equity method Share of profits of joint ventures accounted for using the equity method Fair value gain on listed investment Net gain / (loss) from adjustments to deferred consideration estimates Net gain from sale of subsidiaries and associates Net gain / (loss) on fair value of investments in subsidiaries Other income EXPENSES Employment expense Operating, brokers’ support service and other expenses Commission and other related expenses Occupancy expense Amortisation expense Depreciation expense Impairment expense – non-financial assets Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year OTHER COMPREHENSIVE INCOME ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS Net movement in foreign currency translation reserve Cash flow hedge effective portion of change in fair value Income tax (expense) / benefit on other comprehensive income Other comprehensive income for the period, net of tax Total comprehensive income for the year, net of tax PROFIT FOR THE YEAR IS ATTRIBUTABLE TO: Non-controlling interests Owners of Steadfast Group Limited 80 Note 2019 $’000 2018 $’000 583,751 505,627 (144,775) (136,679) 438,976 368,948 87,370 10,613 8,833 12,522 2,394 725 (110) 2,086 12,853 2,177 70,629 - 7,560 12,436 2,058 1,500 3,275 480 (70) 1,287 12 13 4, 10 4 4 578,439 468,103 (240,670) (200,123) (70,643) (58,897) (38,681) (18,932) (26,761) (16,458) 7 (31,416) (25,000) (4,713) - (14,125) (3,832) (2,372) (9,995) (419,180) (343,438) 159,259 124,665 21 (37,425) (34,314) 121,834 90,351 2,095 60 (647) 1,508 (717) 431 86 (200) 123,342 90,151 4 17,989 103,845 121,834 14,497 75,854 90,351 TOTAL COMPREHENSIVE INCOME FOR THE YEAR IS ATTRIBUTABLE TO: Non-controlling interests Owners of Steadfast Group Limited EARNINGS PER SHARE Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Note 2019 $’000 2018 $’000 17,989 105,353 123,342 14,497 75,654 90,151 5 5 13.16 13.12 9.87 9.83 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the notes to the financial statements. 81 Steadfast Group Annual Report 2019 Steadfast Group Limited Consolidated Statement of Financial Position AS AT 30 JUNE 2019 ASSETS CURRENT ASSETS Cash and cash equivalents Cash held on trust Trade and other receivables* Premium funding receivable Related party loans Other Total current assets NON-CURRENT ASSETS Goodwill Intangible assets Investments in associates Interest in joint ventures Property, plant and equipment External shareholder loans Related party loans Other financial assets Deferred tax assets Other Total non-current assets Total assets LIABILITIES CURRENT LIABILITIES Note 2019 $’000 2018* $’000 22 22 14 14 23 7 7 12 13 15 16C 23 21 116,520 76,746 427,449 310,856 164,619 147,622 76,178 - 7,775 - 5,115 3,875 792,541 544,214 945,498 816,246 193,206 112,582 15,677 43,667 33,211 500 7,225 7,358 5,732 171,660 138,743 6,862 39,001 16,928 - 6,500 3,514 1,597 1,364,656 1,201,051 2,157,197 1,745,265 Payables on broking/underwriting agency operations* 410,334 323,464 Trade and other liabilities Bank overdrafts Corporate and subsidiaries borrowings Premium funding borrowings Premium funding payables Deferred consideration Income tax payable Provisions Total current liabilities NON-CURRENT LIABILITIES Corporate and subsidiaries borrowings Deferred consideration Other payables Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets 82 2 8, 22 8 8 10G 8 10G 21 99,232 3,781 25,707 3,384 66,873 28,064 11,614 25,615 38,489 - 1,055 - - 2,822 16,868 19,226 674,604 401,924 311,232 218,185 6,342 3,003 57,858 8,906 1,124 2,812 56,320 7,921 387,341 286,362 1,061,945 688,286 1,095,252 1,056,979 EQUITY Share capital Treasury shares held in trust Foreign currency translation reserve Share-based payments reserve Undistributed profits reserve Other reserves Retained earnings Equity attributable to the owners of Steadfast Group Limited Non-controlling interests Total equity Note 2019 $’000 2018* $’000 9 9 912,517 912,347 (9,890) 800 6,187 (7,728) (667) 4,512 72,076 89,509 (4,083) (30,793) 37,859 30,397 1,015,466 997,577 79,786 59,402 1,095,252 1,056,979 The above Consolidated Statement of Financial Position should be read in conjunction with the notes to the financial statements. * Amounts have been restated to ensure comparability between periods. Refer Note 2B.II. 83 Steadfast Group Annual Report 2019 Steadfast Group Limited Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2019 Equity attributable to owners of Steadfast Group Limited Treasury shares held in trust $’000 Foreign currency translation reserve $’000 Share- based payments reserve $’000 Un- distributed profits reserve $’000 Share capital $’000 Other reserves $’000 Retained earnings $’000 Non- controlling interests Total equity $’000 $’000 Balance at 1 July 2018 912,347 (7,728) (667) 4,512 89,509 (30,793) 30,397 59,402 1,056,979 Adjustment on initial application of AASB 15 (net of tax) * Adjustment on initial application of AASB 9 (net of tax) * Adjusted balance at 1 July 2018 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: Adjustment to prior year transaction costs, net of income tax Shares acquired and held in trust (Note 9) Share-based payments on Executive Shares and employee share plans Shares allotted through Dividend Reinvestment Plan (Note 9) Shares allotted to employees under Employee Conditional Rights Scheme (Note 9) Transfer of other reserves to retained earnings Non-controlling interests of acquired entities (Note 10) Change in equity interests in subsidiaries without loss of control Dividends declared and paid (Note 6) - - - - - - - - - - - (12,330) (2,815) (15,145) - (1,404) (295) (1,699) 912,347 (7,728) (667) 4,512 89,509 (30,793) 16,663 56,292 1,040,135 - - - 170 - - - - - - - - - - - - (3,685) - (252) 1,775 - - - - - 1,467 1,467 - - - - - - - - - - - - - - 3,450 - (1,775) - - - - - - - - - - - - - 103,845 17,989 121,834 41 - - 1,508 41 103,845 17,989 123,342 - - - - - - - - - - - - - - - - 170 (3,685) 3,450 (252) - - (17,433) 37,433 (20,000) - - - - (10,764) - - 6,225 6,225 15,141 4,377 - (62,649) (15,861) (78,510) Balance at 30 June 2019 912,517 (9,890) 800 6,187 72,076 (4,083) 37,859 79,786 1,095,252 * The Group has initially applied AASB 9 and AASB 15 at 1 July 2018. Under the transition methods chosen, comparative information is not restated. See Note 2B. The above consolidated statement of changes in equity should be read in conjunction with the notes to the financial statements. 84 Steadfast Group Limited Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2018 Equity attributable to owners of Steadfast Group Limited Treasury shares held in trust $’000 Foreign currency translation reserve $’000 Share- based payments reserve $’000 Un- distributed profits reserve $’000 Share capital $’000 Other reserves $’000 Retained earnings $’000 Non- controlling interests Total equity $’000 $’000 Balance at 1 July 2017 796,857 (7,014) (165) 3,761 64,086 (20,484) 35,161 40,966 913,168 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: Shares issued under institutional and retail share placement (Note 9) Less: Transaction costs on issued shares, net of income tax (Note 9) Shares issued to Whitbread/Axis vendors (Note 9) Shares issued to key management member (Note 9) Shares acquired and held in trust (Note 9) Share-based payments on Executive Shares and employee share plans Shares allotted through Dividend Reinvestment Plan (Note 9) Shares allotted to employees under Employee Conditional Rights Scheme (Note 9) Transfer of retained earnings to profit reserve Acquisition of non- controlling interests Changes in part equity interests in subsidiaries without loss of control Dividends declared and paid (Note 6) - - - 107,762 (1,288) 6,016 3,000 - - - - - - - - - - - - - - - (1,799) - (283) 1,368 - - - - - (502) (502) - - - - - - - - - - - - - - - - - - - - 2,484 - (1,733) - - - - - - - - - - - - - - - 25,423 - - - - 75,854 14,497 90,351 302 - - (200) 302 75,854 14,497 90,151 - - - - - - - - - - (10,611) - - - - - - - - (25,423) - - - - - - - - - - - 107,762 (1,288) 6,016 3,000 (1,799) 2,484 (283) (365) - 1,514 1,514 15,846 5,235 - (55,195) (13,421) (68,616) Balance at 30 June 2018 912,347 (7,728) (667) 4,512 89,509 (30,793) 30,397 59,402 1,056,979 The above Consolidated Statement of Changes in Equity should be read in conjunction with the notes to the financial statements. 85 Steadfast Group Annual Report 2019 Steadfast Group Limited Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2019 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees, and Network broker rebates Dividends received from associates and joint ventures Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities before customer trust accounts movement Net movement in customer trust accounts (net cash receipts/payments on behalf of customers) Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Note 2019 $’000 2018 $’000 516,126 483,644 (366,965) (362,488) 14,256 8,099 (12,789) (41,077) 117,650 15,857 6,899 (9,946) (37,896) 96,070 43,698 161,348 27,154 123,224 22 Payments for acquisitions of subsidiaries and business assets (85,292) (110,045) Cash acquired from acquisitions of subsidiaries and business assets Payments for investments in associates and joint ventures Payments for step-up investment in subsidiaries on hubbing arrangements Payments for financial assets Payments for deferred consideration of subsidiaries, associates and business assets 10G Proceeds from disposal of investment in subsidiaries, net of cash disposed Proceeds from part disposal of investment in subsidiaries on hubbing arrangements Proceeds from disposal of investment in associates Payments for property, plant and equipment Payments for intangible assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Payments for transaction costs on issue of shares Dividends paid to owners of Steadfast Dividends paid to non-controlling interests Proceeds from borrowings Repayment of borrowings Payments for purchase of treasury shares Repayment of related party loans Payments for related party loans Repayment of non-related party loans Payments for non-related party loans Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effect of movements in exchange rates on cash held Cash and cash equivalents at the end of the financial year The above Consolidated Statement of Cash Flows should be read in conjunction with the notes to the financial statements. 86 22 540,188 387,602 91,210 (12,396) (11,364) - (17,389) 1,950 3,709 314 (6,384) (12,118) (47,760) - - (62,649) (15,861) 138,374 (23,411) (3,685) 5,194 (500) 2,553 (1,505) 38,510 152,098 387,602 488 26,859 (7,368) (16,952) (5,047) (5,047) - 6,210 1,719 (13,490) (11,933) (135,094) 110,762 (2,206) (55,195) (13,421) 76,476 (63,111) (1,799) 2,303 - 16,864 (187) 70,486 58,616 329,209 (223) 6 8 8 Steadfast Group Limited Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2019 NOTE 1. GENERAL INFORMATION This general purpose financial report is for the year ended 30 June 2019 and comprises the consolidated financial statements for Steadfast Group Limited (Steadfast or the Company) and its subsidiaries and the Group’s interests in associates and joint ventures (Steadfast Group or the Group). These financial statements are presented in Australian dollars, which is Steadfast’s functional and presentation currency. The Company is a for-profit listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is Level 4, 99 Bathurst Street, Sydney NSW 2000. A description of the nature of the Group’s operations and its principal activities is included in the Directors’ Report, which is not part of the financial report. This general purpose financial report was authorised for issue by the Board on 20 August 2019. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES A. STATEMENT OF COMPLIANCE This financial report has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board, as appropriate for for-profit oriented entities and the Australian Securities Exchange (ASX) Listing Rules. International Financial Reporting Standards (IFRS) refer to the overall framework of standards and pronouncements approved by the International Accounting Standards Board. IFRS forms the basis of the Australian Accounting Standards. This financial report of the Group complies with IFRS. B. BASIS OF PREPARATION OF THE FINANCIAL REPORT The significant accounting policies adopted in the preparation of this financial report are set out below. These accounting policies have been applied consistently by all entities in the Group and are the same as those applied for the previous reporting period unless otherwise noted. These financial statements have been prepared under the historical cost convention, modified, where applicable, by the measurement at fair value of certain non-current assets, financial assets and financial liabilities. I. New and amended standards adopted by the Group The Group has adopted the following revised or amending Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the year ended 30 June 2019. The effect of the adoption of these standards on the financial position of the Group is disclosed below: Title AASB 9 AASB 15 Description Financial Instruments and the relevant amending standards Revenue from Contracts with Customers and the relevant amending standards AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions Note (i) (ii) (iii) Table notes (i) AASB 9 Financial Instruments addresses classification, measurement and recognition of financial assets and financial liabilities. The standard replaces the guidance in AASB 139 that relates to the classification and measurement of financial instruments. AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new standard requires the recognition of expected credit losses from the moment when receivables are first recognised, rather than when a trigger event occurs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. The Group has reviewed its financial assets and liabilities and identified that fee and commission receivable is affected by the new accounting standard. The Group assumes that the credit risk on fee and commission receivable for brokers and underwriting agencies has increased significantly if it is more than 90 days past due. The new standard requires provision to be made for the expected non-recoverable portion of fee and commission receivable at the time it is invoiced to the clients. The Group initially applied AASB 9 at 1 July 2018 on a prospective basis in accordance with the transition provisions of AASB 9, under which the comparative information is not required to be restated. The cumulative effect of applying the new standard was recognised in opening retained earnings as at 1 July 2018. The following table summarises the impact of transition to AASB 9 on 1 July 2018. 87 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued Current assets Decrease in trade and other receivables (expected credit loss provision) Non-current assets Increase in deferred tax assets Equity Decrease in opening retained earnings Decrease in non-controlling interests Expenses Decrease in income tax expense Impact of adopting AASB 9 at 1 July 2018 ($ ’000) 2,403 713 1,404 295 9 The following tables summarise the impacts of adopting AASB 9 on the Group’s statement of financial position as at 30 June 2019 and its consolidated statement of profit or loss and other comprehensive income for the year then ended for each of the line items affected. There was no material impact on the Group’s statement of cash flows for the year ended 30 June 2019. Impact on the consolidated statement of financial position ASSETS Trade and other receivables Others Total current assets Investments in associates Interest in joint ventures Deferred tax assets / (liabilities) Others Total non-current assets Total assets LIABILITIES Total current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Retained earnings Non-controlling interests Foreign currency translation reserve Others Total equity 88 As reported $’000 Adjustments $’000 Amounts without adoption of AASB 9 $’000 164,619 627,922 792,541 112,582 15,677 7,358 1,229,039 1,364,656 2,157,197 674,604 387,341 1,061,945 1,095,252 37,859 79,786 800 976,807 1,095,252 2,780 167,399 - 627,922 2,780 4 (4) (817) 795,321 112,586 15,673 6,541 (39) 1,229,000 (856) 1,363,800 1,924 2,159,121 - - - 674,604 387,341 1,061,945 1,924 1,097,176 1,594 314 16 - 39,453 80,100 816 976,807 1,924 1,097,176 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued Impact on the consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Share of profits of associates Share of profits of joint ventures Operating, brokers’ support service and other expenses Others Income tax expense Profit after income tax expense for the year Other comprehensive income Total comprehensive income for the year, net of tax Profit for the year is attributable to: Non-controlling interests Owners of Steadfast Group Limited Total comprehensive income for the year is attributable to: Non-controlling interests Owners of Steadfast Group Limited As reported $’000 Adjustments $’000 Amounts without adoption of AASB 9 $’000 12,522 2,394 (70,643) 214,986 (37,425) 121,834 1,508 123,342 17,989 103,845 121,834 17,989 105,353 123,342 4 (4) 305 - (96) 209 - 209 19 190 209 19 190 209 12,526 2,390 (70,338) 214,986 (37,521) 122,043 1,508 123,551 18,008 104,035 122,043 18,008 105,543 123,551 (a) Classification and measurement On 1 July 2018 (the date of initial application of AASB 9), the Group’s management assessed which business models apply to the financial assets held by the Group and classified its financial instruments into the appropriate AASB 9 categories. The table below summarises the impacts in classification and measurement of financial assets under AASB 139 and AASB 9 at the date of initial application, 1 July 2018: Classification Carrying amount ($’000) Original under AASB 139 New under AASB 9 Original amount: AASB 139 Additional allowance recognised under AASB 9 New amount: AASB 9 Cash and cash equivalents Cash held on trust Trade and other receivables Premium funding receivable External shareholder loans Related party loans Other financial assets Loans and receivables Loans and receivables Loans and receivables Loans and receivables Loans and receivables Loans and receivables Loans and receivables Amortised cost 76,746 Amortised cost 310,856 - - 76,746 310,856 Amortised cost 147,622 (2,403) 145,219 Amortised cost - Amortised cost 16,928 Amortised cost 5,115 Amortised cost 5,472 - - - - - 16,928 5,115 5,472 89 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued Note: There was no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss. (b) Impairment of financial assets The new impairment model applies to Group’s financial assets measured at amortised cost. The Group has reviewed its financial assets measured at amortised cost and identified that fee and commission receivable is affected by the new accounting standard. The Group applies the AASB 9 simplified approach to measure ECLs on fee and commission receivable. Under this approach, the credit losses expected over the life of receivables are recognised in the consolidated statement of financial position at each reporting date. Credit loss allowances related to fee and commission receivables are included in the Consolidated Statement of Profit and Loss and Other Comprehensive Income under “Operating, brokers’ support service and other expenses”. The application of AASB 9 resulted in additional impairment losses on trade and other receivables of $0.3m ($0.2m net of tax and non-controlling interests). (c) Derecognition The derecognition rules have been transferred from AASB 139 and remain largely unchanged. (ii) AASB 15 Revenue from Contracts with Customers introduces a comprehensive revenue recognition model aimed at enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The standard replaces AASB 118 Revenue, AASB 111 Construction Contracts and related interpretations. The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically AASB 15 introduces the following 5-step approach to revenue recognition: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation After completing a detailed review using the 5-step approach described above, the Group identified commission revenue in respect of claims handling services as an area affected by the new accounting standard. The application of the new standard results in the identification of a separate performance obligation for handling claims on behalf of customers as part of the insurance intermediaries’ customary business practices. When applying AASB 15, fee and commission income associated with claims handling services is deferred on a basis that involves adding a margin to the costs of performing claims handling services, resulting in the later recognition of this revenue. There will be no material impact on the consolidated statement of profit or loss and other comprehensive income provided that business volumes do not change significantly from one reporting period to the next. The Group initially applied AASB 15 at 1 July 2018. It chose to apply the transition option in paragraph C3(b) of AASB 15 under which the comparative information is not required to be restated. The cumulative effect of applying the new standard was recognised in opening retained earnings as at 1 July 2018. The following table summarises the impact of transition to AASB 15 on 1 July 2018. 90 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued Non-current assets Increase in deferred tax assets Current liabilities Increase in deferred income – claims handling Equity Decrease in opening retained earnings Decrease in non-controlling interests Expenses Decrease in income tax expense Impact of adopting AASB 15 at 1 July 2018 ($ ’000) 6,421 21,480 12,330 2,815 86 The following tables summarise the impacts of adopting AASB 15 on the Group’s statement of financial position as at 30 June 2019 and its consolidated statement of profit or loss and other comprehensive income for the year then ended for each of the line items affected. There was no material impact on the Group’s statement of cash flows for the year ended 30 June 2019. Impact on the consolidated statement of financial position As at 30 June 2019 ASSETS Total current assets Investments in associates Interest in joint ventures Deferred tax assets / (liabilities) Others Total non-current assets Total assets LIABILITIES Trade and other liabilities (including deferred income – claims handling) Others Total current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Retained earnings Non-controlling interests Others Total equity As reported $’000 Adjustments $’000 Amounts without adoption of AASB 15 $’000 792,541 112,582 15,677 7,358 1,229,039 1,364,656 2,157,197 99,232 575,372 674,604 387,341 1,061,945 1,095,252 37,859 79,786 977,607 1,095,252 - 239 21 (6,889) (1,373) (8,002) (8,002) (23,326) - (23,326) - (23,326) 15,324 12,502 2,822 - 15,324 792,541 112,821 15,698 469 1,227,666 1,356,654 2,149,195 75,906 575,372 651,278 387,341 1,038,619 1,110,576 50,361 82,608 977,607 1,110,576 91 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued Impact on the consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Fee and commission income Share of profits of associates Share of profits of joint ventures Others Income tax expense Profit after income tax expense for the year Other comprehensive income Total comprehensive income for the year, net of tax Profit for the year is attributable to: Non-controlling interests Owners of Steadfast Group Limited Total comprehensive income for the year is attributable to: Non-controlling interests Owners of Steadfast Group Limited As reported $’000 Adjustments $’000 Amounts without adoption of AASB 15 $’000 438,976 12,522 2,394 (294,633) (37,425) 121,834 1,508 123,342 17,989 103,845 121,834 17,989 105,353 123,342 (116) 239 21 - 35 179 - 179 7 172 179 7 172 179 438,860 12,761 2,415 (294,633) (37,390) 122,013 1,508 123,521 17,996 104,017 122,013 17,996 105,525 123,521 (iii) These changes in relation to share-based payment transactions are not expected to have a significant financial impact on the Group. II. Comparative balances As part of the project undertaken in relation to the adoption of AASB 15 and AASB 9, including a comparison to global practices, the Group has also determined that it should no longer recognise a receivable in relation to the insurance premiums owed by policyholders upon entering into a policy. This is in recognition of the role of the Group’s insurance intermediaries and the fact that they are not liable as principals for the insurance premiums. Similarly, the Group will not recognise a liability for insurance premiums payable to the insurer until cash is received from the policyholder. Amounts have been restated to ensure comparability between reporting periods. The following table summarises the impact of change as at 30 June 2018. 92 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued Consolidated statement of financial position Current assets Decrease in receivables from broking/underwriting agency operations Increase in trade and other receivables Current liabilities Decrease in payables on broking/underwriting agency operations As at 30 June 2018 ($’000) 430,140 93,792 336,348 There was no impact on the consolidated statement of profit or loss and other comprehensive income. III. Rounding The Group is of the kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission. In accordance with that Instrument, amounts in this financial report have been rounded to the nearest thousand dollars, unless otherwise stated. C. PRINCIPLES OF CONSOLIDATION I. Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. The excess of the consideration transferred over the fair value of identifiable net assets acquired and non-controlling interests is recorded as goodwill. If the consideration transferred is less than the fair value of identifiable net assets acquired and non-controlling interests, the difference is recognised directly in consolidated statement of profit or loss and other comprehensive income. Costs of acquisition are expensed as incurred, except if they relate to the issue of debt or equity securities. II. Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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 over the entity. The financial statements of subsidiaries are included in the consolidated financial statements of the Group from the date on which control commences until the date on which control ceases. III. Non-controlling interests Non-controlling interests (NCI) are measured at their proportionate share of the acquired subsidiaries’ identifiable net assets at the date of acquisition. For operations and businesses being put into a business hub, NCI represent the fair value at the hubbing date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. IV. Loss of control When the Group ceases control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in consolidated statement of profit or loss and other comprehensive income. Any interest retained in the former subsidiary is measured at fair value when control is lost. V. Interests in equity-accounted investees The Group’s interests in equity-accounted investees comprise interests in associates and joint ventures. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Joint ventures are arrangements in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the Group’s share of the profit or loss of associates and the joint ventures is included in the Group’s consolidated statement of profit or loss and other comprehensive income. VI. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in full. 93 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued D. REVENUE RECOGNITION Revenue is recognised as the Group provides services. Revenue is recognised to the extent that there is no future performance obligation. Where there is a future performance obligation, a portion is deferred over the expected service period. Revenue is measured based on the consideration to which the Group expects to be entitled in a contract. The Group’s revenue does not have a significant financing component so the transaction (invoice) price is considered to be their amortised cost. The Group’s revenue is disaggregated by major products and services, which is consistent with the revenue information by reportable segment as disclosed in Note 4. The Group recognises revenue on contract assets when service is provided, which is generally at the point in time when the invoice is raised resulting in a recognition of a receivable. In general, it is possible that there is a short time lag between invoice date and policy inception date. Following a detailed review, it was determined that revenue is generally recognised in the same month that work is undertaken, and any revenue earned but not invoiced would be immaterial. I. Fee and commission income The Group retains a portion of the policy premiums as fee and commission income. Premiums are typically collected on an annual basis, at or near invoice date (which could be up to 90 days from contract inception). In some cases, customers are offered to pay in instalments or are directed to a third-party premium credit provider. Commission, brokerage and fees are recognised when the related service has been provided and it is probable that the Group will be compensated for services rendered, and the amount of consideration for such services can be reliably measured. This is deemed to be the invoice date. An allowance is made for anticipated lapses and cancellations. Where there is a future obligation to provide claims handling services, a portion of the commission income is deferred over the expected service period. The Group utilises the practical expedient in AASB 15 to recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity would have recognised is one year or less. II. Professional services fees The Company has negotiated with strategic partners, such as insurers, premium funders and underwriting agencies, to receive professional services fees based on the amount of business placed with those entities for the Group’s preferred products. These amounts are recognised as revenue when base premium is placed (in the case of insurers and underwriting agencies) or premiums funded (in the case of premium funders). Other professional services include services provided by Steadfast Technology companies, and other insurance related professional services. This revenue is recognised when the related service has been provided. Where the arrangements are fee-based then revenue is recognised in line with the distinct and separate performance obligations in the contract. III. Premium funding income Fees on premium funding loans are recognised as revenue as performance obligations are satisfied. A portion of the fee is recognised upfront for the performance of loan origination services while the remaining portion relating to servicing activities is recognised on a monthly basis over the life of the loans. IV. Claims experience benefit The Group may receive a claims experience benefit payment or payments in respect of certain types of insurance purchased by the Group for the benefit of the Network. Revenue is recognised for a claims experience benefit for a particular policy year when it is likely that a claims experience benefit is receivable and the amount can be reliably measured. Factors taken into account in recognising a claims experience benefit include the number of years that have passed since the end of a policy year and whether various claims have been closed or can be reliably measured. V. Other revenue Other revenue is recognised when the right to receive payment is established. 94 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued E. TAXATION The Company (the head entity) and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Consequently, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are offset in the consolidated financial statements. In addition, certain controlled subsidiaries and their wholly-owned Australian subsidiaries have formed income tax consolidated groups under the tax consolidation regime. These entities are also taxed as a single entity and the deferred tax assets and liabilities of these tax consolidated groups are offset in the consolidated financial statements. F. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash at bank, deposits held at call with financial institutions, and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash. This includes cash held by the subsidiaries for business operations/operating expenses purposes. Cash held on trust relates to cash held for insurance premiums received from policyholders, which will ultimately be paid to underwriters. Cash held on trust cannot be used to meet business operations/operating expenses other than payments to underwriters and/or refunds to policyholders. G. TRADE AND OTHER RECEIVABLES Trade and other receivables includes fee and commission receivable net of the associated expected credit loss (ECL) provision, as well as other receivables. H. PREMIUM FUNDING RECEIVABLE Premium funding receivable represents the amount due from clients in the Group’s premium funding businesses net of the associated expected credit loss (ECL) provision. Funds are collected on a monthly instalment basis and generally within twelve months of the loan issuance date. I. PROPERTY, PLANT AND EQUIPMENT Items of property, plant and equipment are measured at cost, less accumulated depreciation and any accumulated impairment losses. The carrying value of property, plant and equipment is periodically reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Any gain or loss on disposal of an item of property, plant and equipment is recognised in consolidated statement of profit or loss and other comprehensive income. J. INTANGIBLE ASSETS Identifiable intangible assets acquired separately or in a business combination (mainly customer relationships and capitalised software) are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. The useful lives of these intangible assets are assessed on acquisition. Internally developed software costs are capitalised once the project is assessed to be feasible. The costs capitalised include licensing and direct labour costs. The useful lives of capitalised software assets are assessed when the projects are completed and available for use. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and provision for impairment. Intangible assets with finite lives are amortised over their useful lives, currently estimated to be up to 10 years, and their useful lives are reviewed annually. K. PREMIUM FUNDING BORROWINGS The Group’s premium funding borrowings are loans from third party financial institutions to finance the premium funding businesses. These loans have recourse to the assets of the premium funding businesses only and are not cross-collateralised with the other borrowings in the Group. Premium funding borrowings are classified as either a current or non-current liability depending on the agreement expiry dates with the relevant third party financial institutions. L. PAYABLES ON BROKING/UNDERWRITING AGENCY OPERATIONS These amounts represent insurance premiums payable to insurance companies for broking/underwriting agency operations on amounts received from customers (policyholders) prior to the end of the financial period. 95 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued M. HEDGE ACCOUNTING Hedge accounting is applied when the Group designates certain derivatives to be part of a hedging relationship, and they meet the criteria for hedge accounting. The Group uses cash flow hedges to mitigate the risk of variability of future cash flows attributable to interest rate fluctuations associated with the corporate debt facility. For cash flow hedges, the portion of the gain or loss on the hedge instrument that is effective is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts deferred in equity are transferred to profit or loss in the same period the hedged item is recognised in the profit or loss. N. AUSTRALIAN ACCOUNTING STANDARDS ISSUED AND NOT YET EFFECTIVE The Group has not early adopted and applied any new, revised or amending Australian Accounting Standards and Interpretations that are not yet mandatory for the year ended 30 June 2019. The Group intends to adopt new, revised or amending Australian Accounting Standards and Interpretations in the operating year commencing 1 July after the effective date of these standards and interpretations as set out in the table below. Additional disclosures as result of adopting these new accounting standards will be provided in accordance with the disclosure requirements. The Group does not expect any adverse impact to financial covenants as a result of applying the new accounting standards. Title AASB 16 AASB 17 Description Leases Insurance Contracts Effective date Operating year Note 1 January 2019 30 June 2020 1 January 2021 30 June 2022 AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15 1 January 2019 30 June 2020 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to Australian Accounting Standards – Clarifications to AASB 15 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments Amendments to Australian Accounting Standards – Definition of a Business Amendments to Australian Accounting Standards – Definition of Material Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures 1 January 2021 30 June 2022 1 January 2019 30 June 2020 1 January 2019 30 June 2020 1 January 2020 30 June 2021 1 January 2020 30 June 2021 1 January 2019 30 June 2020 AASB 2014-10 AASB 2016-3 AASB 2017-4 AASB 2018-6 AASB 2018-7 AASB 2017-7 Table notes (i) (ii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (i) AASB 16 Leases replaces AASB 117 Leases and related interpretations. It introduces a single accounting model for lessees, requiring the Group to recognise substantially all of its current operating lease commitments in the statement of financial position as right-of-use assets and lease liabilities. AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. The Group intends to apply the short term and low value recognition exemptions available under paragraph 5 of AASB 16. The Group intends to adopt paragraph C8(b)(i) modified retrospective approach on transition with practical expedients as permitted by the new standard. The modified retrospective approach does not require comparative financial information to be restated. It is expected that on initial application of the abovementioned options on 1 July 2019, there will be: • right-of-use assets and the corresponding lease liabilities; • front-loaded lease expense comprising interest and depreciation expenses; and • reclassification of cash flows in the consolidated statement of cash flows. Based on operating lease commitments as at 30 June 2019, the application of the modified retrospective approach under paragraph C8(b)(i) would have had the following estimated impacts on the consolidated statement of financial position on 30 June 2019 if the Group had been required to apply the new standard on that date: 96 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES continued • $48 million increase in lease liability measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate; • $40 million increase in right-of-use asset measured at its carrying amount as if the new standard had been applied since the commencement date of the lease, discounted using the Group’s incremental borrowing rate; • $2 million increase in deferred tax asset; and • $6 million impact on retained earnings. (ii) AASB 17 Insurance Contracts was issued in July 2017 as replacement for AASB 4 Insurance Contracts and will be applicable to general, life and health insurance businesses. The new accounting standard introduces a new general model for measuring and accounting for insurance contracts. It requires insurance contracts to be measured on building blocks of discounted, probability-weighted cash flows, a risk adjustment and a contractual service margin representing the unearned profit of the contract. The Group is in the business of providing services to the Steadfast Network brokers, distributing insurance policies via insurance brokerages and underwriting agencies, and providing related services. The Group generally does not issue insurance contracts or reinsurance contracts and as such does not expect any material financial impact from AASB 17. (iii) At the date of reporting, the impact of the Australian Accounting Standards issued and not yet effective had not been determined. The Group does not expect the implementation of the amendments to have a material impact on the Group. 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 various other factors, including expectations of future events management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates may differ from 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) during the year ended 30 June 2019 are discussed below. A. FAIR VALUE OF ASSETS ACQUIRED The Group measures the net assets acquired in a business combination at their fair value at the date of acquisition. If new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to the fair value, then the amounts recognised as at the acquisition date will be retrospectively revised. Fair value is estimated with reference to the market transactions for similar assets or discounted cash flow analysis. B. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The Group’s financial assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair value of financial assets and liabilities is determined, including the valuation technique and inputs used. For the Group’s financial assets and liabilities not measured at fair value, their carrying amount provides a reasonable approximation of their fair values. Financial instrument Fair value hierarchy Valuation technique Significant unobservable inputs Relationship of unobservable inputs to fair value Deferred consideration Level 3 The fair value is calculated based on a contracted multiple of forecast EBITA or fees and commissions Forecast EBITA or fees and commissions The estimated fair value would increase/decrease if the forecast EBITA or fees and commissions were higher/lower Interest rate swaps Level 2 Investment in listed shares Level 1 The fair value is calculated using the present value of the estimated future cash flow based on observable yield curves The fair value is calculated based on number of shares multiplied by quoted price on ASX at balance date Not applicable Not applicable Not applicable Not applicable 97 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS continued C. DEFERRED CONSIDERATION The Group has made a best estimate of the fair value of consideration payable for the acquisitions where there is a variable purchase price (generally, a multiple of revenue or future period earnings before interest expense, tax and amortisation (EBITA)) after performing due diligence on the acquisition. Should the final consideration payable vary from these estimates, the Group will be required to recognise the difference in the consolidated statement of profit or loss and other comprehensive income. D. GOODWILL Goodwill is not amortised but assessed for impairment annually or more frequently when there is evidence of impairment. The recoverable amount of goodwill is estimated using the higher of fair value or the value in use of the relevant Cash Generating Unit (CGU) deducting the carrying amount of the identifiable net assets of the CGU. Key assumptions used in the calculation of recoverable amounts are the discount rates, terminal value growth rates and inputs to revenue and expense growth assumptions. E. INTANGIBLE ASSETS The carrying amounts of intangible assets with finite lives are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated on the same basis as goodwill above. An impairment loss is recognised if the carrying amount of the intangible asset exceeds its recoverable amount. F. EQUITY-ACCOUNTED INVESTMENTS Equity-accounted investments are carried at the lower of the equity-accounted amount and the recoverable amount. The carrying amounts of equity-accounted investments (which include embedded amounts of intangible assets) are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated on the same basis as goodwill above. An impairment loss is recognised if the carrying amount of the equity-accounted investment exceeds its recoverable amount. G. ESTIMATION OF USEFUL LIVES OF ASSETS The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase/decrease where the useful lives are less/greater than previously estimated. It would also change if the amortisation methodology was reassessed. H. RECOVERY OF DEFERRED TAX ASSETS Deferred tax assets are recognised for deductible temporary differences and operating tax losses only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. I. DEFERRED REVENUE FOR CLAIMS HANDLING Deferred revenue relating to claims handling is determined by calculating a margin and adding it to estimated costs based on past history associated with claims handling. Revenue is recognised over a period of time that the claims handling performance obligation is being performed. J. EXPECTED CREDIT LOSS PROVISION The expected credit loss provision is estimated based on the analysis of aged receivables, as the Group assumes that the credit risk on fee and commission receivable increases significantly if it is more than 90 days past due, as well as based on assumptions made on forward-looking information. For the premium funding businesses, the expected credit loss provision is based on historical analysis of credit losses for loans in arrears. 98 NOTE 4. OPERATING SEGMENTS The Company’s corporate structure includes equity investments in insurance intermediary entities (insurance broking, underwriting agencies and premium funders) and complementary businesses. Discrete financial information about each of these entities is reported to management on a regular basis and, accordingly, management considers each entity to be a discrete business operation. The Company believes that all of the Group’s equity investments in insurance intermediary entities exhibit similar economic characteristics and have therefore been aggregated into a single reporting segment, being the general insurance intermediary sector. This assessment is based on each of the business operations having similar products and services, similar types of customer, employing similar operating processes and procedures, and operating within similar regulatory environments. The Group is in the business of distributing and advising on insurance products primarily in Australia and New Zealand. The Group is also expanding its footprint in the United Kingdom and Singapore, and has a non-controlling interest in unisonSteadfast, a network headquartered in Germany. Regarding geographical information, the revenue and non-current assets attributed to geographies outside of Australasia are currently immaterial to the Group and hence no separate geographical disclosure has been made. In addition to reviewing performance based on statutory profit after tax, the Chief Operating Decision Maker (being the Managing Director & CEO) also reviews a key additional performance measure being underlying earnings before interest expense, tax and amortisation on acquired intangible assets (EBITA) broken down by consolidated entities, associates and joint ventures. The underlying EBITA excludes non-trading items as described in Note 4(i). The separate identification of non-trading items and EBITA are not disclosed in accordance with current Australian Accounting Standards requirements. Non-trading items are separately identified as they are considered to be unusual or non-recurring in nature. The additional performance measures, EBITA and other related information (broken down by consolidated entities, and associates and joint ventures) provided on a regular basis to the Chief Operating Decision Maker are outlined in the table below. 99 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 4. OPERATING SEGMENTS continued 2019 Fee and commission income Professional services fees Premium funding income* Interest income Share of profits from associates and joint ventures Other revenue Revenue Less: share of profits from associates and joint ventures Revenue – consolidated entities Insurance intermediary $’000 Other $’000 Total underlying $’000 Re - classification $’000 Non-trading items(i) $’000 583,446 80,354 10,613 8,850 14,382 1,972 - 583,446 (144,470) 3,068 - 16 (119) (56) 83,422 10,613 8,866 14,263 1,916 3,948 - - 653 764 699,617 2,909 702,526 (139,105) - - - (33) - 15,051 15,018 Total statutory $’000 438,976 87,370 10,613 8,833 14,916 17,731 578,439 (14,382) 685,235 119 3,028 (14,263) (653) - (14,916) 688,263 (139,758) 15,018 563,523 Employment expenses (216,899) (5,930) (222,829) (17,841) Occupancy expenses Other expenses Expenses – Consolidated entities EBITA – consolidated entities Share of EBITA from associates and joint ventures EBITA before non-trading items and adjustments for investment in listed securities Investment in listed securities Dividends received Mark to market adjustments EBITA Finance costs Consolidated entities Associates and joint ventures Amortisation expense Consolidated entities Associates and joint ventures Income tax benefit / (expense) Consolidated entities Associates and joint ventures Net profit after tax Non-controlling interests (18,758) (277,206) (512,863) 172,372 (174) (936) (7,040) (4,012) (18,932) - (278,142) 164,105 (519,903) 146,264 168,360 6,506 15,018 189,884 - - - - (240,670) (18,932) (114,037) (373,639) 25,016 (47) 24,969 157 - 25,126 197,388 (4,059) 193,329 6,663 15,018 215,010 95 725 - - 95 725 (95) (725) - - - - 198,208 (4,059) 194,149 5,843 15,018 215,010 (14,125) (485) (22,401) (2,846) (38,052) (7,303) 112,996 (17,708) - - (14,125) (485) - - (3,329) (25,730) (5,686) (72) (2,918) (157) - - - - (14,125) (485) (31,416) (3,075) 1,369 - (36,683) (7,303) (6,091) 106,905 - (17,708) (653) 653 - - - (89) - (37,425) (6,650) 14,929 121,834 (281) (17,989) 14,648 103,845 Net profit after income tax attributable to owners of Steadfast Group Limited (NPAT) 95,288 (6,091) 89,197 * Premium funding income is recognised as premium funding businesses became subsidiaries of the Group. 100 Insurance intermediary $’000 Other $’000 Total underlying $’000 Re - classification $’000 Non-trading items(i) $’000 - 492,387 (123,439) 2,765 7 322 305 66,467 7,052 13,959 1,108 4,162 - 535 1,679 3,399 580,973 (117,063) - - 508 - 3,685 4,193 Total statutory $’000 368,948 70,629 7,560 14,494 6,472 468,103 (322) 3,077 (13,959) (535) - (14,494) 567,014 (117,598) 4,193 453,609 (2,965) (184,726) (14,820) (577) (200,123) (328) (991) (4,284) (1,207) (16,458) - - (226,327) 136,914 (2,449) (16,458) (91,862) (427,511) 122,094 (3,026) (308,443) 139,503 4,496 1,167 145,166 24,028 539 24,567 135 316 25,018 164,738 (668) 164,070 4,631 1,483 170,184 - - - 1,500 (668) 165,570 - (3) (9,995) (583) - (1,500) 3,131 - - - - - - 1,483 170,184 - - - (9,995) (583) (25,000) (22,004) (2,996) (3,215) (135) (316) (3,666) NOTE 4. OPERATING SEGMENTS continued 2018 Fee and commission income Professional services fees Interest income Share of profits from associates and joint ventures Other revenue Revenue Less: share of profits from associates and joint ventures Revenue – consolidated entities Employment expenses Occupancy expenses Other expenses Expenses – Consolidated entities EBITA – consolidated entities Share of EBITA from associates and joint ventures EBITA before non-trading items and adjustments for investment in listed securities Investment in listed securities Dividends received Mark to market adjustments EBITA Finance costs Consolidated entities Associates and joint ventures Amortisation expense Consolidated entities Associates and joint ventures Income tax benefit / (expense) Consolidated entities Associates and joint ventures Net profit after tax Non-controlling interests Net profit after income tax attributable to owners of Steadfast Group Limited (NPAT) 492,387 63,702 7,045 13,637 803 577,574 (13,637) 563,937 (181,761) (16,130) (225,336) (423,227) 140,710 - 1,500 166,238 (9,995) (580) (19,703) (3,143) (35,014) (6,667) 91,136 (13,967) (2,301) (72) 980 (143) (2,207) - (34,034) (6,810) 88,929 (13,967) 77,169 (2,207) 74,962 (535) 535 - - - 255 - 1,422 (530) (34,314) (6,275) 90,351 (14,497) 892 75,854 101 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 4. OPERATING SEGMENTS continued Table notes Insurance intermediary $’000 Other $’000 2019 Total $’000 Insurance intermediary $’000 Other $’000 (i) Non-trading items Breakdown of non-trading income adjustment: Net gain from sale of investments in subsidiaries and associates Net gain/(loss) on re-estimation and settlement of deferred consideration* Reversal of deemed interest costs on interest-free executive loans Net gain/(loss) on fair value of investments in subsidiaries Other income 2,086 (110) (33) 12,853 222 15,018 Breakdown of non-trading expenses adjustment: Impairment loss (Note 7F)* Non-recurring redundancy costs Other expenses - - - - - - - - - - - - - - 2,086 480 (110) 3,275 (33) 508 12,853 222 15,018 - - - - (70) - 4,193 (2,372) (577) (77) (3,026) - - - - - - - - - - 2018 Total $’000 480 3,275 508 (70) - 4,193 (2,372) (577) (77) (3,026) * The Group often defers a portion of the purchase price of a business and makes the final payment referable to future financial performance. At the time of acquisition, an estimate is made as to the fair value of the final payment. This is reviewed each half-year based on information available and at settlement, and the estimate is adjusted if appropriate. Any adjustment is taken to profit (downwards estimate) or loss (upwards estimate). Where an estimate is reduced, the Group will consider whether the factors leading to the estimate of deferred consideration represent an indicator of impairment, and if so, the need for impairment is considered. The deferred consideration adjustments and impairments do not affect cash flows from operating activities. Total non-trading items: Non-trading revenue Non-trading expenses Total non-trading items: Income tax benefit/(expense) Non-controlling interests 15,018 - 15,018 (89) (281) Total non-trading items to NPAT 14,648 - - - - - - 15,018 - 15,018 (89) (281) 14,648 4,193 (3,026) 1,167 255 (530) 892 - - - - - - 4,193 (3,026) 1,167 255 (530) 892 102 NOTE 5. EARNINGS PER SHARE A. REPORTING PERIOD VALUE Basic earnings per share Diluted earnings per share If non-trading items were removed, the underlying earnings per share would be as follows: Basic earnings per share Diluted earnings per share B. RECONCILIATION OF EARNINGS USED IN CALCULATING EARNINGS PER SHARE Profit after income tax Non-controlling interests Profit after income tax attributable to the owners of Steadfast Group Limited for calculation of statutory basic and diluted earnings per share Removing non-trading items: Income Expenses Income tax expense/(benefit) Non-controlling interests (net of tax) Profit after income tax attributable to the owners of Steadfast Group Limited for calculation of underlying basic and diluted earnings per share C. RECONCILIATION OF WEIGHTED AVERAGE NUMBER OF SHARES USED IN CALCULATING EARNINGS PER SHARE I. Weighted average number of ordinary shares issued Weighted average number of ordinary shares issued Weighted average number of treasury shares held in trust 2019 Cents 2018 Cents 13.16 13.12 11.30 11.27 2019 $’000 9.87 9.83 9.75 9.71 2018 $’000 121,834 (17,989) 90,351 (14,497) 103,845 75,854 (15,018) - 89 281 (4,193) 3,026 (255) 530 89,197 74,962 2019 Number in ’000 2018 Number in ’000 793,036 772,884 (3,973) (3,982) Weighted average number of ordinary shares used in calculating basic earnings per share 789,063 768,902 II. Weighted average number of dilutive potential ordinary shares related to Weighted average number of ordinary shares Effect of share-based payments arrangements(a) Effect of deemed bonus shares on share options(b) 789,063 768,902 2,579 - 1,811 1,245 Weighted average number of ordinary shares used in calculating diluted earnings per share 791,642 771,958 103 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 5. EARNINGS PER SHARE continued The weighted average number of ordinary shares or dilutive potential ordinary shares is calculated by taking into account the period from the issue date of the shares to the reporting date unless otherwise stated as below: (a) Steadfast operates share-based payments arrangements (being an employee conditional rights scheme, a short-term incentive plan and a long-term incentive plan) where eligible employees could receive conditional rights instead of cash. One conditional right will convert to one ordinary share subject to vesting conditions being met. These share-based payments arrangements are granted to employees free of cost and no consideration will be paid on conversion to Steadfast’s ordinary shares. These arrangements have a dilutive effect to the basic earnings per share (EPS). (b) 3.000 million share options were issued to a member of key management personnel of an acquired business in 2013 with an exercise price of $1.00 per share. The share options were exercised on 25 February 2018. Because the average share price up to 25 February 2018 exceeded the exercise price, 1.245 million shares were deemed to be bonus shares in the year to June 2018. NOTE 6. DIVIDENDS A. DIVIDENDS ON ORDINARY SHARES 2019 2019 interim dividend 2018 final dividend 2018 2018 interim dividend 2017 final dividend Cents per share Total amount $’000 Payment date Tax rate for franking credit Percentage franked 3.2 4.7 2.8 4.4 25,377 37,272 21 March 2019 20 September 2018 22,206 32,989 22 March 2018 13 October 2017 30% 30% 30% 30% 100% 100% 100% 100% It is standard practice that the Board declares the dividend for a period after the relevant reporting date. A dividend is not accrued for until it is declared and so the dividends for a period are generally recognised and measured in the financial reporting period following the period to which the dividends relate. The dividends recognised in the current reporting period include $0.252 million (2018: $0.283 million) paid in relation to treasury shares held in a trust controlled by the Group. All the treasury shares participate in the Dividend Reinvestment Plan (DRP). B. DIVIDEND POLICY The Company targets a dividend payout ratio in the range of 65% to 85% of net profit after tax attributable to shareholders of the Company with a minimum dividend payout ratio of 50% of net profit after tax and before amortisation expense. C. DIVIDEND REINVESTMENT A Dividend Reinvestment Plan (DRP) allows equity holders to elect to receive their dividend entitlement in the form of the Company’s ordinary shares. The price of DRP shares is the average share market price calculated over the pricing period (which is at least five trading days) less any discount as determined by the Board for each dividend payment date. D. DIVIDEND NOT RECOGNISED AT REPORTING DATE On 20 August 2019, the Board resolved to pay the following dividend. As this occurred after the reporting date, the dividends declared have not been recognised in this financial report. Cents per share Total amount $’000 Expected payment date Tax rate for franking credit Percentage franked 2019 final dividend 5.3 42,031 20 September 2019 30% 100% The Company's DRP will operate by issuing ordinary shares to participants. No discount will be applied. The last election notice for participation in the DRP in relation to this final dividend is 27 August 2019. 104 NOTE 6. DIVIDENDS continued E. FRANKING CREDITS Franking account balance at reporting date at 30% Franking credits to arise from payment of income tax payable/(refundable) Franking credits available for future reporting periods Franking account impact of dividends declared before issuance of financial report but not recognised at reporting date Franking credits available for subsequent financial periods based on a tax rate of 30% 2019 $’000 2018 $’000 33,764 (6,573) 27,191 (18,013) 9,178 38,851 (2,727) 36,124 (15,974) 20,150 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 relating to the parent entity at the reporting date; • franking debits that will arise from the payment of dividends not recognised as a liability at the reporting date; and • franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. 105 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 7. INTANGIBLE ASSETS AND GOODWILL 2019 A. COMPOSITION At cost Customer relationships $’000 Capitalised software $’000 Other intangible assets $’000 Total intangible assets $’000 Goodwill $’000 278,311 37,873 8,031 324,215 952,451 Accumulated amortisation and impairment (114,183) (10,783) (6,043) (131,009) (6,953) 164,128 27,090 1,988 193,206 945,498 B. MOVEMENTS Balance at the beginning of the financial year Additions Additions through business combinations Reduction upon loss of control Amortisation expense – acquired intangibles Amortisation expense – developed intangibles Net foreign currency exchange difference 148,048 68 42,963 (2,168) (24,836) - 53 20,960 11,934 - - (114) (5,686) (4) 2,652 116 - - 171,660 816,246 12,118 42,963 - 132,798 (2,168) (3,707) (780) (25,730) - - (5,686) 49 - - 161 Balance at the end of the financial year 164,128 27,090 1,988 193,206 945,498 2018 C. COMPOSITION At cost Accumulated amortisation and impairment D. MOVEMENTS Balance at the beginning of the financial year Additions Additions through business combinations Reduction upon loss of control Amortisation expense – acquired intangibles Amortisation expense – developed intangibles Impairment Net foreign currency exchange difference 237,927 (89,879) 148,048 139,479 - 31,469 (1,661) (21,064) - (154) (21) 25,939 (4,979) 20,960 12,348 11,834 - - (226) (2,996) - - 7,915 (5,263) 2,652 271,781 823,058 (100,121) (6,812) 171,660 816,246 3,163 154,990 717,397 99 - 104 (714) - - - 11,933 31,469 (1,557) (22,004) (2,996) (154) (21) - 108,203 (7,015) - - (2,218) (121) Balance at the end of the financial year 148,048 20,960 2,652 171,660 816,246 E. AMORTISATION RATES PER ANNUM 10.0%-33.3% 20.0%-100.0% 20.0%-33.3% 106 NOTE 7. INTANGIBLE ASSETS AND GOODWILL continued F. IMPAIRMENT TESTING OF IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL The Group performs impairment testing for all goodwill on an annual basis and for any identifiable intangibles that have impairment indicators. For the year ended 30 June 2019, the Group recognised an impairment provision of nil (2018: $2.372 million). Impairment losses for each category of intangible assets are shown in Section D above. The impairments in the prior year related to acquisitions for which there was also a downward revision of deferred consideration (earnout) payments. When assessing the recoverable amount of customer relationships, the Group considered client retention rates and current market conditions to determine both fair value and value in use of each asset. In performing impairment testing, each subsidiary acquired or portfolio of businesses acquired is considered a separate Cash Generating Unit (CGU) or grouped into one CGU where operations are linked. To conduct impairment testing, the Group compares the carrying value with the recoverable amount of each asset. The recoverable amount is the higher of: • value in use – a discounted cash flow model, based on a five-year projection of the approved budget of the tested CGUs with a terminal value; and • fair value – based on the Group’s estimates of sustainable earnings before interest expense, tax and amortisation of acquired intangible assets (EBITA) for each CGU multiplied by an earnings multiple appropriate for similar businesses less costs to sell. The following table sets out the key assumptions for the value in use model: Post tax discount rates(a) Pre-tax discount rates 2019 % 10.0% to 11.0% 13.5% to 15.9% 2018 % 10.1% to 11.1% 13.7% to 15.9% Revenue growth rate – one year to five years extrapolation 4.0% to 6.7% per annum 4.0% to 6.5% per annum Long-term revenue growth rate(b) 3.25% per annum 3.25% per annum (a) Post tax discount rates reflect the Group’s weighted average cost of capital (WACC), adjusted for additional risks specific to each CGU. The WACC takes into account market risks, size of the business, current borrowing interest rates, borrowing capacity of the businesses and the risk free rate. External advice has been sought in relation to the determination of appropriate discount rates to be used. (b) The Group considers that a long-term revenue growth rate of 3.25% is appropriate, based on the current market conditions and historical Gross Written Premium (GWP) trends. No reasonable possible change in assumptions would result in the recoverable amount of a CGU being materially less than the carrying value. 107 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 8. BORROWINGS The Group has two types of borrowings, as follows: (i) Bank loans and lines of credit in corporate and subsidiaries for the purpose of carrying out the Group’s principal activities including the distribution of insurance policies via insurance brokerages and underwriting agencies and related services, as well as acquisitions and bolt-ons. These loans are secured against the Group’s assets, excluding IQumulate Premium Funding Pty Ltd (formerly Macquarie Premium Funding Pty Limited). (ii) Loans to finance the premium funding businesses (predominantly IQumulate Premium Funding Pty Ltd). These loans have recourse to the assets of the premium funding business. These two lines of loans are not cross-collateralised, and therefore are shown separately. A. CORPORATE AND SUBSIDIARIES’ BORROWINGS I. BANK LOANS Current Non-current Capitalised transaction costs II. BANK FACILITIES AVAILABLE a. Bank facilities drawn down or applied Bank loans – corporate facility Bank loans – subsidiaries Lines of credit – corporate facility Lines of credit – subsidiaries b. Bank facilities not drawn down or applied Bank loans – corporate facility Bank loans – subsidiaries Lines of credit – corporate facility Lines of credit – subsidiaries c. Total bank facilities available Bank loans Lines of credit III. CORPORATE FACILITY DETAILS As at 30 June 2019: 2019 $’000 2018 $’000 25,707 311,543 337,250 1,055 218,985 220,040 (311) (800) 336,939 219,240 290,654 46,596 3,874 3,781 171,500 48,540 4,241 - 344,905 224,281 88,346 107,500 1,142 2,126 7,294 598 1,759 1,075 98,908 110,932 426,738 328,138 17,075 7,075 443,813 335,213 • the Company had a $385.000 million multibank syndicated facility (corporate facility) with Macquarie Bank and ANZ Banking Group (2018: $285.000 million); and • $290.654 million of the $385.000 million facility had been drawn down together with $3.874 million for bonds and rental guarantees, which left $90.472 million available in the corporate facility for future drawdowns (30 June 2018: $109.259 million). 108 NOTE 8. BORROWINGS continued IV. KEY TERMS AND CONDITIONS OF CORPORATE FACILITIES The $285.000 million corporate facility negotiated in August 2015 was increased by $100.000 million to $385.000 million in October 2018. As at 30 June 2019, the maturity date of the whole facility was August 2020. Subsequent to balance date, the date has been extended to August 2021. Other key terms of the facility continue to be: • variable interest rate – based on BBSY plus a margin; and • the facility is guaranteed by certain wholly-owned subsidiaries and is secured over all of the present and after acquired property of the Company and the guarantors (other than certain excluded property), which is standard in facilities of this nature. B. PREMIUM FUNDING BORROWINGS I. PREMIUM FUNDING BORROWINGS Premium funding borrowings Less: capitalised transaction costs II. PREMIUM FUNDING BORROWINGS AVAILABLE Premium funding borrowings drawn down or applied Premium funding borrowings not drawn down or applied 2019 $’000 2018 $’000 4,009 (625) 3,384 3,384 504,594 507,978 - - - - - - The premium funding borrowings are loans from third party financial institutions to finance the premium funding businesses of the Group, predominantly IQumulate. The key terms and conditions of the IQumulate premium funding borrowings as at 30 June 2019 were as follows: • two Australian Dollar (AUD) facilities for $480.000 million and $10.000 million, and a New Zealand Dollar (NZD) facility for $25.000 million; • the maturity date of all facilities is 31 July 2020; • variable interest rate – AUD facilities and NZD facility based on BBSY (Bank Bill Swap Bid Rate) and BKBM (Bank Bill Benchmark Rate) respectively plus a margin; and • recourse to the assets of IQumulate only and are not cross-collateralised with other borrowings in the Group. 109 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 8. BORROWINGS continued C. RECONCILIATION OF MOVEMENTS OF LIABILITIES AND CASH FLOWS ARISING FROM FINANCING ACTIVITIES Bank loans – corporate facility $’000 Bank loans – subsidiaries $’000 Premium funding borrowings $’000 Total borrowings $’000 2019 Balance at the beginning of the financial period Proceeds from borrowings Repayment of borrowings Acquisitions Unwind capitalised transaction costs 170,700 138,154 (19,000) - 489 48,540 220 (4,411) 2,247 - Balance at the end of the financial period 290,343 46,596 - - - 3,384 - 3,384 219,240 138,374 (23,411) 5,631 489 340,323 Bank loans – corporate facility $’000 Bank loans – subsidiaries $’000 Premium funding borrowings $’000 Total borrowings $’000 2018 Balance at the beginning of the financial period Proceeds from borrowings Repayment of borrowings Unwind capitalised transaction costs Balance at the end of the financial period 173,265 58,500 (61,000) (65) 170,700 32,675 17,976 (2,111) - 48,540 - - - - - 205,940 76,476 (63,111) (65) 219,240 D. BORROWING BY ASSOCIATES AND JOINT VENTURES As at 30 June 2019, the Group’s associates and joint ventures had a total of $35.370 million (2018: $35.190 million) of bank borrowings (including bank overdrafts and loans). As the associates and joint ventures are equity-accounted, these borrowings are not included in the Group consolidated statement of financial position. The Group’s proportionate share of the associates' and joint ventures’ bank borrowings is $14.776 million (2018: $15.530 million). Refer Note 12C and Note 13C for summarised financial information of associates and joint ventures. 110 NOTE 9. NOTES TO THE STATEMENT OF CHANGES IN EQUITY AND RESERVES 2019 Number of shares ’000 2018 Number of shares ’000 2019 2018 $’000 $’000 A. SHARE CAPITAL Reconciliation of movements Balance at the beginning of the financial year 793,036 749,752 912,347 796,857 Shares issued under the institutional and retail share placement Shares issued to Whitbread/Axis vendors Shares issued for call option exercised by key management member of acquired business Less: transaction costs (and adjustments thereto), net of income tax - - - - 38,158 2,126 3,000 - - - - 170 107,762 6,016 3,000 (1,288) Balance at the end of the financial year 793,036 793,036 912,517 912,347 Ordinary shares in the Company have no par value and entitle the holder to participate in dividends as declared from time to time. All ordinary shares rank equally with regard to the Company’s residual assets. 2019 Number of shares ’000 2018 Number of shares ’000 2019 2018 $’000 $’000 B. TREASURY SHARES HELD IN TRUST Reconciliation of movements Balance at the beginning of the financial year Shares allocated to employees Shares acquired Shares allotted through the Dividend Reinvestment Plan Balance at the end of the financial year 4,002 (1,274) 1,207 82 4,017 4,144 (914) 668 104 4,002 7,728 (1,775) 3,685 252 9,890 7,014 (1,368) 1,799 283 7,728 Treasury shares are ordinary shares of Steadfast bought on market by the trustee (a wholly-owned subsidiary of the Group) of an employee share plan for meeting future obligations under that plan when conditional rights vest and shares are allocated to participants. C. CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue its listing on the ASX, provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to minimise the cost of capital, within the risk appetite approved by the Directors. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, take on borrowings or sell assets to reduce debt. The Group monitors capital on the basis of total gearing ratio excluding premium funding borrowings, as these borrowings are only securitised against the assets of the premium funder. The total gearing ratio is calculated as total borrowings of the Company and its subsidiaries divided by total equity and total borrowings of the Company and its subsidiaries. Currently the Group’s total maximum gearing ratio determined by the Board is 30.0% excluding premium funding borrowings. The total gearing ratio has been calculated both including and excluding the premium funding borrowings as follows: 111 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 9. NOTES TO THE STATEMENT OF CHANGES IN EQUITY AND RESERVES continued Note 2019 $’000 2018 $’000 Maximum Board approved Total borrowings of the Company and its subsidiaries (excluding premium funding borrowings) Total Group equity Total Group equity and total borrowings of the Company and its subsidiaries 8 344,905 224,281 1,095,252 1,056,979 1,440,157 1,281,260 Total gearing ratio excluding premium funding borrowings 23.9% 17.5% 30.0% Total borrowings of the Company and its subsidiaries (including premium funding borrowings) 8 348,914 224,281 Total Group equity Total Group equity and total borrowings of the Company and its subsidiaries 1,095,252 1,056,979 1,444,166 1,281,260 Total gearing ratio including premium funding borrowings 24.2% 17.5% D. NATURE AND PURPOSE OF RESERVES I. Foreign currency translation reserve The foreign currency translation reserve records the foreign currency differences from the translation of the financial information of foreign operations that have a functional currency other than Australian dollars. II. Share-based payments reserve The share-based payments reserve is used to recognise the fair value at grant date of equity settled share-based remuneration provided to employees; as well as the discount on Executive Shares. III. Other reserves The other reserves are used to recognise other movements in equity including: cumulative net change in fair value of hedging instruments; the fair value of put options issued to a shareholder of a subsidiary over that subsidiary’s shares; and the net effect on disposal of partial equity ownership in subsidiaries without loss of control. IV. Undistributed profits reserve The undistributed profits reserve consists of any retained amount from prior periods transferred from retained earnings. This reserve will be utilised should the Board declare a dividend from this reserve. 112 NOTE 10. BUSINESS COMBINATIONS ACQUISITIONS FOR THE YEAR ENDED 30 JUNE 2019 During the year ended 30 June 2019, the Group completed a number of acquisitions in accordance with its strategy. The following disclosures provide the provisional financial impact on the group at the acquisition date. Only a significant acquisition with total consideration over $45 million is disclosed separately. Other acquisitions are disclosed in aggregate. ACQUISITION OF SUBSIDIARIES The following tables provide: • detailed information for the acquisition of Community Broker Network Pty Ltd (CBN) during the year; and • aggregated information for eight other acquired businesses (Other acquisitions). Note 10F contains a list of subsidiaries acquired and the respective ownership interests. A. CONSIDERATION PAID/PAYABLE 2019 Cash Deemed consideration(a) Deferred consideration(b) Total CBN $’000 45,000 - 17,760 62,760 Other acquisitions $’000 40,292 45,656 29,587 115,535 Total $’000 85,292 45,656 47,347 178,295 (a) This amount represents the fair value of the original investments in Abbott NZ Holdings Limited, Lanyon Partners Consolidated Pty Ltd, JPI Insurance Brokers Pty Ltd, Paramount Insurance Brokers Pty Ltd and IQumulate Premium Funding Pty Ltd (formerly Macquarie Premium Funding Pty Limited) at the date the Group gained control of these entities which were previously associates and joint ventures of the Group. (b) Pursuant to the Share Purchase Agreements, some of the consideration will be settled based on future years’ actual financial performance and thus was recognised as deferred consideration by the Group. The deferred consideration is estimated based on a multiple of forecast revenue and/or earnings. Any variations at the time of settlement will be recognised as an expense or income in the consolidated statement of profit or loss and other comprehensive income. The deferred consideration shown above represents: – $15.257 million of deferred consideration for which the maximum amount of payment is not capped; – $31.868 million of deferred consideration which is capped; and – $0.222 million of deferred consideration which is fixed. 113 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 10. BUSINESS COMBINATIONS continued B. IDENTIFIABLE ASSETS AND LIABILITIES ACQUIRED 2019 Cash and cash equivalents(a) Trade and other receivables(b) Property, plant and equipment Deferred tax assets Identifiable intangibles Other assets Trade and other payables Income tax payable Provisions Deferred tax liabilities Other liabilities Total net identifiable assets acquired (a) Includes cash held on trust. CBN $’000 57,979 3,909 439 1,116 9,449 4,626 (54,241) 798 (3,832) (2,978) (388) 16,877 Other acquisitions $’000 33,231 48,645 2,302 7,772 33,514 8,067 (51,255) (2,473) (2,763) (10,875) (31,320) 34,845 Total $’000 91,210 52,554 2,741 8,888 42,963 12,693 (105,496) (1,675) (6,595) (13,853) (31,708) 51,722 (b) The trade receivables comprise contractual amounts and are expected to be fully recoverable. If new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to the above amounts, then the acquisition accounting will be revised. C. GOODWILL ON ACQUISITION 2019 Total consideration paid/payable Total net identifiable assets acquired Non-controlling interests acquired Goodwill on acquisition* CBN $’000 62,760 (16,877) - 45,883 Other acquisitions $’000 115,535 (34,845) 6,225 86,915 Total $’000 178,295 (51,722) 6,225 132,798 * The majority of goodwill relates to benefits from the combination of synergies as well as the acquired subsidiaries’ ability to generate future profits. None of the goodwill recognised is expected to be deductible for tax purposes. D. FINANCIAL PERFORMANCE OF ACQUIRED SUBSIDIARIES The contribution for the period since acquisition by the acquired subsidiaries to the financial performance of the Group is outlined in the table below. 2019 Revenue EBITA NPATA Profit after income tax CBN $’000 10,818 860 619 (45) Other acquisitions $’000 40,556 12,530 8,677 8,129 Total $’000 51,374 13,390 9,296 8,084 If the acquisitions of subsidiaries occurred on 1 July 2018, the Group’s revenue for the year ended 30 June 2019 would increase from $578.439 million to $616.551 million and profit after income tax would increase from $121.834 million to $126.922 million. 114 NOTE 10. BUSINESS COMBINATIONS continued E. ACQUISITION-RELATED COSTS The Group incurred acquisition-related costs, including stamp duty and legal fees, for business interests acquired during the year ended 30 June 2019. F. SUBSIDIARIES ACQUIRED The table below outlines all the subsidiaries acquired during the year ended 30 June 2019. It includes some entities in which the Group had a prior equity interest and that became subsidiaries following internal restructuring. Name of subsidiary acquired Abbott NZ Holdings Limited Aus Funding Solutions Pty Ltd Community Broker Network Pty Ltd (formerly National Adviser Services Pty Ltd) and its subsidiaries HMIA Pty Ltd IQumulate Premium Funding Pty Ltd (formerly Macquarie Premium Funding Pty Limited) JPI Insurance Brokers Pty Ltd Lanyon Partners Consolidated Pty Ltd Paramount Insurance Brokers Pty Ltd T&G Insurance Brokers Pty Ltd and its subsidiary Table notes Ownership interest as at 30 June 2019 % Table note (i) (ii) (iii) (iv) (iii) (iii) 65.48 80.00 100.00 95.00 100.00 100.00 97.56 62.50 80.00 (i) The Group obtained control of Abbott NZ Holding Limited (Abbott NZ) following amendments to the shareholders’ agreement, which gave the Group the ability to direct the key financial and operating activities. As a result, Abbott NZ became a subsidiary of the Group. (ii) The Group acquired 80% of Aus Funding Solutions Pty Ltd, a Premium Funding business. (iii) During the year the Group acquired additional shares in Lanyon Partners Consolidated Pty Ltd (Lanyon), Paramount Insurance Brokers Pty Ltd (Paramount) and IQumulate Premium Funding Pty Ltd (IQumulate). As a result, Lanyon, Paramount and IQumulate which were previously associates or joint ventures became subsidiaries of the Group. (iv) The Group acquired JPI Insurance Brokers Pty Ltd (JPI) through CBN, a wholly-owned subsidiary of the Group. 115 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 10. BUSINESS COMBINATIONS continued G. DEFERRED CONSIDERATION RECONCILIATION The following table shows a reconciliation of movements in deferred consideration for the years ended 30 June 2019 and 30 June 2018. Balance at the beginning of the financial year Settlement of deferred consideration Non-cash settlement of deferred consideration Additions from new acquisitions in business combinations Additions from new acquisitions of associates Additions from step-up investments Net (gain)/loss in profit or loss on settlement or reassessment Balance at the end of the financial year Disclosed as: Deferred consideration current Deferred consideration non-current Balance at the end of the financial year The balance of deferred consideration at the end of the financial year represents: Amount payable is limited Amount payable is not capped Amount payable is fixed 2019 $’000 3,946 (17,389) (2) 47,347 121 273 110 34,406 28,064 6,342 34,406 2019 $’000 22,108 12,298 - 34,406 2018 $’000 6,588 (5,047) (83) 4,349 - 1,414 (3,275) 3,946 2,822 1,124 3,946 2018 $’000 - 3,815 131 3,946 116 NOTE 11. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following key subsidiaries. Name A. PARENT ENTITY Steadfast Group Limited B. SUBSIDIARIES – OPERATING ENTITIES I. Insurance broking businesses Steadfast Insurance Brokers Pty Ltd Steadfast Group UK Ltd Abbott NZ Holdings Limited and its subsidiaries Austcover Holdings Pty Ltd and its subsidiary Ausure Group Pty Ltd and its subsidiaries Ballyglisheen Pty Ltd (trades as Steel Pacific) Body Corporate Brokers Pty Ltd Capital Insurance (Broking) Group Pty Ltd and Capital Insurance Broking Group Unit Trust and its subsidiaries Centrewest Holdings Pty Ltd and its subsidiaries Community Broker Network Pty Ltd (formerly National Adviser Services Pty Ltd) and its subsidiaries Consolidated Insurance Agencies Pty Ltd and its subsidiary Corporate Insurance Brokers Ballina (NSW) Pty Ltd G.W.S. Pty Ltd and its subsidiaries Galaxy Insurance Consultants Pte Ltd Great Wall Insurance Services Pty Ltd ICF (Australia) Pty Ltd and its subsidiary Joe Vella Insurance Brokers Pty Ltd Lanyon Partners Consolidated Pty Ltd Mega Capital Holdings Pty Ltd and Mega Capital Unit Trust and its subsidiary National Credit Insurance (Brokers) Pty Ltd (incorporating IMC Trade Credit) and its subsidiaries Newmarket Grand West Pty Ltd and its subsidiaries Newmarket Insurance Brokers Pty Ltd Paramount Insurance Brokers Pty Ltd Phoenix Insurance Brokers Pty Ltd PID Holdings Pty Ltd and its subsidiaries Quattro Risk Services Pty Ltd (formerly Finn Foster & Associates Pty Ltd) and its subsidiaries Resolute Property Protect Pty Ltd RIB Group Holdings Pty Ltd and its subsidiaries (RIB Group) Steadfast Brecknock Insurance Brokers Pty Ltd (formerly Brecknock Insurance Brokers Pty Ltd) and its subsidiaries Steadfast Distribution Services Pte Ltd Steadfast Hub Pty Ltd Ownership interest Country of incorporation 2019 % 2018 % Australia Australia United Kingdom New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia 100.00 100.00 65.48 50.00 50.01 60.00 100.00 100.00 - 50.00 50.01 60.00 100.00 100.00 79.46 70.18 100.00 55.00 100.00 62.50 73.00 67.50 56.25 70.00 97.56 88.35 70.18 - 55.00 100.00 100.00 73.00 75.00 100.00 70.00 - 100.00 100.00 91.20 90.00 87.20 90.00 100.00 100.00 62.50 89.00 100.00 93.68 100.00 81.08 95.00 100.00 62.50 - 89.00 100.00 65.60 100.00 81.08 95.00 100.00 - 117 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 11. SUBSIDIARIES continued Name Steadfast IFS Pty Ltd Steadfast IRS Pty Ltd and its subsidiaries Steadfast NZ Holdings Ltd Steadfast NZ Ltd Steadfast QIS Pty Ltd (formerly NCA Insurance Services Pty Ltd) and its subsidiary Steadfast Re Pty Ltd Steadfast Taswide Insurance Brokers Pty Ltd and its subsidiaries T&G Insurance Brokers Pty Ltd and its subsidiary Trident Insurance Group Pty Ltd and its subsidiary VBIH Pty Ltd and its subsidiary Webmere Pty Ltd and its subsidiaries Whitbread Life Pty Ltd Whitbread Holdings Pty Ltd and its subsidiary Work Health Alternatives Pty Ltd II. Underwriting agency businesses Steadfast Underwriting Agencies Holdings Pty Ltd SUA Services Pty Ltd Associated Marine Underwriting Agency Pty Ltd Axis Underwriting Services Pty Ltd Calliden Group Pty Ltd and its subsidiaries CHU Underwriting Agencies Pty Ltd and its subsidiaries Emergence Insurance Group Pty Ltd and its subsidiary Grange Underwriting Pty Ltd HMIA Pty Ltd Hostsure Underwriting Agency Pty Ltd Miramar Underwriting Agency Pty Ltd NM Insurance Pty Ltd and its subsidiary Procover Underwriting Agency Pty Ltd Protecsure Pty Ltd Proteus Marine Insurance Pty Ltd Residential Builders Underwriting Agency Pty Ltd Sports Underwriting Australia Pty Ltd Steadfast Placement Solutions Pty Ltd Steadfast Placement Solutions UK Ltd Underwriting Agencies of Australia Pty Ltd Underwriting Agencies of Fiji Pte Ltd Underwriting Agencies of New Zealand Limited Underwriting Agencies of Singapore Pte Ltd 118 Ownership interest Country of incorporation Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United Kingdom Australia Fiji New Zealand Singapore 2019 % 50.98 56.25 100.00 100.00 70.91 50.00 73.12 80.00 80.00 80.00 88.00 100.00 100.00 57.00 100.00 100.00 100.00 100.00 100.00 97.00 50.00 88.00 95.00 100.00 100.00 75.00 100.00 90.00 87.50 80.00 90.00 100.00 100.00 88.33 88.33 83.92 88.33 2018 % 50.98 100.00 100.00 100.00 61.91 50.00 73.12 - 60.00 80.00 77.00 100.00 100.00 70.00 100.00 100.00 100.00 100.00 100.00 97.00 50.00 77.00 - 100.00 100.00 75.00 100.00 90.00 87.50 80.00 90.00 100.00 100.00 88.33 - 83.92 - NOTE 11. SUBSIDIARIES continued Name Unity Trade Credit Pty Ltd Winsure Underwriting Pty Ltd WM Amalgamated Pty Ltd and its subsidiaries III. Complementary businesses Aus Funding Solutions Pty Ltd CHU Services Pty Ltd IQumulate Premium Funding Pty Ltd InsuranceCONNECT Pty Ltd Steadfast Business Solutions Pty Ltd Steadfast Convention Pty Ltd Steadfast Foundation Pty Ltd Steadfast INSIGHT Holdings Pty Ltd (formerly Actionquote Holdings Pty Ltd) Steadfast Share Plan Nominee Pty Ltd Steadfast Technologies Group Holdings Pty Ltd Steadfast Technologies NZ Ltd Steadfast Technologies Pty Ltd Steadfast Technologies Shared Services Pty Ltd Steadfast Technology Services Pty Ltd Steadfast Technology Services NZ Ltd Steadfast UnderwriterCentral Holdings Pty Ltd (formerly Insurance Connect Holdings Pty Ltd) Steadfast Virtual Underwriter Holdings Pty Ltd Ownership interest Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia New Zealand Australia Australia 2019 % 100.00 100.00 86.14 80.00 97.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2018 % 100.00 100.00 84.16 - 97.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 119 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 12. INVESTMENTS IN ASSOCIATES A. DETAILS OF ASSOCIATES Interests in associates are accounted for using the equity method of accounting. Information relating to key associates is set out below. Name I. Insurance broking businesses Ownership interest Equity-accounted 2019 % 2018 % 2019 $’000 2018 $’000 Abbott NZ Holdings Limited and its subsidiaries - 65.48 - 22,085 Armstrong’s Insurance Brokers Pty Ltd and Armstrong’s Insurance Brokers Unit Trust Ausure Group Pty Ltd – associates thereof Blackburn (Insurance Brokers) Pty Ltd and Liability Brokers Pty Ltd Collective Insurance Brokers Pty Ltd Covercorp Pty Ltd Edgewise Insurance Brokers Pty Ltd and The Bradstock GIS Unit Trust Empire Insurance Services Pty Ltd and McLardy McShane & Associates Pty Ltd Finpac Insurance Advisors Pty Ltd Glenowar Pty Ltd IPS Insurance Brokers Pty Ltd J.D.I. (YOUNG) Pty Ltd Johansen Insurance Brokers Pty Ltd King Insurance Brokers Pty Ltd Lanyon Partners Consolidated Pty Ltd McKillops Insurance Brokers Pty Ltd Melbourne Insurance Brokers Pty Ltd Origin Insurance Brokers Pty Ltd Northern City Insurance Brokers (VIC) Pty Ltd Paramount Insurance Brokers Pty Ltd Pollard Advisory Services Pty Ltd Risk Partners Pty Ltd Rose Stanton Insurance Brokers Pty Ltd Rothbury Group Ltd and its subsidiaries RSM Group Pty Ltd Sapphire Star Pty Ltd Scott & Broad Pty Ltd and its subsidiary Southside Insurance Brokers Pty Ltd Steadfast Eastern Insurance Brokers Pty Ltd Steadfast Life Pty Ltd and its subsidiary Tudor Insurance Australia (Insurance Brokers) Pty Ltd and Tudor Insurance Agency Unit Trust unisonSteadfast AG 25.00 20.00 40.00 49.00 49.00 25.00 20.00 40.00 - 49.00 848 4,604 2,814 62 1,112 804 4,234 2,857 - 1,119 35.31 33.14 4,174 3,035 37.00 49.00 49.00 40.00 25.00 48.35 37.00 - 49.00 49.00 26.00 50.00 - 46.50 45.00 49.00 42.80 49.00 30.00 49.00 49.00 25.00 50.00 48.00 40.00 37.00 49.00 49.00 40.00 25.00 48.35 37.00 45.00 49.00 49.00 - 50.00 25.00 46.50 45.00 49.00 44.51 49.00 30.00 49.00 49.00 34.38 50.00 48.00 40.00 3,912 1,037 4,072 3,034 874 4,454 - - 4,670 1,626 399 9 - 3,817 9,085 684 3,851 1,043 4,101 2,961 819 4,468 - 4,843 4,733 1,629 - 9 1,011 3,742 9,145 669 25,726 25,037 4,929 1,167 8,938 611 444 3,084 2,055 2,868 5,277 1,246 8,923 614 405 3,059 1,966 2,959 Watkins Taylor Stone Insurance Brokers Pty Ltd and D&E Watkins Unit Trust 35.00 35.00 1,656 1,705 120 NOTE 12. INVESTMENTS IN ASSOCIATES continued Name II. Underwriting agencies businesses Community Broker Network Pty Ltd (formerly National Adviser Services Pty Ltd) – associates thereof QUS Pty Ltd Sterling Insurance Pty Ltd III. Complementary businesses HJS Unit Trust Meridian Lawyers Ltd B. RECONCILIATION OF MOVEMENTS Balance at the beginning of the financial year Additions – deemed consideration(a) Additions – cash Additions – scrip for scrip Step-up investment to subsidiaries Disposal of associates Share of EBITA from associates Less share of: Finance costs Amortisation expense Income tax expense Share of associates’ profit after income tax Dividend received/receivable Net foreign exchange movements Balance at the end of the financial year Table note Ownership interest Equity-accounted 2019 % 2018 % 2019 $’000 2018 $’000 37.50 45.00 39.50 33.33 25.00 - 303 - 45.00 39.50 - 25.00 1,016 6,981 257 2,149 2019 $’000 1,097 7,157 - 2,352 2018 $’000 138,743 125,690 2,868 1,053 - (29,994) (111) 20,806 (444) (2,487) (5,353) 12,522 2,125 3,215 22,085 (11,403) (1,491) 21,203 (494) (3,094) (5,179) 12,436 (12,480) (13,575) (19) (339) 112,582 138,743 (a) This amount represents the carrying amounts of investments in associates of the subsidiaries acquired during the financial year at the date the Group acquired them. 121 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 12. INVESTMENTS IN ASSOCIATES continued C. SUMMARISED FINANCIAL INFORMATION OF ASSOCIATES I. Disclosure in aggregate These disclosures relate to the investment in all associates in aggregate. The figures below represent the financial position and performance of the associates as a whole and not just the Group’s share. Current assets Non-current assets Current liabilities Non-current liabilities Net assets Revenue EBITA Profit after income tax Total comprehensive income NOTE 13. INVESTMENT IN JOINT VENTURES A. DETAILS OF JOINT VENTURES Name ABICO Insurance Brokers and its related entities (ABICO) Ausure City & Rural Pty Ltd BAC Insurance Brokers Ltd Pty Blend Insurance Solutions Pty Ltd IQumulate Premium Funding Pty Ltd and its subsidiaries (formerly Macquarie Premium Funding Pty Limited) Steadfast Risk Services Pty Ltd and its subsidiary Rhymemat Pty Ltd B. RECONCILIATION OF MOVEMENTS Balance at the beginning of the financial year Additions Reclassification to investment in subsidiaries Share of EBITA from joint ventures Less share of: Finance costs Amortisation expense Income tax expense Share of joint ventures’ profit after income tax Dividend received/receivable Balance at the end of the financial year 122 2019 $’000 219,593 112,453 190,561 30,964 110,521 251,724 63,851 35,076 35,076 2018 $’000 352,053 136,887 314,065 31,062 143,813 208,430 56,922 39,664 39,477 Ownership interest 2019 % 50.00 50.00 50.00 50.00 - 50.00 27.80 2019 $’000 6,862 11,343 (3,146) 4,320 (41) (588) (1,297) 2,394 (1,776) 15,677 2018 % 50.00 - - 50.00 50.00 - 27.80 2018 $’000 11,362 4,153 (8,429) 3,815 (89) (572) (1,096) 2,058 (2,282) 6,862 NOTE 13. INVESTMENT IN JOINT VENTURES continued C. SUMMARISED FINANCIAL INFORMATION OF JOINT VENTURES These disclosures relate to the financial position and financial performance of the joint ventures as a whole and not just the Group’s share. Current assets Non-current assets Current liabilities Non-current liabilities Net assets Revenue EBITA Profit after income tax Total comprehensive income NOTE 14. TRADE AND OTHER RECEIVABLES Trade and other receivables Fee and commission receivable Less: expected credit loss provision Net fee and commission receivable Other receivables Premium funding receivable Premium funding receivable Less: expected credit loss provision 2019 $’000 19,328 8,374 18,009 408 9,285 55,221 9,350 5,296 5,296 2019 $’000 84,958 (2,780) 82,178 82,441 2018 $’000 22,534 8,633 17,952 1,903 11,312 65,140 9,466 4,525 4,915 2018 $’000 93,792 - 93,792 53,830 164,619 147,622 2019 $’000 76,398 (220) 76,178 2018 $’000 - - - 123 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 15. PROPERTY, PLANT AND EQUIPMENT Included in Property, Plant and Equipment is $23.010 million of buildings where the Group’s head office is based in Sydney. This is measured at cost less accumulated depreciation. Based on the most recent valuation carried out by external consultants in June 2019, these offices have a fair value at least $15.000 million in excess of their carrying value. NOTE 16. FINANCIAL INSTRUMENTS A. FINANCIAL RISK MANAGEMENT OBJECTIVES The Group’s activities expose it to a variety of financial risks: interest rate risk, credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk and ageing analysis for credit risk. Financial risk management is carried out by senior finance executives (finance) under policies approved by the Directors. These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and may hedge financial risks within the Group’s operating units. Finance reports to the Directors on a regular basis. B. MARKET RISK Interest rate risk As at the reporting date, the Group had the following variable rate bank accounts and borrowings: 2019 2019 2018 2018 Weighted average interest rate % 0.98 1.96 - 3.32(a) 5.16(a) Weighted average interest rate % 1.13 1.85 - 3.99(a) - Balance $’000 435,192 108,925 (3,781) (336,939) (3,384) 200,013 Balance $’000 297,904 89,596 - (219,240) - 168,260 - - 3.79(b) (75,000)(b) Non-derivatives Cash at bank Cash on deposit Bank overdrafts Bank loans Premium funding borrowings Derivatives Interest rate swap Table notes (a) Weighted average interest rate excludes any applicable line fee paid to lenders. (b) In August 2015, the Group entered into an interest rate swap with a notional amount of $75.000 million where the Group swaps the BBSY indexed floating rate payment into 3.79% fixed rate payment. The Group entered into the interest rate swap to minimise the Group’s exposure to interest rate risk. The Group agreed to exchange the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. The swap was designed to hedge interest costs associated with the underlying corporate debt obligations. The interest rate swap matured in August 2018, and no further interest rate swaps have been entered into for the year ended 30 June 2019. At 30 June 2019 the Group had all of its corporate debt exposed to variable rates (2018: 56.3%). An increase/decrease in interest rates of one hundred (2018: one hundred) basis points would have a favourable/adverse effect on profit/(loss) after tax of $2.047 million (2018: favourable/adverse effect of $1.178 million) per annum. The basis point change is based on the expected volatility of interest rates using market data, historical trends over prior years and the Group’s ongoing relationships with financial institutions. 124 NOTE 16. FINANCIAL INSTRUMENTS continued C. 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 Group obtains guarantees where appropriate to mitigate credit risk. 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. Credit risk of the Group mainly arises from cash and cash equivalents, trade and other receivables and a loan to IQumulate Premium Funding Pty Ltd (repaid in June 2019). The Group has funded $33.211 million (2018: $16.928 million) of loans to facilitate management buy-ins to certain businesses under the Group’s owner-driver business model. These loans are disclosed as other non-current assets in the Consolidated Statement of Financial Position. These loans attract commercial interest rates, with dividends from these businesses used to fund interest and loan repayments. The shares held by management in those businesses are provided as loan collateral. The Group’s exposure to credit risk is concentrated in the financial services industry with parties that are considered to be of sufficiently high credit quality (including cash held with major Australian banks) to minimise credit risk losses. Receivables include amounts due from policyholders in respect of insurances arranged by controlled entities. The Group assumes that the credit risk on fee and commission receivable increases significantly if it is more than 90 days past due. The expected credit loss provision is recognised for the fee and commission receivable. The Group also has exposure to credit risk from premium funding loans. The expected credit loss provision for premium funding loans is based on historical data as a percentage of total loans written, after expected recoveries from trade credit policies. The following table shows the movement in expected credit loss that has been recognised for fee and commission receivable in accordance with the simplified approach set out in AASB 9: Balance at 1 July 2018 under AASB 139 Adjustment on initial application of AASB 9 Balance at 1 July 2018 under AASB 9 Increase in expected credit loss Foreign exchange losses Acquisition of companies Balance at 30 June 2019 2019 $’000 - 2,403 2,403 305 16 56 2,780 125 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 16. FINANCIAL INSTRUMENTS continued D. LIQUIDITY RISK Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities, continuously monitoring actual and forecast cash flows, and by matching the maturity profiles of financial assets and liabilities. The following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. Weighted average interest rate % 1 year or less $’000 Between 1 to 2 years $’000 Between 2 to 5 years $’000 Over 5 years $’000 Total contractual maturities $’000 2019 Non-derivatives Non-interest bearing Payables on broking/underwriting agency operations Trade and other payables Premium funding payables Deferred consideration Interest bearing Bank loans Premium funding borrowings Total non-derivatives Derivatives Hedge interest rate swaps (net settled) Total derivative 2018 Non-derivatives Non-interest bearing Payables on broking/underwriting agency operations Trade and other payables Deferred consideration Interest bearing Bank loans Total non-derivatives Derivatives Hedge interest rate swaps (net settled) Total derivative 126 410,334 99,232 66,873 28,064 - 3,003 - 6,342 - - - - - - - - 410,334 102,235 66,873 34,406 3.33 5.16 26,151 3,559 301,416 13,099 7,444 348,110 - - - 3,559 634,213 310,761 13,099 7,444 965,517 - - - - 3.99 323,464 38,489 2,822 1,097 365,872 60 60 - 2,812 1,124 1,099 5,035 - - - - - - - - - - - - - - 323,464 41,301 3,946 211,790 211,790 13,999 13,999 227,985 596,696 - - - - 60 60 NOTE 17. CONTINGENCIES CONTINGENT LIABILITIES Macquarie Bank put options The Group has granted options to Macquarie Bank Limited (Macquarie) to enable Macquarie to put shares held by other shareholders in associates to the Group at fair value if Macquarie enforces its security over those shares. These have been granted in relation to shares held by other shareholders in associates over which Macquarie holds a security interest to secure indebtedness by those shareholders. The Group expects no material net exposure from this arrangement as the contingent liabilities have contingent assets (being rights to shares held by the relevant shareholders) approximating similar values. Bank guarantee In the normal course of business, certain controlled entities in the Group have provided bank guarantees principally in respect of their contractual obligations on commercial leases. NOTE 18. COMMITMENTS Contracted non-cancellable leases for property, plant and equipment committed at the reporting date, but not recognised as liabilities or payables are provided below. OPERATING LEASE COMMITMENTS Within one year One to five years Over five years NOTE 19. EVENTS AFTER THE REPORTING PERIOD FINAL DIVIDEND 2019 $’000 2018 $’000 15,758 45,716 5,035 66,509 11,471 26,423 3,980 41,874 On 20 August 2019, the Board declared a final dividend for 2019 of 5.3 cents per share, 100% franked. The dividend will be paid on 20 September 2019. MULTIBANK SYNDICATED FACILITY (CORPORATE FACILITY) The $385.000 million multibank syndicated facility (corporate facility) with Macquarie Bank and ANZ Banking Group was extended a further year in August 2019 with a revised maturity date of August 2021. BID FOR INSURANCE BROKERS NETWORK AUSTRALIA LIMITED (IBNA) Steadfast Group has launched a takeover bid for Insurance Brokers Network Australia Limited (IBNA), with up to $70.000 million of scrip to be issued to IBNA members should the offer be accepted. This is expected to produce an additional circa $8.000 million in annual pre-tax underlying earnings to the Group. The consideration paid will be expensed in accordance with accounting standards in the Group's FY20 statutory accounts (and could cause a statutory loss) and will be excluded from normalised underlying earnings. ACQUISITION OF REBATES FROM STEADFAST NETWORK BROKERAGES In July 2019 the Group announced that it will seek expressions of interest from Steadfast Network brokerages in Australia and New Zealand to receive either cash or shares in exchange for renouncing rights to rebates from professional service fees (PSF rebate) from 1 July 2019. The outcome is yet to be determined. It is anticipated that any consideration to be paid (being the issue of shares or payment of cash) will be expensed in accordance with accounting standards in the Group's FY20 statutory accounts (and could cause a statutory loss) and will be excluded from normalised underlying earnings. IQUMULATE’S DEBT FACILITY The premium funding debt facility of IQumulate that commenced in June 2019 has continued to be drawn upon, with a corresponding increase in premium funding receivables as security against these loans. CAPITAL RAISING The Group is undertaking a fully underwritten placement to raise approximately $100.000 million together with an accompanying Share Purchase Plan. 127 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 20. SHARE-BASED REMUNERATION SHARE-BASED PAYMENTS – EMPLOYEE RELATED Share-based remuneration encourages employee share ownership, links employee reward to the performance of the Group and assists with attracting, retaining and motivating highly qualified and key personnel. The Company intends to settle its obligations under share-based payment arrangements by the on-market purchase of the Company’s ordinary shares which will be held in trust pending exercise of vested rights by employees. The Group has established a practice of purchasing a tranche of shares on or near grant date at the prevailing market price to facilitate building up a portfolio sufficient to meet the obligations when rights vest. Trading in the Company’s ordinary shares awarded under the share-based remuneration arrangements is covered by the same restrictions that apply to all forms of share ownership by employees. These restrictions prohibit an employee trading in the Company’s ordinary shares when they are aware of price sensitive information and limit their trading at other times. The Group has the following types of share-based remuneration arrangements provided to employees; each arrangement has different purposes and different rules: • short-term incentive plan; and • long-term incentive plan. The share-based payments are included in the employment expense line in the statement of profit or loss and other comprehensive income. Senior Management and Executive share plans The senior management and executive share plan arrangements are awarded based on the terms and conditions as set out in the short-term and long-term incentive plans. When granted, the awards in these two plans may be in the form of cash and/or conditional rights. The Remuneration & Succession Planning Committee has approved the participation of each individual in these arrangements as well as the actual awards based on the performance conditions in these two plans being met. A. The short-term incentive plan (STI) The STI plan is a discretionary, performance-based, at risk reward arrangement. STI is awarded based on each participant’s performance hurdles and whether the financial performance hurdle of a minimum 5% of diluted underlying earnings per share growth of the Group are met. The key terms of the STI plan for 2019 financial year are: • total STI will be awarded and settled in the form of cash and conditional rights as approved by the Board if diluted EPS growth targets and individual participant’s performance criteria for the performance period (i.e. 1 July to 30 June) are met. If met: – 60% of STI will be settled in the form of cash and will be paid annually in September after the performance period; and – 40% of STI awarded will be deferred and granted in the form of conditional rights; • conditional rights (rights) are granted for nil consideration; • the vesting condition of rights is not market related and requires the participant to continue in relevant employment from the grant date of the rights (retention period), split one-third over one, two and three years; • the rights will accrue notional dividends during the retention period; • when vesting (after completion of the retention period), each right will be converted into one Steadfast ordinary share per right for nil consideration upon exercise by the participant. The notional dividends will be converted into an equivalent number of Steadfast ordinary shares based on the Dividend Reinvestment Plan issue price applicable to each dividend; • the Board has discretion to settle the rights in cash instead of Steadfast ordinary shares; • the vesting is conditional on there being no material adverse deterioration in the 2019 reported results during the performance period before the exercise of the rights; and • if the vesting condition is not met then the rights lapse. Further details of the 2019 STI in relation to the Group’s key management personnel are disclosed in the Remuneration Report. 128 NOTE 20. SHARE-BASED REMUNERATION continued B. The long-term incentive plan (LTI) The LTI plan is a discretionary, performance-based, at risk reward arrangement. LTI is awarded based on each participant’s performance hurdles and whether the minimum financial performance hurdles in diluted underlying earnings per share growth and Total Shareholder Return (TSR) are met. The key terms of the LTI plan awarded in August 2018 were: • LTI will be awarded in the form of conditional rights as approved by the Board and will be granted in August following the end of each financial year; • conditional rights (rights) are granted for nil consideration; • the vesting condition of rights is not market related and is conditional on meeting the following performance hurdles: – the participants meeting their individual performance hurdles during the three-year employment tenure from the grant date of the rights (retention period); – 75% based on the Group achieving a minimum 5% (maximum at 10%) average straight line per annum diluted EPS growth during the retention period; and – 25% based on the Group achieving a minimum TSR above the 50th percentile (maximum at 75th percentile) of the peer group during the retention period; • the rights will not accrue notional dividends during the retention period; • before vesting, the Board will determine the number of rights to vest based on the combined outcome of the performance hurdles; • when vesting (after completion of the retention period), each right will be converted into one Steadfast ordinary share for nil consideration upon exercise by the participant; • the Board has discretion to settle the rights in cash instead of Steadfast ordinary shares; and • if the vesting conditions are not met then the rights lapse. Further details of the 2019 LTI in relation to the Group’s key management personnel are disclosed in the Remuneration Report. Employee share plan The Short-Term Employee Incentive Plan (STEIP) was introduced during FY19. The STEIP is a discretionary, performance based at-risk reward arrangement that aims to recognise the contributions of eligible employees of Steadfast Group Limited when outstanding financial results and individual performance objectives are achieved. The STEIP consists of two reward components: • cash component – a cash award which may be delivered if diluted EPS growth targets are met; and • deferred equity component – a deferred equity award (DEA) of conditional rights to Steadfast shares if EPS growth targets are met and subject to a tenure hurdle and no negative material deterioration in EPS from prior year adjustments in the subsequent year. Participation in the DEA component of the STEIP is by invitation only and is limited to participants approved by the Group CEO. The EPS growth targets for the STEIP are aligned with those in the senior management and executive share plans. Notional dividends on the conditional rights will accrue during the tenure hurdle period from the first interim dividend after the grant date. The notional dividends will be calculated in accordance with the Dividend Reinvestment Plan (DRP) as varied from time to time. The accrued value of notional dividends will be provided to a participant on the vesting date of a conditional right in the form of additional Steadfast shares (or cash in lieu). 129 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 21. TAXATION A. INCOME TAX (EXPENSE)/BENEFIT Profit before income tax expense Income tax expense at statutory tax rate of 30% Tax effect of differential corporate tax rate Tax effect of amounts that are not (deductible)/taxable in calculating taxable income Share of after-tax profits of associates and joint ventures Non-assessable and other deductible items Non-deductible and other assessable items Over/(under) provision for income tax of prior periods Income tax expense B. MAJOR COMPONENTS OF INCOME TAX EXPENSE Current tax Movement in deferred tax assets Movement in deferred tax liabilities Adjustments for current tax of prior periods C. INCOME TAX ON ITEMS RECOGNISED DIRECTLY IN EQUITY Deferred tax assets Deferred tax liabilities D. DEFERRED TAX ASSETS I. Composition Accrued expenses Provisions Employee share scheme Deferred income Others II. Movements Balance at the beginning of the financial year Add: reversal of offset against deferred tax liabilities Gross balance at the beginning of the financial year Opening balance adjustments to retained earnings Charged to profit or loss Charged to equity Additions through business combinations Balance at the end of the financial year before offset Less: offset against deferred tax liabilities Balance at the end of the financial year 130 2019 $’000 2018 $’000 159,259 124,665 (47,778) (37,399) 29 276 4,475 9,340 (6,068) 4,348 6,461 (7,428) (40,002) (33,742) 2,577 (572) (37,425) (34,314) (39,272) (38,643) (1,421) 691 2,577 537 4,364 (572) (37,425) (34,314) 782 85 867 785 9 794 10,637 8,800 1,951 8,943 4,476 34,807 3,514 15,910 19,424 7,134 (1,421) 782 8,888 34,807 (27,449) 7,358 4,212 7,866 1,893 1,863 3,590 19,424 3,419 13,808 17,227 - 537 785 875 19,424 (15,910) 3,514 NOTE 21. TAXATION continued E. DEFERRED TAX LIABILITIES I. Composition Intangible assets Receivables Accrued income Other II. Movements Balance at the beginning of the financial year Add: reversal of offset against deferred tax assets Gross balance at the beginning of the financial year Charged to profit or loss Charged to equity Additions through acquisitions Balance at the end of the financial year before offset Less: offset against deferred tax assets Balance at the end of the financial year F. ATO TRANSPARENCY REPORTING 2019 $’000 2018 $’000 47,733 25,487 11,999 88 85,307 56,320 15,910 72,230 (691) (85) 13,853 85,307 (27,449) 57,858 44,868 18,602 5,771 2,989 72,230 50,655 13,808 64,463 (4,364) (9) 12,140 72,230 (15,910) 56,320 The Australian Taxation Office (ATO) publishes total income, taxable income and tax payable in relation to large taxpayers, with the 2017 financial year being the latest information released. The information published is sourced from the income tax return lodged by Steadfast Group Limited as the head company of the Australian tax consolidated group (which captures only the entities that are 100% owned by the Group). Total income includes all Australian income, including commission and fee income, investment return and dividends. It does not include any business expenses such as commission and fees expense, salaries or other operating expenses. Taxable income is the net profit that is subject to tax and takes into account allowable deductions for business expenses and other tax concessions, including non-taxable dividends from foreign subsidiaries. Tax payable on taxable income is calculated with reference to the Australian corporate tax rate of 30%, adjusted for franking credits and other tax concessions. On release of the 2018 tax information, we envisage the following will be reported: Total income Taxable income Tax paid by head entity Effective tax rate 2018 $’000 2017 $’000 245,197 292,098 83,886 64,894 1,480 1.76% 5,537 8.53% 131 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued The most significant reason for the low effective tax rate for the parent entity is that a substantial portion of its disclosed taxable income is dividends received and the attached franking credits (derived from those entities paying tax) reduce the tax payable by the head entity. For a complete view of the effective tax rate, the following needs to be considered: Tax paid by head entity Tax paid by investees (and passed to head entity as franking credits) Research & Development offset Underlying tax paid Taxable income Effective tax rate (excl. franking credits) 2018 $’000 1,480 23,686 - 25,166 83,886 30% 2017 $’000 5,537 13,534 398 19,468 64,894 30% The 2019 income tax return for Steadfast Group Limited is expected to have an effective rate continuing at circa 30%. 132 NOTE 22. NOTES TO THE STATEMENT OF CASH FLOWS A. COMPOSITION Cash and cash equivalents Cash held on trust Bank overdrafts B. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING ACTIVITIES Profit after income tax expense for the year Adjustments for Depreciation, amortisation and (gain)/loss on disposal of property, plant and equipment Share of profits of associates and joint ventures Income tax paid Dividends received from associates/joint ventures Fair value gain on listed investments Interest income on loans Capitalised interest on loans Net gain on disposal of investment in subsidiaries and associates Net (gain)/loss on fair value of investments in subsidiaries Net gain from adjustments to deferred consideration estimates Share-based payments and incentives accruals Impairment expense Change in operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in deferred tax assets (Increase)/decrease in other assets Increase/(decrease) in trade and other payables Increase/(decrease) in income tax payable Increase/(decrease) in deferred tax liabilities Increase/(decrease) in other liabilities Increase/(decrease) in provisions Net cash from operating activities NOTE 23. RELATED PARTY TRANSACTIONS A. KEY MANAGEMENT PERSONNEL COMPENSATION 2019 $’000 2018 $’000 116,520 427,449 (3,781) 76,746 310,856 - 540,188 387,602 121,834 90,351 36,112 (14,916) (41,077) 14,256 (725) (986) 1,336 (2,086) (12,853) 110 7,501 - 29,270 (14,494) (37,896) 15,857 (1,500) (944) 48 (480) 70 (3,275) 5,034 2,372 (42,331) (65,053) 12,624 5,200 80,977 35,440 (10,639) (25,894) (2,535) 780 57 71,114 38,757 (5,223) (1,580) (41) 161,348 123,224 The aggregate remuneration received/receivable by the 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 Accrued share-based expenses 2019 $’000 5,247 123 84 3,451 8,905 2018 $’000 4,872 119 68 2,760 7,819 133 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 23. RELATED PARTY TRANSACTIONS continued B. TRANSACTIONS WITH SUBSIDIARIES All transactions that have occurred among the subsidiaries within the Group have been eliminated for consolidation purposes. C. TRANSACTIONS WITH OTHER RELATED PARTIES The following transactions occurred with related parties: I. Sale of goods and services Professional services fees received from associates on normal commercial terms Professional services fees received from joint ventures on normal commercial terms Commission income received/receivable from associates on normal commercial terms 2019 $’000 2018 $’000 120 2,417 103 137 2,706 119 II. Interest income Interest income received/receivable from joint ventures 41 93 III. Payment for goods and services Estimated Steadfast Network broker rebate expense paid or payable to associates on the basis as determined by the Board Commission expense paid/payable to associates on normal commercial terms Service fees paid to associates IV. Receivable from and payable to related parties 901 703 6,724 111 3,650 57 The following balances are outstanding at the reporting date in relation to transactions with related parties: a. Current receivables Receivables from associates Receivables from joint ventures Dividend receivable from associates b. Current payables Payables to associates V. Loans to related parties The following balances are outstanding at the reporting date in relation to loans with related parties: a. Current receivables Loan to joint venture(a) Executive loans(b) b. Non-current receivables Loans to associates 6,055 11,274 - - 213 295 1,527 1,357 - - - 500 500 603 4,512 5,115 - - (a) The loan to IQumulate (previously Macquarie Premium Funding Pty Limited) was fully paid on 17 June 2019 (30 June 2018: $603,125). (b) Executive loans were interest-free loans to certain executives to acquire Steadfast ordinary shares when the Company was listed on the ASX in August 2013. These loans were fully repaid in FY19. 134 NOTE 24. PARENT ENTITY INFORMATION The financial information provided in the table below is only for Steadfast Group Limited, the parent entity of the Group. A. STATEMENT OF COMPREHENSIVE INCOME Profit after income tax Other comprehensive income Total comprehensive income B. STATEMENT OF FINANCIAL POSITION Current assets Total assets Current liabilities Total liabilities Equity Share capital Undistributed profits reserve Other reserves Retained earnings Total equity 2019 $’000 2018 $’000 49,014 42 49,056 52,561 302 52,863 68,026 75,258 1,358,442 1,247,716 68,599 68,747 363,865 241,389 912,517 89,509 6,187 (13,636) 912,347 89,445 4,535 - 994,577 1,006,327 C. SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the parent entity are consistent with those of the Group, as disclosed in Note 2, except for investments in subsidiaries, associates and joint ventures which are accounted for at cost, less any impairment. Dividends received are recognised as income by the parent entity. D. GOING CONCERN The parent entity financial statements have been prepared on a going concern basis. E. GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES The parent entity provided no guarantees in relation to the debts of its subsidiaries as at 30 June 2019 and 30 June 2018. F. CONTINGENT ASSETS/LIABILITIES The Company is exposed to the contingent assets and liabilities pertaining to the Macquarie Bank put options set out in Note 17. G. CAPITAL COMMITMENTS – PROPERTY, PLANT AND EQUIPMENT The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019 and 30 June 2018. 135 Steadfast Group Annual Report 2019 Notes to the Financial Statements continued NOTE 25. REMUNERATION OF AUDITORS A. KPMG I. Audit and review services 2019 $ 2018 $ Audit or review of the financial statements of the Company and certain subsidiaries 1,759,210 1,464,318 II. Other assurance, taxation and due diligence services Other assurance services Other assurance services Other services Taxation compliance and other advisory services B. OTHER AUDITORS I. Audit and review services - 107,000 251,072 251,072 114,445 221,445 Audit or review of the financial statements 334,239 302,731 II. Services other than audit and review of financial statements Other services Taxation advisory services Other services 35,069 395,744 430,813 35,403 42,089 77,492 136 Directors’ declaration 1. In the opinion of the Directors of Steadfast Group Limited (‘the Company’): (a) the consolidated financial statements and notes that are set out on pages 80 to 136 and the Remuneration Report in the Directors’ Report, are 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 2019 and of its performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2019. 3. The Directors draw attention to Note 2A to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed at Sydney on 20 August 2019 in accordance with a resolution of the Directors: Frank O’Halloran, AM Chairman Robert Kelly Managing Director & CEO 137 Steadfast Group Annual Report 2019 Independent Auditor’s Report TO THE SHAREHOLDERS OF STEADFAST GROUP LIMITED REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the Financial Report of Steadfast Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2019 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key audit matters The Key Audit Matters we identified are: • Valuation of Goodwill, Other Intangible Assets, Investments in Associates, and Interests in Joint Ventures • Decentralised Operations 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. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. 138 Liability limited by a scheme approved under Professional Standards Legislation. Key audit matter How our audit addressed the key audit matter VALUATION OF GOODWILL, OTHER INTANGIBLE ASSETS, INVESTMENTS IN ASSOCIATES, AND INTERESTS IN JOINT VENTURES Refer to Note 7, Goodwill ($945,498k) and Other Intangible Assets ($193,206k), Note 12, Investments after Associates ($112,582k), Note 13, Interests in Joint Ventures ($15,677k), and Note 3, Critical Accounting Judgements, Estimates and Assumptions. The valuation of goodwill, other intangible assets, investments in associates, and interests in joint ventures is a key audit matter as: • goodwill and other intangible assets and investments in associates and interests in joint ventures represented 58% of the Group’s total assets. • the high number of individual Cash Generating Units (CGUs) (more than 70 at 30 June 2019), necessitated our consideration of the Group’s determination of CGUs and the valuation for each of the CGUs, intangible assets, investments in associates, and interests in joint ventures. • our evaluation of potential impairment involves applying judgement in relation to the Group’s forecast cash flows and forward looking assumptions, including discount rates, short term growth rates and terminal growth rates. We focussed specifically on those CGUs and associates where the forecast growth rates were in excess of historic rates and those where the achievement of the forecasts are reliant on the success of business initiatives. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Our procedures included: • We assessed the Group’s determination of CGUs based on our understanding of the operation of the Group’s business, and how independent cash flows were generated, against the requirement of the accounting standards. • We assessed the Group’s analysis of indicators of impairment of other intangible assets and its investment in associates. Working with our valuation specialists: • We considered the appropriateness of the valuation methods applied (VIU and FVLCTS) by the Group against the requirements of the accounting standards. • We compared the forecast cash flows contained in the valuation models to the Board approved budgets. We also evaluated the forecasting process undertaken by the Group and assessed the precision of prior year forecast cash flows by comparison to actual outcomes. We used knowledge from this evaluation to inform our detailed testing focus. • We applied increased scepticism to forecasts in the areas where previous forecasts were not achieved. We compared the forecast revenue growth rate and terminal growth rate assumptions to external data on inflation rates and projected revenue growth for the insurance brokerage industry in Australia. We used our knowledge of the Group, their past performance, business and customers, and our general insurance industry experience in considering the appropriateness of the forecast used. • We independently developed a discount rate range based on analysis of comparable companies using publicly available market data, adjusted by risk factors specific to the Group and the industry it operates in. • We performed sensitivity analysis on the discount rate, and forecast growth rate for key CGUs, placing focus on the expected increase in forecast revenue growth rates. Additionally, we cross checked the valuation results against earnings multiples inherent in the value of other comparable companies. • We assessed the integrity of the value in use model used, including accuracy of the underlying calculation formulas. 139 Steadfast Group Annual Report 2019 Independent Auditor’s Report TO THE SHAREHOLDERS OF STEADFAST GROUP LIMITED Key audit matter How our audit addressed the key audit matter DECENTRALISED OPERATIONS Refer to Note 2, Significant Accounting Policies, Note 11, Subsidiaries, Note 12, Investments in Associates and Note 13, Interests in Joint Ventures. The Group comprises more than 130 subsidiaries and associates (components) whose operations are spread across Australia, New Zealand, and to a lesser degree, the United Kingdom, Singapore and Germany. The Group’s business is general insurance distribution, and the individual components are wide ranging in size and also in the customers and products of each business operation. The decentralised and varied nature of these operations requires significant oversight by Steadfast Group to monitor the activities, review component financial reporting and undertake the Group consolidation. This is an extensive process due to the variety of accounting processes and systems used across the Group. This was a key audit matter for us given the high number of subsidiaries and associates, and the varied operations, accounting processes and systems. We focused on: • understanding the components and identifying the significant risks of misstatement within each component, taking significant acquisitions made during the year into consideration; • the scoping of relevant procedures consistent with the risks identified and to enable coverage of significant aggregated balances; • the assessment of components compliance with Group accounting policies, particularly regarding compliance with the new accounting standards AASB 15 Revenue with Contracts with Customers and AASB 9 Financial Instruments; and • the consolidation process and aggregating results from component procedures. Our procedures included: • We instructed component audit teams to perform procedures on the financial information prepared for consolidation purposes by 34 components. The selected components were significant to the audit of the Group, either by size or by risk, included over 87% of the Group’s revenue and 85% of total assets. The objective of this approach was to gather evidence on significant balances that aggregate to form part of the Group’s financial reporting. • The component audit teams performed audits of the financial information of the components on specific Group reporting package information and local statutory financial reporting. We worked with the component audit teams to identify risks significant to the audit of the Group and to plan relevant procedures. There was additional effort and attention given to our procedures on the newly acquired businesses in scope for group reporting. We discussed the component audits as they progressed to identify and address any issues, working with the component audit teams as appropriate. We read the audit reports issued to us and the underlying memos explaining component results. We evaluated the work performed by the component audit teams for sufficiency for our overall audit purpose. We also considered the components’ compliance with the Group’s accounting policies, including those relating to the recognition of revenue as part of our evaluation of the component audit teams reporting to us. • We tested the financial data used in the consolidation process for consistency with the financial data audited by component audit teams. We also assessed the consolidation process for compliance with accounting standards with particular focus on implementation of AASB 15 and 9. • For a sample of financially significant components, we inspected the component auditors’ files for consistency between the auditor’s opinion and the underlying audit work. • For the other components, not within the scope of the component audit teams, our head office audit procedures included testing the Group’s key monitoring controls and performance of analytical procedures. We inspected a sample of bank reconciliations, statutory financial reports and accompanying audit reports, and enquired of head office and component management. In our analytical procedures we compared actual financial results to budgets and the prior year results. We enquired of head office and component management and considered trends within the insurance market. 140 Other Information Other Information is financial and non-financial information in Steadfast Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the Audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. 141 Steadfast Group Annual Report 2019 Independent Auditor’s Report TO THE SHAREHOLDERS OF STEADFAST GROUP LIMITED REPORT ON THE REMUNERATION REPORT Opinion In our opinion, the Remuneration Report of Steadfast Group Limited for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001. Directors’ 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 responsibilities We have audited the Remuneration Report included in pages 56 to 78 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our Audit conducted in accordance with Australian Auditing Standards. KPMG Scott Guse Partner Sydney 20 August 2019 142 Shareholders' information AS AT 29 JULY 2019 ORDINARY SHARE CAPITAL There were 793,035,955 fully paid ordinary shares held by 5,187 shareholders. All the shares carry one vote per share and carry the rights to dividends. DISTRIBUTION OF SHAREHOLDERS The number of shareholders by size of holding are as follows: Range 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total No. of holders No. of shares % of issued capital 357 1,305 606 1,625 1,294 5,187 742,039,855 41,529,570 4,568,567 4,245,095 652,868 793,035,955 93.57% 5.24% 0.58% 0.54% 0.07% 100.00% There were 0 shareholders holding less than a marketable parcel based on a market price of $3.71 at the close of trading on 29 July 2019. SUBSTANTIAL SHAREHOLDERS Date of notice No. of shares % of issued capital INVESTORS MUTUAL VANGUARD GROUP 07/06/17 27/05/19 44,821,736 44,190,384 5.98% 5.57% This information is based on the most recent substantial holder notices lodged with the ASX. TWENTY LARGEST SHAREHOLDERS Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED JP MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED MACKAY INSURANCE SERVICES PTY LTD BNP PARIBAS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA ARGO INVESTMENTS LIMITED BNP PARIBAS NOMS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MACKAY INSURANCE SERVI CES PTY LTD AMP LIFE LIMITED STEADFAST SHARE PLAN NOMINEE PTY LTD RC & IP GILBERT PTY LTD RM & JA ALFORD INVESTMENTS PTY LTD MR ROBERT BERNARD KELLY BNP PARIBAS NOMINEES PTY LTD MR DAVID INGRAM AUSTRALIAN EXECUTOR TRUSTEES LIMITED Total DIVIDEND DETAILS Dividend Interim Final Franking Fully franked Fully franked No. of shares % of issued capital 219,136,007 140,970,148 70,119,704 57,169,454 27,764,302 24,732,647 14,442,301 13,937,377 11,775,120 9,731,538 7,427,923 6,165,945 4,453,142 4,017,368 3,100,000 3,085,000 3,062,209 2,687,329 2,661,876 2,350,258 27.63% 17.78% 8.84% 7.21% 3.50% 3.12% 1.82% 1.76% 1.48% 1.23% 0.94% 0.78% 0.56% 0.51% 0.39% 0.39% 0.39% 0.34% 0.34% 0.30% 628,789,648 79.29% Amount per share DRP issue price Payment date 3.2 cents 5.3 cents $3.19 21 March 2019 * 20 September 2019 The final dividend has an ex-dividend date of 23 August 2019 a record date of 26 August 2019, a payment date of 20 September 2019 and is eligible for Steadfast's Dividend Reinvestment Plan (DRP), which carries no discount. *The DRP issue price for the final dividend is scheduled to be announced on 13 September 2019 143 Steadfast Group Annual Report 2019 Corporate Directory DIRECTORS CORPORATE OFFICE SHARE REGISTRY Frank O’Halloran, AM (Chairman) Robert Kelly (Managing Director & CEO) David Liddy, AM Gai McGrath Anne O’Driscoll Philip Purcell Greg Rynenberg Steadfast Group Limited Level 4 99 Bathurst Street Sydney NSW 2000 Postal Address PO Box A980 Sydney South NSW 1235 Link Market Services Level 12 680 George Street Sydney NSW 2000 Postal Address Locked Bag A14 Sydney South NSW 1235 COMPANY SECRETARIES Linda Ellis Peter Roberts NOTICE OF AGM The AGM will be held on Thursday 17 October 2019 at 10.00am at the Hilton Hotel, 488 George Street, Sydney NSW 2000. P 02 9495 6500 E investor@steadfast.com.au W steadfast.com.au ACN 073 659 677 P 1300 554 474 E registrars@linkmarketservices.com.au STOCK LISTING Steadfast Group Limited ordinary shares are listed on the Australian Securities Exchange (ASX code: SDF). 144 Designed by Ascender 145 Steadfast Group Annual Report 2019 Steadfast Group Limited 146 ABN 98 073 659 677 www.steadfast.com.au