Connecting
people & technology
Annual Report 2017
1
Annual Report 2017 2
Link Group – Connecting people & technology Connecting
people & technology
Link Group administers financial ownership data
and uses technology to drive user engagement,
analysis and insight. We deliver complete
business solutions for companies, large asset
owners and trustees across the globe. Our
commitment to market-leading client solutions
is underpinned by our investment in people,
processes and technology.
Contents
Chair’s Message
Managing Director’s Report
Business Overview
Five Drivers of Growth
Operational and Financial Highlights
Our Culture of Innovation
Our People
Our Approach to Sustainability and Governance
Financial Report
Additional Shareholder Information
2
4
8
10
12
14
16
20
24
134
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Annual Report 2017
Chair’s Message
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2
Operating
EBITDA
$219m
up 15% on
the prior year
Welcome to Link Group’s Annual Report for the financial
year ended 30 June 2017 (FY2017), our second since
listing on the Australian Securities Exchange (ASX).
Link Group has enjoyed another strong earnings result,
with the Company continuing to build momentum since
its successful Initial Public Offering (IPO) in October
2015. Under the leadership of John McMurtrie and his
executive team, Link Group has delivered:
• Revenues of $780 million, up 1% on the prior year;
• Operating EBITDA1 of $219 million, up 15% on the
prior year;
• Operating NPATA1 of $124 million, 21% higher on the
prior year; and
• Statutory Net Profit After Tax (NPAT) of $85 million,
101% up on the prior year.
The Board is pleased to announce a final dividend of 8 cents
per share, which is 100% franked. Together with the
interim dividend of 6 cents per share, this represents 60%
of NPATA, which is at the top end of the Board’s dividend
policy of paying between 40% and 60% of NPATA.
The delivery of our strategy and the development of
innovative products and services were particularly pleasing
elements of Link Group’s performance in FY2017. The
Company’s operations in complementary and adjacent
markets improved and added further value to our business.
Link Group is committed to reaching its goals using
innovative technology, developing expertise and loyalty
1. Unless otherwise stated, results throughout this report are presented on an
Operating basis. See page 57 for non-IFRS definitions of Operating EBITDA
and Operating NPATA.
Link Group – Connecting people & technology Link Group has enjoyed another strong
earnings result and the Company has
continued to build momentum since its
successful Initial Public Offering (IPO) in
October 2015.
in our team members, and meeting our clients’ needs
using efficient processes and market-leading solutions.
We operate in 11 countries worldwide, process over
$100 billion in payments per year and answer 4.3
million calls per year.
A highlight of the year was our first Annual General
Meeting (AGM) as an ASX-listed company in November
2016. This event was special not only because it was
our first AGM, but because it was also a showcase for
Link Group’s ‘Day of AGM’ services and technology,
which we provide to companies around the world to
deliver their own AGMs. A first for an S&P/ASX200
company incorporated in Australia, the platform
allowed eligible Link Group shareholders at remote
locations to participate in the meeting ‘virtually’, to
view the proceedings of the meeting via video link,
ask questions, and vote using our LinkVote App on
personal devices or via Link Group’s interactive web-
based technology online.
In June 2017, Link Group announced it had entered
into a binding agreement to acquire UK-based Capita
Asset Services (CAS) for £888 million ($1,493 million)
from London Stock Exchange-listed Capita plc.
The acquisition is subject to mandatory regulatory
approvals and is expected to be completed by 31
December 2017. CAS is a strong strategic fit that
aligns with our growth strategy. The acquisition of
CAS exemplifies Link Group’s strategy to grow through
further penetration of attractive markets, and expand its
product and regional capabilities.
The acquisition of CAS marked the culmination of a
busy year welcoming new businesses to the Company.
These included Adviser Network Pty Limited and White
Outsourcing Pty Limited – now Link Fund Solutions.
In addition, Link Group increased its investment in
Property Exchange Australia Limited (PEXA).
This year, the Board welcomed two new Independent
Non-Executive Directors with extensive corporate
governance experience. Peeyush Gupta comes to
the Company with over 30 years of service in the
wealth management industry, while Anne McDonald
has over 35 years of business experience in finance,
accounting and auditing, risk management and
governance. I would like to acknowledge my fellow
Board Directors for their hard work and dedication
to delivering Link Group’s strategy for growth and
innovation during FY2017.
The Company’s many achievements this year would
not have been possible without the hard work and
commitment of every member of the Link Group team
and the ongoing support of our valued clients and loyal
shareholders. On behalf of the Link Group Board,
I would like to thank the Company’s shareholders
for their participation in the recent Entitlement Offer,
proceeds of which will partly fund the acquisition of
CAS. We greatly appreciated your strong support.
The Board looks forward to the next year with great
enthusiasm for delivering our commitment to innovation
and service for our clients, their members and investors.
Michael Carapiet
Chair
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Annual Report 2017
Managing Director’s
Report
Operating
NPATA
$124m
up 21% on
the prior year
In 2017, Link Group delivered very pleasing financial
and operational performance and made significant
progress on the implementation of its growth strategies.
This effort sees the Company well positioned to
continue on its trajectory of sustainable growth.
Link Group has come a long way from its origins as a
share registry business in an accounting practice more
than 50 years ago. Today, it is a market-leading global
administrator of financial ownership data that drives user
engagement, insight and analysis through technology.
The Company operates on four continents, employs
4,300 people, and has significant operations within its
three divisions: Fund Administration, Corporate Markets,
and Information, Digital & Data Services (IDDS).
Over the past 12 months, Link Group has undertaken
major acquisitions in the UK and Australia, delivered
strong financial results, achieved significant growth, and
deepened relationships with our valuable clients.
This strong performance is testament to the
Company’s many attributes, including a diverse and
multicultural workforce, a customer-first approach,
and the enthusiastic adoption of sustainable solutions.
Our 2017 performance also reflects Link Group’s
commitment to innovation and the $100 million the
Company spends in technology each year, including
over $35 million invested in capital expenditure.
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4
Link Group – Connecting people & technology Link Group’s success in 2017 involved
advances related to our people,
innovative technologies and our use of
sustainable solutions.
Financial Position and Key Achievements in FY2017
Acquisitions
Link Group’s record of uninterrupted Operating
EBITDA growth since 2002 continued in FY2017.
We exceeded our performance of the previous year
across key financial measures:
• Operating EBITDA was $219 million, up 15% on the
prior year; and
• Operating NPATA was $124 million, 21% higher
than the previous year.
Link Group’s strategy continues to focus on five
drivers of growth:
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2
3
4
5
We work to further penetrate our existing markets
by winning new clients and increasing revenue
from existing clients.
We create product and service innovations and
use our expertise in technology to strengthen our
competitive advantage.
We pursue expansion through alliances and
acquisitions in our existing markets.
We are realising the synergies from the integration
of acquired businesses, including Superpartners.
We pursue opportunities in attractive markets
adjacent to those in which we now operate.
In June 2017, Link Group announced the £888 million
($1,493 million) acquisition of UK-based CAS, a major
provider of back-office solutions to the financial services
industry. We expect completion by 31 December
2017. The acquisition of CAS is strongly aligned with
our stated growth strategy. It provides us with a wider
geographic footprint within Europe and a great platform
for further growth within Europe and the UK – markets
into which we first entered more than a decade ago,
and have been seeking to expand for many years.
I would like to commend the management team for
their efforts on the acquisition process so far and for
establishing a robust integration plan.
CAS provides us with established market positions
in business segments that extend the reach of our
current services within Fund Solutions, Shareholder
Solutions and Corporate & Private Client Solutions.
It also adds new services in the form of Banking &
Debt Solutions.
CAS administers and safeguards approximately £600
billion ($985 billion) of assets and in 2016 managed
approximately £45 billion ($74 billion) in annual
payments for its customers. Once the acquisition is
completed, Link Group will operate in 16 countries
and employ more than 7,500 people.
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Annual Report 2017 Managing Director’s Report (continued)
We are being recognised for our approach to
innovation, too. Link Group won Financial Services
App of the Year at the 2017 Financial Standard
Marketing, Advertising & Sales Excellence (MAX)
Awards for an employer app that we developed in
partnership with Cbus Superannuation Fund (Cbus).
The app allows small business operators to make
super contributions, manage account administration,
generate receipts and add new employees using their
mobile phone.
Another example of our innovation is the iOS version of
our miraqle® app, a tool that helps executives of listed
entities manage investor relations. We first launched
the app around the time Link Group listed on the ASX,
so I was able to experience first-hand how useful it was
in managing meetings with institutional shareholders
and targeting potential investors, as well as in providing
direct feedback to our development team. The miraqle®
platform is now used by over 1,500 listed-entity clients
worldwide and its functionality extends to booking Uber
rides and restaurants, a useful function for executives
when travelling to meet with investors around the globe.
Superpartners integration
The Superpartners data migration activity was
completed in December 2016, when the final client
fund was successfully migrated onto Link Group’s
platforms. The migration project saw over five million
individual superannuation member records from eight
funds migrated in less than three years. It has provided
Link Group with a range of new synergies that are
already providing benefits. Link Group continues to
pursue further integration synergies across both Fund
Administration and IDDS.
The CAS deal was the latest acquisition in what was
a busy year for Link Group. In December 2016,
Link Group acquired White Outsourcing, a business
that offers middle and back-office administration,
fund accounting, custodial and unit registry services
for fund managers, trustees and listed investment
companies. With $43 billion in funds under
administration, it is one of the largest locally-owned
asset services specialists in Australia and now
operates under the brand Link Fund Solutions.
In May 2017, Link Group acquired Adviser Network,
a company that provides digital and advice services
to many of Australia’s leading superannuation
funds. Its services complement the existing product
suite offered by Link Group’s IDDS and Fund
Administration divisions.
Our investment during the year in technology
solutions start-up Moneysoft Pty Limited, a provider
of personal financial management tools that assist
financial advisers and their clients to reach their
financial goals, will enhance our product offering to
our client base.
Investing in technology
Link Group spends more than $100 million per annum
applying technology that can drive user engagement,
analysis and insight. As part of this expenditure, we
invest over $35 million a year on capital expenditure
– an increasing proportion of which goes towards
developing innovations for the benefit of our clients
and their stakeholders and members.
One example of this is LinkLabs, a new facility in
our Collins Square office in Melbourne which allows
our people and clients to collaborate on projects
to promote the rapid prototyping of new ideas. It
is a space where we can demonstrate some of our
cutting-edge technology, including virtual reality
equipment and eye-tracking technology to improve
website development.
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Link Group – Connecting people & technology A foundation for success
While the financial figures tell part of the story, Link
Group’s success in 2017 also involved advances
related to our people, innovative technologies and
our use of sustainable solutions. These core areas
are crucial to driving the Company forward over the
coming year and delivering greater value to our clients
and shareholders.
I was very proud to see Link Group recently
recognised for creating a working environment in
which our people can reach their full potential, with an
Australian Business Award (ABA) Employer of Choice
Award. Link Group received the ABA as we were able
to demonstrate our achievements across several key
areas including Organisational Culture and Leadership,
Employee Education, Training and Development and
Employee Health, Safety and Satisfaction.
Greater diversity
Diverse teams are more productive and innovative,
and so I am particularly pleased to see female
representation on our board at 43%, well ahead of
the 30% target set for S&P/ASX 200 companies by
the Australian Institute of Company Directors. At the
same time, the proportion of women in the senior
leadership team grew to one-third. As I visit our
various offices, I’m proud of the cultural diversity that I
see in our teams, something that we celebrate during
Harmony Day each year by encouraging our people to
‘Link Together’ by wearing their traditional dress and
sharing a signature meal.
Customer-first culture
Behind the numbers in this annual report is our most
important asset – our people. Wherever I go across
the business globally, I’m always impressed by our
people’s focus on delivering high-quality services for
clients across our three divisions. Every team member
contributes to our success and I would like to thank
each of them for this.
In 2017, we formally identified Link Group’s cultural
DNA in a Culture Statement approved by the Board.
The statement re-affirmed what our customers and
other stakeholders already know – that our employees
are committed to enhancing Link Group through
excellent service and a customer-first approach.
Embracing Sustainability
Our new Collins Square office in Melbourne is
an excellent example of our commitment to
sustainability. The advanced design, which achieved
the highest environmental rating, incorporates smart
sustainability measures and technologies that will
reduce our carbon footprint while also encouraging
our people to collaborate and innovate.
Whether it is by reducing paper usage or taking space
in energy-efficient buildings, we are continuing to seek
more sustainable ways in which to operate.
I believe that our people, our investments, and our
fiscal strength have all created good momentum
for the years ahead across each of our business
divisions. Link Group is well positioned to deliver on
our growth plan in FY2018 and beyond.
I look forward to reporting back to you on our progress.
John McMurtrie
Managing Director
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Annual Report 2017 Business Overview
Link Group administers financial ownership data for over 3,000 clients
globally, servicing a total stakeholder base of approximately 10 million
superannuation account holders and over 30 million individual shareholders.
Link Group has 4,300 employees and operations in 11 countries.
Innovation: Link Group’s
technology is complemented by
a culture of innovation and value
creation. This is a key enabler for
the business and is supported
by continuous investment in the
development of our people, the
environments in which they operate,
and in their active association with
clients, industry bodies and
other stakeholders.
Sustainability: Our corporate
objectives balance our social and
environmental goals with those
of all our stakeholders including
customers, investors, employees
and the community. Governance,
risk management and sustainability
continue to be a core component of
Link Group’s strategy.
Technology: The business is
supported by an investment in
technology, people and
processes. This includes an
in-house technology capability
that supports Link Group’s service
offering to deliver comprehensive
solutions to its client base. Link
Group’s proprietary technology
platforms provide a key source of
competitive advantage and have
been developed through capital
investment of more than $300
million over the past 10 years.
Divisional overview
Fund Administration
Corporate Markets
Link Group offers a broad suite
of superannuation administration
services that connect
superannuation funds with their
members. Link Group is the largest
provider of services in Australia’s
superannuation fund administration
industry, which in turn services the
fourth largest pension pool in the
world based on funds
under management.
Link Group provides a
comprehensive suite of services
that connect issuers with their
stakeholders. These services are
provided to companies globally and
include: shareholder management
and analytics; stakeholder
engagement; share registry;
employee share plans; and company
secretarial services. Link Group
holds a leading market position in all
its key markets.
Information, Digital & Data
Services (IDDS)
Link Group’s continued investment in
its proprietary technology platforms
allows it to automate wealth
management workflows, manage
large shareholder and member
bases, and provide insights through
predictive analytics. The IDDS
division manages data, analyses
information and uses innovative
technology to provide clients with
end-to-end solutions, as well as
value-added services.
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Link Group – Connecting people & technology Link Group
Services
approximately
Employs
10million 4,300
superannuation
account holders
people
Processes over
20million
transactions
payment
per annum
Operates in
11
countries
Answers
Services over
4.3million 3,000
calls per annum
clients globally
Electronically
processes over
8million
employer
contributions
per annum
Services over
30million
individual
shareholders
Processes over
$100 billion
in payments
per annum
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Annual Report 2017 Over
90
superannuation
fund migrations
since
2008
89
67
56
Five Drivers of Growth
More than 15 years of
uninterrupted Operating
EBITDA growth
$million
9
12
15
16
18
2002
2003
2004
2005
2006
2007
2008
2009
2002: Corporate Markets focus
Today: Technology-enabled outsourced services provider
Growth through
further penetration of
attractive industries
Growth through
product and service
innovation
Growth through
client, product and
regional expansions
10
10
Link Group – Connecting people & technology 219
191
Over
40
business
combinations
in the last
15 years
117
104
94
148
138
130
2010
2011
2012
2013
2014
2015
2016
2017
Today: Technology-enabled outsourced services provider
Growth through
client, product and
regional expansions
Realising
integration
benefits
Identifying
adjacent market
opportunities
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Annual Report 2017 Operational and
Financial Highlights
Key financial highlights for FY2017
Our strong financial
performance exceeds
earnings in FY2016
We are continuing to
deliver on a defined
growth strategy by
investment in new
products, geographic
expansion & synergistic
opportunities
12
12
Revenue
$780
million
up 1% on FY2016
Operating EBITDA
$219
million
up 15% on FY2016
Recurring
revenue
90%
consistent with FY2016
Link Group – Connecting people & technology Key financial highlights for FY2017
Statutory NPAT of
Operating NPATA
$85
million
$124
million
up 101% on FY2016
up 21% on FY2016
Operating EBITDA Margin
Final dividend declared of
28%
up from 25% in FY2016
Net debt of
$295
million
representing 1.3 times FY2017
Operating EBITDA
8.0
cents per share*
* 100% franked
Net Operating
Cash flow Conversion
99%
Strong cash flow conversion
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Annual Report 2017
Our Culture of Innovation
Our drive to find smarter, more efficient solutions to
problems lies at the heart of the way Link Group does
business. We have long recognised that an innovative
approach improves the outcomes we are able to
offer the market as well as boosting our profitability. It
can also provide broader benefits to our clients, their
customers, shareholders and other stakeholders.
We were once a company that processed and sent
millions of sheets of paper for our clients. Nowadays
we lead the industries we work in towards efficient,
environmentally aware, paper-free solutions. The past
year has seen Link Group pass a number of milestones
in its determination to maintain its position as an industry
leader in innovation.
History-making Annual General Meeting
Link Group made corporate governance history in
November 2016, when it became the first S&P/ASX
200 company incorporated in Australia to hold a hybrid
(physical and virtual) Annual General Meeting. The use
of the Company’s online meeting platform for AGMs
allowed shareholders from far-flung locations to take
part in the meeting, ask questions and vote. Some
16% of the votes cast during the AGM were cast
online, 50% were cast via the LinkVote App and 34%
were paper based.
We were also the first company in New Zealand to use
this technology to facilitate online AGM participation.
We have successfully supported a number of entities
listed on the New Zealand Stock Exchange (NZX),
as well as ASX/NZX dual-listed entities to use the
technology, including Xero Limited, Spark New Zealand
Limited, and The A2 Milk Company Limited.
Introducing LinkLabs
In mid-2016, we opened LinkLabs, a dedicated
innovation space in Link Group’s new Collins Square
office in Melbourne. The space is designed to be used
by our employees, clients and business partners, as
well as by our community partners such as schools and
universities. Boasting an array of advanced multimedia
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technology, including a 3x3-metre video wall, the facility
can be used for everything from strategy sessions and
staff training to client meetings and ideation workshops.
The benefits to clients are significant. LinkLabs
provides clients with a flexible way of learning about
Link Group’s latest products and becoming involved
in the innovation process. The space also allows
clients to carry out in-depth user testing and rapid
prototyping. This fast-paced exploration of ideas
means that clients can increase the speed to market –
and value – of their new products. A Sydney version of
LinkLabs will be opened as part of the refurbishment of
our George Street offices in the second half of 2017.
Client engagement
Link Group is constantly looking for better, more
efficient ways of doing existing tasks. We now
incorporate chatbots into the customer interfaces of
some of Link Group’s key client portals. Chatbots are
sophisticated computer programs that can simulate
human conversation patterns. They can answer
frequently asked questions and thereby free up human
operators to respond to more complex queries.
Another example of our willingness to find new ways of
engaging with clients is the virtual reality tours that we
provide of our Rhodes facility in Sydney. Participants
can take the tour from any remote location where a
virtual headset is available.
Each client is unique
Our suite of digital tools helps our clients to maintain
brand differentiation by allowing them to offer bespoke
services to their customers/stakeholders. Link
Group’s SuperMentor service, for example, is a digital
advice platform rolled out in FY2017 to provide online
superannuation advice and motivate fund members
to learn more about their super. The tool offers a
personalised to-do list, goal setting, education, four
categories of advice, and real-time tracking of progress.
Similarly, our Net Wealth Tracker is a tool that enables
superannuation fund members to view their net wealth
position via Link Group’s member portal. Members can
Link Group – Connecting people & technology
BETTER SHAREHOLDER MANAGEMENT –
IN A SINGLE APP
Mobile apps are one of the most exciting tools of
the digital age – simple, hand-held solutions for
doing better business. A few years back, Link
Group saw the potential this technology could bring
to executives of listed companies. In 2015, Orient
Capital, a Link Group corporate markets company,
launched the miraqle® app for iPad. An investor-
relations management tool targeting C-suite and
investor relations executives, the app is based on
the popular miraqle® platform and was developed by
Link Digital Solutions. In January 2017, the app was
updated for the iPhone, and an Android version is
also being developed.
The miraqle® platform is used by over 1,500 listed-
company clients worldwide, including by some 80%
of the S&P/ASX 200. In app form, it helps listed-
company executives better manage their interactions
with shareholders, even while travelling. Executives
can track and manage their meetings with existing
investors, or target potential investors, both online
and offline. Audio dictation allows users to take
notes on the go, with links to apps such as Uber
and OpenTable integrating tasks such as booking
transport and making restaurant reservations.
view balances from a range of financial institutions in a
single view, a convenience that enables increased
fund-member engagement and retention.
technology strategies, and on their alignment with the
Company’s overall strategy and objectives.
Stone & Chalk
In February 2017, Link Group announced a partnership
with Stone & Chalk, which is a not-for-profit fintech
hub that supports over 90 start-ups and their 300 staff.
The hub’s focus is on helping potentially high-growth
ventures to commercialise and rapidly scale through
collaboration programs with corporate partners.
The partnership will provide Link Group with greater
access to the community of financial technology start-
ups, opening opportunities for us to share industry
experience and expertise.
Technology and innovation at Board level
The Technology and Innovation Committee of the Link
Group Board was established in 2015 and continues to
provide innovation leadership. The Committee
monitors technological changes, innovations and
trends in the marketplace, as well as the potential
these have for application within the Company.
It meets with technology experts and technology
partners. The Committee also makes
recommendations to the Board on Link Group’s
Recognition of our innovation
Link Group won Financial Services App of the Year
at the 2017 Financial Standard MAX Awards for an
employer app it developed in partnership with Cbus.
The app was launched in December 2016 and allows
small business operators to make super contributions,
add new employees, generate receipts, and manage
account administration, all from the convenience of
a mobile phone. Meanwhile, our forward-thinking
approach also earned us a place in Australian
Anthill magazine’s SMART 100 list of the most
innovative companies.
Link Group
$100 m
devotes m ore than
per annu m to
technology
(opex + capex)
15
Annual Report 2017 Our People
A committed, engaged workforce is crucial to supplying Link Group’s customers with the high-quality service
and solutions they expect – and to meeting our business goals. We want our employees to thrive and innovate.
We’ve created working environments that suit the varied work styles of today’s professionals so that they can
focus on delivering value for our customers. This effect is enhanced by outstanding office design. We also
recognise that there are both strategic and social benefits in actively addressing issues such as gender diversity
and pay equality, and in making a significant contribution to the wider community.
Our employees
Link Group has 4,300 employees spread across our
operations in Australia, New Zealand, Hong Kong,
Philippines, Papua New Guinea, India, Dubai, South
Africa, the United Kingdom, Germany and France.
Most of the Company’s employees (84%) are located
in Australia.
Our culture – how we behave is in our DNA
The thread that unites Link Group employees across
the globe is a strong workplace culture combining our
core values of Professionalism, Teamwork, Integrity,
Respect and Commitment. In 2017, we identified what
we call our cultural DNA and formalised it in a Culture
Statement approved by the Board. There are six
characteristics that exemplify Link Group’s culture.
We:
• are commercial and innovative;
• have a can-do attitude no matter what the challenge;
• are trusted and authentic;
• are customer centric;
• are entrepreneurial and agile; and
• are committed to our values.
The dynamism of our cultural DNA is a direct legacy
of the great diversity of the people we employ. Link
Group has combined with over 40 businesses in the
last 15 years, and we will continue to make further
acquisitions. What makes us so successful is our
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ability to learn from the organisations we acquire
as well as to shape their work cultures to become
compatible with our own. We undertake regular
research to better understand how managers can
boost employee engagement, ensure alignment of
multiple working styles with our culture and maintain
the customer focus for which Link Group is renowned.
In 2017, Link Group was recognised for creating
a working environment in which our people can
reach their full potential, with an Australian Business
Award (ABA) Employer of Choice Award. Link Group
received the ABA as we were able to demonstrate
our achievements across several key areas including
Organisational Culture and Leadership, Employee
Education, Training and Development and Employee
Health, Safety and Satisfaction.
Investing in our people
Ongoing training is essential to ensure employees
reach their full potential. It is also key to retaining and
attracting employees in a competitive employment
environment. In FY2017, Link Group provided an
average of 22 hours per employee in training.
Central to this was the Customer First
training program, which teaches
employees to learn from their
own experiences and
expectations, to deliver
first-rate customer
service. Over the
past 12 months,
more than
Gender:
Males to females
47%:53%
(2016: 48%:52%)
Link Group – Connecting people & technology 1,200 employees have taken part in the training
program, with the scheme soon to be rolled out to the
Corporate Markets division.
service that meets the expectation of our clients. To
date, 606 employees have enrolled in professional
development training programs across five countries.
The past 12 months have also seen more than
33,000 training hours dedicated to the Group
Compliance training program, an average of eight
hours per employee. The program ensures that staff
follow Link Group’s internal policies and that they fully
comply with the local laws and regulations wherever
the Company operates.
This approach, in turn, allows us to continue to
foster a professional environment, aligned to our
core values, in the way we treat our employees,
clients and shareholders.
Meanwhile, more than 1,800 Link Group Fund
Administration employees have been supported
in attaining nationally recognised qualifications in
areas including financial services (superannuation),
insurance and retirement income streams.
We are also supporting the growth and development
of our employees at an international level
through professional development
programs. These are aimed at
47% 53%
enhancing the skills and
capabilities of our
employees so that
we can continue to
deliver high-quality
Building diversity and inclusion
Link Group’s experience confirms that diverse and
inclusive teams are more productive and innovative
than homogeneous ones. We also believe that a
diverse workforce helps us to reflect the diversity of
our stakeholders and serve them better.
We made several gains in the field of gender diversity
over the past year. Changes to the composition of
the Link Group Board, including the appointment of
Independent Non-Executive Director, Anne McDonald
in July 2016, mean that the Board is now 43% female.
This achievement puts Link Group well ahead of
the 30% target set for female directors in S&P/ASX
200 companies by the Australian Institute of Company
Directors. Meanwhile, gains have also been made at the
executive level, where one-third of the senior leadership
team is now female. Link Group’s targets for 2019
are for 42% of senior leaders, 33% of senior technical
specialists and 45% of line managers to be women.
We are striving to achieve equal pay for women,
with female employees, currently up to plus or minus 4%
of the pay of their male colleagues in similar positions.
Our parental leave scheme supports both mothers and
fathers who wish to take time off after the birth of a child.
17
Annual Report 2017
Link Group steps out for cerebral palsy
Link Group sees working together to raise money for a good cause as a great way
of building team unity and helping the community. One of the causes closest to our
hearts is Steptember, the global charity that asks individuals to take 10,000 steps a
day for 28 days to raise money for the Cerebral Palsy Alliance.
Over 170 Link Group teams took part in the Steptember 2016 event, walking a total
of 146 million steps – the equivalent of nearly three times around the planet. They
raised significant funds for cerebral palsy research, including some $58,000 in
Australia alone. The Company was fifth on the Australian leadership board and was
placed in the top 10 in most countries where it took part.
Link Group’s efforts had special meaning for Fund Administration Account Manager,
Peter Komninos, who recorded 780,000 steps. “My daughter is a special needs
child,” he said. “We find that charity programs like Steptember not only raise funds for
services and support, but also empathy and respect for those living with a disability.”
We also have programs that ensure people from
Indigenous communities, from lesbian, gay, bisexual,
transgender and intersex (LGBTI) communities, as well
as people living with disabilities, are all encouraged to
work at Link Group and feel safe and included. We
also support employees undergoing major workplace
transitions – including employees from newly acquired
businesses – through programs that help them to
manage the change and thrive.
Towards an excellent working environment
A state-of-the-art, healthy workplace makes a
significant contribution to the satisfaction and
productivity of employees as well as to their ability to
engage with the needs of our clients. We adhere to
the principles of good office design and our Business
Combination strategy aims to ensure that different
divisions work in the same location – a strategy that
maximises collaboration and growth.
Link Group’s new office in Melbourne is a good
example of the exceptional working environment we
are striving to create across all our operations around
the world. In 2016, employees from three existing
offices in Melbourne were brought together in the
new Tower 4 building in Melbourne’s Collins Square,
a Walker Corporation development designed and
built specifically for Link Group requirements, and
almost directly opposite bustling Southern Cross
railway station on Collins Street. The new office
encompasses 20,000 square metres over levels
6-15 of the tower. In addition to the sense of space,
18
the natural light and the collaborative working zones
provided, the building also features a spectacular
59-metre plant-filled wall – the largest of its kind in
the southern hemisphere, and much loved by our
employees. State of the art, eco-friendly and highly
energy efficient, the building’s advanced design
was awarded a five-star National Australian Built
Environment Rating System (NABERS) energy rating.
Meanwhile, staff in Western Australia have moved to
offices in the Harry Seidler-designed QV1 office tower
in Perth, resulting in a substantial increase in amenity,
convenience and opportunities for collaboration.
Similar upgrades have been undertaken in the United
Kingdom, India and New Zealand, and construction
is underway to improve the amenity of the George
Street, Sydney office.
Link Group supports employee wellbeing in many
other ways, including through initiatives such as
health insurance and gym discounts, weekly fruit
deliveries, annual flu shots and counselling services.
Corporate social responsibility (CSR)
Link Group is dedicated to CSR through the support
of community initiatives. We extended our giving
program in FY2017 with the addition of such charities
as Landcare Australia, the GO Foundation and the
Humpty Dumpty Foundation. Our initiatives include
cash donations, a charitable giving program for
employees where contributions are matched by the
Company for certain events, and volunteer leave for
employees to volunteer at charities of their choice.
Link Group – Connecting people & technology Some of the charities and causes we assisted in FY2017 are:
• Steptember – see box, previous page;
• Humpty Dumpty Balmoral Burn – services for sick
children;
• Mother’s Day Classic – breast cancer research;
• The Smith Family – education support for
disadvantaged youth;
• Daystar Foundation – assisting unemployed youth;
• Ardoch Youth Foundation – literacy among
disadvantaged children;
• Cancer Council Australia’s Biggest Morning Tea – cancer
research;
• The Salvation Army – caring for disadvantaged families;
• GO foundation – empowering indigenous youth; and
• Landcare – caring for the environment.
Further information related to Our People is collated and
analysed in our Sustainability Report. To read the full 2017
Sustainability Report, visit www.linkgroup.com.
Employee type:
Permanent; fixed term
93%
Temporary; casual; contractor
5%
Parental leave
2%
Age2:
under 30
41%
45 and over
21%
30-44
38%
2. FY2017 age statistics do not include data from our Indian operations.
Took parental leave:
124 female,
9 male
Eligible for parental leave:
3,052
19
Annual Report 2017 Our Approach
to Sustainability
and Governance
Office emissions, globally
Energy consumed and resulting emissions in
our leased offices:
• Energy consumed: 6,470,113 kW-h
• Emissions: 6,952 tonnes of CO2e.
Total emissions, FY2017
• Total emissions: 9,062 tonnes CO2e
This figure includes office energy usage and
air travel globally.
Emissions intensity
• Emissions per employee in FY2017:
2.16 tonnes per person
• Emissions per $ million of revenue:
11.62 tonnes per $million
Our clients and shareholders place an enormous
amount of trust in Link Group. We work hard to earn
and maintain this trust through stringent corporate
governance practices aimed at minimising and
preventing unsound, unethical or criminal behaviour.
At the same time, we strive to understand and
manage the risks posed to our business by factors
such as globalisation, evolving technology and the
rapidly changing business environment – all while
endeavouring to capture the opportunities that these
create. As a leading player in the sectors in which
we operate, we also see it as our responsibility to
respond proactively to changes in society and to
contribute to the wider community.
We see our investment in technology and innovation
as a driver of enhanced sustainability. For example,
promoting e-communications and investing in new
apps and web-based reporting enables paper
consumption to be cut and mail costs reduced, while
increasing our use of Skype and video conferencing
helps us to reduce emissions and drive down air-
travel costs.
Our sustainability performance in the 11 countries
where we operate is collated and analysed in our
Sustainability Report. We have summarised this
information below, with the exception of Our People,
which appears on pages 16-19 of this Annual Report.
To read the full 2017 Sustainability Report, visit
www.linkgroup.com.
20
Our Environment
Link Group is a service-based company. We operate
from leased offices, make limited use of physical
resources and have a limited waste and energy use
footprint compared to companies producing physical
products. Nonetheless, we take our environmental
responsibilities seriously and, reporting across the
whole Company for the first time, are now considering
suitable 2020 targets for Link Group’s performance.
Air travel: Our major impact from air travel is
emissions from commercial airline flights. We do
not purchase offsets on flights, however through an
increased use of video technology we aim to reduce
the volume of travel.
Energy use: Almost all the energy consumed in
our offices comes from the grid. During FY2017, we
consolidated three Melbourne offices into Tower 4 at
Collins Square and moved our Perth office to QV1 in St
Georges Terrace. Both buildings are 5-star NABERS
energy-rated. Our Mumbai office also moved into The
Park 247, a LEED-certified Gold-rated green building
at Vikhroli. Over time, we intend to take more space in
energy-efficient buildings.
Emissions: The key types of energy consumed in our
offices are electricity and a small amount of gas. Our
FY2017 emissions are highlighted above.
Emissions intensity: We have this year reported
our emissions intensity for the first time, both in terms
of emissions per employee and emissions per $million
of revenue. Intensity targets may better show our
effectiveness at reducing emissions over time.
Link Group – Connecting people & technology
88% of paper consumed in our
offices was environmentally
certified.
We recycled 113.2 tonnes of
paper that we received.
$418,462 was donated to
charitable organisations by the
Company and employees.
Paper, cardboard, plastics: We use paper for
mailing, plus a little plastic. We encourage our clients
and other stakeholders to migrate to email, to use
more recycled and carbon-neutral paper and to recycle
more. We aim to reduce paper use in our offices.
Other materials: In future years, we plan to report
on our disposal of end-of-life IT hardware and non-
paper personal waste.
Our Community
We undertake a range of activities to assist people,
the environment and the wider community in which
we operate. We have focused on education, health,
the environment, overcoming both physical and
economic disadvantage, and cultural inclusiveness.
Senior executives champion specific initiatives and
employees are encouraged to introduce programs that
align with our values and objectives. Our overall goal
is to promote good health and wellbeing, champion
gender equality, to ensure inclusive and quality
education for all and to promote lifelong learning.
We encourage engagement and participation in
programs through a number of activities, including:
• workplace giving: through payroll and as part of the
One Million Donors initiative;
• volunteering: employees are entitled to one day of
leave per year to attend a Link Group-organised
charitable activity or to support a charity of the
employee’s choice;
• employee fundraising; and
• corporate donations: cash donations, sponsorship,
in-kind donations or branded merchandise.
Our Supply Chain
Suppliers play a crucial role in our business success
and can also make a significant contribution to
improving the Company’s overall environmental
footprint. For this reason, we are now analysing and
reporting on our supply chain.
Some 82% of our annual supplier spend is contracted
through our largest suppliers. We believe it is our
responsibility to seek to understand not only our own
suppliers but also their own supply chains, to identify
any higher-risk up-stream activities that could pose a
potential threat to Link Group.
For this first year of reporting on our supply chain, we
have engaged with our largest or material suppliers,
representing $133 million or 55% of our total non-
labour costs (operating and capital expenditure)
of $243 million. We aim to work with suppliers to
understand the risks they face that could impact on
Link Group, and to support them in managing these
risks through continuous improvement.
21
Annual Report 2017
To this end, our suppliers were asked to complete
a sustainability questionnaire covering issues such
as company policy, risk management, business
continuity planning, management systems, public
reporting and labour standards. We will incorporate
sustainability requirements into tendering processes
as a way of reinforcing the issues that are most
important to us.
We expect our suppliers to adopt standards similar to
our own and to seek continuous improvement in their
sustainability performance, just as we do. Currently,
our Vendor Management Framework promotes a
structured approach designed to ensure our suppliers
meet the standards that we expect.
Our Governance
The Board is committed to maximising performance,
generating appropriate levels of shareholder value and
financial return, and sustaining the growth and success
of Link Group. In conducting business with these
objectives, Link Group has created a robust corporate
governance framework, to protect and enhance
shareholder interests. This framework is respected by
the Company, its Directors, officers and personnel.
A Corporate Governance Statement compliant with
the ASX Corporate Governance Council’s Principles
and Recommendations has been approved by the
Board and is available on the Link Group website:
www.linkgroup.com.
Link Group’s Board:
• is responsible for the overall strategic direction
direction of Link Group;
• monitors Link Group’s operational and financial
position, and its performance; and
• oversees development and execution of the
business strategy.
The Board has adopted a framework that includes
internal controls, risk management processes and
governance policies. Separate Committees for
Human Resources and Remuneration, Risk and
Audit, Technology and Innovation, and Nomination
provide the Board with detailed oversight of key
business risks. These Committees are supported by
a number of management Committees.
To further promote the long-term future of Link
Group, the Board has established an over-arching
sustainability framework that will be included in
the Sustainability Statement. The sustainability
framework’s features include:
• making a Board-approved Sustainability Statement
available on the Company website:
www.linkgroup.com;
• formalising the policies and management
structures and processes designed to manage the
greatest short, medium, and long-term material
risks to our future success; and
• identifying key sustainability issues, and reporting
how we have performed on each.
22
22
Link Group – Connecting people & technology Business continuity and disaster recovery: Our
Business Continuity and Disaster Recovery plans
are reviewed and tested annually. We expect that
under almost all likely scenarios, we would be able to
resume operations from alternative locations within
contractually required and agreed timeframes.
Privacy and security: We work to preserve
member and investor security through strict policies
and procedures and the training of employees.
Policies and procedures: We have strict rules and
policies to ensure that all employees do the right
thing by our clients and their investors or members,
and everyone else with whom they work. Potential
employees are subject to police checks and all
new and existing employees must understand and
comply with policies and procedures and undertake
regular training.
Ethics: While we believe that ethical issues such as
bribery, corruption and fraud are low order risks to Link
Group, we continue to apply our risk management
frameworks to prevent or mitigate any such risk.
Effective risk management, meanwhile, is crucial for
a data management service provider like Link Group.
We have a range of policies in place to manage our
core risks. These risks include:
• our reliance on effective performance of core and
third-party IT infrastructure;
• security and integrity of sensitive information;
• our concentrated client base and inherent risk of
contract renewal;
• the political and regulatory environment;
• our continuing ability to attract and retain key
personnel;
• the integration of acquired businesses and
execution of new acquisitions; and
• increased competition.
During FY2017, the Board approved revisions to
the Link Group Risk Management Policy and Risk
Management Framework to reflect the risk appetite
set by the Board in the Risk Appetite Statement.
The following risk management measures
supplement the Link Group Code of Conduct and
Ethics that governs employee behaviour:
Information management security: Link Group
has gained ISO 27001 accreditation for its information
security management systems, in recognition of its
best practice approach to managing and protecting
sensitive information.
Privacy-related complaints
during FY2017
• Complaints substantiated (Australia & New
Zealand): 11
(2016: 33)
Fines/sanctions for non-compliance
during FY2017
• No Link Group entity faced/suffered criminal
or civil sanctions for non-compliance.
• There were no confirmed incidents of
corruption of any sort.
23
23
Annual Report 2017 Financial Report
Link Administration Holdings Limited
and its controlled entities
30 June 2017
24
24
Link Group – Connecting people & technology 100
101
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105
106
106
107
108
114
115
116
117
118
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121
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Contents
Section 1 - Directors’ Report
Directors and Company Secretaries
Executive KMPs
Principal Activities
Dividends
Review of Operations
Operating and Financial Review
Remuneration Report
Other Information
Employee benefits
Plant and equipment
Intangible assets
Notes to the statement of cash flows
Capital structure, financing and risk
management
Interest bearing loans and borrowings
Finance costs
Contingent liabilities
26
30
31
31
31
32
58
79
Auditor’s Independence Declaration
81
Investment and financial risk management
Section 2 - Financial Statements
Reserves
Consolidated Statement of Profit or Loss
Retained earnings
Contributed equity
and other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
82
84
85
87
Share-based payment arrangements
Group structure
Business combinations
Parent entity disclosures
Controlled entities
Section 3 - Notes to the Financial Statements
Related parties
Preparation of this Report
General information
Basis of preparation
Operating Results
Operating segments
Earnings per share
Taxation
Operating assets and liabilities
Trade and other receivables
Trade and other payables
Provisions
88
88
90
93
94
98
98
99
Other disclosures
Auditor’s remuneration
Commitments
Subsequent events
New standards and interpretations not yet adopted 125
Section 4 – Directors’ Declaration
126
Section 5 – Independent Auditor’s Report
127
25
25
Annual Report 2017
1. Directors’ Report
Directors and Company Secretaries
Directors
Link Group Board (from left): Glen Boreham, Anne McDonald, Sally Pitkin, Michael Carapiet, John McMurtrie,
Fiona Trafford-Walker and Peeyush Gupta.
The Directors of the Company at any time during or since the end of the financial year are:
Director
Experience and background
Michael Carapiet was appointed as a Director and Chair of the Company in 2015.
Michael is a member of the Human Resources and Remuneration Committee and
Technology and Innovation Committee. Michael served as a member of the Risk and
Audit Committee up until 8 December 2016.
Michael is Chair of Insurance & Care NSW (icare) and was previously Chair of SAS Trustee
Corporation, the trustee entity for NSW State Super.
Michael is the Chair of Smartgroup Corporation Limited and Adexum Capital Limited. He
is also a member of the advisory board of Pyrolyx AG. Michael was previously a Director
of Southern Cross Media Group Limited.
Michael serves and has served on Commonwealth Government boards including
Infrastructure Australia, Clean Energy Finance Corporation and Export Finance
Insurance Corporation.
Michael has over 30 years of experience in banking and financial services and holds a
Master of Business Administration from Macquarie University, Sydney.
John McMurtrie joined Link Group in 2002 as Managing Director.
John’s previous senior appointments include Executive General Manager of ASX’s Investors
and Companies division and Chief Executive Officer of UBS Australia.
John was previously Chair of Sydney Water Corporation and was the inaugural Chair of the
National Electricity Code Administrator (NECA).
John has over 42 years’ business experience, more than 35 of which have been in the
financial services industry, covering both the public and private sectors.
John holds a Master of Economics and Bachelor of Economics (Hons) from the University
of Adelaide.
Michael Carapiet
Independent Chair and
Non-Executive Director
Appointed 26.06.2015
John McMurtrie
Executive Director and
Managing Director
Appointed 16.02.2007
26
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Directors and Company Secretaries (continued)
Director
Experience and background
Glen Boreham was appointed a Non-Executive Director of the Company in 2015.
Glen is Chair of the Technology and Innovation Committee and a member of the Human
Resources and Remuneration Committee.
Glen is a Director of Cochlear Limited and Southern Cross Media Group Limited.
Glen is also the Chair of Advance, an organisation that connects and supports Australian
business and the global Australian community, and the Chair of the Business School
Advisory Board for the University of Technology, Sydney.
Previously, Glen was the Managing Director of IBM Australia and New Zealand, Chair of
Screen Australia, Deputy Chair of the Australian Information Industry Association and a
Director of the Australian Chamber Orchestra.
Glen holds a Bachelor of Economics from the University of Sydney. In January 2012, Glen
was awarded a Member of the Order of Australia for services to business and the arts.
Peeyush Gupta was appointed Non-Executive Director of the Company in 2016.
Peeyush is a member of the Risk and Audit Committee.
With over 30 years of experience in the wealth management industry, Peeyush was
previously co-founder and the inaugural CEO of IPAC Securities Limited, a wealth
management firm spanning financial advice and institutional portfolio management.
Peeyush has extensive corporate governance experience, having served as a Director on
listed corporate, not-for-profit, trustee and responsible entity boards since the 1990s.
Peeyush is currently the Chair of Charter Hall Direct Property Management Limited and
Long Wale REIT and a Non-Executive Director of National Australia Bank, Insurance & Care
NSW (icare), SBS and Quintessence Labs Pty Ltd.
Peeyush is also Governor, Western Sydney University.
Peeyush holds a Masters of Business Administration (Finance) from the Australian Graduate
School of Management and has completed the Advanced Management Program at Harvard
Business School. He is a Fellow of the Australian Institute of Company Directors.
Anne McDonald was appointed a Non-Executive Director of the Company in 2016.
Anne is a member of the Risk and Audit Committee.
Previously a partner at Ernst & Young for 15 years, Anne has over 35 years of business
experience in finance, accounting, auditing, risk management and governance. She has
pursued a fulltime career as a Non-Executive Director since 2006.
Anne is a Non-Executive Director of Spark Infrastructure Group, Specialty Fashion Group
and St Vincent’s Health Australia Limited.
Anne is also the Chair of Water New South Wales and was previously a Non-Executive
Director of GPT Group and a number of other businesses.
Anne is a Chartered Accountant, a graduate of the Australian Institute of Company
Directors and holds a Bachelor of Economics from the University of Sydney.
Glen Boreham, AM
Independent
Non-Executive Director
Appointed 23.09.2015
Peeyush Gupta
Independent
Non-Executive Director
Appointed 18.11.2016
Anne McDonald
Independent
Non-Executive Director
Appointed 23.07.2016
27
Annual Report 2017
1. Directors’ Report (continued)
Directors and Company Secretaries (continued)
Director
Experience and background
Sally Pitkin
Independent
Non-Executive Director
Appointed 23.09.2015
Dr Sally Pitkin was appointed a Non-Executive Director of the Company in 2015.
Sally is Chair of the Human Resources and Remuneration Committee and a member of the
Risk and Audit Committee.
Previously a senior corporate partner at Clayton Utz, Sally has extensive corporate
and banking law experience, followed by over 20 years of experience as a Non-
Executive Director and board member across a wide range of industries in both private
and public sectors, including in highly regulated industries, professional services and
commercialisation of new technology.
Sally is a Non-Executive Director of The Star Entertainment Group Limited and IPH Limited.
Sally is also currently a Non-Executive Director and Chair elect of Super Retail Group Limited.
Sally is President of the Queensland Division of the Australian Institute of Company
Directors (AICD) and National Director of the AICD Board.
Sally holds a PhD in Governance from the University of Queensland and a Master and
Bachelor of Laws from the Queensland University of Technology.
Fiona Trafford-Walker was appointed a Non-Executive Director of the Company in 2015.
Fiona is Chair of the Risk and Audit Committee and a member of the Technology and
Innovation Committee.
Fiona is a Director at Frontier Advisors, heads the firm’s Governance Advisory team and is a
member of the Investment Committee.
Fiona was the inaugural Managing Director at Frontier Advisors and played a critical role in
growing the firm.
Fiona Trafford-Walker
Independent
Non-Executive Director
Appointed 23.09.2015
Fiona has 25 years’ experience in advising institutional investors on investment and
governance-related issues.
Fiona holds a Master of Finance from RMIT University and a Bachelor of Economics
from James Cook University. Fiona is also a Graduate of the Australian Institute of
Company Directors.
The Directors that resigned during the financial year were:
Director
Experience and background
Cameron Blanks
Non-Executive Director
Paul McCullagh
Non-Executive Director
• Over 20 years’ international commercial experience, including over 15 years in private equity
• Appointed 17 August 2006
• Resigned 9 September 2016
• Over 35 years’ corporate finance experience in the United States, Asia and Australasia
• Appointed 28 July 2006
• Resigned 9 September 2016
28
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Directors and Company Secretaries (continued)
Company Secretaries
John Hawkins was appointed Company Secretary on 23 September 2015. Details about John’s qualifications and
experience are set out in the Executive KMPs section on page 30 of this report.
Janine Rolfe was appointed General Counsel and Joint Company Secretary on 1 May 2017. In 2006, Janine established
Company Matters Pty Limited, a wholly-owned subsidiary of Link Group, which specialises in the provision of outsourced
company secretarial services to clients. Prior to this, Janine was the company secretary and legal counsel at Qantas Airways
Limited and before that a solicitor at Mallesons Stephen Jaques (now King & Wood Mallesons). Janine holds a Bachelor of
Economics and a Bachelor of Laws (Hons) from the University of Sydney.
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:
Board
Risk and Audit
Committee
Human
Resources and
Remuneration
Committee
Technology
and Innovation
Committee
H
15
15
15
9
15
15
15
2
2
A
15
15
15
9
15
15
15
2
1
H
3
n/a
n/a
n/a
3
5
5
5
-
1
A
3
1*
5*
3*
3
5
5
5
-
-
H
5
n/a
5
n/a
n/a
5
n/a
-
-
A
5
5*
5
1*
4*
5
4*
-
-
H
5
n/a
5
n/a
n/a
n/a
5
-
-
A
5
5*
5
2*
4*
3*
5
-
-
M Carapiet
J McMurtrie
G Boreham
P Gupta
A McDonald
S Pitkin
F Trafford-Walker
C Blanks
P McCullagh
H: number of meetings held during the period in which the Director or Committee Member was appointed to the Board or Committee. All Directors are entitled to attend
Committee meetings in an ex-officio capacity and attendance in an ex-officio capacity has been noted with an asterisk (*).
A: number of meetings attended by the Director.
Michael Carapiet was a member of the Risk and Audit Committee until 8 December 2016. Following this date, Michael’s
attendance at the Risk and Audit Committee Meeting was in an ex-officio capacity. The Managing Director, John McMurtrie is
a Member of the Nomination Committee but is not a Member of any other Committee given he is an Executive Director.
As the Nomination Committee is currently comprised of the full Board, Nomination-related matters were considered during
Board Meetings during FY2017.
29
Annual Report 2017
1. Directors’ Report (continued)
Executive KMPs
Director
Experience and background
See Directors section on page 26 for more detail.
John Hawkins joined Link Group as Chief Financial Officer in 2001.
John has extensive commercial, accounting and finance experience from various roles with
Optus, Perpetual and KPMG (Australia and the United Kingdom).
John has over 30 years’ professional experience, with over 15 years in financial services.
John is a member of the Institute of Chartered Accountants in Australia and holds a
Bachelor of Science (Computer Science) and a Bachelor of Commerce from The University
of Queensland.
Suzanne Holden joined Link Group in 2010 and has held her present role since 1 January 2015.
Prior to joining Link Group, Suzanne gained extensive experience managing large
operational and customer service teams, including most recently as the General Manager
of Airport Operations for Qantas, where she was responsible for all operation, compliance
and service performance across Australia.
Suzanne has 25 years of management experience.
Suzanne holds a joint Honours degree in Mathematics and Drama from Surrey University
and is a graduate of the Australian Institute of Company Directors.
Suzanne is also a Director of the Association of Superannuation Funds of Australia (ASFA).
David Geddes was appointed Chief Executive Officer of Corporate Markets in 2014.
David joined Link Group in 2006 when Orient Capital was acquired by Link Group
from ASX Limited.
David has more than 30 years’ financial market experience and a deep understanding
of the corporate markets industry, having founded Orient Capital in 1991.
David holds a Bachelor of Science (Hons) in Geography and Geology from the
University of Bristol.
David will retire effective 31 August 2017.
John McMurtrie
Executive Director and
Managing Director
John Hawkins
Chief Financial Officer
Joint Company Secretary
Suzanne Holden
Chief Executive Officer,
Fund Administration
David Geddes
Chief Executive Officer,
Corporate Markets
30
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Executive KMPs (continued)
Review of operations
Director
Experience and background
Paul Gardiner was appointed Chief Executive Officer of IDDS in 2015, and Chief Executive
Officer of Corporate Markets in 2016.
Paul joined Link Group in 2006 when Orient Capital, which he joined in 2001, was acquired
by Link Group from ASX Limited.
Paul has over 15 years of experience in operations, data analytics and digital technology.
Paul holds a Bachelor of Commerce and a Higher Diploma in Marketing Practice from the
National University of Ireland, Galway.
Paul holds a Masters of Business Studies (Management Information Systems) from
University College, Dublin.
Paul Gardiner
Chief Executive Officer,
Corporate Markets
Chief Executive Officer,
Information, Digital and
Data Services (IDDS)
Principal Activities
The principal activity of Link Group during the course of the financial year was that of a technology-enabled provider of
outsourced administration services for superannuation fund administration, corporate markets and related value-added
services including data management analytics, digital communication and stakeholder education and advice.
There were no significant changes in the nature of the activities of Link Group during the year.
Dividends
Dividends paid by the Company during the financial year were:
Cents per share
Total amount
Franked/Unfranked
Date of payment
Final 2016
Interim 2017
8.0
6.0
$28,783,786
Franked at 18.7%
$21,587,839
Unfranked
10.10.16
3.04.17
In addition, dividends declared or paid by the Company since the end of the financial year were $39,250,933, which equates
to 8.0 cents per share, 100% franked (2016: $28,783,786). The record date for determining entitlements to the final dividend
is 21 September 2017. Payment of the final dividend will occur on 18 October 2017.
On 18 August 2017, the Company announced the introduction of the Link Group Dividend Reinvestment Plan (DRP).
Review of Operations
The net profit of Link Group for the financial year was $85.2 million (2016: $42.5 million).
Total Operating EBITDA, which excludes certain significant items for the financial year ended 30 June 2017 was $219.0 million
(2016: $190.6 million). A reconciliation of Operating EBITDA to the net profit of Link Group is included in Note 3 of the financial
statements and further explanation of the results is included in the Operating and Financial Review section within this report.
31
Annual Report 2017
1. Directors’ Report (continued)
Operating and Financial Review
Introduction
The Directors are pleased to present the Operating and Financial Review (OFR) for Link Group for the financial year ended
30 June 2017.
This OFR is designed to assist shareholders’ understanding of Link Group’s business performance and the factors underlying
its results and financial position. It complements the financial disclosures in the Financial Statements. All financial amounts
contained in this OFR are expressed in Australian Dollars and rounded to the nearest $0.1 million or percentage, unless
otherwise stated. Some numerical figures included have been subject to rounding adjustments. Any discrepancies between
totals and sums of components in figures or tables contained in this OFR are due to rounding.
Consistent with previous disclosures, this OFR uses certain measures to manage and report on the Link Group business that are
not recognised under Australian Accounting Standards or International Financial Reporting Standards (IFRS), collectively referred to
as ‘non-IFRS financial measures’. These non-IFRS financial measures are summarised in Appendix 1 of this OFR.
This OFR covers the period from 1 July 2016 to 30 June 2017 (FY2017), including two comparative prior years (FY2016 and
FY2015). A full reconciliation of the adjustments made to the statutory results is disclosed in more detail in section 3.2.
Given the extent of Significant items in the current year and prior year, statutory results and Pro forma adjustments in the prior
year statutory results, the Directors believe it will assist the readers’ understanding of performance to compare year-on-year
results on a Pro forma before Significant items (Operating) basis3. Therefore, unless otherwise stated, all of the analysis below is
presented on an Operating basis, with a reconciliation back to statutory results in section 3.2.
1. Overview
Link Group has delivered a strong set of results for FY2017, including the following key highlights.
Operating NPATA
($M)
Operating EBITDA
($M)
Revenue
($M)
775.9
780.0
123.8
102.7
219.0
190.6
21%
15%
1%
2016
2017
2016
2017
2016
2017
These financial results reflect the continued successful execution of Link Group’s growth strategy as set out in section 2.
3. Pro forma results referred to throughout this OFR exclude the IPO transaction costs in FY2016 and in FY2015 exclude the settlement of legal claims and an employee
liability adjustment but include incremental public company costs. See section 3.7 of this OFR for more details.
32
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Operating and Financial Review (continued)
During the year, Link Group continued to invest in its core technology platforms, infrastructure and new digital products and
services. At the same time, a program of decommissioning legacy IT systems and archiving historical data was substantially
progressed. New consolidated premises in Melbourne and Perth helped achieve cost efficiencies, but they also provide an
improved working environment for staff and facilitate positive cultural change.
A strong balance sheet, with low levels of gearing and robust cash conversion, remains a core strength of the business. That
strength has enabled Link Group to take advantage of a range of potential acquisition opportunities and capital management
options. During the year, Link Group completed two small acquisitions in Australia, a small acquisition in India and significantly
increased its minority investment in Property Exchange Australia Limited (PEXA) increasing its shareholding to 19.7% from 11.4%.
Prior to the end of FY2017, Link Group announced that it had entered into a binding agreement to acquire Capita Asset
Services (CAS) from London Stock Exchange-listed Capita plc for £888 million ($1,493 million). Further details with respect
to this acquisition (which is yet to complete) are provided in the Australian Securities Exchange (ASX) announcements of
26 June 2017.
As the business currently exists, prior to the completion of the CAS acquisition, Link Group remains on track to
return Company margins to 34% by FY2020, with approximately $45 million in remaining Superpartners integration
synergies to be achieved over this period.
2. Growth strategy
Link Group continues to deliver strong and consistent growth in both revenue and Operating EBITDA across multiple economic
cycles. As illustrated in figure 1, Link Group has achieved uninterrupted Operating EBITDA growth since FY2002, with a
Compound Annual Growth Rate (CAGR) of 24% between FY2002 and FY2017. Additionally, Link Group has shown strong
revenue growth with a CAGR of 21% between FY2002 and FY2017.
Figure 1: Link Group Operating EBITDA and Operating EBITDA margins (FY2002-2017)4
FY2002-FY2017 revenue CAGR: 21%
FY2002-FY2017 Operating EBITDA CAGR: 24%
219
191
34%
138
148
28%
25%
25%
34%
35%
36%
36%
130
117
28% 29%
28%
25%
24%
31%
24%
20%
104
94
89
Operating EBITDA margin
Operating EBITDA $m
56
Operating EBITDA $m
67
9
12
15
16
18
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
4. FY2013-2016 Operating EBITDA is stated on a Pro forma basis.
33
Annual Report 2017
1. Directors’ Report (continued)
Operating and Financial Review (continued)
2.1 Overview of growth strategy
Link Group’s growth strategy is focused on five major drivers:
1. Further penetration of attractive markets.
2. Product and service innovation.
3. Client, product and regional expansions.
4. Realising integration benefits.
5. Identifying adjacent market opportunities.
2.1.1 Further penetration of attractive markets
Link Group aims to use its operational capabilities and diverse product suite to win new clients and cross-sell more products
in its key markets. While Link Group already has an established market position in all of its key markets, there remains
substantial opportunity to grow the client base over time.
Fund Administration
In Fund Administration, Link Group is able to increase its market penetration by not only winning new clients, but also by
its clients increasing their underlying membership and increasing value-added services. Key drivers of Link Group’s market
penetration include:
• winning new clients: Link Group’s proprietary technology, quality of service offering and operating scale provide a
competitive advantage relative to other service providers;
• underlying member growth of Link Group’s clients; and
• sales of value-added products and services into the client base including fee-for-service projects and innovative digital
products developed by IDDS.
Additionally, annual indexation-linked price increases and volume protection clauses around member losses provide ongoing
Recurring Revenue visibility.
In FY2017, Link Group was successful in winning a new Fund Administration client, Retirement Benefits Fund (RBF), a
Tasmanian public sector fund which will be migrated to Link Group’s proprietary platform in the financial year ended 30 June
2018 (FY2018). Link Group’s contract with REST Super was extended until 31 December 2017 and is in advanced stages
of negotiation in respect of a new long-term contract. Subsequent to year end, Link Group received formal notification from
Kinetic Super that it had agreed to enter into a successor fund merger with Sunsuper and as a result provided notice of
termination under its contract.
In FY2017, member growth of the largest five clients (by revenue) was 2.0% which was in line with overall Australian
employment growth for the year, whilst overall member growth was 0.9%5.
Corporate Markets
In Corporate Markets, Link Group currently services over 2,500 clients globally and added 240 new clients during FY2017.
Management believes that Link Group’s comprehensive, integrated offering can help to increase revenue. It expects to do
that by winning new clients and also by increasing the penetration of its diverse product and service offering throughout its
existing client base. Link Group’s ability to cross-sell the products and services in its Corporate Markets offering is a key
driver of further market penetration in the geographies in which it operates.
In FY2017, Link Group was successful in winning new business with Woolworths Limited, Cochlear Limited, Autosports
Limited, Myer Limited, Inghams Group Limited and Viva Energy Australia Limited in Australia and New Zealand. Client wins in
overseas markets include HSBC in the UK and National Stock Exchange in India.
5. Based on total billable members excluding lost clients, Eligible Rollover Funds and Redundancy Trusts.
34
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
In terms of cross selling products and services, Link Group was able to increase the penetration of its products to the existing
client base during the period. For example, Inghams Group Limited and Viva Energy Australia Limited were IPOs in FY2017
where Link Group was successful in supplying four to five additional products (including analytics, employee share plans,
websites, campaigns and events) in addition to the core share registry service. Link Group has been successful in cross
selling two or more products or services to 68% of new clients6 in Australia during FY2017.
IDDS
Link Group’s IDDS business unit is well positioned to benefit from the trend towards valued-added services such as data analytics
and demand for new, innovative digital products across both the Fund Administration and Corporate Markets’ client bases.
In FY2017, Link Group won new business with Fuji Xerox Australia Pty Limited, Rexel Holdings Australia, Emergency Services &
State Super (ESS Super) and ME Bank. In addition, IDDS (through its subsidiary, Link Digital Solutions Pty Limited) was successful
in cross selling new products and services to existing clients as demonstrated by sales of new innovative mobile apps into the Fund
Administration and Corporate Markets’ client bases. This resulted in year-on-year growth in external revenue as a percentage of
overall IDDS revenue from 28% to 32%.
2.1.2 Product and service innovation
Revenues from Link Group’s existing clients increase with the number and complexity of the services that Link Group provides.
In Fund Administration, increasing competition between superannuation funds to attract and engage with members is driving
better functionality through the use of more services. In Corporate Markets, the convenience and simplicity of a fully integrated
product suite is enhancing our appeal to clients. IDDS is focused on providing these value-added products and services for Link
Group and in FY2017 this was demonstrated by the 56% growth in fee-for-service revenue in Fund Administration and external
revenue growth of 17% in IDDS.
Link Group, primarily through IDDS, has invested more than $300 million on its systems, infrastructure and innovation over the
last 10 years. This reinvestment is a core feature of Link Group’s business model and it continues to boost client engagement
and enrich client partnerships. Link Group earmarks more than $100 million per annum for technology, covering both IT
operating costs and capital expenditure.
Highlighting product innovation, our employer mobile app developed by Link Digital Solutions for Cbus Superannuation Fund
was successful in winning the Financial Services App of the Year Award at the 2017 Financial Standard’s Marketing, Advertising
& Sales Excellence (MAX) Awards. Link Group also developed several Application Programming Interfaces (APIs) and launched
mobile applications including the ‘miraqle® mobile app’ and ‘Compliance Checker app’ for clients during the year.
2.1.3 Client, product and regional expansions
A core competency of Link Group is the successful execution of business combinations. These have delivered client, product and
regional expansions. Link Group’s proprietary platforms position it well for extracting synergies from many business combinations.
Our approach has allowed us to expand the revenue and earnings growth from business combinations through cross selling and
product expansion. Link Group has successfully completed over 40 business combinations in the last 15 years.
Link Group intends to maintain its highly disciplined and focused business combination strategy to enhance its product and
service offerings, expand its international operations and add new clients. The use of Link Group’s technology platforms has
been central to Link Group’s success in reducing operating costs in the businesses which it acquires. In addition, Link Group
has a track record of increasing its revenue by rolling out existing products across new market sectors and jurisdictions. For
example, in FY2017, a data analytics product suite was developed to service the professional sports market and the miraqle®
mobile app was rolled out across Australia, New Zealand, the UK, Germany and Hong Kong.
6. New clients is defined as new share registry wins from competitors and new IPO wins (which raised >$50 million).
35
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
During FY2017, Link Group added scale to its existing business through the acquisitions of White Outsourcing Pty Limited
(now operating as Link Fund Solutions Pty Limited) and Adviser Network Pty Limited and expanded its capability through an
investment in Moneysoft Pty Limited, a personal wealth management business. Link Fund Solutions offers middle and back
office administration, fund accounting, custodial and unit registry services and provides services to a diversified client base of
fund managers, trustees and listed investment companies. Adviser Network provides digital and advice services to a large
number of superannuation funds, with its robo-advice product, ‘Super Blueprint’, providing advice across investment choice,
retirement adequacy, superannuation contributions and insurance.
Prior to the end of June 2017, Link Group announced it had signed a binding agreement to acquire UK and European
based Capita Asset Services. This acquisition, once completed, will significantly extend Link Group’s business profile and
geographic scale.
2.1.4 Realising integration benefits
Near term growth in Fund Administration and IDDS is underpinned by the Superpartners integration. The successful
tender for Superpartners’ clients not only strengthened Link Group’s leading position in the attractive superannuation fund
administration industry and is delivering material benefits through the rationalisation of functions, increased operating leverage
and economies of scale.
Link Group has a long history of migrating clients successfully onto its proprietary fund administration platform, with over
90 fund migrations completed since 2008 when this platform was commissioned. During FY2017, Link Group successfully
migrated the last of the five major Superpartners clients to its proprietary technology platform. Since the last client migration
in December 2016, Link Group commenced a significant archiving and de-commissioning program which was substantially
progressed by 30 June 2017. This program included the archiving of all legacy ‘R2’ data to a proprietary archive system,
the decommissioning of legacy IT systems including R2 and peripheral systems, the closure of a datacentre and related IT
infrastructure and the cancellation of redundant vendor contracts.
Synergies are progressively being realised in both Fund Administration and IDDS, as reflected in the margin improvements
achieved in FY2017. Link Group estimates that the value of remaining synergies to be realised by FY2020 is approximately
$45 million, with estimated costs to achieve these savings of approximately $8-15 million. This includes substantial savings
from the archiving and decommissioning project (discussed above) together with further savings from post-migration
operational efficiencies and vendor consolidation initiatives.
Figure 2 shows the Operating EBITDA margins for Link Group, Fund Administration and IDDS highlighting the margin
compression impact in both FY2015 and FY2016 from the acquisition of Superpartners. FY2016 was the first full-year
impact, because the acquisition occurred in December 2014.
36
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
Figure 2: Link Group, Fund Administration and IDDS Operating EBITDA margins
Operating EBITDA margin
41%
36%
25%
35%
34%
24%
45%
40%
35%
30%
25%
20%
15%
IDDS
Fund Administration
Link Group
28%
25%
21%
25%
23%
17%
25%
21%
17%
FY2013
FY2014
FY2015
FY2016
FY2017
2.1.5 Adjacent market opportunities
Link Group has a history of identifying and executing opportunities in adjacent markets that match its core competencies.
Characteristics of adjacent market opportunities that Link Group targets include strong market position in an industry with
attractive fundamentals, and compatibility with Link Group’s core competencies in data management, technology leadership
and process design.
During FY2017, Link Group continued to actively identify a range of corporate and other actionable targets. In June 2017,
Link Group increased its stake in PEXA from 11.4% to 19.7% through a further equity contribution of $64.7 million. PEXA
currently operates an e-conveyancing platform in Australia enabling property market participants to transact securely online
to settle real estate property transactions. PEXA has made significant progress across a range of financial and non-financial
targets over the last 12 months and is positioned to consider a potential IPO or trade sale within the next 12-18 months.
Specifically, with the help of implemented and announced future mandating of electronic lodgement of various property
transaction types (including transfers) by various State Governments (New South Wales, Victoria and Western Australia),
PEXA has experienced exponential growth in volumes over the last 12 months. Total transaction volumes have experienced
a volume growth CAGR of 364% since FY2014 and in the last 12 months have grown by 140%. Uptake of PEXA by both
practitioners and financial institutions continued to grow strongly over the last year and, as at 30 June 2017, PEXA had 4,258
practitioners and 119 financial institutions as subscribers.
37
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
3. Strong financial results and platform for further growth
Link Group has again delivered strong financial results for FY2017, with growth in revenue, Operating EBITDA and Operating
NPATA. These results are underpinned by a focus on maintaining cost disciplines across the business and in particular,
realising synergies from the Superpartners business combination. The positive impact of the synergies achieved are
demonstrated by the growth in the Operating EBITDA margins of both Fund Administration and IDDS.
Complementing the strong earnings performance was a solid financial position. FY2017 ended with low leverage and high
levels of cash flow. Consistent with its stated objectives and the needs of the market and client base, Link Group continued
to invest in its technology platforms, product and service innovation during FY2017. Table 1 and table 2 contain an overview
of Link Group’s financial results.
Table 1: Statutory financial results
IN $M
Revenue
Profit before tax
NPAT
Table 2: Operating financial results
IN $M
Revenue
Operating EBITDA
EBITDA after significant items
NPAT
NPATA
Operating NPATA8
STATUTORY RESULTS
Year ended 30 June
FY2017
FY2016
FY2015
780.0
123.5
85.2
775.9
59.9
42.5
588.3
4.0
3.3
FY2017 vs
FY2016
1%
106%
101%
OPERATING RESULTS
Year ended 30 June
FY2017
FY20167
FY20157
FY2017 vs
FY2016
588.3
148.0
116.5
780.0
219.0
190.6
85.2
101.7
123.8
775.9
190.6
166.8
73.0
95.1
102.7
1%
15%
14%
17%
7%
21%
7. FY2016 and FY2015 results are presented on a Pro forma basis.
8. Operating NPATA has been calculated in accordance with the principles for reporting under ASIC’s Regulatory Guide 230-Disclosing non-IFRS financial
information. Operating NPATA has not been audited by the Company’s external auditors.
38
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.1 Statutory NPAT
Statutory Net Profit after Tax (Statutory NPAT) was $85.2 million compared to a prior year Statutory NPAT result of $42.5
million. The stronger Statutory NPAT result in FY2017 reflects the following key drivers:
• higher Operating EBITDA as discussed in more detail in section 3.5. The key drivers for this increase were the continued
realisation of synergies from the Superpartners business combination, coupled with increases in overseas revenue from
new business growth and the contribution from acquisitions;
• reduction in Pro forma items (IPO transaction costs), discussed in detail in section 3.7; and
• reduction in net finance costs reflecting the full-year benefit of the lower debt position post the Link Group IPO in October
2015, which were partly offset by higher tax expense coupled with higher acquisition-related costs and a smaller gain
on financial assets held at fair value compared to the prior year (which, other than tax expense, Link Group considers
Significant items).
3.2 Operating NPATA
Link Group considers Operating NPATA (previously referred to as NPATA before Significant items) to be a meaningful
measure of after tax profit as it excludes the impact of Significant items and the large amount of non-cash amortisation
of acquired intangibles reflected in NPAT. The measure includes the tax-effected depreciation and amortisation expense
relating to all capital expenditure and the original cost of acquired software that is integral to the ongoing operating
performance of the business. Operating NPATA was $123.8 million compared to the prior year of $102.7 million,
representing annual growth of 21%.
A reconciliation of Operating NPATA and Statutory NPAT can be seen in table 3.
The main driver of the stronger Operating NPATA compared to the prior year was a higher Operating EBITDA performance.
This is discussed in more detail in section 3.5.
Table 3: Reconciliation of Operating NPATA to Statutory NPAT
IN $M
Operating NPATA
Significant items after tax9
NPATA
Acquired amortisation after tax
NPAT
Offer transaction costs
Pro forma net financing costs
Tax effect of Pro forma adjustments
Statutory NPAT
9. See section 3.6 for more details of Significant items.
10. FY2016 results are presented on a Pro forma basis.
Year ended 30 June
FY2017
FY201610
123.8
(22.1)
101.7
(16.5)
85.2
-
-
-
85.2
102.7
(7.6)
95.1
(22.1)
73.0
(22.0)
(20.8)
12.3
42.5
39
Annual Report 2017
1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.3 Revenue
Link Group achieved modest revenue growth of $4.1 million or 1% reflecting:
• flat revenue in Fund Administration as lower Recurring Revenue was offset by much higher non-Recurring Revenue;
• flat revenue in Corporate Markets as good growth in Recurring Revenue was offset by a fall in non-Recurring Revenue,
which reached a historically elevated level in the prior year; and
• single-digit growth in IDDS reflecting strong external revenue growth from organic business development and flat
internal revenue.
Overall Recurring Revenue (which is the revenue that the business expects to generate with a high degree of consistency
and certainty, year-on-year), was $699.8 million which was slightly ($0.9 million) up on the prior year. Recurring Revenue
as a proportion of Total Revenue was 90% which is in line with the prior year. Table 4 and figure 3 illustrate the revenue
composition by reporting segment.
Non-Recurring Revenue of $80.2 million was $3.2 million or 4% higher than the prior year as a significant increase in Fund
Administration fee-for-service activity was partially offset by a reduction in capital markets-related revenue in Corporate
Markets, where activity levels reverted to the historical range after reaching elevated levels in FY2016.
Table 4: Revenue by reporting segment
Year ended 30 June
FY2017
FY2016
FY2015
FY2017 vs
FY2016
562.3
198.4
215.9
976.7
561.9
197.5
206.5
966.0
413.8
160.0
148.4
722.2
(196.7)
(190.1)
(133.9)
780.0
90%
775.9
90%
588.3
91%
0%
0%
5%
1%
(3%)
1%
-
58%
IN $M
Revenue
Fund Administration
Corporate Markets
IDDS
Gross Revenue
Eliminations
Total Revenue
Recurring Revenue
Figure 3: FY2017 revenue composition based on % of Gross Revenue
22%
IDDS
Fund Administration
Corporate Markets
20%
40
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.3.1 Segment Revenue
Fund Administration (58% of total gross revenue)
Fund Administration revenue remained largely flat year-on-year at $562.3 million resulting from a reduction in Recurring
Revenue which was offset by strong growth in non-Recurring Revenue. Client retention of >95% remains in line with the prior
year.
Recurring Revenue of $516.4 million (or 92% of the total Fund Administration revenue) was down $16.2 million or 3% on the
prior year. Recurring Revenue remains a key element of the Link Group’s financial profile and the key drivers in FY2017 were:
• part-year impact of contracted price discounts provided to the five former shareholders of Superpartners;
• indexation-linked price increases;
• full-year impact of a former client insourcing its administration in November 2015;
• growth in our largest clients’ members (who represent approximately 75% of the total) of 2% and an increase of 0.9% in
overall member numbers11;
• strong client retention of >95%12;
• insourcing of various functions by some clients (such as financial advice) and some transaction volume reductions; and
• shifting of some service elements from contracted monthly fees to a fee-for-service basis, coupled with some isolated
price reductions reflecting a change in contract structure.
Non-Recurring Revenue of $45.9 million represents 8% of total Fund Administration revenue and grew by 56% compared to
the prior year.
Funds regularly work with Link Group to enhance their product offering and boost engagement with members, or to meet
regulatory and compliance objectives. These activities are referred to as fee-for-service projects and represent the bulk of
non-Recurring Revenue in Fund Administration.
Fee-for-service revenue growth on the previous year reflects a return to more normal levels of activity from the five former
shareholders of Superpartners (in FY2016, non-Recurring Revenue was adversely affected by the significant migration activity
which restricted the ability of the business to simultaneously undertake fee-for-service activity). Specifically, non-Recurring
Revenue reflected the delivery of a number of projects (such as implementation of unitisation, ‘SuperStream 2’ legislative change
and insurance re-design projects for various clients), coupled with the provision of IT support services to the client base.
Other product sales included the annuities product developed with Challenger Limited, ‘SuperMatch 2’ (a tool to enable
fund members to find lost member accounts held by the Australian Taxation Office), and e-communications functionality to
facilitate streamlined non-paper based member communication.
Corporate Markets (20% of total gross revenue)
The Corporate Markets revenue model is centred on providing an integrated suite of products and services to Corporate
Markets clients across the various jurisdictions where Link Group has a presence. During FY2017, Corporate Markets
revenue was $198.4 million. That was 0.5% higher than the prior year reflecting good growth in organic and acquired
Recurring Revenue but, offset by a significant reduction in non-Recurring Revenue as revenue from capital markets activity
reverted to a more normal historical range. Client retention in Corporate Markets remained above 95%12 in FY2017, which
was consistent with the prior year.
11. Based on total billable members excluding lost clients, eligible rollover funds and redundancy trusts.
12. Client retention represents the proportion of annual revenue from clients that have not been lost in the last 12 months.
41
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
Recurring Revenue of $170.8 million was up 8% on FY2016 and as a proportion of Total Revenue it increased to 86% from
80% in FY2016. The increase reflected a historically elevated level of capital markets related activity during the prior year.
Recurring Revenue growth can be attributed mainly to the following factors:
• robust net client growth of 240 across all jurisdictions;
• strong client retention of >95%13; and
• contributions from acquisitions (Link Fund Solutions in Australia and System Support Services in India).
The Corporate Markets business in Australia and New Zealand (ANZ) enjoyed another year of positive net wins from changes
in share registry by existing listed entities. In particular, Link Group won 10 out of the 22 IPOs that raised more than
$50 million and four out the five largest IPOs by market capitalisation. In Australia, the Corporate Markets business services
494 share registry clients (including 82 S&P/ASX 200 clients) as at 30 June 2017. Total share registry clients represent an
increase of 26 compared with the same period last year. In New Zealand, Link Group services 189 issuers and had client
growth during the year with eight client additions and no client losses.
Working with the IDDS business unit, Corporate Markets launched a number of new and innovative products during
FY2017 including:
• miraqle® IR app, an interactive app that provides up-to-date briefing books and itineraries which track and record
investor interaction;
• Link Vote, an online voting application for use in shareholder meetings; and
• hybrid virtual/physical AGM, an online platform for shareholder meetings to encourage greater shareholder engagement
and accessibility alongside traditionally convened AGMs.
These innovative products position Link Group’s technology as best in class in Corporate Markets and have helped drive
client retention, new business wins and the sale of value-added services into the existing client base.
Non-Recurring Revenue declined by $12.1 million or 30% on the previous year, reflecting more subdued capital markets
activity in most jurisdictions but especially in ANZ where activity levels were exceptionally strong in FY2016. Revenue from
corporate actions activities has returned to longer term trend levels in FY2017.
Information, Digital and Data Services (IDDS) (22% of total gross revenue)
IDDS uses its in-house technology capability to support the operations of Fund Administration and Corporate Markets. This
is considered as internal revenue. It also develops and implements innovative technology products for existing and future
clients, to enrich the functionality and understanding of customer-facing processes and improve data analytics. This is
considered as external revenue for Link Group.
IDDS’ total revenue grew to $215.9 million which was 5% higher than the previous year. The growth on the prior year is
largely due to good growth in external revenue from increased new product rollouts and volumes.
As a percentage of overall IDDS revenue, external revenue comprises 32% compared to 28% in the prior year. External
revenue grew by 17% on the prior year due to the following factors:
• growth in revenue from new Digital Solutions’ products and services including mobile apps (such as miraqle mobile®, and
Compliance Checker), digital member cards and APIs;
• increased volumes and new business wins in Link DigiCom Pty Limited; and
• new business wins in data analytics (from our Empirics Marketing Pty Limited subsidiary).
13. Client retention represents the proportion of annual revenue from clients that have not been lost in the last 12 months.
42
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
Overall IDDS revenue of $215.9 million comprises internal revenue (from IT support recharges to Fund Administration
and Corporate Markets) of $147.3 million and external revenue of $68.6 million from value-added services (including data
analytics, digital solutions and digital communications) and licensing in-house administration software.
Technology is a key enabler of Link Group. Link Group is committed to reinvesting and engaging with specialist partners to
better service its internal and external client base. Link Group works closely with its clients to ensure it continues to exhibit
leadership in this space. The investment made to date has provided Link Group with a strong comparative advantage and
equally, has opened up opportunities to build on this into the future.
3.4 Operating expenses
Operating expenses declined by 4% to $561.0 million compared with the previous year. The reduction on the prior year
largely reflects the success of cost synergies from the Superpartners business combination and the impact of additional
efficiency initiatives in each of the business units. Table 5 outlines the main components of operating expenses.
Table 5: Operating expenses
IN $M
Operating Expenses
Employee Expenses
IT Expenses
Occupancy Expenses
Other Expenses
Total Operating Expenses
3.4.1 Employee expenses
OPERATING RESULTS
Year ended 30 June
FY2017
FY201614
FY201514
FY2017 vs
FY2016
339.2
76.1
33.4
112.2
561.0
349.6
76.0
34.2
125.4
585.3
274.8
54.7
25.2
85.6
440.3
3%
(0%)
2%
11%
4%
Employee expenses, the largest cost category, declined by 3% on the prior year, largely due to cost synergies achieved to
date from the integration of Superpartners in the Fund Administration and IDDS business units, partially offset by a modest
impact from the Link Fund Solutions acquisition in Corporate Markets and indexation related salary increases.
Cost synergies achieved in FY2017 are comprised of the full-year impact of cost outs in the prior year coupled with the part-
year benefit of cost savings achieved during FY2017. These ‘in-year’ cost savings included cost outs achieved subsequent
to the migration of the last remaining Superpartners client onto Link Group’s proprietary platforms, integration and restructure
of various operational teams, efficiency initiatives from a reduction in paper and cheques, and the rollout of workforce
productivity tools.
14. FY2016 and FY2015 results are presented on a Pro forma basis
43
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.4.2 IT expenses
IT expenses remained in line with the prior year. Increases were largely due to growth in the use of offshore IT development
and testing resources related to the increase in fee-for-service revenue in Fund Administration. There were also some
increases in IT support costs in Europe (related to short-term duplicated costs) and additional IT costs related to the Link
Fund Solutions acquisition. The increased costs were fully offset by the full-year savings from a new IT managed services
agreement which took effect in April 2016 and initial savings from the decommissioning and archiving project which
commenced in the second half of FY2017 and was substantially progressed by 30 June 2017.
3.4.3 Occupancy expenses
Occupancy expenses declined by 2% compared with the prior year. Savings obtained from the consolidation of premises
in Melbourne, Sydney and Perth over the last 12 months and benefits from lower make-good expenses on exited premises
were partially offset by contracted indexation related increases across all premises and large increases in electricity prices
(which more than offset reductions in electricity usage).
3.4.4 Other expenses
Other expenses comprise print and mail costs (50% of the FY2017 total other expenses), office-related expenses, insurance,
professional fees, travel and other general and administrative expenses. Other expenses declined by 11% compared with the
prior year. This reflected lower volumes of print and mail in Corporate Markets (due to the reduction in capital markets activity and
trend towards electronic communication) and lower costs associated with self-insured claims in Fund Administration, as incident
levels reduced to more normal levels. The normalisation of costs associated with self-insured claims mirrors Link Group’s previous
experience with large fund migrations where it has not been unusual for incidents to arise through the migration period, and for
some time post migration, before abating to more normal long run averages.
3.5 Operating EBITDA
Link Group’s Operating EBITDA result was $219.0 million, which was up 15% on the prior year Pro forma result of $190.6
million. This performance reflects a combination of modest revenue growth of $4.1 million coupled with significant operating
cost reductions of $24.3 million. Operating EBITDA margins improved from 24.6% in the prior year to 28.1% in FY2017.
Operating EBITDA growth in FY2017 reflects the benefits of scale as synergies continue to be realised from the integration
of the Superpartners business across both Fund Administration and IDDS business units. These synergies include savings
achieved across all operating cost categories as efficiency benefits are realised from the rationalisation and standardisation of
systems and processes together with the consolidation of premises and suppliers.
Table 6 sets out Operating EBITDA and accompanying margins by business unit.
44
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
Table 6: Operating EBITDA by reporting segment
IN $M
Operating EBITDA
Fund Administration
Corporate Markets
IDDS
Head Office
OPERATING RESULTS
Year ended 30 June
FY2017
FY201616
FY201516
FY2017 vs
FY2016
118.1
50.7
55.0
(4.8)
96.1
56.9
43.9
(6.3)
70.2
50.4
34.1
(6.7)
Total Operating EBITDA
219.0
190.6
148.0
Operating EBITDA margin
Fund Administration15
Corporate Markets15
IDDS15
Total Operating EBITDA margin
21%
26%
25%
28%
17%
29%
21%
25%
17%
32%
23%
25%
The composition of FY2017 Operating EBITDA by reporting segment is further illustrated in figure 4.
Figure 4: FY2017 Operating EBITDA composition (excludes ($4.8) million of Head Office Operating EBITDA contribution)
IDDS
Fund Administration
Corporate Markets
24%
53%
23%
15. Calculated based on Gross Revenue
16. FY2016 and FY2015 results are presented on a Pro forma basis
23%
(11%)
25%
23%
15%
4%
(3%)
4%
4%
45
Annual Report 2017
1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.5.1 Segment Operating EBITDA
Fund Administration (53% of total Operating EBITDA)
Fund Administration Operating EBITDA grew to $118.1 million which was $22.0 million or 23% higher than the prior year. The
growth on the prior year reflects the full-year impact of cost savings from synergies achieved in the prior year and the part-
year impact of cost outs made during FY2017.
Synergy benefits achieved to date include staff cost savings from the rationalisation of Superpartners’ head office functions
and operating efficiencies achieved from the integration of teams after the successful migration of the last Superpartners’
client fund was completed in December 2016. Benefits continue to accrue through the application of scale across multiple
areas of Link Group, as well as the use of efficiency initiatives to drive down the volume of paper and cheques in the
business. In addition, further cost outs achieved during FY2017 included benefits from the initial roll-out of productivity
measurement tools across various operational teams and cost savings from the consolidation of premises in Melbourne and
Perth.
Operating EBITDA margins of 21% are up on the prior year margins of 17% reflecting the above synergy benefits.
Corporate Markets (23% of total Operating EBITDA)
Corporate Markets Operating EBITDA declined to $50.7 million which was $6.2 million or 11% down on the previous year.
The reduction in Operating EBITDA compared with the prior year is largely due to the following factors:
• margin impact of the significant reduction in non-Recurring Revenue of $12.1 million (which particularly affected ANZ);
• continued competitive pricing pressure in both ANZ and overseas jurisdictions;
• volume-related increases in IT support costs including the one-off cost of migrating data to the new German registry system;
and
• adverse effect of an appreciation in the Australian Dollar compared to the British Pound on the translation of UK results,
and partially offset by:
• margin benefit from growth in organic Recurring Revenue in ANZ and overseas markets reflecting new business wins;
• reduction in staff costs from process improvement (including the introduction of productivity tools and automation of
back office processes) and restructuring initiatives (net of redundancy costs); and
• part-year contribution from the acquisition of Link Fund Solutions in December 2016.
Operating EBITDA margins of 26% were lower than the previous year reflecting the impact of the above factors.
Information, Digital and Data Services (IDDS) (24% of total Operating EBITDA)
IDDS Operating EBITDA grew to $55.0 million which was $11.1 million or 25% higher than the prior year. The increase
in Operating EBITDA compared to the prior year reflects the synergy benefits of cost out initiatives arising from the
Superpartners integration coupled with the margin benefits from external revenue growth of 17%.
Following the completion of the last migration of the remaining Superpartners client to the Link Group platform in December
2016, a comprehensive program of decommissioning legacy IT platforms and archiving historical data commenced. This
was substantially progressed by 30 June 2017, with remaining activities to be completed in FY2018. The full-year benefits of
this program (which includes both staff reductions and third party vendor cost savings) coupled with additional savings from
further vendor consolidation and sourcing initiatives, will be realised over the next two years.
Operating EBITDA margins of 25% are up on FY2016 margins of 21% reflecting the impact of the above factors.
46
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.6 Significant items
Table 7 sets out a summary of Significant items split between those impacting EBITDA and those impacting below EBITDA on
a pre-tax basis.
Table 7: Summary of Significant items
Year ended 30 June
IN $M
FY2017
FY2016
FY2015
Significant items
Business combination costs
Gain on consolidation (Link NZ)
Integration costs
IT business transformation costs
Client migration costs
Total Significant items
(impacting EBITDA)
Gain on assets held at fair value
Discount on provision unwind
Total Significant items (pre-tax basis)
16.0
-
4.7
-
7.7
0.7
-
8.5
8.2
6.5
28.5
23.8
(5.1)
3.3
26.7
(18.0)
4.6
10.4
FY2017 vs
FY2016
nmf17
nmf17
45%
100%
(20%)
(19%)
(72%)
28%
6.6
(10.3)
23.9
3.1
8.2
31.5
-
-
31.5
(156%)
Total Significant items expense of $26.7 million was significantly higher than the prior year expense of $10.4 million. This was
largely due to a prior year gain on assets held at fair value of $18.0 million, compared to a current year gain of
$5.1 million, relating to the revaluation of Link Group’s 19.7% investment in PEXA ($2.7 million) and an unrealised gain on
a foreign currency hedge ($2.4 million) which was executed during June 2017 in respect of the acquisition of Capita Asset
Services (see section 6 below).
The remaining growth in Significant items is largely due to an increase in costs related to business combinations (reflecting
an increased number of both successful and unsuccessful corporate transactions undertaken during FY2017). In addition,
there were client migration costs as some non-Superpartners Fund Administration clients were migrated onto Link Group’s
proprietary platforms. These cost increases were partly offset by lower integration-related costs, because the majority of staff
cost reductions were achieved through natural attrition and the non-recurrence of IT business transformation costs as this
activity was completed in the previous year.
17. Not meaningful
47
Annual Report 2017
1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.7 Pro forma adjustments
There were no Pro forma adjustments made to Link Group’s statutory NPAT in FY2017. In the prior year, Pro forma
adjustments reflected the elimination of costs associated with certain items such as:
• IPO transaction costs;
• adjustments to reflect the impact of the post-IPO capital structure and new banking facilities being in place from 1 July
2015; and
• the tax impact of the above adjustments.
3.8 Other expenses below EBITDA
Other expenses below EBITDA primarily relate to depreciation and amortisation, acquired amortisation, net finance costs and
tax expense. Table 8 outlines other expenses below EBITDA and their composition.
Table 8: Other expenses below EBITDA
OPERATING RESULTS
Year ended 30 June
IN $M
FY2017
FY201618
FY201518
FY2017 vs
FY2016
EBITDA after significant items
Depreciation and amortisation
EBITA
Acquired amortisation
EBIT
Net finance expense
Discount on provision unwind
Gain on assets held at fair value
NPBT
Tax expense
NPAT
Add back acquired amortisation after tax
NPATA
Add back significant items after tax
Operating NPATA
190.6
(34.9)
155.7
(23.7)
132.0
(10.8)
(3.3)
5.6
123.5
(38.3)
85.2
16.5
101.7
22.1
123.8
166.8
(33.4)
133.3
(31.6)
101.8
(12.5)
(4.6)
18.1
102.8
(29.8)
73.0
22.1
95.1
7.6
102.7
116.5
(32.0)
84.5
(28.2)
56.3
14%
(4%)
17%
25%
30%
14%
28%
(69%)
20%
(29%)
17%
(25%)
7%
192%
21%
18. FY2016 and FY2015 results are presented on a Pro forma basis.
48
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
3.8.1 Depreciation and Amortisation
Depreciation and amortisation expense increased by 4% to $34.9 million compared with the prior year largely due to the
impact of capital expenditure undertaken in the prior year (full-year impact) and FY2017 (part-year impact) and fit-out
costs associated with new premises in Melbourne and Perth. This was partially offset by some Superpartners’ legacy IT
assets reaching the end of their useful lives following the successful completion of the last of the Superpartners client fund
migrations in FY2017.
Acquired amortisation reflects the amortisation of client lists and the revaluation impact of acquired intangible assets resulting
from business combinations. Acquired amortisation declined by 25% to $23.7 million compared with the prior year. That
reflected the impact of acquired intangibles (including software and client lists) reaching the end of their useful lives in FY2017.
3.8.2 Net finance expense
Net finance expense of $10.8 million is down $1.7 million on the previous year’s Pro forma net finance expense due to lower
average net debt and a reduction in the base interest rate compared with FY2016. Pro forma net finance costs for FY2016
represent those costs that would have been incurred had the post-IPO capital structure been in place since 1 July 2015.
3.8.3 Tax expense
Tax expense of $38.3 million is 29% higher than the prior year’s Pro forma tax expense reflecting an increase in profit before
tax of 20%, coupled with a larger number of non-deductible overseas acquisition costs (see Significant items above). The
Pro forma tax expense for the prior year represents the expense that would have been incurred had the post-IPO capital
structure been in place since 1 July 2015. The effective tax rate of 31% is higher than the previous year, largely reflecting an
increase in permanent differences related to overseas acquisition costs.
49
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
4. Strong balance sheet and cash flow conversion
Link Group maintained a strong balance sheet in FY2017 with a modest level of gearing providing significant flexibility for
future growth opportunities. The business generated high levels of cash flow whilst also maintaining a substantial ongoing
investment in enhancing its proprietary systems and in new products and services.
4.1 Balance Sheet
Table 9 provides a summary of the Balance Sheet as at 30 June 2017.
Table 9: Summary Balance Sheet
IN $M
Assets
Cash
Trade and other receivables
Other Current Assets
Total Current Assets
Deferred Tax Asset
Other Non-Current Assets
Total Non-Current Assets
TOTAL ASSETS
Liabilities
Trade and other payables
Interest Bearing Liabilities
Other Current Liabilities
Total Current Liabilities
Interest Bearing Liabilities
Deferred Tax Liability
Other Non-Current Liabilities
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Contributed Equity
Reserves
Retained earnings
TOTAL EQUITY
50
STATUTORY RESULTS
as at 30 June
FY2017
FY2016
FY2015
18.2
98.7
19.7
136.5
42.4
1,055.0
1,097.4
1,233.9
101.1
0.2
83.3
184.6
312.9
56.4
62.7
432.0
616.6
617.4
689.4
(77.8)
5.8
617.4
30.2
95.8
13.4
139.3
55.8
959.8
1,015.6
1,154.9
87.9
0.2
86.6
174.7
291.9
60.5
45.7
398.2
572.9
582.1
689.0
(112.4)
5.5
582.1
31.8
85.0
10.9
127.7
69.6
919.9
989.5
1,117.2
72.5
24.0
90.8
187.4
765.6
62.8
52.3
880.7
1,068.1
49.1
202.5
(145.7)
(7.7)
49.1
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
The cash balance of $18.2 million as at 30 June 2017 has declined from the 30 June 2016 position due to the repayment of
debt during the year with surplus cash resources.
Net working capital (trade and other receivables less trade and other payables) as at 30 June 2017 of negative $2.4 million
has declined compared with the previous year as growth in trade and other receivables has been more than offset by growth
in trade and other payables. This reflects both organic growth and the acquisition of Link Fund Solutions, coupled with a
large increase in acquisition cost accruals related to the prospective acquisition of Capita Asset Services.
Other non-current asset growth is largely due to continuing investment in software intangibles (partially offset by
amortisation) which represents the bulk of Link Group’s capital expenditure each year and an increased investment of $64.7
million in PEXA.
Interest-bearing liabilities have increased by $21.0 million compared with the prior year. This reflects increases in debt drawn
to fund the acquisition of Link Fund Solutions and the increased investment in PEXA, but was partially offset by voluntary
repayments of debt over the period.
Total equity increased to $617.4 million from $582.1 million in the prior year reflecting profits for the year, net of dividends paid
to shareholders.
4.2 Cash flow
Cash flow conversion continued to be a key focus of the business and Link Group achieved an operating cash conversion rate
of 99%, only slightly down from the previous year. This reflects a higher consumption of working capital partly offset by the cash
benefit of rent free periods on new premises in Melbourne and Perth (where the benefit is spread over the life of the lease for
accounting purposes under Australian IFRS). The increase in working capital consumption of $10.0 million in FY2017 reflects
the following:
• lower premises make good provision balances after leaving several legacy leased premises during the year;
• reduction in self-insured claims provisions as referred to in section 3.4.4; and
• increase in prepayments relating to undrawn technology fund balances provided under new IT vendor contracts.
Capital expenditure is a key driver of future productivity, product growth and cost efficiency. The business uses a benchmark
of 3-5% of Link Group revenue to guide capital expenditure initiatives. In FY2017, capital expenditure was $36.1 million,
representing 4.6% of revenue. That amount was 8% down on the previous year. An increased level of spending on the
overseas businesses (including the development of a new registry platform in Germany and new premises fit out in India)
coupled with continued investment in core platforms, new products and infrastructure in ANZ, was offset by a reduced level
of capital expenditure in relation to Superpartners’ infrastructure integration.
51
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
Table 10 provides a summary of Link Group’s cash flow.
Table 10: Summary Pro forma cash flow
IN $M
Operating EBITDA
Non-cash items in Operating EBITDA
Changes in working capital
Net operating cash flow
Cash impact of significant items
Net operating cash flow after significant items
Tax
Interest
Pro forma adjustments
Net cash provided by operating activities
Capital expenditure
Other investing cash flow
Dividends paid
Net cash flow before other financing activities
Net cash used in other financing activities
Net (decrease) / increase in cash
Net operating free cash flow
Net Operating cash flow conversion
Net Operating free cash flow conversion
Year ended 30 June
FY2017
FY201619
FY201519
FY2017 vs
FY2016
219.0
7.4
(10.0)
216.5
(55.6)
160.9
(2.4)
(10.2)
-
148.3
(36.1)
(92.9)
(50.6)
(31.3)
20.3
(11.0)
180.4
99%
82%
190.6
(4.1)
7.1
193.6
(58.5)
135.1
(1.6)
(10.4)
(20.2)
102.9
(39.4)
(21.7)
-
41.8
(43.7)
(1.9)
154.2
102%
81%
148.0
(2.7)
(30.7)
114.6
(32.0)
82.6
79.5
77%
54%
15%
281%
(241%)
12%
5%
19%
(52%)
2%
100%
44%
8%
328%
n/a
(175%)
146%
(679%)
17%
(3%)
1%
19. FY2016 and FY2015 cash flows are presented on a Pro forma basis.
52
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Operating and Financial Review (continued)
4.3 Net debt
Table 11 compares the net debt position of Link Group as at 30 June 2017 compared with the prior year.
Table 11: Summary of net debt
IN $M
Cash and cash equivalents
Long-term debt
Short-term debt
Net Debt
Debt ratios20
Net debt/Operating EBITDA
Operating EBITDA/net interest costs
STATUTORY RESULTS
as at 30 June
FY2017
FY2016
FY2015
(18.2)
313.1
-
295.0
1.35
20.34
(30.2)
292.1
-
262.0
1.37
15.28
(31.9)
766.3
26.9
761.3
2.08
n/a
The Net Debt/Operating EBITDA ratio remained relatively flat at 1.35 times. That reflects an improved Operating EBITDA
performance offset by an increase in net debt. The Operating EBITDA/net interest cost ratio has increased to 20.34 times,
reflecting the higher Operating EBITDA performance and lower net interest costs.
Link Group has total committed and available facilities of $580.0 million with a further $250.0 million as an uncommitted
accordion facility. This level of available facilities provides significant capacity for future potential acquisitions.
Subject to completion of the CAS acquisition, Link Group has established a committed acquisition debt facility amounting to
£485 million ($822 million). See further discussion in section 6 of this OFR.
20. FY2016 and FY2015 debt ratios are presented on a Pro forma basis.
53
Annual Report 2017
1. Directors’ Report (continued)
Operating and Financial Review (continued)
5. Pro-active management of risks
Link Group actively monitors, assesses and manages a variety of business risks as part of its risk management framework.
Link Group’s core risks and the way they are managed are outlined below. This is not a comprehensive list of the risks or of
the mitigating actions employed by the business.
5.1 Reliance on effective performance of core and third party IT Infrastructure
Technology is the key enabler of Link Group’s services. Link Group and its clients depend on the effective performance,
reliability and availability of Link Group’s technology platforms, software, third-party data centres and communications
systems. Link Group also relies on certain contracts with third-party suppliers to help maintain and support its IT infrastructure.
Link Group utilises Tier 1, best-in-class infrastructure and IT vendors. The infrastructure is owned and licensed by
Link Group and is housed in Fujitsu data centres managed by Fujitsu under a managed services agreement. Link Group’s
proprietary applications are developed using industry standard Java and Microsoft.net stacks and conform to standard
multi-tier architecture conventions.
5.2 Risk to security and integrity of sensitive information
Link Group’s products and services involve the storage and transmission of financial, proprietary and personal user
information. By their nature, information technology systems are susceptible to cyber-attacks, unauthorised access to, or
disclosure of, such data.
IT security is paramount and Link Group proactively seeks to mitigate any identified risks associated with its technology
infrastructure. Link Group’s systems are architected, built and managed to reduce the potential for security or data privacy
breaches. Link Group is also ISO 27001 certified, the global standard for information security management, demonstrating
our commitment to best practice and industry leadership.
5.3 Concentrated client base and contract renewal
Link Group’s primary source of revenue is from contracted services to clients. Link Group has a relatively concentrated client
base, with its largest five clients contributing 47% of FY2017 revenue.
Link Group’s business is characterised by medium to long-term contracts of two to five years, strong Recurring Revenue and
high levels of client retention. Client retention rates have been greater than 95% over the last three years. In Link Group’s
view, high levels of client retention can be attributed to the range and quality of the services Link Group provides, brand
loyalty and the significant integration with clients.
5.4 Political and regulatory environment
Link Group’s business is influenced and affected by laws, regulatory compliance and government policy in each of the
jurisdictions it operates. In some cases, Link Group has accepted regulatory and compliance commitments to its clients
which exceed those to which it would be subject in its business as usual operations.
Link Group works closely with government, regulatory and industry authorities and actively monitors, assesses and manages
relevant changes to laws, regulation and government policy so that its operations, products and services are compliant at all times.
54
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
5.5 Ability to attract and retain key personnel
A key driver of Link Group’s performance is the recruitment and retention of effective and qualified personnel.
Link Group continues to invest in the development of its people and culture. An open management style, dynamic working
environment and appropriate performance targeted financial incentives are key qualities underpinning the Link Group culture.
We encourage open and honest dialogue and empower our people to take responsibility. We use proactive human resource
management tools to manage the deployment, productivity and performance of Link Group’s human resources.
5.6 Integration of acquired businesses and execution of new acquisitions
Link Group continually investigates and considers potential acquisitions and investment opportunities, which is consistent
with its growth strategy. Acquisitions and investments have risk around the incremental financial value for the Link Group.
Integration of businesses can require a considerable period of time to realise expected revenue and expense synergies.
Link Group has successfully integrated more than 40 business combinations over the past 15 years and created value by
following a disciplined process. The process includes initial strategic and financial analysis, due diligence and contract
execution which Link Group undertakes in conjunction with its financial and legal partners. Once a business is acquired, Link
Group has a robust process encapsulating people, systems, products and clients so that the acquired business delivers on or
exceeds the expected financial and operational results.
The acquisition of CAS (discussed earlier in section 1 of this OFR) will involve the integration of a business which has
previously operated within the Capita plc group independent of Link Group. As a result, there is a risk that the integration
of CAS may be more complex than anticipated, encounter unexpected challenges or issues and take longer than expected.
It may divert Management attention, or not deliver the expected benefits, and this may affect Link Group’s operating and
financial performance. Further, the integration of CAS’ accounting functions may lead to revisions in acquisition accounting,
which may impact the Combined Group’s reported financial results. In addition, there may be risks associated with the
effectiveness and efficiency of communication, given CAS operates in various overseas geographies. This may also
impact the ability of Link Group to integrate its systems and practices into CAS. Finally, CAS operates in highly regulated
environments; non-compliance could impact CAS’ growth and the financial performance of Link Group post acquisition.
5.7 Increased competition
The key industries that Link Group operates in are all competitive markets and are expected to remain competitive.
Link Group has successfully invested over $300 million in delivering technology-driven solutions for its clients. Link Group’s
competitive advantage stems from the capability, functionality, integration and scalability of its proprietary technology. Link
Group continues to drive innovation, partner with industry leaders and expand the range of value-added services for clients to
further enhance Link Group’s competitive advantage.
55
Annual Report 2017 1. Directors’ Report (continued)
Operating and Financial Review (continued)
6. Outlook
Link Group expects to continue to deliver revenue and Operating EBITDA growth across all reporting segments through the
following key business growth drivers:
• growth through further penetration of attractive industries;
• growth through product and service innovation;
• growth through client, product and regional expansions;
• realising integration benefits; and
• identifying adjacent market opportunities.
Link Group benefits from a high proportion of Recurring Revenue, providing good organic revenue visibility into the future.
This Recurring Revenue is underpinned by contractual price inflators which will largely mirror the current low inflation
environment. Underlying market growth together with new business and expansion of the product and service offering
support organic revenue growth.
On 26 June 2017, Link Group announced that it had entered into a binding agreement to acquire CAS from Capita plc for
£888 million ($1,493 million). Completion of the acquisition is subject to mandatory regulatory approvals and is expected
to complete by 31 December 2017. CAS offers a broad range of financial and administrative services across the UK
and Europe. Aligned to Link Group’s key business growth drivers, it is a strong strategic fit. The acquisition (should it
be successfully completed) is Earnings Per Share (EPS) accretive on a Pro forma basis with further efficiency benefits to
be obtained over the medium term. Funding for the acquisition will be via a combination of a fully underwritten pro rata
accelerated renounceable entitlement offer of $883 million, cash and available debt facilities including a new £485 million
($822 million) acquisition debt facility. The entitlement offer was successfully completed in July 2017. Proceeds from the
entitlement offer were used to repay the existing debt facilities as an interim measure to minimise finance costs.
As highlighted previously, the second leg of the contracted price discounts for the former shareholder clients of Superpartners
occurred in March 2017. The cumulative value of this contractual price adjustment is approximately $21 million on an annual
basis and largely offsets the indexation added to those contracts up to that time.
The second half of FY2017 saw the decommissioning of legacy IT platforms and archiving of historical data substantially
progressed. The full benefits of this program of work will be delivered in FY2018 and FY2019 with associated benefits to be
achieved in operational efficiencies and vendor consolidation savings in the IDDS business unit. The value of the remaining
Superpartners integration synergies is approximately $45 million including the benefits from the decommissioning and
archiving program. The one-off costs to achieve these remaining synergies are expected to be approximately $8-15 million.
Link Group has positive momentum going into FY2018 as a result of activities completed prior to the end of FY2017 across
all business units. As a result, Link Group believes it is on target in the achievement of the Superpartners integration
synergies and, as the business is currently structured, is confident that its overall Operating EBITDA margins are progressively
trending back to levels similar to that achieved in Pro forma FY2014 by FY2020.
At an NPAT level and assuming no further acquisitions or business combinations, Link Group expects continued growth as a
result of increases in Operating EBITDA (from underlying growth in business performance), a gradual reduction in depreciation
and amortisation as asset useful lives come to an end and a reduction in net interest expense as debt is reduced.
In terms of dividends, Link Group re-affirms its previous guidance that it will target a dividend payout ratio of between 40%
and 60% of annual NPATA. The FY2017 final dividend will bring the total dividend for the financial year to 60% of NPATA.
The FY2017 final dividend is 100% franked. Subject to no changes in capital structure and consequent timing of expected
tax payments, dividend franking is expected to continue throughout FY2018.
Cash flow generation is expected to remain strong as a result of continued Operating EBITDA growth, working capital control
and a stable level of capital expenditure. Cash conversion is expected to remain in line with current levels, which allows
significant flexibility to consider both selective acquisitions and capital management in the future.
56
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Operating and Financial Review (continued)
Appendix 1 – non IFRS definitions
Link Group uses a number of non-IFRS financial measures in this OFR to evaluate the performance and profitability of the
overall business. The principal non-IFRS financial measures that are referred to in this OFR are as follows:
• FY is financial year ended 30 June (in the applicable year);
• Recurring Revenue is revenue arising from contracted core administration services, stakeholder engagement services,
share registry services and shareholder management and analytics services that are unrelated to corporate actions.
Recurring Revenue is expressed as a percentage of total revenue. Recurring Revenue is revenue the business expects
to generate with a high level of consistency and certainty year-on-year. Recurring Revenue includes contracted revenue
which is based on fixed fees per member (for Fund Administration) or shareholder (for Corporate Markets). Clients are
typically not committed to a certain total level of expenditure and as a result, fluctuations for each client can occur year-
on-year depending on various factors, including the number of member accounts in individual funds or the number of
shareholders of corporate market clients;
• Gross Revenue is the aggregate segment revenue before elimination of intercompany revenue and recharges such as
IDDS recharges for IT support, client-related project development and communications services on-charged by Fund
Administration or Corporate Markets to their clients. Link Group management considers segmental Gross Revenue to be
a useful measure of the activity of each segment;
• Operating EBITDA is earnings before interest, tax, depreciation and amortisation and Significant items. Management
uses Operating EBITDA to evaluate the operating performance of the business and each operating segment prior to
the impact of Significant items, the non-cash impact of depreciation and amortisation and interest and tax charges,
which are significantly impacted by the historical capital structure and historical tax position of Link Group. Link
Group also presents an Operating EBITDA margin which is Operating EBITDA divided by revenue, expressed as a
percentage. Operating EBITDA margin for business segments is calculated as Operating EBITDA divided by segmental
Gross Revenue, while Link Group Operating EBITDA margin is calculated as Operating EBITDA divided by revenue.
Management uses Operating EBITDA to evaluate the cash generation potential of the business because it does not
include Significant items or the non-cash charges for depreciation and amortisation. However, the Company believes
that it should not be considered in isolation or as an alternative to net operating free cash flow;
• EBITDA is earnings before interest, tax, depreciation and amortisation; and
• Operating NPATA (previously known as NPATA before Significant items) is net profit after tax and after adding
back tax effected Significant items (including the discount expense on the un-winding of the Superpartners client
migration provision) and acquired amortisation. Acquired amortisation comprises the amortisation of client lists and
the revaluation impact of acquired intangibles such as software assets, which were acquired as part of business
combinations. Link Group management considers Operating NPATA to be a meaningful measure of after-tax profit as it
excludes the impact of Significant items and the large amount of non-cash amortisation of acquired intangibles reflected
in NPAT. This measure includes the tax effected amortisation expense relating to acquired software which is integral
to the ongoing operating performance of the business. Link Group also presents Operating NPATA margin which is
Operating NPATA divided by revenue, expressed as a percentage. Operating NPATA margin is a measure that Link
Group management uses to evaluate the profitability of the overall business.
Although Link Group believes that these measures provide useful information about the financial performance of Link Group,
they should be considered as supplemental to the information presented in accordance with Australian Accounting Standards
and not as a replacement for them. Because these non-IFRS financial measures are not based on Australian Accounting
Standards, they do not have standard definitions, and the way Link Group calculated these measures may differ from similarly
titled measures used by other companies.
57
Annual Report 2017 1. Directors’ Report (continued)
Remuneration Report
Remuneration Report
Introduction from the Chair of the Human Resources and Remuneration Committee
Dear Shareholder,
On behalf of the Board, I am pleased to present the Remuneration Report for the year ended 30 June 2017.
As we evolve in the listed-company environment, we continue to consider the most effective ways to share information with
our shareholders. As such, we have reviewed and updated the format of this Remuneration Report. I trust that you find the
information contained in this report helpful.
Our first Remuneration Report received positive shareholder support at our inaugural AGM last year, with a vote in favour of
99.8%. We thank you for your support and we aim to continue to provide information, remuneration structures and decisions
that demonstrate how our remuneration approach is aligned to sustainable shareholder value creation.
In FY2017, we achieved the Operating EBITDA gateway on the Short-Term Incentive (STI) plan. The Operating EBITDA was
$219 million, an increase of 15% on the prior year and 4% above target. The stretch STI opportunity for achieving Operating
EBITDA of at least 110% of target was not reached in FY2017. Performance against individual Key Performance Indicators
(KPIs) was also strong and individual outcomes ranged from 80% to 100% of target STI opportunities.
We have introduced a new Long-Term Incentive (LTI) plan, the Omnibus Equity Plan, in FY2017 and a grant of performance
rights was made to Executive Key Management Personnel (KMP). The first opportunity for vesting will be in FY2019, subject
to achievement against Earnings Per Share (EPS) and Total Shareholder Return (TSR) targets.
Following a review of our remuneration approach, we will amend the LTI TSR comparator group from the S&P/ASX200 (with
exclusions) to the S&P/ASX 100 (with exclusions) for FY2018 to reflect our growth and market position as a S&P/ASX100
company. Amendments will also be made to the Omnibus Plan Rules to better align cessation of employment and change of
control terms with market norms.
No changes to fixed remuneration were made in FY2017 for Executive KMPs. No changes were made to Non-Executive
Director fees in FY2017.
The Board is presently reviewing remuneration for all the Senior Executives and Board composition and fees for FY2018 in
the context of market data, role responsibilities and the Capita Asset Services (CAS) transaction.
The Board does not anticipate any increase to the Non-Executive Director fee pool in FY2018.
We welcome your feedback on our Remuneration Report.
Yours sincerely,
Sally Pitkin
Human Resources and Remuneration Committee Chair
58
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Remuneration Report (continued)
About this Remuneration Report
The Remuneration Report summarises the remuneration of Link Group’s KMP; namely Directors and Executives that are
named in this Report for the year ended 30 June 2017. This Report has been prepared in accordance with the requirements of
section 300A of the Corporations Act 2001 and has been audited.
1. Overview of the Executive KMP remuneration approach
1.1 Remuneration principles & philosophy
Link Group adheres to the following principles when developing and implementing remuneration decisions. The decisions
made about remuneration should:
• support competitive market pay;
• support the attraction and retention of talent;
• align behaviours and outcomes to Link Group needs;
• motivate individuals to pursue Link Group’s long-term growth and success;
• demonstrate a clear relationship between Link Group’s overall performance and the performance of individuals;
• support gender pay equity;
• align remuneration with sustainable shareholder value creation and returns; and
• comply with all relevant legal, tax and regulatory provisions.
1.2 FY2017 remuneration framework
Link Group’s remuneration framework is designed to reward Executive KMPs for achievement of Link Group strategy and
sustained shareholder value creation, and is cognisant of the significant existing shareholdings of our Executive KMP team.
Figure 5 outlines the components of Executive KMP remuneration and their purpose.
59
Annual Report 2017 1. Directors’ Report (continued)
Remuneration Report (continued)
Figure 5: FY2017 Executive KMP remuneration framework
FY2017 EXECUTIVE KMP REMUNERATION FRAMEWORK
Fixed Remuneration
Cash, superannuation,
non-monetary benefits
STI
Cash
LTI
Performance rights vesting after 3 years (50%)
1-year
holding lock
(25%)
2-year
holding lock
(25%)
Year 1
Year 2
Year 3
Year 4
Year 5
2017 EXECUTIVE KMP REMUNERATION COMPONENTS
Fixed
Variable ‘at risk’
Fixed remuneration
Short-term Incentive (STI)
Long-term Incentive (LTI)
PURPOSE AND ALIGNMENT
A tool to attract and retain
key talent to the Company.
To drive achievement of the
short-term (annual) targets as
agreed by the Board.
Support the sustainable creation
of shareholder value.
VALUE TO INDIVIDUAL DETERMINED BY
Fixed remuneration is targeted
around the median of the
market, defined as Australian
listed companies of similar size
and/or industry.
Fixed remuneration may
deviate from the market median
depending on individual
experience, capabilities,
performance and location.
Operating EBITDA gateway
determines capacity to pay.
Vesting is based on
achievement of:
Allocation based on Company
and business unit financial
performance and individual
performance against specified
KPIs. KPIs include financial and
non-financial targets.
Stretch STI up to 200% of target
based on stretch Operating
EBITDA targets.
Earnings per share performance
against targets (75% of
opportunity)
Total shareholder return relative
to constituents of an S&P/ASX
index (25% of opportunity).
60
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Remuneration Report (continued)
1.3 Key questions about KMP remuneration
This section provides an overview of the key questions our shareholders may have in relation to our KMP
remuneration arrangements.
Executive KMP remuneration in FY2017
What changes
to executive
remuneration
structures have been
made in FY2017?
As foreshadowed in the FY2016 remuneration report, Link Group introduced an LTI plan, the
Omnibus Equity Plan, in FY2017. The plan is designed to support the sustainable creation of
shareholder value and maintain alignment between Executive KMPs and shareholders.
A grant of Performance Share Rights (PSRs) was made to Executive KMPs, which may vest,
subject to the achievement of relative TSR and EPS targets over a three-year performance
period.
In FY2016, a portion of the STI award was deferred to assist with the retention of key
individuals post-IPO, and before the LTI plan was introduced. With the introduction of the
LTI plan, and taking into consideration the considerable existing equity holdings of Executive
KMPs, the Board is confident that the retention intent of the deferred STI is otherwise satisfied.
Therefore, no deferral applies to existing Executive KMPs for FY2017. Deferral will apply to any
new Executive KMPs until the minimum shareholding requirement is met.
Fixed remuneration levels for Executive KMPs were not increased in FY2017.
The Board is reviewing remuneration for FY2018 for Executive KMPs and other Senior
Executives in the context of the CAS transaction. The review is being informed by market data
from remuneration benchmarking, anticipated role changes for some Senior Executives, and
the integration of UK-based Senior Executives into Link Group’s organisational structure and
remuneration framework.
Have there been
any changes to
the Executive KMP
remuneration levels
in FY2017?
Are there any
changes proposed in
FY2018?
How is Link Group’s
performance
reflected in this
year’s remuneration
outcomes?
FY2017 was another strong year for Link Group. The Operating EBITDA gateway on the STI
was achieved. In addition, the Operating EBITDA was 4% above target. Performance against
individual KPIs was also strong. As such, individual outcomes ranged from 80% to 100% of
target STI opportunities. The stretch STI opportunity was not invoked in FY2017. Further
detail on STI outcomes is provided in section 2.2.
The Omnibus Equity Plan is not assessed until the end of the three-year performance period.
How is fixed
remuneration
determined? And
how is it positioned
relative to the
market?
Fixed remuneration generally includes base salary, superannuation and may include
non-monetary benefits.
Fixed remuneration is targeted at the median of the market. The market is defined as
Australian-listed companies of similar size and/or industry. In FY2017, consideration was given
to S&P/ASX200 companies with market capitalisation 50% to 200% of Link Group’s 12-month
average market capitalisation and the 25 companies ranked above and below Link Group’s
12-month average market capitalisation. Where a role match was available, consideration was
also given to specific peer companies.
Fixed remuneration is generally reviewed against the market annually, however, there is no
guaranteed annual increase.
61
Annual Report 2017 1. Directors’ Report (continued)
Remuneration Report (continued)
Executive KMP remuneration in FY2017
What proportion of
target remuneration
is ‘at risk’ and why
is it considered
appropriate for the
business?
Target total remuneration is positioned between the median and 75th percentile of the market,
in line with market norms. The market is defined on the previous page, in relation to fixed
remuneration.
A significant portion of Executive KMP remuneration is ‘at risk’ subject to both short and
long-term performance hurdles. The ‘at risk’ components directly align executive pay with our
strategic plan and shareholder value creation.
The proportion of total target remuneration ‘at risk’ for Executive KMPs’ ranges from 56% to 70%.
What is the STI
gateway?
An Operating EBITDA gateway must be met before any STI is paid. The Board determines an
annual Operating EBITDA target, taking into consideration our longer-term growth strategy.
Operating EBITDA is a key measure of success for our business and part of our growth strategy.
Including Operating EBITDA as a gateway ensures affordability of the plan in a given year.
What are the
performance
measures for the STI
plan? How do they
align with business
strategy?
Payments will be made under the STI plan, subject to the achievement of a scorecard of relevant
corporate, business unit (where relevant) and individual measures comprising a combination of
Operating EBITDA, Operating NPATA and individual strategic goals.
Strategic goals are aligned to our growth and innovation strategy goals. Goals vary by role and
across financial years but broadly fall under the categories of divisional finance targets, business
development, transition and integration of new business acquisitions, and ‘other’. Strategic
goals in FY2017 included such objectives as successful acquisition execution, new client wins,
delivery of new products, and revenue targets. Further detail is included in section 2.2 of this
Remuneration Report.
What is the target
and maximum STI
opportunity each
executive can
earn under the STI
plan? How is this
determined?
Target opportunity: The target STI opportunity for Executive KMPs represents an opportunity
to earn 28-30% of total target remuneration. Target STI ranges from 64% to 100% of fixed
remuneration.
Stretch opportunity: The on-target STI may be increased if the Company achieves at least
110% of the Operating EBITDA target. In addition, an individual must have achieved at least
80% on their individual strategic goals to receive any stretch STI.
Executive KMPs have the opportunity to earn up to 200% of their target STI where the
Operating EBITDA is 150% of target. This represents the maximum STI.
A sliding scale applies between 110% and 150% achievement of the Operating EBITDA target.
Why does Link Group
not defer a portion of
the STI?
Deferral was included in the Executive KMP remuneration packages as a one-off in FY2016 to
assist with the retention of key individuals post-IPO and before the first LTI grant was made.
Link Group is comfortable that the implementation of the LTI plan in FY2017, which includes a
holding lock on a portion of vested shares, along with the current equity holdings of Executive
KMPs and our minimum shareholding policy, facilitates sufficient equity exposure to align
current Executive KMPs with our Shareholders.
Deferral will be included as part of remuneration packages for any new Executive KMPs to
support them to meet the minimum shareholding requirements.
62
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Remuneration Report (continued)
Executive KMP remuneration in FY2017
What is the LTI
performance period?
The Omnibus Equity Plan measures performance over a three-year period. Awards lapse at
the end of three years to the extent performance measures are not met. There is no retesting
of awards.
One-half of any vested award is available to the participant at the end of the performance
period. A holding lock applies to the remaining 50%; one-half of which is then available after a
further one and two years respectively. The Board is comfortable that the combination of the
three-year vesting period and subsequent two-year holding lock provides alignment between
Executive KMPs and the Company’s long-term growth strategy.
The Omnibus Equity Plan delivers performance rights to participants subject to the
achievement of EPS targets (75%) and relative TSR performance (25%) against a comparator
group of companies. Both measures support the aim of the plan in supporting our growth and
innovation strategies and drive the creation of sustainable shareholder value. Further detail is
included in section 3 of this Remuneration Report.
Our key focus is on delivering earnings growth to our shareholders. Link Group acknowledges
that TSR performance relative to a basket of constituents is important to some investors.
However, in the absence of a sizeable group of comparable industry peers, we also acknowledge
that comparison to a broad S&P/ASX index constituents group can give arbitrary results that are
not reflective of the Company’s performance, hence the lower weighting on TSR.
The relative TSR component of the LTI for the FY2017 award is compared to the constituents
of the S&P/ASX 200, excluding materials, utilities, industrials and energy companies. This
provides a base of 128 companies for the FY2017 grant, before any corporate actions are
considered during the performance period.
Executive KMPs are required to hold a minimum of one year’s Annual Fixed Remuneration
within three years of the date they first become a participant in the Omnibus Equity Plan.
All Executive KMPs have met the requirements. See table 27 for further detail.
What are the
performance
measures for the LTI
plan? How do they
align with business
strategy?
Why does relative
TSR have a lower
weighting than EPS?
What comparator
group(s) are the
LTI performance
measures assessed
against?
What are the
minimum
shareholding
requirements for
Executive KMPs?
Have Executive
KMPs met the
requirements?
63
Annual Report 2017 1. Directors’ Report (continued)
Remuneration Report (continued)
Remuneration in FY2018
Are there any planned
changes for FY2018;
and why?
The Board has approved the following changes to the Executive KMP remuneration
arrangements for FY2018:
• No deferral is intended to apply to FY2018 STI awards for existing Executive KMPs
provided they continue to meet the minimum shareholding requirement, consistent with our
approach in FY2017. Deferral will apply to any new Executive KMPs until they meet Link
Group’s minimum shareholding requirement.
• Given Link Group’s growth and positioning within the S&P/ASX 100, for LTI grants made
from FY2018, the TSR comparator group will be the constituents of the S&P/ASX 100
excluding materials, utilities, industrials and energy companies. This approach will likely
result in a comparator group of approximately 62 companies for the FY2018 grant. This
change reflects our growth and market position as a S&P/ASX 100 company.
• The Omnibus Equity Plan Rules will be amended to refine the change of control and cessation of
employment terms and introduce the concept of a ‘share appreciation right’. Shareholders will be
asked to approve the revised Rules at the 2017 AGM. The new terms will include:
• In the instance of a change of control, the Board has the discretion to vest
outstanding awards taking into account the portion of the vesting period and
performance against hurdles at the time of the change of control and any
replacement equity offered by third parties. There is no acceleration of awards in
respect of a potential change of control.
• In the event of a cessation of employment for a ‘Qualifying Reason’ (for example,
death, serious injury, disability or illness, genuine retirement or retrenchment), equity
will be retained ‘on-foot’ and will be tested against performance hurdles at the
original vesting date alongside other participants, having regard to the portion of the
performance period served, unless otherwise determined by the Board. A cash-
settled alternative (through the issue of indeterminate rights) will be included in the
plan for participants who leave by virtue of a ‘Qualifying Reason’ to facilitate deferral
of tax until the shares are received.
• Remuneration for Executive KMPs and other Senior Executives is under review in the
context of the CAS transaction. The review is being informed by anticipated role changes
for some Senior Executives and the integration of UK based Senior Executives into the Link
Group organisational and remuneration framework.
Non-Executive Directors
There were no changes to Non-Executive Director remuneration levels in FY2017.
The Board is considering the fees payable to Non-Executive Directors in FY2018 in the
context of market data from remuneration benchmarking, the CAS transaction, and the
objective of appointing a UK-based Director.
Non-Executive Directors are required to hold a minimum of one times their annual base fee
(not including Committee membership or the higher fee for the Chair) within three years after
the date of their appointment.
At the time of publication of this Report, all Non-Executive Directors have met the minimum
shareholding requirements.
Were there any
changes to Non-
Executive Director
remuneration in
FY2017? Are there any
proposed changes in
FY2018?
What are the minimum
shareholding
requirements for Non-
Executive Directors?
Have Non-Executive
Directors met the
requirements?
64
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Remuneration Report (continued)
2. Summary information
2.1 Key Management Personnel
The names and titles of KMP are set out below. David Geddes will retire effective 31 August 2017. There have been no other
changes to KMP following the end of the financial year.
Name
Position
Non-Executive Directors
Michael Carapiet
Independent Chair and Non-Executive Director
Cameron Blanks
Non-Executive Director and Nominee Director of the PEP Shareholders21
(resigned 9 September 2016)
Glen Boreham, AM
Independent Non-Executive Director
Peeyush Gupta
Independent Non-Executive Director (appointed 18 November 2016)
Paul McCullagh
Non-Executive Director and Nominee Director of the PEP Shareholders21
(resigned 9 September 2016)
Anne McDonald
Independent Non-Executive Director (appointed 23 July 2016)
Sally Pitkin
Independent Non-Executive Director
Fiona Trafford-Walker
Independent Non-Executive Director
Executive KMPs
John McMurtrie
Executive Director and Managing Director
John Hawkins
Chief Financial Officer and Joint Company Secretary
Suzanne Holden
Chief Executive Officer, Fund Administration
David Geddes
Chief Executive Officer, Corporate Markets (retiring 31 August 2017)
Paul Gardiner
Chief Executive Officer, Corporate Markets;
Chief Executive Officer Information, Digital and Data Services (IDDS)22
21. Defined in Appendix 1 to the Operating and Financial Review, which forms part of the Directors’ Report.
22. Previously CEO, IDDS only. Appointed CEO to Corporate Markets effective 16 March 2017
65
Annual Report 2017
1. Directors’ Report (continued)
Remuneration Report (continued)
2.2 FY2017 Overview – alignment between performance and Executive KMP remuneration
In FY2017, our Executive KMP remuneration consisted of fixed remuneration, short-term incentives and the first grant of
PSRs under the long-term incentive plan. The short and long-term incentive plans directly align remuneration outcomes to
the Company’s strategic objectives, and drive superior business performance and sustainable shareholder value creation. In
addition to the above elements, the senior leaders of Link Group, including the Executive KMPs, presently hold an estimated
5% of the Company’s share capital, which was acquired over a significant period of time prior to the IPO.
FY2017 was another strong year for the Link Group as we consolidated our position as a listed company and grew our
market capitalisation to position us in the S&P/ASX 100. Operating EBITDA, a key strategic measure for Link Group, was
$219 million and the gateway for STI payments was met.
Figure 6 demonstrates our strong performance and the associated STI outcomes. As the first LTI awards were granted in
FY2017, performance is not due to be tested until the end of FY2019.
Figure 6
$
Million
250
200
150
100
50
0
GROUP FINANCIAL PERFORMANCE VS AVERAGE STI OUTCOME
$190.6m
$219.0m
$102.7m
$123.8m
FY2016
FY2017
Operating EBITDA
Operating NPATA
Average STI
GATEWAY BASED ON OPERATING EBITDA TARGET OF $210 MILLION
% STI
achieved
110
105
100
95
90
85
80
TOTAL TARGET
REMUNERATION
INDIVIDUAL STI
TARGET
OPERATING
EBITDA
OUTCOME
(60%)
KPI OUTCOME
(40%)
INDIVIDUAL STI
AWARD
66
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Remuneration Report (continued)
Tables 12, 13 and 14 outline further detail of our performance against our strategic goals in FY2017.
Table 12: FY2017 STI Outcomes.
GATEWAY MET
STRATEGIC GOALS
EXECUTIVE KMP
OPERATING
EBITDA
DIVISIONAL
FINANCIAL
TRANSITION &
INTEGRATION
BUSINESS
DEVELOPMENT
OTHER23
TOTAL STI
ACHIEVED
John
McMurtrie
John
Hawkins
Suzanne
Holden
David
Geddes
Paul
Gardiner
Table 13: KPI Performance
Measure
Description
100%
100%
100%
80%
95%
Company
Financial
Performance
Divisional
Financial
Operating EBITDA and Operating NPATA performance continued our strong growth trajectory in
FY2017. Link Group reported Operating EBITDA was $219.0 million in FY2017, up from
$190.6 million in FY2016 and exceeding our target by 4%. Operating NPATA was $123.8 million in
FY2017, up from $102.7 million in FY2016.
Divisional financial performances are key drivers in achieving Operating EBITDA and Operating NPATA.
Fund Administration Operating EBITDA grew from $96.1 million to $118.1 million in FY2017, a result
of integration synergies tracking ahead of plan and higher than anticipated margins.
Corporate Markets Operating EBITDA declined from $56.9 million in FY2016 to $50.7 million in
FY2017 due to corporate actions revenue being down year-on-year and behind budget, which
impacted the divisional Operating EBITDA. Recurring Revenue was up 8% year-on-year due to new
business wins in FY2017 and the annualised impact of new business won in FY2016.
IDDS Operating EBITDA grew from $43.9 million in FY2016 to $55.0 million in FY2017, largely in part to
cross-selling new products and services to existing clients, as well as winning new business with
external clients.
Transition and
Integration
Due to our strategic focus on acquisitions and expansion, transition and integration performance
measures have been included in the STI plan.
These transition and integration performance measures included:
• the final migration of all Superpartners clients to its proprietary technology platform. Realisation
of efficiencies is ahead of forecast;
• transition of German clients onto a new registry platform is progressing in line with agreed project
plans; and
• transition and integration of White Outsourcing (now Link Fund Solutions) and Adviser Network, is on track.
All transitional performance measures were achieved during the financial year.
23. ‘Other’ strategic goals relate to operational performance and client satisfaction, succession planning and corporate governance KPIs relevant to Executive KMP role.
67
Annual Report 2017
1. Directors’ Report (continued)
Remuneration Report (continued)
Measure
Description
Business
Development
Business development through new clients, new services and acquisitions are key drivers of our
growth strategy. Key highlights included:
• the strategic acquisition of CAS, announced on 26 June 2017. The acquisition offers a platform
for sustainable growth in the UK and Europe and for Link Group to drive further efficiencies in
the business;
• Fund Administration: Link Group was successful in winning a new Fund Administration client,
Retirement Benefits Fund (RBF), a Tasmanian public sector fund. Link Group’s contract with
REST Super was extended until 31 December 2017 and is in advanced stages of negotiation in
respect of a new long-term contract;
• Corporate Markets: Link Group was successful in winning new business with Woolworths
Limited, Cochlear Limited, Autosports Limited, Myer Limited, Inghams Group Limited and Viva
Energy Australia Limited in Australia and New Zealand. Client wins in overseas markets include
HSBC in the UK and National Stock Exchange in India; and
• IDDS: Link Group won new business with Fuji Xerox, Rexel Australia, ESS Super and ME Bank. In
addition, IDDS (through its subsidiary, Link Digital Solutions Pty Limited) was successful in cross
selling new products and services to existing clients as demonstrated by sales of new innovative
mobile apps into the Fund Administration and Corporate Markets’ client bases.
During the financial year all individual Business Development targets were met.
Other
Other strategic KPIs varied by role, with key highlights including:
• delivery of strong operational performance and client satisfaction;
• succession planning; and
• execution of good corporate governance and compliance as a newly listed entity.
All additional strategic measures were achieved during the financial year.
Table 14: STI amounts awarded
Short-Term
Incentive Target
($)
Short-Term
Incentive
Achieved
(% of target)
Short-Term
Incentive
forfeited (%)
Short-Term
Incentive stretch
component
Short-Term
Incentive to be
paid in cash ($)
800,000
487,500
450,000
318,182
318,182
100
100
100
80
95
-
-
-
20
5
-
-
-
-
-
800,000
487,500
450,000
254,546
302,273
Executive KMP
John McMurtrie
John Hawkins
Suzanne Holden
David Geddes
Paul Gardiner
68
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Remuneration Report (continued)
Table 15 outlines the five-year performance of Link Group.
Table 15: Five-year performance of Link Group
Operating
EBITDA
($millions)24
Net Profit/
(loss) after tax
($millions)
Change in share
price to 30 June ($)
Declared
Dividends (cps)
2017
219.0
85.2
0.03
14.0
2016
190.6
42.5
1.80
8.0
2015
150.5
2014
140.0
3.3
(25.2)
N/A25
N/A24
N/A25
N/A24
2013
132.2
50.2
N/A25
N/A24
2.3 Actual cash remuneration received
Table 16 shows the actual cash remuneration paid or payable to Executive KMPs in FY2017 and FY2016. The information
in table 16 differs from the statutory information in section 2.4 (which is based on the Australian Accounting Standards
standards) as table 16 includes the realised value of deferred STI (in FY2017, 50% of the FY2016 deferred STI was realised)
and does not include the accounting value of equity that was expensed, but not realised, under the LTI.
Table 16: Actual remuneration received in FY2017 and FY2016
Executive KMP
John McMurtrie
John Hawkins26
Suzanne Holden
David Geddes
Paul Gardiner
Year
Fixed Remuneration
$
Current year STI
$
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
780,384
792,759
630,384
614,783
580,384
586,869
480,384
480,692
488,696
489,588
800,000
320,000
487,500
475,000
450,000
150,000
254,546
125,000
302,273
125,000
Cash impact of
Deferral (from
FY2016)
$
Total
remuneration
$
160,000
1,740,384
0
1,112,759
97,500
1,215,384
0
1,089,783
75,000
1,105,384
0
62,500
0
62,500
0
736,869
797,430
605,692
853,469
614,588
24. FY2013-2015 Operating EBITDA is presented on a Pro forma basis
25. Not applicable: Link Administration Holdings Limited listed on the ASX on 27 October 2015
26. John Hawkins received a one-off IPO-related bonus of $280,000 in addition to his short-term incentive bonus of $195,000 for the financial year ended 30 June 2016.
69
Annual Report 2017 1. Directors’ Report (continued)
Remuneration Report (continued)
2.4 Executive KMP statutory remuneration table
Table 17 presents the remuneration for Executive KMPs for FY2017, and comparative information for FY2016. The
information presented in table 17 has been prepared in accordance with the Australian Accounting Standards and
accordingly differs from the information presented in the Actual Remuneration received in table 16 in section 2.3.
Table 17: Executive KMP Statutory remuneration
Short-term benefits
Post-
employment
benefits
Other
long-term
benefits
Salary
and fees
$
STI28
$
Non-
monetary
benefits
$
Super-
annuation
benefits
$
Long
service
leave
$
LTI
$
Total
$
Name
Year
Proportion of
remuneration
related to
performance
Value of
PSRs as a
proportion
of remuner-
ation
John
McMurtrie
2017
780,384
933,333
12,697
19,616
2016
792,759
453,333
7,135
34,308
-
-
195,333 1,941,363
48%
10%
- 1,287,535
35%
-
John
Hawkins27 2017
630,384
568,750
12,892
19,616
11,705
103,120 1,346,467
42%
8%
2016
614,783
556,250
10,075
33,908
25,084
- 1,240,100
22%
-
Suzanne
Holden
David
Geddes
Paul
Gardiner
2017
580,384
512,500
12,639
19,616
12,492
95,187 1,232,818
42%
8%
2016
586,869
212,500
10,050
19,308
13,317
-
842,044
25%
-
2017
480,384
306,629
13,116
34,616
-
67,304
902,049
34%
7%
2016
480,692
177,083
11,502
35,000
6,926
-
711,203
25%
-
2017
488,696
354,356
13,369
19,616
9,004
67,304
952,345
37%
7%
2016
489,588
177,083
11,337
22,308
21,270
-
721,586
25%
-
Total
2017 2,960,232 2,675,568
64,713
113,080
33,201 528,248 6,375,042
42%
8%
2016 2,964,691 1,576,249
50,099
144,832
66,597
- 4,802,468
33%
-
27. John Hawkins received a one-off IPO-related bonus of $280,000 in addition to his short-term incentive bonus of $276,250 for FY2016.
28. All STIs are subject to Board approval upon finalisation of the financial statements and include a deferral component from FY2016.
70
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Remuneration Report (continued)
3. Detailed remuneration information
3.1 Detail of Executive KMP remuneration framework
Table 18 outlines the detail of the FY2017 STI and LTI arrangements.
Table 18: FY2017 approach
STI
Opportunity
The STI delivers a cash payment, subject to the achievement of annual targets.
The target STI opportunity for Executive KMPs represents an opportunity to earn 28% to 30% of
total target remuneration. Target STI ranges from 64% to 100% of fixed remuneration.
The on-target STI may be increased if the Company achieves at least 110% of the Operating
EBITDA target.
Executive KMPs have the opportunity to earn up to 200% of their target STI where the Operating
EBITDA is 150% of target. This represents the maximum STI.
A sliding scale applies between 110% and 150% achievement. No additional payment is made
between 100% and less than 110% achievement.
A minimum level of Operating EBITDA must be achieved before any STI is paid. This level is set
by the Board annually once the Budget is approved.
Allocation of the STI is by achievement of a scorecard of relevant corporate, business unit (where
relevant) and individual measures aligned to our strategic objectives comprising a combination of
Operating EBITDA, Operating NPATA and individual strategic goals.
Strategic goals vary by role and may include objectives such as successful acquisition
execution, transition and integration of acquisitions, new client wins, delivery of new products,
and revenue targets.
For FY2017 the weighting of financial versus non-financial goals was generally around 60% to
Operating EBITDA and 40% to strategic goals.
From FY2018, the Board will have the ability to claw back STI payments in circumstances where there
has been a material misrepresentation of the financial outcomes on which the payment had been
assessed and/or the individual has acted fraudulently or dishonestly or is in material breach of his or
her obligations to Link Group.
Gateway
Performance
measures
Clawback
LTI – Omnibus Equity Plan
Opportunity (grant
value at maximum)
The maximum grant value of LTI opportunities represents 28% to 40% of the total target remuneration
package for Executive KMPs, or 64% to 133% of fixed remuneration, at face value.
Performance period
and holding lock
Performance is measured over a three-year period. Awards lapse at the end of three years to the
extent performance measures are not met. There is no retesting of awards.
Award vehicle
One-half of any vested award is available to the participant at the end of the performance period.
A holding lock applies to the remaining 50%; one-half of which is then available after a further one
and two years respectively. Shares are held by a trustee while the holding lock applies.
PSRs. No dividends are paid during the performance period. Participants are entitled to receive
dividends and to exercise voting rights attaching to those shares post-vesting while the shares
are subject to the holding lock.
71
Annual Report 2017
1. Directors’ Report (continued)
Remuneration Report (continued)
Performance
measures
For FY2017 grants under the LTI, the following performance measures apply:
EPS (75%) - EPS is calculated by dividing the Company’s Operating NPATA before significant
items by the undiluted weighted average number of shares on issue throughout the Performance
Period. The Board has discretion to include or exclude items from the calculations. Operating
NPATA is a measure consistently used internally and by which both Management and the market
tracks Link Group’s performance. While an internal measure, it receives assurance at each level
within the business. PSRs are subject to a compound annual growth rate in EPS of between a
threshold target of 7% and a stretch target of 12%.
The vesting schedule for the EPS portion is as follows:
EPS performance outcome
Percentage of performance rights that will vest
Below 7%
At 7%
0%
50%
Between 7% and 12%
Pro-rata between 50% and 100%
At 12%
100%
TSR (25%) - relative to the constituents of the S&P/ASX 200, excluding materials, utilities,
industrials and energy companies. Our starting comparator group, before consideration of any
corporate actions during the vesting period, is 128 companies for the FY2017 grant.
TSR takes into account the change in Link Group’s share price over the relevant performance
period, as well as the dividends paid (dividends are assumed to be reinvested in Link Group
shares). Section 1 of this Remuneration Report outlines the changes to the TSR comparator
group for FY2018.
The vesting schedule is as follows:
Link Group’s relative
TSR ranking
Below 50th percentile
At 50th percentile
Percentage of performance
rights that will vest
0%
50%
Above 50th and below 75th percentile
Pro-rata between 50% (at 50th percentile)
and 100% (at 75th percentile)
At or above 75th percentile
100%
Both the EPS and TSR measures support the aim of the plan in supporting our growth and
innovation strategy and driving the creation of sustainable shareholder value.
Our key focus is on delivering earnings growth to our shareholders. Link Group acknowledges
that TSR performance relative to a basket of constituents is important to some investors.
However, in the absence of a sizeable group of comparable industry peers, we also acknowledge
that comparison to a broad S&P/ASX index constituents group can give arbitrary results that are
not reflective of the Company’s performance, hence the lower weighting on TSR.
Change of control
The Board has the absolute discretion to determine that some or all of the unvested awards may
vest on a change of control.
As described in section 1 of this Remuneration Report, for grants from FY2018, the LTI plan rules
will be amended in respect of a change of control.
72
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Remuneration Report (continued)
Cessation of
employment
Where a participant ceases employment a result of a ‘Qualifying Event’, the Board may, in its
absolute discretion, determine that some or all unvested awards will vest at the time of the
cessation of employment or another date determined by the Board.
Remuneration mix
(percentage of total
remuneration)
FY2017
As described in Section 1 of this Remuneration Report, for grants from FY2018, the LTI plan rules
will be amended in respect of cessation of employment for a ‘Qualifying Reason’.
Executive KMP
John McMurtrie
John Hawkins
Suzanne Holden
David Geddes
Paul Gardiner
Total Fixed
Remuneration
%
Target STI
Cash
%
LTI Grant
%
Total Variable
Remuneration
%
30%
40%
40%
44%
44%
30%
30%
30%
28%
28%
40%
30%
30%
28%
28%
70%
60%
60%
56%
56%
Clawback
Hedging policy
Minimum
shareholding
requirement
Under the Omnibus Equity Plan, the Board has the ability to claw back equity (whether vested or
not) in circumstances where the individual has acted fraudulently or dishonestly or is in material
breach of his or her obligations to Link Group.
Executive KMPs are not permitted to hedge unvested award nor awards subject to a
holding lock.
Executive KMPs are required to hold a minimum of one year’s annual fixed remuneration
within three years of the date they first become a participant in the Omnibus Equity Plan. All
Executive KMPs have significant Link Group shareholdings acquired prior to the IPO, and meet
the minimum shareholding requirement.
3.2 Key terms of employment contracts
The key employment terms for the Executive KMPs are summarised in table 19. All Executive KMPs have open-ended contracts.
Table 19: Employment terms
Employment term and leave entitlement
Notice period
Executive KMP
Annual leave entitlement
Company and Employee
John McMurtrie
John Hawkins
Suzanne Holden
David Geddes
Paul Gardiner
6 weeks
5 weeks
4 weeks
4 weeks
4 weeks
12 months
12 months
12 months
6 months
12 months
73
Annual Report 2017
1. Directors’ Report (continued)
Remuneration Report (continued)
All employment contracts contain:
• total remuneration packages (including mandatory superannuation contributions), plus car parking and any related FBT liability;
• the opportunity to participate in a short-term incentive plan;
• eligibility to participate in the long-term incentive plan;
• express provisions protecting Link Group’s confidential information and intellectual property; and
• post-employment restrictions covering non-competition, non-solicitation of clients and non-poaching of employees within
Australia for a maximum of 12 months.
Under the terms of all employment contracts, either party is entitled to terminate employment by giving 12 months’ written notice.
Link Group may, at its election, make a payment in lieu of that notice based on the Executive KMP’s base remuneration package.
Link Group can also terminate the employment contract on 12 months’ written notice where an Executive KMP becomes
incapacitated by illness or injury for an accumulated period of more than six months in any 12-month period or where Link
Group is advised by an independent medical officer that, due to physical or mental ill health, the relevant individual is unable
to perform their duties on a permanent basis. Link Group may also terminate employment immediately and without further
payment where the employee commits serious misconduct and on other similar grounds.
Any termination payments are paid within applicable legislative requirements.
3.3 Non-Executive Director fees and statutory remuneration table
Non-Executive Director fee policy
The pool for payment of Non-Executive Directors’ fees is capped by the Company at $2 million per annum. Non-Executive
Directors’ fees were set at the time of IPO, with reference to relevant market data. The Board reviews fees annually and
seeks benchmarking data using the same comparator groups used for the Executive KMP, being Australian-listed companies
of similar size and/or industry. In FY2017, consideration was given to S&P/ASX 200 entities with market capitalisation
50% to 200% of Link Group’s 12-month average market capitalisation and the 25 entities ranked above and below Link
Group’s 12-month average market capitalisation.
Non-Executive Directors receive an annual fee for Board membership and for service as the Chair or a Member of Board
Committees. Non-Executive Directors do not participate in any variable or incentive plans and do not receive retirement
benefits other than superannuation.
There was no change to Non-Executive Director fees in FY2017.
The Board intends to appoint an additional Non-Executive Director based in the United Kingdom, subject to the completion of
the CAS transaction.
Non-Executive Director fees are set out in table 20:
Table 20: Non-Executive Director fees29
Base fees
Committee
Risk and Audit Committee
Human Resources and Remuneration Committee
Technology and Innovation Committee
Nomination Committee
Chair fee
$320,000
$35,000
$28,000
$28,000
-
Member fee
$160,000
$17,500
$14,000
$14,000
-
29. Amounts are exclusive of GST and inclusive of any required superannuation payments (where applicable).
74
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Remuneration Report (continued)
Fees paid to Non-Executive Directors during FY2017 and FY2016 were:
Table 21: Statutory remuneration for Non-Executive Directors
Name
Michael Carapiet
Cameron Blanks
Glen Boreham
Peeyush Gupta
Paul McCullagh
Anne McDonald
Sally Pitkin
Fiona Trafford-Walker
Total
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Fees
$
355,668
278,419
28,227
112,910
202,000
141,556
98,208
-
31,314
124,846
155,414
-
193,893
143,943
187,968
146,331
1,252,692
948,005
Superannuation
benefits
$
-
-
2,682
10,726
-
10,726
9,330
-
2,975
10,726
14,764
-
11,607
10,726
21,032
10,726
62,390
53,630
Total
$
355,668
278,419
30,909
123,636
202,000
152,282
107,538
-
34,289
135,572
170,178
-
205,500
154,669
209,000
157,057
1,315,082
1,001,635
Minimum shareholding requirements
The Board has adopted a Minimum Shareholding Policy to assist in aligning the interests of all Directors with our shareholders.
Each Non-Executive Director must hold a minimum number of shares, equivalent to one times their annual base fee (not
including Committee membership or the higher fee for the Chair). The minimum shareholding requirement must be met within
three years after the date of their appointment. At the time of publication of this Report, all Non-Executive Directors meet the
minimum shareholding requirement.
75
Annual Report 2017 1. Directors’ Report (continued)
Remuneration Report (continued)
3.4 Remuneration governance
The Human Resource and Remuneration Committee (the Committee) assists the Board with the oversight and monitoring of
the development and implementation of management’s Human Resources strategy, supporting policies and practices for Link
Group employees and Directors.
Figure 7 outlines the relationship between the Board, Committee, management and external advisors. The Committee
comprises independent Non-Executive Directors appointed by the Board.
Figure 7
BOARD
Oversees Non-Executive Director and Executive KMP remuneration reviews and approves
recommendations from the Human Resources & Remuneration Committee
HUMAN RESOURCES & REMUNERATION COMMITTEE
Is responsible for ensuring the:
• alignment of remuneration policies and practices with the human
resources strategy;
• attraction and retention of capable and committed employees and
Directors;
• continuing development of a ‘pay for performance’ culture and
oversight of overall organisational culture and risk; and
• alignment of Executive KMP remuneration to sustainable
shareholder returns, and the Company’s strategic and operational
imperatives.
THE COMMITTEE
• makes recommendations to the Board on the Company’s
remuneration strategy and framework;
• makes recommendations on Non-Executive Director remuneration;
• reviews and approves Executive KMPs’ terms of employment; and
• considers recommendations from management.
EXTERNAL ADVISORS
• provide independent
advice to the Committee
and/or management on
remuneration market
data, market practice
and other remuneration
related matters; and
• provide independent
advice to the Committee
on management
proposals.
MANAGEMENT
Makes recommendations to the Committee on the Company’s remuneration strategy and framework
During FY2017, Link Group received external advice from EY related to market remuneration benchmarking, market remuneration
insights around remuneration structures and assistance with the development of this Remuneration Report.
No remuneration recommendations were provided by any external advisors.
76
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Remuneration Report (continued)
3.5 Additional required disclosures
Grants of share rights to Executive KMPs at 30 June 2017
Table 22 outlines the grant of share rights for Executive KMPs in FY2017.
Table 22: Performance Share Rights
Name
Share
rights
granted in
FY2017
Number of
performance share
rights as at 30 June
2017
Grant
date
Performance
period
Expiry
date
Exercise
price
John McMurtrie
18.11.16
127,992
127,992
1.07.16 – 30.06.19
18.11.23
John Hawkins
15.09.16
58,496
Suzanne Holden
15.09.16
53,996
David Geddes
15.09.16
38,179
Paul Gardiner
15.09.16
38,179
58,496
53,996
38,179
38,179
1.07.16 – 30.06.19
15.09.23
1.07.16 – 30.06.19
15.09.23
1.07.16 – 30.06.19
15.09.23
1.07.16 – 30.06.19
15.09.23
Nil
Nil
Nil
Nil
Nil
No performance share rights lapsed during the year.
Movements in shareholdings
The movement during the reporting period in the number of ordinary shares in Link Administration Holdings Limited held,
directly, indirectly or beneficially, by each KMP, including their related parties, is set out in table 23.
Table 23: Shareholding movement
Balance at
1 July 2016
Received on
exercise of
options / rights
Purchased Disposed
Balance at
30 June 2017
Balance post
entitlement
offer30
Michael Carapiet
1,008,450
Cameron Blanks
Glen Boreham
Peeyush Gupta
42,623
70,643
-
Paul McCullagh
186,698
Anne McDonald
Sally Pitkin
Fiona Trafford-Walker
-
39,245
12,590
John McMurtrie
12,668,180
John Hawkins
3,318,734
Suzanne Holden
356,167
David Geddes
1,098,800
Paul Gardiner
765,280
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,397
(42,623)
-
-
-
(186,698)
19,500
5,500
8,356
20,000
-
-
-
-
-
1,008,450
1,375,160
-
70,643
31,397
-
19,500
44,745
20,946
-
96,332
42,815
-
26,591
61,017
28,563
12,688,180
13,731,830
33,500
(160,000)
3,192,234
3,379,936
-
-
-
-
356,167
356,167
(698,000)
(370,000)
400,000
545,455
395,280
534,027
30. Shares acquired in July 2017 as part of the Link Group Entitlement Offer (as announced 26 June 2017).
77
Annual Report 2017
1. Directors’ Report (continued)
Remuneration Report (continued)
Other Information
Loans to Key Management Personnel and their related parties
There were no loans to KMP during the year.
Other transactions with Key Management Personnel
A number of Link Group’s Non-Executive Directors are Directors of other entities, which will, from time to time, transact with
Link Group. The terms and conditions of the transactions with these entities were no more favourable than those available,
or which might reasonably be expected to be available, on similar transactions to non-key management personnel-related
entities on an arm’s length basis. Those transactions are the provision of Link Group services to companies of which some of
the Non-Executive Directors were Directors, such as registry services.
From time to time, Directors of Link Group, or their related entities, may purchase services from Link Group. These
purchases are on the same terms and conditions as those entered into by other Link Group employees or customers and are
engaged on an arm’s length basis. These services relate to some Non-Executive Directors being members of superannuation
funds to which Link Group provides services.
Other Information
Significant Changes in State of Affairs
In the opinion of the Directors there were no significant changes in the state of the affairs of the Company or Link Group that
occurred during the financial year ended 30 June 2017.
Events Subsequent to Reporting Date
On 26 June 2017, Link Group announced that it had entered into a binding agreement to acquire Capita Asset Services
(CAS) from Capita plc for £888 million ($1,493 million). Completion of the acquisition is subject to mandatory regulatory
approvals and is expected to complete by 31 December 2017. CAS is a business offering a broad range of financial and
administrative services across the UK and Europe and is a strong strategic fit aligned to Link Group’s key business growth
drivers.
Funding for the acquisition will be via a combination of a fully underwritten entitlement offer to raise additional capital of $883
million, cash and available debt facilities including a new £485 million acquisition debt facility. The entitlement offer was
successfully completed in July 2017 with the issue of 130,839,343 ordinary shares. On 26 June 2017, Link Group entered
into a foreign exchange forward contract to hedge against movement in the Australian Dollar/Pound Sterling exchange rate
in the period between the entitlement offer and settlement of the acquisition. The financial impact of the forward contract is
discussed in Note 16 of the financial statements.
In July 2017, Link Group used some of the proceeds from the successful entitlement offer to fully repay all of the
$313.5 million non-current interest-bearing loans. The existing facilities remain available to Link Group in accordance with
the terms described in Note 13 of the financial statements and may be redrawn upon completion of the CAS acquisition or as
otherwise required throughout the remainder of the facility term.
Other than the matters described above and elsewhere in the Directors’ Report, there has not arisen in the interval between
the end of the financial year and the date of this Report any item, transaction or event of a material and unusual nature
likely, in the opinion of the Directors of the Company, to affect significantly the operations of Link Group, the results of those
operations, or the state of affairs of Link Group, in future financial years.
78
Link Group – Connecting people & technology 1. Directors’ Report (continued)
Other Information (continued)
Likely Developments
Further information about the likely developments in the operations of Link Group and the expected results of those
operations in future financial years has not been included in this report because disclosure of the information would be likely
to result in unreasonable prejudice to Link Group.
Environmental Regulation
Link Group’s operations are not subject to any significant environmental regulations under either Commonwealth or State
legislation. The Board believes Link Group has adequate systems in place for the management of its environmental
requirements and is not aware of any breach of those environmental requirements as they apply to Link Group. A
Sustainability Report that communicates Link Group’s approach to dealing with environmental regulations has been approved
by the Board and made available on the Link Group website at www.linkgroup.com.
Indemnification and Insurance
Indemnification and insurance of Directors and Officers of the Company and auditors comprise:
Indemnification: The Company has agreed to indemnify, to the extent permitted by the Corporations Act 2001, each
Director and officer in respect of certain losses and liabilities (including all reasonable legal expenses) which the Director or
officer may incur as a result of, or by reason of being a Director or officer of Link Group or a related body corporate.
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
Company or any related entity against a liability incurred by the auditor.
Insurance: In accordance with the provisions of the Corporations Act 2001, the Company has a Directors’ and officers’
liability policy which covers all Directors and officers of Link Administration Holdings Limited and its Controlled Entities. The
terms of the policy specifically prohibit disclosure of details of the amount of the insurance cover and the premium paid.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company
or any related entity.
Corporate Governance
The Board is committed to implementing the highest standards of corporate governance appropriate to Link Group, taking
into account the Company’s size, structure and nature of its operations. Link Group’s Corporate Governance Statement
reports against the 3rd edition of the ASX Corporate Governance Council’s Principles and Recommendations. The Corporate
Governance Statement is approved by the Board and is available on the Link Group website at www.linkgroup.com.
Rounding Off
The Company is of a kind referred to in ASIC Rounding Instrument 2016/191 dated 1 April 2016, and in accordance with that
Instrument, amounts in the financial statements and Directors’ Report have been rounded off to the nearest thousand dollars,
unless otherwise stated.
79
Annual Report 2017 1. Directors’ Report (continued)
Other Information (continued)
Non-audit services
During the year KPMG, Link Group’s auditor, performed certain other services in addition to the audit of the financial
statements amounting to $615,458 (2016: $1,685,700). The Board has considered the non-audit services provided
during the year by the external auditor and, in accordance with written advice provided by resolution of the Risk and Audit
Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and
did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services were subject to the corporate governance procedures adopted by Link Group and have been
reviewed by the Risk and Audit Committee to ensure they do not impact 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 Link Group, acting as an advocate for Link Group or
jointly sharing risks and rewards.
Details of the amounts paid to KPMG for audit and non-audit services provided during the year are disclosed in Note 25 to
the financial statements.
Lead Auditor’s Independence Declaration
The Lead Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 81 and forms part of the Directors’ Report for the year ended 30 June 2017.
Signed in accordance with a resolution of the Board of Directors.
Dated 18 August 2017 at Sydney
Michael Carapiet
Chair
John McMurtrie
Managing Director
80
Link Group – Connecting people & technology
1. Directors’ Report (continued)
Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Link Administration Holdings Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Link Administration
Holdings Limited for the financial year ended 30 June 2017 there have been:
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
ii.
i.
To the Directors of Link Administration Holdings Limited
KPM_INI_01
PAR_NAM_01
PAR_SIG_01
I declare that, to the best of my knowledge and belief, in relation to the audit of Link Administration
Holdings Limited for the financial year ended 30 June 2017 there have been:
PAR_DAT_01
PAR_POS_01
PAR_CIT_01
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
i.
ii.
KPMG
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
Andrew Yates
Partner
Sydney
KPMG
18 August 2017
Andrew Yates
Partner
Sydney
18 August 2017
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.
Liability limited by a scheme approved under
Professional Standards Legislation.
81
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.
Liability limited by a scheme approved under
Professional Standards Legislation.
Annual Report 2017
2. Financial Statements
Consolidated statement of profit or loss and other comprehensive income
for the financial year ended 30 June 2017
Revenue – rendering of services
Expenses:
Employee expenses
Occupancy expenses
IT costs
Administrative and general expenses
IPO related expenses
Acquisition and capital management related expenses
Depreciation expense
Intangibles amortisation expense
Gain on financial assets held at fair value through profit and loss
Finance income
Finance costs
Net finance costs
Profit before tax
Tax expense
Profit for the year
Note
3
2017
$’000
2016
$’000
779,976
775,896
(350,907)
(359,579)
(31,281)
(77,110)
(37,558)
(83,826)
(113,200)
(127,307)
-
(22,040)
(16,929)
(873)
(589,427)
(631,183)
(13,278)
(45,276)
(58,554)
5,567
776
(14,834)
(14,058)
123,504
(38,336)
85,168
(11,242)
(53,758)
(65,000)
18,057
946
(38,828)
(37,882)
59,888
(17,432)
42,456
10
11
14
5(a)
Other comprehensive income Items that will never be reclassified to
profit or loss:
Defined benefit re-measurement
(43)
(91)
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations, net of tax
Net change in fair value of cash flow hedge, net of tax
Other comprehensive income, net of tax
(774)
-
(774)
(817)
1,145
2,886
4,031
3,940
Total comprehensive income for the year
84,351
46,396
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to
the financial statements.
82
Link Group – Connecting people & technology 2. Financial Statements (continued)
Consolidated statement of profit or loss and other comprehensive income
for the financial year ended 30 June 2017 (continued)
Profit attributable to
Owners of the Company
Non-controlling interest
Profit for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income for the year
Earnings per share
Basic earnings per share
Diluted-earnings per share
Note
2017
$’000
84,632
536
85,168
83,857
494
84,351
2016
$’000
42,069
387
42,456
46,039
357
46,396
Cents per
Share
Cents per
Share31
4
4
22.63
22.60
12.11
12.11
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to
the financial statements.
31. Prior year comparative earnings per share have been restated due to the entitlement offer announced on 26 June 2017. See Note 4.
83
Annual Report 2017 2. Financial Statements (continued)
Consolidated statement of financial position as at 30 June 2017
Current assets
Cash and cash equivalents
Trade and other receivables
Derivative financial assets
Other assets
Current tax assets
Total current assets
Non-current assets
Investments
Plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Provisions
Employee benefits
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Provisions
Employee benefits
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity attributable to equity holders of the parent
Non-controlling interest
Note
12(b)
6
16
16
10
11
5(d)
7
13
8
9
7
13
8
9
5(d)
17
18
19
30 June 2017
$’000
30 June 201632
$’000
18,162
98,691
2,413
17,079
163
136,508
138,689
66,023
850,146
42,437
130
1,097,425
1,233,933
101,071
241
15,358
39,195
28,711
184,576
47,833
312,892
8,121
6,781
56,379
432,006
616,582
617,351
689,372
(77,772)
4,999
616,599
752
30,153
95,823
-
13,324
30
139,330
67,019
47,284
845,162
55,844
268
1,015,577
1,154,907
87,925
198
46,856
38,627
1,074
174,680
22,534
291,922
15,462
7,723
60,524
398,165
572,845
582,062
689,004
(112,417)
4,999
581,586
476
Total equity
617,351
582,062
The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements.
32. Prior year comparatives have been restated due to amendment of provisional acquisition accounting. See Note 21.
84
Link Group – Connecting people & technology
2. Financial Statements (continued)
Consolidated statement of changes in equity as at 30 June 2017
Share
capital
$’000
Reserves
$’000
Retained
earnings
$’000
Non-
controlling
interest
$’000
Total
$’000
Total
$’000
Balance at 1 July 2016
689,004
(112,417)
4,999
581,586
476
582,062
Net profit
-
84,632
84,632
536
85,168
Defined benefit re-measurement
Foreign currency translation differences,
net of tax
Total other comprehensive income,
net of income tax
Total comprehensive income for the year
Transfer from retained earnings to
reserves
Transactions with shareholders
Dividends paid
Equity settled share based payments
Acquisition of non-controlling interest in a
subsidiary
Change in estimate of tax associated with
equity raising costs
Total contributions by and
distributions to owners
-
-
-
-
-
-
-
-
368
(43)
(732)
(775)
-
-
-
(43)
(732)
(775)
(775)
84,632
83,857
84,632
(84,632)
-
-
(42)
(42)
494
-
(43)
(774)
(817)
84,351
-
(50,372)
1,170
(10)
-
368
(49,212)
-
-
-
-
-
(50,372)
(225)
(50,597)
1,170
(10)
368
-
7
-
1,170
(3)
368
(48,844)
(218)
(49,062)
Balance at 30 June 2017
689,372
(77,772)
4,999
616,599
752
617,351
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
85
Annual Report 2017
2. Financial Statements (continued)
Consolidated statement of changes in equity as at 30 June 2017 (continued)
Balance at 1 July 2015
202,481
(145,696)
(7,761)
49,024
Share
capital
$’000
Reserves
$’000
Retained
earnings
(accumulated
losses)
$’000
Non-
controlling
interest
$’000
Total
$’000
Total
$’000
49,143
42,456
(91)
2,886
119
387
-
-
-
(91)
2,886
1,175
3,970
42,069
42,069
(91)
2,886
-
-
-
-
1,175
(30)
1,145
3,970
(30)
3,940
3,970
42,069
46,039
357
46,396
29,309
(29,309)
-
-
-
-
-
-
-
-
486,523
486,523
-
-
-
-
486,523
486,523
-
-
-
-
486,523
486,523
Net profit
Defined benefit re-measurement
Net change in fair value of cash flow
hedge, net of tax
Foreign currency translation
differences, net of tax
Total other comprehensive income,
net of income tax
Total comprehensive income for
the year
Transfer from retained earnings to
reserves
Transactions with shareholders
Issue of share capital, net of costs of
raising capital and tax
Total contributions by and
distributions to owners
Balance at 30 June 2016
689,004
(112,417)
4,999
581,586
476
582,062
The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements.
86
Link Group – Connecting people & technology
2. Financial Statements (continued)
Consolidated statement of cash flows for the financial year ended 30 June 2017
Cash flows from operating activities
Cash receipts in the course of operations
Cash payments in the course of operations
Business combination/acquisition costs paid
Integration costs paid
Client migration costs paid
IT business transformation costs paid
Interest received
Dividends received
Borrowing costs paid
Income taxes paid
Net cash provided by operating activities
12(a)
Cash flows from investing activities
Payments for plant and equipment
Payments for software
Acquisition of subsidiary, net of cash acquired
Payments for investments
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds from the issue of shares and conversion of partly paid shares
IPO related costs
Dividends paid to owners of the Company
Dividends paid to non-controlling interest
Proceeds from transactions with non-controlling interest
Note
2017
$’000
201633
$’000
856,998
845,683
(640,452)
(654,547)
216,546
(7,168)
(17,334)
(30,587)
(536)
226
386
(10,846)
(2,431)
148,256
(11,046)
(25,053)
(24,342)
(68,512)
(128,953)
98,000
(77,696)
-
-
(50,372)
(225)
33
191,136
(1,156)
(9,671)
(40,224)
(7,681)
434
296
(28,638)
(1,593)
102,903
(15,295)
(24,072)
(7,111)
(14,599)
(61,077)
358,380
(861,425)
499,738
(40,441)
-
-
-
Net cash used in financing activities
(30,260)
(43,748)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the financial year
12(b)
(10,957)
30,153
(1,034)
18,162
(1,922)
31,835
240
30,153
The consolidated statement of financial cash flows is to be read in conjunction with the notes to the financial statements.
33. Prior year comparative cash payments in the course of operations have been reduced by $58,732,000 and reclassified as business combination/acquisition,
integration, client migration and IT business transformation costs paid because it more accurately reflects the nature of Link Group’s cash flows from operating
activities. The reclassification had no impact on net cash provided by operating activities.
87
Annual Report 2017 3. Notes to the Financial Statements
Preparation of this Report
1. General Information
The consolidated financial statements of Link Group as at and for the financial year ended 30 June 2017 comprise the
Company and its subsidiaries and Link Group’s interest in associates and jointly controlled entities. Link Administration
Holdings Limited (the Company) is a company incorporated and domiciled in Australia. The Company’s registered office and
principal place of business is Level 12, 680 George Street, Sydney NSW 2000, Australia. Link Group is a for-profit entity.
Link Group is a technology-enabled provider of outsourced administration services for superannuation fund administration,
corporate markets and related value-added services including fund administration, registry services, data management,
analytics, digital communication and stakeholder education and advice.
2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements are general purpose financial statements which have been prepared in accordance with
Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act
2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the
International Accounting Standards Board (IASB). The consolidated financial statements have been prepared on a going-
concern basis. The Directors of Link Administration Holdings Limited consider it probable that Link Group will continue to
fulfil all obligations as and when they fall due for the foreseeable future and accordingly consider that Link Group’s financial
statements should be prepared on a going-concern basis.
Link Group had positive cash flows from operating activities for the financial year ended 30 June 2017 and is forecasting
positive operating cash flows in the 2018 financial year. Link Group also has undrawn facilities that, if required, will enable
Link Group to fulfil its obligations as and when they fall due. The deficiency of current assets over current liabilities is a result
of Link Group using cash generated from operations to repay non-current interest-bearing loans during the year, and in
addition, to fund business combinations (see Note 21) and acquisition of other investments (see Note 16).
The consolidated financial statements were approved by the Board of Directors on 18 August 2017.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis except for financial instruments designated at fair
value through profit or loss, which are measured at fair value.
(c) Functional and presentation currency
These consolidated financial statements are presented in Australian Dollars, which is the Company’s functional currency and
the functional currency of the majority of Link Group entities.
(d) Use of estimates and judgements
Preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised and in any future periods affected.
88
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Preparation of this Report (continued)
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the financial statements, are disclosed in the following notes to the financial statements:
• Note 5 (e) – Utilisation of tax losses;
• Note 8 – Provisions;
• Note 11 – Key assumptions in impairment testing for cash generating units (CGU) containing goodwill;
• Note 16 – Fair value of level 3 financial instruments;
• Note 20 – Share-based payments; and
• Note 21 – Business combinations.
(e) Changes in accounting policies
Link Group has consistently applied the same accounting policies to all periods presented in these consolidated financial statements.
There were no new standards or amendments to standards that Link Group was required to adopt during the financial year.
(f) Foreign currency
(i) Foreign currency transactions
Transactions, assets, and liabilities in foreign currencies are translated to the respective functional currencies of Link Group
entities using the following applicable exchange rate:
Foreign currency amount
Transactions
Monetary assets and liability
Non-monetary assets and liability measured at fair value
Applicable exchange rate
Date of transaction
Reporting date
Date fair value is determined
Foreign currency differences arising on translation are recognised in profit or loss.
(ii) Foreign operations
The assets and liabilities of foreign operations are translated to Australian Dollars at the following applicable exchange rates:
Foreign currency amount
Asset and liabilities
Income and expenses
Applicable exchange rate
Reporting date
Date of transaction
On consolidation, foreign exchange differences arising from the translation of any net investment in foreign entities are
recognised in other comprehensive income and presented in equity in the Foreign Currency Translation Reserve. Foreign
exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of
which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation
and are recognised in other comprehensive income and presented in equity in the Foreign Currency Translation Reserve.
(g) Rounding off
The Company is of a kind referred to in ASIC Rounding Instrument 2016/191 dated 1 April 2016. In accordance with
that Instrument, all financial information presented in Australian Dollars has been rounded to the nearest thousand unless
otherwise stated.
89
Annual Report 2017
3. Notes to the Financial Statements (continued)
Operating results
3. Operating segments
Link Group has three reportable segments, as described below, which are Link Group’s key divisions. All of the divisions
offer different products and services and are managed separately because they require different technology and business
strategies to service their respective markets and comply with relevant legislative or other requirements. Financial information
for each division is provided regularly to Link Group’s Managing Director (the chief operating decision maker). The following
summary describes the operations in each of Link Group’s reportable segments:
• Fund Administration – provides administration services to superannuation funds. Link Group provides a fully
integrated platform solution to its clients, covering all major front, middle and back office administration functions.
• Corporate Markets – provides a comprehensive and integrated corporate market offering that connects issuers with
their stakeholders. The division’s key services include shareholder management and analytics, stakeholder engagement,
share registry, employee share plans and company secretarial.
• Information, Digital and Data Services – is the technology hub of Link Group and a key driver of innovation.
Information, Digital and Data Services provides core services of development and maintenance of proprietary IT systems
and platforms, and value-added services of data analytics, digital solutions and digital communications. This division
supports Fund Administration, Corporate Markets and a number of external clients.
90
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Operating results (continued)
Segment revenue
Fund Administration
Corporate Markets
Information, Digital and Data Services
Total segment revenue
Eliminations
Total revenue
Operating EBITDA
Fund Administration
Corporate Markets
Information, Digital and Data Services
Total Segment Operating EBITDA
Head Office
Total Operating EBITDA
Significant items
Business combination/acquisition costs
Integration costs
Client migration costs
IT business transformation
Total significant items
IPO related expenses
Depreciation expense
Intangibles amortisation expense – non-acquisition related
Intangibles amortisation expense – acquisition related
Gain on financial assets held at fair value through profit and loss
Finance income
Finance expense
Profit before tax
Income tax expense
Net profit after tax
2017
$’000
2016
$’000
562,348
198,420
215,902
976,670
561,933
197,506
206,538
965,977
(196,694)
(190,081)
779,976
775,896
118,113
50,698
55,029
223,840
(4,819)
219,021
(16,043)
(4,680)
(7,749)
-
96,114
56,867
43,901
196,882
(6,282)
190,600
(696)
(8,464)
(6,470)
(8,217)
(28,472)
(23,847)
-
(13,278)
(21,583)
(23,693)
5,567
776
(14,834)
123,504
(38,336)
85,168
(22,040)
(11,242)
(22,166)
(31,592)
18,057
946
(38,828)
59,888
(17,432)
42,456
91
Annual Report 2017
3. Notes to the Financial Statements (continued)
Operating results (continued)
External revenue is the same as segment revenue for all segments except Information, Digital and Data Services, which had
direct external revenues of $19.2 million (2016: $16.5 million).
Segment assets
Fund Administration
Corporate Markets
Information, Digital and Data Services
Total segment assets
Head office
Total assets
Geographical segment
2017
$’000
455,498
396,273
195,649
201634
$’000
472,017
370,533
185,978
1,047,420
1,028,528
186,513
126,379
1,233,933
1,154,907
Link Group operates predominantly in one geographical segment, being Australia and New Zealand. Revenues from
operations outside of Australia and New Zealand approximate 7% (2016: 7%).
Major Clients
Link Group had two major clients in the Fund Administration division, which had combined revenues of $235,950,000
(2016: $229,811,000).
Segment reporting
Segment results that are reported to Link Group’s Managing Director (the chief operating decision maker) include items
directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Revenue
Revenue is earned from rendering of services to customers and is recognised on an accruals basis in the period in which
it is earned, to the extent that it is probable that the economic benefits will flow to Link Group and the revenue can be
reliably measured.
34. Restated due to amendment of provisional acquisition accounting. See Note 21.
92
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Operating results (continued)
4. Earnings per share
(a) Basic earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by
the weighted average number of ordinary shares outstanding during the period. Ordinary shares on issue have been adjusted
for the bonus element of the entitlement offer, which was conducted at a discount to market value as at 26 June 2017.
Profit for the year attributable to owners of the Company
2017
$’000
84,632
2016
$’000
42,069
Number of
shares35
’000
Number of
shares35
’000
Weighted average number of ordinary shares (basic)
Issued ordinary shares at the beginning of the financial year
359,798
281,305
Effect of allotment and issuances
Effect of bonus entitlement offer on ordinary shares
Basic weighted average number of ordinary shares
(b) Diluted earnings per share
-
14,179
373,977
52,972
13,173
347,450
Diluted earnings per share is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares, which comprise
Performance Share Rights (PSRs) granted to employees. Dilutive securities have been adjusted for the bonus element of the
entitlement offer, which was conducted at a discount to market value as at 26 June 2017.
Profit for the year attributable to owners of the Company
Basic weighted average number of ordinary shares
Effect of dilutive PSRs
Effect of bonus entitlement offer on dilutive PSRs
2017
$’000
84,632
2016
$’000
42,069
Number of
shares35
’000
Number of
shares35
’000
373,977
347,450
489
19
-
-
Weighted average number of ordinary shares (diluted)
374,485
347,450
Basic earnings per share (cents)
Diluted earnings per share (cents)
22.63
22.60
12.11
12.11
35. The weighted average number of ordinary shares used in the Basic and Diluted earnings per share calculation for the current and comparative year was adjusted
retrospectively in accordance with AASB 133 Earnings Per Share following the entitlement offer announced on 26 June 2017 (see Note 17). The entitlement
offer was conducted at a discount to market price (bonus element), resulting in a theoretical dilution of existing ordinary shares on issue and a decrease in basic
and diluted earnings per share.
93
Annual Report 2017
3. Notes to the Financial Statements (continued)
Operating results (continued)
5. Taxation
(a) Income tax expense
Current tax expense
Current year
Adjustment for prior years
Deferred tax (expense)/benefit
Origination and reversal of temporary differences
Adjustment for prior years
Tax expense from continuing operations
Profit before income tax
Prima facie income tax expense calculated at 30% on operating
profit from ordinary activities:
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Non-assessable income
Recognition/(de-recognition) of previously unrecognised/(recognised) tax losses
Over provision of tax in respect of prior years
2017
$’000
2016
$’000
(34,960)
(11,825)
(756)
(602)
(35,716)
(12,427)
(4,092)
1,472
(2,620)
(38,336)
123,504
(37,051)
340
(5,213)
478
2,394
716
(5,634)
629
(5,005)
(17,432)
59,888
(17,966)
(193)
(1,457)
618
1,540
26
Income tax expense
(38,336)
(17,432)
Movement in temporary differences
Utilisation of recognised tax losses
Income tax payable on current year profits
3,298
5,687
(29,351)
5,364
9,515
(2,553)
94
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Operating results (continued)
(b) Effective tax rates for Australian and overseas operations
Profit
before tax
$’000
2017
Income tax
expense
$’000
Effective
tax rate
Profit
before tax
$’000
2016
Income tax
expense
$’000
Effective
tax rate
Australian operations
118,779
36,866
31.04%
54,192
16,608
30.65%
Overseas operations
4,725
1,470
31.11%
5,696
824
14.47%
Total
123,504
38,336
31.04%
59,888
17,432
29.11%
(c) Tax recognised in other comprehensive income and equity
Foreign Currency
Translation Reserve
Cash flow hedge
Before tax
$’000
2017 Tax
(expense)/
benefit
$’000
Net of tax
$’000
Before tax
$’000
2016 Tax
(expense)/
benefit
$’000
Net of tax
$’000
(946)
-
(946)
172
-
172
(774)
1,477
(302)
1,175
-
(774)
4,123
5,600
(1,237)
(1,539)
2,886
4,061
(d) Deferred tax assets/(liabilities)
Deferred tax asset:
Provisions
Accruals
Business/acquisition related costs
Deferred income
Cash flow hedge
Other
Tax losses
Deferred tax liability:
Intangible assets
Plant, equipment & software
Other
36. Restated due to amendment of provisional acquisition accounting. See Note 21.
2017
$’000
30,875
917
9,565
1,187
(724)
78
539
42,437
(36,590)
(12,226)
(7,563)
(56,379)
201636
$’000
36,857
979
12,474
1,527
-
743
3,264
55,844
(38,865)
(15,097)
(6,562)
(60,524)
95
Annual Report 2017 3. Notes to the Financial Statements (continued)
Operating results (continued)
(e) Unrecognised tax losses
As at 30 June 2017, companies within Link Group had Australian tax losses of $225,507,000 (2016: $233,962,000)
unrecognised for deferred tax purposes, available to offset against taxable income in future years. The tax losses do not
expire under current tax legislation. Deferred tax assets have not been recognised in respect of these losses because it is not
probable that conditions permit their utilisation in the foreseeable future.
Significant accounting estimate and judgement
Judgement is required in determining whether it is probable future conditions will permit utilisation of carried forward
tax losses. Deferred tax assets in respect of Link Group’s carried forward tax losses have not been recognised to the
extent it is not probable that conditions will permit their utilisation in the foreseeable future.
(f) Franking credits
Amount of franking credits available to shareholders for
subsequent financial years
The ability to use the franking credits is dependent on the ability to declare dividends.
2017
$’000
637
2016
$’000
2,310
Current tax
Current tax is the expected tax payable on the taxable income for the current year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
96
Link Group – Connecting people & technology
3. Notes to the Financial Statements (continued)
Operating results (continued)
Deferred tax
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is
not recognised for the following temporary differences:
• the initial recognition of goodwill;
• the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit; and
• differences relating to investments in subsidiaries and jointly controlled entities to the extent it is probable that they will
not reverse in the foreseeable future.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which Link Group expects,
at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised
for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable
profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Offsetting deferred tax balances
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and
they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Tax consolidation
The Company and its wholly-owned Australian subsidiaries are part of a tax consolidated group. As a consequence, all
members of the tax-consolidated group are taxed as a single entity. The head entity within the tax consolidated group is Link
Administration Holdings Limited.
Tax funding and tax sharing agreements
Members of the tax-consolidated group have entered into a tax sharing agreement that requires wholly-owned subsidiaries to
make contributions to the head entity for current tax liabilities. Under the tax funding agreement, the subsidiaries reimburse
Link Administration Holdings Limited for their portion of Link Group’s current tax liability and recognise this payment as an
inter-entity payable/receivable in their financial statements. Link Administration Holdings Limited reimburses the subsidiaries
for any deferred tax asset arising from unused tax losses and/or tax credits.
97
Annual Report 2017 3. Notes to the Financial Statements (continued)
Operating assets and liabilities
6. Trade and other receivables
Trade receivables
Trade receivables – related parties
Less: provision for impaired amounts
Other debtors
Trade receivables
2017
$’000
96,654
-
(1,654)
95,000
3,691
98,691
2016
$’000
94,417
33
(1,758)
92,692
3,131
95,823
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for doubtful
debts. Trade receivables are generally due after 14 to 30 days.
Link Group reviews the collectability and recoverability of trade receivables. A provision for doubtful debts has been made for
the estimated non-recoverable trade receivable amounts arising from services provided.
7. Trade and other payables
Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost.
2017
$’000
17,547
2,547
17,056
63,921
101,071
-
47,833
47,833
2016
$’000
15,436
1,509
20,330
50,650
87,925
1,985
20,549
22,534
Current
Trade creditors
Deferred consideration
Accrued operational expenses
Other creditors and accruals
Non-current
Deferred consideration
Other creditors and accruals
98
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
8. Provisions
Current
Provisions
Non-current
Provisions
2017
$’000
201637
$’000
15,358
46,856
8,121
15,462
A reconciliation of the carrying amount of each material class of provisions is set out below:
Self-insured
claims
$’000
Integration
$’000
Migration
related
$’000
Onerous
contracts
$’000
Balance at 1 July 201637
19,228
6,083
22,680
11,455
Unwinding of finance charge
Provisions made during the year
-
772
-
1,938
2,567
1,804
-
752
Other
$’000
2,872
-
34
Total
$’000
62,318
2,567
5,300
Provisions used during the year
(2,099)
(5,054)
(22,692)
(7,678)
(685)
(38,208)
Provisions reversed during the year
(1,966)
Foreign exchange translation
difference
33
(31)
28
(24)
-
(2,634)
(2,581)
(1,323)
(8,535)
Balance at 30 June 2017
15,968
2,964
1,701
1,948
Current
Non-current
9,497
6,471
1,938
1,026
1,701
-
1,692
256
-
898
530
368
37
23,479
15,358
8,121
Significant accounting estimate and judgement
Judgement is required in determining the expected outflow of economic benefits required to settle provisions. Provisions
are based on expected obligations at reporting date under current legal and contractual requirements and using
estimates based on past experience.
Provisions
A provision is recognised if, as a result of a past event, Link Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the liability. The unwinding of the discount is treated as a finance expense.
Self-Insured Claims: Link Group self-insures for processing errors associated with the handling of administration activities
for clients. Incidents that may give rise to a claim are measured at the cost that Link Group expects to incur in settling the
claim, which may or may not have been reported.
37. Restated due to amendment of provisional acquisition accounting. See Note 21.
99
Annual Report 2017
3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
Integration: The integration provision includes restructuring costs. The restructuring provision is based on estimates of the
future costs associated with redundancies. The provision calculation includes assumptions around the timing and costs of
redundancies. A provision for restructuring is recognised when Link Group has approved a detailed and formal restructuring
plan and the restructuring either has commenced or has been announced publicly. Future operating costs are not included in
the provision.
Migration related: The migration provisions represent contractual liabilities incurred through business combinations and
other related liabilities. The migration provision recognised on acquisition is stated at fair value based on estimates of the
costs required to perform the migration procedures contractually required under the agreements.
Onerous contracts: A provision for onerous contracts is recognised when the expected benefits to be derived by Link
Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is
measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of
continuing with the contract. Before a provision is established, Link Group recognises any impairment loss on the assets
associated with that contract.
Other: Other provisions are for contractual make-good obligations.
9. Employee benefits
Current
Employee entitlements
Non-current
Employee entitlements
2017
$’000
2016
$’000
39,195
38,627
6,781
7,723
Long-term employee benefits
Link Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have
earned in return for their service in the current and prior periods plus related on-costs; that benefit is discounted to determine
its present value, and the fair value of any related assets is deducted.
Short-term employee benefits
Liabilities for employee benefits for wages, salaries, and annual leave represent present obligations resulting from employees’
services provided to reporting date and are calculated at undiscounted amounts based on remuneration, wage and
salary rates that the Company wholly expects to pay as at the reporting date including related on-costs, such as workers
compensation insurance and payroll tax.
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if Link Group
has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the
obligation can be estimated reliably.
100
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
10. Plant and equipment
Cost
Balance at 1 July 2016
Additions
Effects of movements in exchange rates
Disposals/write offs
Balance at 30 June 2017
Depreciation and impairment losses
Balance at 1 July 2016
Depreciation charge for the period
Effects of movements in exchange rates
Disposals/write offs
Balance at 30 June 2017
Carrying amount at 30 June 2017
Cost
Balance at 1 July 2015
Acquisitions through business combinations
Additions
Effects of movements in exchange rates
Disposals/write offs
Balance at 30 June 2016
Depreciation and impairment losses
Balance at 1 July 2015
Depreciation charge for the period
Effects of movements in exchange rates
Disposals/write offs
Balance at 30 June 2016
Carrying amount at 30 June 2016
Recognition and measurement
Plant & equipment
$’000
Fixtures and
fittings
$’000
Total
$’000
113,838
32,157
(138)
(33,127)
112,730
(66,554)
(13,278)
35
33,090
(46,707)
66,023
78,155
125
36,078
(457)
(63)
50,839
18,942
(73)
(12,712)
56,996
(26,755)
(4,339)
2
12,712
(18,380)
38,616
30,022
-
20,916
(99)
-
50,839
113,838
(22,327)
(4,454)
26
-
(26,755)
24,084
(55,537)
(11,242)
166
59
(66,554)
47,284
62,999
13,215
(65)
(20,415)
55,734
(39,799)
(8,939)
33
20,378
(28,327)
27,407
48,133
125
15,162
(358)
(63)
62,999
(33,210)
(6,788)
140
59
(39,799)
23,200
Items of plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to
the functionality of the related equipment is capitalised as part of that equipment.
101
Annual Report 2017 3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
The expected useful life and the depreciation methods are listed below:
Item
Office equipment
Fixture and fitting
Leased plant and equipment
Useful life
3 – 8 years
2 – 10 years
3 –10 years
Depreciation method
Straight-line
Straight-line
Straight-line
Depreciation methods, useful lives and residual values are reassessed at the reporting date. During the financial year ended 30 June
2017, Link Group retired $32,567,000 of fully depreciated assets following relocation and/or re-fitout of some of its office locations.
11. Intangible assets
Cost
Balance at 1 July 2016
594,546
217,200
322,646
4,476
1,138,868
Goodwill
$’000
Client lists
$’000
Software
$’000
Brand Names
$’000
Total
$’000
Acquisitions through business combinations
18,370
4,562
267
Additions
Effects of movements in exchange rates
-
98
-
27,180
(735)
(1)
(204)
-
-
23,199
27,180
(842)
Balance at 30 June 2017
613,014
221,027
350,092
4,272
1,188,405
Amortisation and impairment losses
Balance at 1 July 2016
(2,500)
(85,455)
(204,081)
(1,670)
(293,706)
Effects of movements in exchange rates
Amortisation charge
(12)
-
682
20
33
723
(14,806)
(30,158)
(312)
(45,276)
Balance at 30 June 2017
(2,512)
(99,579)
(234,219)
(1,949)
(338,259)
Carrying amount at 30 June 2017
610,502
121,448
115,873
2,323
850,146
Cost
Balance at 1 July 2015
586,481
214,875
297,340
5,089
1,103,785
Acquisitions through business combinations1
6,616
3,176
Additions
Transfers
Effects of movements in exchange rates
Disposals/Assets written off
-
-
1,449
-
-
-
(851)
-
226
25,015
168
(88)
(15)
-
-
(168)
(445)
-
10,018
25,015
-
65
(15)
Balance at 30 June 201638
594,546
217,200
322,646
4,476
1,138,868
Amortisation and impairment losses
Balance at 1 July 2015
(2,500)
(68,432)
(169,255)
(1,163)
(241,350)
Effects of movements in exchange rates
Amortisation charge
Disposals/Assets written off
-
-
-
1,189
133
65
1,387
(18,212)
(34,974)
(572)
(53,758)
-
15
-
15
Balance at 30 June 2016
(2,500)
(85,455)
(204,081)
(1,670)
(293,706)
Carrying amount at 30 June 201638
592,046
131,745
118,565
2,806
845,162
38. Restated due to amendment of provisional acquisition accounting. See Note 21.
102
Link Group – Connecting people & technology
3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
Goodwill
Goodwill arises on the acquisition of subsidiaries and jointly controlled entities and represents the excess of the cost of the
acquisition over Link Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the
acquiree. Subsequent to initial measurement, goodwill is measured at cost less accumulated impairment losses.
Client lists
Client lists acquired in business combinations are recognised initially at fair value, and are subsequently amortised according
to the expected useful life of these lists.
Software
Link Group capitalises in-house developed software that meets business and client needs and enables operational
efficiencies to be achieved.
Development expenditure is capitalised only if development costs are directly attributable, can be measured reliably, the
product or process is technically and commercially feasible, future economic benefits are probable and Link Group intends to,
and has sufficient resources to, complete development and to use or sell the asset. Other software development costs are
expensed as incurred.
Brand Names
Brand names acquired in business combinations are recognised initially at fair value, and are subsequently amortised
according to the expected useful life of the brand name.
Amortisation
Amortisation is charged on a straight-line basis over the estimated useful lives of intangible assets. The estimated useful lives
for the current and comparative periods are as follows:
Item
Software
Client lists
Brand Names
Useful life
2 – 10 years
3 – 20 years
5 – 10 years
Significant accounting estimate and judgement
Judgement is required in estimating recoverable amounts of Cash-Generating Units to which intangible assets with an
indefinite useful life (goodwill) are allocated. All key assumptions applied in value in use calculations were determined
using the past experiences of Link Group and management. Where possible, assumptions were validated against external
sources of information.
103
Annual Report 2017
3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
Impairment testing for Cash-Generating Units (CGU) containing goodwill
For the purpose of impairment testing, goodwill is allocated to Link Group’s operating divisions. The aggregate carrying
amounts of goodwill allocated to each CGU are as follows:
Fund Administration
Corporate Markets Australia and New Zealand
Corporate Markets Overseas
Information, Digital and Data Services
Total goodwill
2017
$’000
279,262
252,244
39,721
39,275
610,502
201639
$’000
279,262
235,678
39,414
37,692
592,046
The carrying amounts of Link Group’s goodwill and intangible assets are tested annually for impairment. If any such indication
exists, then the asset’s recoverable amount is estimated.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. The goodwill and any
other intangible assets with indefinite lives acquired in a business combination, for the purpose of impairment testing, is
allocated to CGUs that are expected to benefit from the synergies of the combination.
An impairment loss is recognised in profit and loss if the carrying amount of an asset or its CGU exceeds its recoverable amount.
Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to
the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
The recoverable amounts of CGUs were determined through value in use calculations. The value in use calculations applied a
post-tax discounted cash flow model, based on a five-year budget approved by the Board and an appropriate terminal value.
Cash flows after the fifth year were projected at growth rates of:
Fund Administration
Corporate Markets Australia and New Zealand
Corporate Markets Overseas
Information and Data Services
2017
2.5%
2.5%
3.4%
2.5%
2016
2.5%
2.5%
3.0%
2.5%
The value in use calculations employed a range of pre-tax discount rates from 10.00% to 11.86% (2016: 9.69% to 11.84%).
These rates relate to the risks in the respective segments and countries in which they operate. The discount rate used
reflects management’s estimate of the time value of money and Link Group’s weighted average cost of capital (WACC), which
is calculated separately for each CGU.
Management is of the opinion that other reasonable changes in the key assumptions on which the recoverable amount of
Link Group’s goodwill is based would not cause Link Group’s carrying amount to exceed its recoverable amount.
39. Restated due to amendment of provisional acquisition accounting. See Note 21.
104
Link Group – Connecting people & technology
3. Notes to the Financial Statements (continued)
Operating assets and liabilities (continued)
12. Notes to the statement of cash flows
(a) Reconciliation of net profit after tax to net cash inflow from operating activities
Net profit after income tax
Add/(less) non-cash items
Depreciation
Amortisation
Unrealised foreign exchange loss
Unwinding discount on provisions and deferred consideration
Borrowing cost amortisation
Loss on disposal/write off of plant and equipment
Gain on financial assets held at fair value through profit & loss
Net cash inflow from operating activities before changes in assets
and liabilities
IPO costs expensed through income statement
Change in operating assets and liabilities
Change in trade and other receivables
Change in other assets
Change in trade and other payables
Change in provisions
Change in current and deferred tax balances
Net cash inflow from operating activities
2017
$’000
85,168
13,278
45,276
536
2,855
647
37
(5,567)
142,230
-
(9)
(3,515)
15,981
(42,380)
35,949
148,256
(b) Reconciliation of net profit after tax to net cash inflow from operating activities
Cash and cash equivalents
2017
$’000
18,162
2016
$’000
42,456
11,242
53,758
233
4,564
5,048
-
(18,057)
99,244
22,040
(10,666)
(1,983)
8,985
(30,208)
15,491
102,903
2016
$’000
30,153
105
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management
13. Interest bearing loans and borrowings
Current
Finance lease
Non – current
Finance lease
Loans
Financing Arrangements Total facilities available:
Non-amortising term loan facility
Working capital facility
Facilities utilised at reporting date:
Non-amortising term loan facility
Working capital facility
Facilities not utilised at reporting date
Non-amortising term loan facility
Working Capital facility
Contractual interest
rate at 30 June 2017
2.8-3.1%
1.4-3.1%
2.8-3.1%
1.4%
0.4-0.6%
0.6%
2017
$’000
241
288
312,604
312,892
2017
$’000
550,000
30,000
580,000
313,500
13,221
326,721
236,500
16,779
253,279
2016
$’000
198
465
291,457
291,922
2016
$’000
550,000
30,000
580,000
293,000
12,959
305,959
257,000
17,041
274,041
Facilities utilised at reporting date includes $13,221,000 (2016: $12,959,000) of guarantees provided to external parties,
which have not been drawn down. See Note 15.
Link Group also has access to an uncommitted facility of $250,000,000 under the Syndicated Loan Facility. This is an
uncommitted revolving credit facility for general corporate purposes to fund acquisitions permitted under the facility (and related
advisory fees, costs and expenses) and growth capital expenditure and to refinance existing debt of an acquired target.
Link Group signed an Amendment and Restatement Deed on 16 June 2017, with respect to the existing Syndicated Loan
Facility dated 18 September 2015, the terms and conditions of which are substantially unchanged. The amendment adds
the following additional facilities (contingent on completion of the Capita Asset Services acquisition); a GBP465,000,000
($788,000,000) non-amortising loan facility and a GBP20,000,000 ($34,000,000) working capital facility.
14. Finance costs
Loan interest expense
Amortisation of capitalised borrowing costs
Foreign exchange loss
Other
106
2017
$’000
10,468
647
779
2,940
14,834
2016
$’000
28,885
5,048
233
4,662
38,828
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
15. Contingent liabilities
Link Group has granted bank guarantees to the favour of:
AFSL Performance Bond – Westpac/NAB
Letter of Credit – STRATE Limited
Letter of Credit – Railway Pension Nominees Limited
Bank guarantee – ASX
Bank guarantee – Westpac
Bank guarantee – Westpac
Bank guarantee – CBA
2017
$’000
10,000
906
795
500
1,000
20
287
2016
$’000
10,000
820
639
500
1,000
-
287
Australian Financial Services Licence (AFSL) Performance Bond
A Guarantee for $10 million (2016: $10 million) is held with Westpac on behalf of a subsidiary of Link Group, Pacific Custodians Pty
Limited, as a requirement of the subsidiary’s AFSL requirements (AFSL Performance Bond).
Letter of Credit
The ZAR9,000,000 ($905,843) guarantee in favour of STRATE Limited (2016: ZAR9,000,000 or $819,631) covers any liability
arising from Link Investor Services South Africa (Proprietary) Limited becoming a Central Securities Depository Participant and
is provided by Westpac.
The GBP350,784 ($795,248) guarantee in favour of Railway Pension Nominees Limited (2016: GBP350,784 or $638,602) is
held on behalf of a subsidiary as a requirement of their lease agreement.
Bank guarantee
The Westpac Banking Corporation (Westpac) guarantee of $500,000 (2016: $500,000) to the favour of ASX Settlement and
Transfer Corporation Pty Limited covers any liability arising from a subsidiary being a Specialist Settlement Participant.
A guarantee for $1,000,000 (2016: $1,000,000) is held in respect of a contractual requirement.
A guarantee for $20,000 (2016: $nil) is held in respect of a contract held with the Australian Securities and
Investments Commission.
A guarantee for $287,000 (2016: $287,000) is held with Commonwealth Bank of Australia Limited (CBA) on behalf of a
subsidiary as a requirement of their lease agreement.
107
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
16. Investment and financial risk management
Investments
Listed equity securities – at fair value through profit or loss
Unlisted investments – at fair value through profit or loss
2017
$’000
3,274
135,415
138,689
2016
$’000
2,738
64,281
67,019
The equity securities have been designated at fair value through profit or loss because they are managed on a fair value basis
and their performance is actively monitored.
During the year Link Group made a further investment of $64,700,000 into Property Exchange Australia Limited (PEXA),
taking Link Group’s total ownership of PEXA to 19.7%. The investment in PEXA is carried within unlisted investments at a fair
value with gains or losses recognised through profit or loss given Link Group does not have significant influence over PEXA.
The investment has a fair value of $127,883,000 (2016: $60,529,000) at year end.
Significant accounting estimate and judgement
Judgement is required in measuring level 3 investments at fair value. All key assumptions applied in fair value measurements
were determined using the past experiences of Link Group and management. Where possible, assumptions were validated
against external sources of information.
Derivative financial assets
Derivative financial assets – at fair value through profit or loss
2017
$’000
2,413
2016
$’000
-
Derivative financial instruments consist of foreign currency forward contracts, and are measured at fair value with gains or
losses recognised through profit or loss. For additional details, see Note 27.
Financial Risk Management Overview
Link Group has exposure to the following risks arising from financial instruments:
• Credit risk
• Liquidity risk
• Market risk
108
Link Group – Connecting people & technology
3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
Risk Management Framework
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the risk management framework.
Link Group has established risk management policies that identify and analyse the risks faced by Link Group, set appropriate risk
limits and controls, and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly.
Credit Risk
Credit risk is the risk of financial loss to Link Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. The carrying amount of financial assets less any provisions for impairment represents Link Group’s
maximum credit exposure.
Link Group’s exposure to credit risk arises predominantly through its cash and cash equivalents and trade and other
receivables. Cash and cash equivalent amounts as well as transactions involving derivative financial instruments are all
held or maintained by banks and financial institutions with high credit ratings. Trade Receivables are monitored in line with
Link Group’s credit policy. The credit quality of customers is assessed by taking into account their financial position, past
experience and other relevant factors. Based on the above process, Link Group believes that all unimpaired trade and other
receivables are collectible in full.
The maximum exposure to credit risk for trade and other receivables at the end of the reporting period was as follows:
Neither past due nor impaired
Past due 1 - 30 days
Past due 31 - 60 days
Past due over 61 days
2017
$’000
87,398
6,939
2,777
1,577
98,691
2016
$’000
86,266
6,217
1,393
1,947
95,823
There were no material movements in the allowance for impairment in respect of trade and other receivables during the year.
See Note 6.
Liquidity Risk
Liquidity risk is the risk that Link Group will encounter difficulties in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. Link Group manages its liquidity risk by maintaining
adequate cash reserves and available committed credit lines combined with continuous monitoring of actual and forecast
cash flows on a short, medium and long-term basis. See Note 13 for details of Link Group’s unused facilities at year end.
Remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest
payments were as follows. The amounts include both interest and principal cash flows undiscounted and based on
contractual maturity, and therefore the totals will differ from those disclosed in the statement of financial position. It is noted
that the interest repayments are based on forward interest rates, and as such these amounts could vary, however, it is not
expected that they will do so significantly from the amounts stated below.
109
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
Carrying
amount
$000
Total
$’000
< 1 year
$’000
1-2 years
$’000
2–5 years
$’000
> 5 years
$’000
30 June 2017
Non-derivative liabilities
Non interest bearing
Trade and other payables
148,904
148,904
101,071
5,789
14,863
27,181
Interest bearing
Loans and borrowings
313,133
334,886
10,976
281,098
42,812
-
Total non-derivative liabilities
462,037
483,790
112,047
286,887
57,675
27,181
30 June 2016
Non-derivative liabilities
Non interest bearing
Trade and other payables
110,459
110,459
90,851
2,016
5,709
11,883
Interest bearing
Loans and borrowings
292,120
338,873
10,179
10,127
318,567
-
Total non-derivative liabilities
402,579
449,332
101,030
12,143
324,276
11,883
The Company and a number of the subsidiaries are guarantors to Link Group’s loans and borrowings.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will
affect Link Group’s income or carrying value of its holdings of financial instruments as at the year end.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. Link Group is exposed to foreign currency risk on sales, purchases and foreign currency bank
accounts that are denominated in a currency other than the functional currency of Link Group, being the Australian Dollar (AUD).
Overseas subsidiaries within Link Group transact in different functional currencies (Pound Sterling (GBP), New Zealand Dollar,
South African Rand, Indian Rupee, Euro) and investments in these subsidiaries are not hedged. The effects of any exchange
rate movements in respect to the net investment in foreign subsidiaries are recognised in the foreign currency translation reserve.
Sensitivity testing was performed by increasing the value of the AUD against other foreign currencies by 10% (2016: 10%), which
would result in an immaterial impact (2016: immaterial impact) on Link Group’s profit before tax and would result in a negative impact
of $5,880,000 (2016: negative impact of $5,512,000) to Link Group’s net assets. A decrease in the value of the AUD against other
foreign currencies of 10% would result in an equal and opposite increase in Link Group’s profit before tax and net assets.
The assumed 10% change was chosen based on historical and reasonably possible movements of official exchange rates and
analyst forecasts. The method of calculation has not changed from the prior period.
As disclosed in Note 27, Link Group entered into a foreign currency forward contract on 26 June 2017 to hedge against movement
in the AUD/GBP exchange rate in the period between the settlement of the entitlement offer (denominated in AUD) and settlement
of the Capita Asset Services (CAS) transaction (denominated in GBP), expected by 31 December 2017. Sensitivity testing in
relation to the derivative financial instrument was performed by increasing the value of the AUD against the GBP by 1.5%, which
would result in a negative impact of $11,104,000 (2016: $nil) on Link Group’s profit before tax and net assets.
110
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
A decrease in the value of the AUD against the GBP of 1.5% would result in an equal and opposite increase in Link Group’s
profit before tax and net assets.
The assumed 1.5% change was chosen based on forward rate premiums being applied to forward contracts for the expected
settlement period of 6 months.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of
financial instruments. Link Group is exposed to interest rate risk attaching specifically to Link Group’s financial assets and
liabilities as well as through the maintenance of paying agent and escrow bank accounts administered on behalf of clients.
Link Group’s primary financial assets impacted by changes in variable interest rates include cash and cash equivalents. Link
Group’s primary financial liabilities impacted by interest rate movements include interest bearing loans and borrowings.
A sensitivity analysis was performed to assess the impact interest rates have on Link Group’s statement of financial
performance, including the impact of hedging and escrow bank accounts. Sensitivity testing was performed by increasing
interest rates by 1% (2016: 1%) as at reporting date which would result in an adverse effect on Link Group’s profit before tax
of $483,000 (2016: adverse effect of $538,000). A decrease of 1% would have an equal and opposite effect.
The assumed 1% change was chosen based on historical and reasonably possible movements of official interest rates and
analysts’ forecasts. The method of calculation has not changed from the prior period.
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Link Group’s exposure to price risk arises primarily from the listed and unlisted equity securities it holds, which have
been designated at fair value through profit or loss.
A 5% increase (2016: 5%) in the fair value of Link Group’s listed and unlisted investments would increase Link Group’s profit
before tax by $6,934,000 (2016: increase of $3,351,000). The assumed 5% change was chosen based on historical and
reasonably possible movements in equity markets and analyst forecasts.
Capital management
The Board’s policy is to maintain a capital base so as to provide shareholder and other stakeholder confidence and to sustain
future development of the business. Capital consists of total equity less amounts accumulated in equity in relation to cash
flow hedges, dividend reserves and other reserves.
Link Group monitors capital using an adjusted net debt to market value ratio, which is adjusted net debt (interest bearing
loans less cash) divided by equity after adjusting for the last traded share price. The equity adjusted for the last traded share
price at year end is sufficient to provide confidence that Link Group maintains a strong capital base. A key ratio for Link Group is
net financial indebtedness to EBITDA. Net debt is calculated as interest bearing liabilities less cash and cash equivalents.
Fair Value of financial instruments
The fair value of Link Group’s of financial instruments were categorised by the following levels:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
111
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
30 June 2017
Assets
Level 1
$000
Level 2
$000
Level 3
$000
Derivative financial assets at fair value through profit and loss
-
2,413
Listed investments designated at fair value through profit and loss
3,274
-
-
-
Total
$000
2,413
3,274
Unlisted equity securities designated at fair value through profit and
loss
-
4,075
131,340
135,415
3,274
6,488
131,340
141,102
30 June 2016
Assets
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
Listed investments designated at fair value through profit and loss
2,738
-
-
2,738
Unlisted equity securities designated at fair value through profit
and loss
-
3,752
60,529
64,281
2,738
3,752
60,529
67,019
There have been no assets transferred between levels during the year (2016: none).
Level 1 investments consist of financial instruments traded in active markets, and are valued based on quoted market
prices at the end of the reporting period.
Level 2 investments consist of unlisted managed investment schemes and derivative financial instruments. Unlisted
managed investment schemes are valued based on daily quoted unit redemption prices derived using observable market
data. Derivative financial instruments are valued using quoted forward exchange rates at the reporting date and present
value calculations based on high credit quality yield curves in the respective currencies.
Level 3 investments include unlisted investments held by Link Group, the valuation for which is deemed to have one or
more significant inputs which are not based on observable market data.
Management has assessed the fair value of the investment in PEXA to be $127,883,000 (2016: $60,529,000 based on a
valuation performed by an independent valuer, using a discounted cash flow method based on 10-year forecasts, taking
into account appropriate adjustments. This is supported by an arm’s length capital raising completed at the independent
valuation per share prior to year end.
The fair values of other level 3 investments are supported by valuations performed by Link Group and an arm’s length
capital raising completed during the year.
Significant increases or decreases in future cash flows would increase or decrease, respectively, the fair value of the investments.
Reconciliation of movements in level 3 investments
Opening level 3 investments at the beginning of the financial year
Acquisitions
Fair value gain recognised in profit or loss
Closing level 3 investments at the end of the financial year
112
2017
$’000
60,529
68,157
2,654
131,340
2016
$’000
29,620
12,934
17,975
60,529
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
The carrying amount and fair value of those financial assets and financial liabilities held at fair value were as follows:
Fair value vs carrying amounts
Assets
Financial assets measured at fair value
Held at fair value through profit and loss
Derivative financial assets
Designated at fair value through profit and loss
Investments
Financial Assets not measured at fair value
Loans and Receivables
Cash and cash equivalents
Trade and other receivables
Liabilities
Financial liabilities not measured at fair value
Other Financial Liabilities
Trade and other payables
Interest bearing loans and borrowings
Balance at 30 June 2017
2017
2016
Fair value
$000
Carrying
amount
$000
Fair value
$000
Carrying
amount
$000
2,413
2,413
-
-
138,689
138,689
67,019
67,019
18,162
98,691
257,955
148,904
313,133
462,037
18,162
98,691
257,955
148,904
313,133
462,037
30,153
95,823
192,995
110,459
292,120
402,579
30,153
95,823
192,995
110,459
292,120
402,579
The fair values of interest bearing loans and borrowings are not materially different to their carrying amounts since the interest
payable on those borrowings is floating at current market rates.
Financial instruments – Recognition/derecognition
A financial instrument is recognised when Link Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised if Link Group’s contractual rights to the cash flows from the financial assets expire or if Link
Group transfers the financial asset to another party without retaining control or substantially all the risks and rewards of the asset.
Financial liabilities are derecognised if Link Group’s obligations specified in the contract expire or are discharged or cancelled.
Measurement
Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly
attributable transaction costs. Subsequent to initial recognition, financial instruments are measured as described below.
Financial assets at fair value through profit or loss
Financial instruments at fair value through profit or loss are measured at fair value, with changes recognised in the statement of
comprehensive income under ‘gains or losses on financial assets held at fair value through profit and loss’.
Other
Other financial instruments are subsequently measured at amortised cost using the effective interest method, less any
impairment losses.
Trade and other payables and interest-bearing loans and borrowings are classified as financial liabilities. Trade and other
receivables and cash and cash equivalents are classified as loans and receivables. Cash and cash equivalents comprise cash
balances and call deposits.
Impairment
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. Any
impairment losses are recognised in profit or loss.
113
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
17. Contributed equity
Issued and paid-up capital
Balance at the beginning of the year
Equity issued
Equity raising costs, net of tax
Balance at the end of the year
2017
$’000
689,004
-
368
689,372
2016
$’000
202,481
500,014
(13,491)
689,004
Number of shares:
Opening balance 1 July 2015
Conversion to ordinary shares from other classes
Shares issued
Balance as at 30 June 2016
Shares issued
Closing balance as at 30 June 2017
Ordinary Shares
issued
000’s
Class A shares
issued
000’s
Preference
shares issued
000’s
251,671
29,634
78,493
359,798
-
359,798
19,413
(19,413)
10,221
(10,221)
-
-
-
-
-
-
-
-
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares are
recognised as a deduction from equity, net of any related income tax benefit.
Ordinary shares
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid.
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at shareholders’ meetings.
On 26 June 2017, Link Group announced a fully underwritten entitlement offer to raise an additional $883 million capital via
the issue of 130,839,343 ordinary shares. Under the offer, 103,140,820 shares were issued to institutional investors on 7
July 2017, with a further 27,698,523 shares issued to retail investors on 26 July 2017. For further disclosure regarding the
capital raising, see Note 27.
Class A and preference shares
All outstanding Class A and preference shares converted to Ordinary shares at the Initial Public Offering (IPO).
114
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
Share
Compen-
sation
reserve
$’000
Distribu-
table
profits
reserve
$’000
Cash flow
Hedge
reserve
$’000
Foreign
Currency
Trans-
lation
reserve
$’000
Acqui-
sition
reserve
$’000
Defined
Benefit
Reserve
$’000
Pre-
acquisi-
tion Prof-
its Paid
reserve
$’000
Total
$’000
18. Reserves
Consolidated
Balance at 1 July 2016
Other comprehensive
income
Total comprehensive
income for the year
Transactions with
shareholders
Transfer from retained
earnings to reserves
Dividends paid from
distributable profits reserve
Equity settled share based
payments
Acquisition of non-
controlling interest in a
subsidiary
3,144
29,897
-
-
-
-
1,170
-
-
-
84,632
(50,372)
-
-
Balance at 30 June 2017
4,314
64,157
Balance at 1 July 2015
Other comprehensive
income
Total comprehensive
income for the year
Transactions with
shareholders
Transfer from retained
earnings to reserves
Transfers within reserves
3,144
-
-
-
-
-
-
-
29,309
588
Balance at 30 June 2016
3,144
29,897
-
-
-
-
-
-
-
-
(6,054)
(8,562)
(1,109)
(129,733)
(112,417)
(732)
(732)
-
-
-
-
-
-
-
-
-
(10)
(43)
(43)
-
-
-
-
-
-
-
-
-
-
(775)
(775)
84,632
(50,372)
1,170
(10)
(6,786)
(8,572)
(1,152)
(129,733)
(77,772)
(2,886)
(7,229)
(8,562)
(1,018)
(129,145)
(145,696)
2,886
1,175
2,886
1,175
-
-
-
-
-
-
-
-
-
(91)
(91)
-
-
-
-
-
3,970
3,970
29,309
(588)
-
(6,054)
(8,562)
(1,109)
(129,733)
(112,417)
Share compensation reserve
The reserve for own shares represents the cost of ordinary shares held by an equity compensation plan that will be issued to
settle entitlements under share-based payment plans. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Company’s own equity instruments.
Distributable profits reserve
The distributable profits reserve is available to enable the payment of future dividends.
115
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
Cash flow Hedge reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet settled.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations where their functional currency is different to the presentation currency of Link Group.
Acquisition reserve
The acquisition reserve represents the purchase of non-controlling interests where there is no change in control. The
accounting standards prescribe that the value of such acquisitions should be accounted for as equity transactions instead of
accounting for them as an adjustment to goodwill.
Defined benefit reserve
The defined benefit reserve represents the remeasurement of the net defined benefit liability and comprises the actuarial gains
and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest).
Pre-acquisition profits paid reserve
The pre-acquisition profits paid reserve represents dividends paid on consolidation from pre- and post-acquisition profits in a prior
period.
Dividends
30 June 2017
Dividend
paid
$’000
Cents per
share
Franking
percentage
%
Record
date
Payment
date
Final dividend for the year ended 30 June 2016
Interim dividend for the year ended 30 June 2017
Total
28,784
21,588
50,372
8.00
6.00
18.7
29.09.16
10.10.16
-
21.03.17
3.04.17
Dividends are recognised as a liability in the period in which they are declared. The final 2017 dividend has not been declared
at the reporting date and therefore is not reflected in the consolidated financial statements.
On 18 August 2017, the Directors declared a final dividend of $39,250,933, which equates to 8.0 cents per share, 100%
franked in respect of the financial year ended 30 June 2017. The record date for determining entitlements to the final
dividend is 21 September 2017. Payment of the final dividend will occur on 18 October 2017.
On 18 August 2017, the Company announced the introduction of the Link Group Dividend Reinvestment Plan (DRP).
19. Retained earnings
Retained earnings/(accumulated losses) at the beginning of the financial year
Net profit attributable to equity holders
Transfer from retained earnings to reserves
Retained earnings at the end of the year
116
2017
$’000
4,999
84,632
(84,632)
4,999
2016
$’000
(7,761)
42,069
(29,309)
4,999
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
20. Share-based payment arrangements
As a result of the Omnibus Equity Plan beginning during the year, Link Group has provided share based payment disclosures
in accordance with AASB 2. The fair value of the share based payments is determined at grant/service commencement date
and is recognised as an expense, with a corresponding increase in reserves, over the vesting period. The amount expensed
is adjusted based on the related service and non-market performance conditions which are expected to be met, resulting in
the amount recognised being based on the number of awards that meet the related service and non-market performance
conditions at the vesting date. The impact of any changes to the estimates of non-market vesting conditions are adjusted
each reporting period to reflect the most current expectation of vesting.
(a) Description of share-based payment arrangements
At 30 June 2017, Link Group had the following shared-based payment arrangements.
Performance Share Rights (PSRs)
The issue of securities under the Omnibus Equity Plan (OEP - a long-term incentive) was approved by shareholders at
Link Group’s 2016 Annual General Meeting. The OEP entitles Executive KMPs, Senior Executives and Senior Leaders to
receive PSRs, which may be converted into shares in the Company subject to the satisfaction of service-based conditions
and performance hurdles, which will, when satisfied, allow participants to receive fully paid ordinary shares in the Company.
Under the OEP, PSRs were granted to the Managing Director on 18 November 2016, following the Annual General Meeting,
and to all other participants on 15 September 2016 and 3 March 2017.
The PSRs are divided into 2 tranches of 75% and 25% and subject to testing against an earnings per share (EPS) target and
Relative Total Shareholder Return (relative TSR) target respectively.
The terms and conditions of the PSRs granted during the year ended 30 June 2017 were as follows.
Grant date/
employees entitled
Number of
PSRs granted Vesting conditions
PSRs granted to the
Managing Director on
18 November 2016
127,992
Executive KMPs
included within Key
Management Personnel
(KMP) on
15 September 2016
Other Senior Executives
and Senior Leaders on
15 September 2016
and 3 March 2017
188,850
361,917
75% against an earnings per share
target and 25% against relative total
shareholder return for the three-year
performance period commencing
1 July 2016.
75% against an earnings per share
target and 25% against relative total
shareholder return for the three-year
performance period commencing
1 July 2016.
75% against an earnings per share
target and 25% against relative total
shareholder return for the three-year
performance period commencing
1 July 2016.
Contractual life of PSRs
Seven years, with last exercise occurring
18 November 2023, (unless the PSRs
lapse earlier in accordance with the terms
of the invitation).
Seven years, with last exercise occurring
9 September 2023 (unless the PSRs
lapse earlier in accordance with the terms
of the invitation).
Seven years, with last exercise occurring
9 September 2023 (unless the PSRs
lapse earlier in accordance with the terms
of the invitation).
The number of PSRs issued to each participant was calculated with reference to the five-day Volume Weighted Average
Price (VWAP) following the release of the 2016 full-year results and accounted for at fair value in accordance with accounting
standards from grant date.
Broad-based employee share plan
All Australian-based qualifying employees of Link Group are entitled to participate in the Tax Exempt Share Plan (Exempt
Plan), which gives the employees the right to be issued $1,000 worth of fully paid ordinary shares for nil financial
consideration. The Exempt Plan enables qualified employees to receive ordinary shares free of income tax provided
conditions in the current Australian tax legislation are satisfied. These shares cannot be sold until the earlier of three years
after the date of issue or the time the employee ceases employment with Link Group.
117
Annual Report 2017 3. Notes to the Financial Statements (continued)
Capital structure, financing and risk management (continued)
Group structure
(b) Measurement of grant date fair values
Significant accounting estimate and judgement
Judgement is required in determining the fair value of PSRs, which was determined at grant date based upon an
independent valuation. The amount expensed is adjusted based on the related service and non-market performance
conditions which are expected to be met.
The following inputs were used in the measurement of the fair values at grant date of the Omnibus Equity Plan:
Fair value at grant date:
i) EPS tranche at grant date
ii) TSR tranche fair value at grant date
Share price at grant date
Exercise price
Expected volatility (weighted average volatility)
Managing Director
All other Executive
KMPs and senior
leaders
$6.62
$3.35
$7.33
-
25%
$7.49
$4.34
$8.25
-
25%
PSR life (expected weighted average life)
3 years
3 years
Holding lock discount:
i) 1 year
ii) 2 years
Expected dividends
Risk-free interest rate (based on government bonds)
6%
9%
2.42%
1.90%
6%
9%
2.15%
1.64%
The fair value of services received in return for PSRs is based on the fair value of PSRs granted, measured using a Monte
Carlo valuation model.
Expected volatility is estimated taking into account historic average share price volatility of the Company and certain other
ASX-listed companies, given the Company has only been listed since 27 October 2015.
Group structure
21. Business combinations
In addition to organic growth, Link Group seeks to grow through acquisitions and leverage the existing systems, skillsets and
processes to improve client satisfaction and obtain synergies to drive positive returns for shareholders.
All business combinations are accounted for by applying the acquisition method. Judgement is applied in determining the
acquisition date and determining whether control is transferred from one party to another.
Link Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-
controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and
liabilities assumed, all measured as at the acquisition date.
118
Link Group – Connecting people & technology
3. Notes to the Financial Statements (continued)
Group structure (continued)
Consideration transferred includes the fair values of the assets, liabilities and contingent liabilities, including liabilities incurred
by Link Group to the previous owners of the acquiree and equity interests issued by Link Group. Consideration transferred
also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are
replaced mandatorily in the Business Combination.
Significant accounting estimate and judgement
Judgement is required in measuring the fair value of identifiable assets acquired and liabilities assumed for each acquisition.
All key assumptions applied in fair-value measurements were determined using the past experiences of Link Group and
management. Where possible, assumptions were validated against external sources of information.
Acquisitions
Link Group completed the following business combinations during the financial year ended 30 June 2017:
• 2 July 2016, Link Group entered into an agreement with System Support Services in India, which has been accounted for
as a business combination;
• 22 December 2016, with economic effect from 31 December 2016, Link Group acquired 100% of the shares and voting
interests of White Outsourcing Pty Limited (now Link Fund Solutions Pty Limited); and
• 31 May 2017, Link Group acquired 100% of the shares and voting interests of Adviser Network Pty Limited.
The acquisitions were not individually material to Link Group’s assets or results. The provisional acquisition accounting has
been accounted for in the consolidated financial statements as follows:
Cash consideration paid or payable
Add: working capital adjustments
Cash consideration paid or payable
Less: fair value of net identifiable assets acquired
Goodwill
Identifiable assets acquired and liabilities assumed:
Cash and cash equivalents
Receivables
Deferred tax assets
Client Lists
Software
Payables
Provisions
Tax payable
Deferred tax liabilities
Net assets
30 June 2017
$’000
33,186
829
34,015
(15,645)
18,370
11,111
2,839
256
4,562
267
(1,460)
(530)
(16)
(1,384)
15,645
119
Annual Report 2017 3. Notes to the Financial Statements (continued)
Group structure (continued)
The fair values of assets and liabilities at 30 June 2017 are measured on a provisional basis, whereby the accounting
balances for the acquisition may be revised in accordance with AASB 3 Business Combinations. The measurement period
for the System Support Services, White Outsourcing and Adviser Network business combinations remain open at year end.
The provisional acquisition accounting for White Outsourcing and System Support Services that was adopted in preparing the
Link Group interim financial statements has been subsequently amended as at 30 June 2017 to reflect non-material changes
in the purchase price allocation.
Amendment of provisional acquisition accounting
During the year, the Group identified new information regarding facts and circumstances that existed at acquisition date that
resulted in adjustments to the provisional acquisition accounting for the AON agreement in accordance with AASB 3 Business
Combinations. Link Group obtained further information with respect of the migration work required to be performed resulting
in an adjustment to the provisional accounting, with a net increase in goodwill of $0.4 million. Link Group notes that the
measurement period for AON is now complete.
Goodwill has been recognised as follows:
Total consideration transferred
Less: provisional value of identifiable net assets
Add: fair value adjustment to identifiable net assets due to finalisation of Purchase Price Allocation
Goodwill - restated
30 June 2017
$’000
9,477
(3,290)
429
6,616
22. Parent entity disclosures
In accordance with the Corporations Act 2001, these consolidated financial statements present the results of the
consolidated entity only. As at, and throughout, the financial year ended 30 June 2017, the ultimate parent entity of Link
Group was Link Administration Holdings Limited.
Result of parent entity
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising:
Contributed equity
Share compensation reserve
Distributable profits reserve
Accumulated losses
Total equity
2017
$’000
84,632
-
84,632
613
714,409
25,561
25,561
689,372
4,314
64,157
(68,995)
688,848
2016
$’000
29,309
-
29,309
135
653,050
-
-
689,004
3,144
29,897
(68,995)
653,050
Other than those disclosed in Note 15, the parent entity has no contingent liabilities, contractual commitments or guarantees
with third parties as at 30 June 2017 (2016: none).
120
Link Group – Connecting people & technology
3. Notes to the Financial Statements (continued)
Group structure (continued)
23. Controlled entities
Subsidiaries
Link Administration Pty Limited
Link Digital Solutions Pty Limited
Link Investor Services Pty Limited
Link Market Services Group Pty Limited
Link Market Services Holdings Pty Limited
Link Market Services Limited
Pacific Custodians Pty Limited
Link MS Services Pty Limited
Link Share Plan Pty Limited
Link Market Services South Africa (Pty) Limited
PNG Registries Pty Limited
Orient Capital Pty Limited
Orient Capital Limited
Corporate File Pty Limited
Open Briefing Pty Limited
Australian Administration Services Pty Limited
AAS Superannuation Services Pty Limited
aaspire Pty Limited
Atune Financial Solutions Pty Limited
Primary Superannuation Services Pty Limited
The Superannuation Clearing House Pty Limited
Complete Corporate Solutions Pty Limited
Company Matters Pty Ltd
The Australian Superannuation Group (WA) Pty Ltd
Link DigiCom Pty Limited
Link Intime India Private Ltd
Link Business Services Pty Ltd
Link Administration Services Pty Limited
Country of
incorporation
Australia
Australia
% Ownership
interest
consolidated
2017
% Ownership
interest
consolidated
2016
100
100
100
100
South Africa
74.85
86.78
Australia
Australia
Australia
Australia
Australia
Australia
South Africa
Papua New
Guinea
Australia
United Kingdom
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
India
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
74.85
86.78
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
121
Annual Report 2017 3. Notes to the Financial Statements (continued)
Group structure (continued)
Country of
incorporation
% Ownership
interest
consolidated
2017
% Ownership
interest
consolidated
2016
Subsidiaries
Link Advice Pty Limited (formerly Money Solutions Pty Limited)
Link Super Pty Limited
PSI Superannuation Management Pty Limited
Empirics Marketing Pty Limited
FuturePlus Financial Services Pty Limited
Link Property Pty Limited
FuturePlus Legal Services Pty Limited
Accrued Holdings Pty Limited
Synchronised Software Pty Limited
Link Market Services (EMEA) Limited
Link Market Services GmbH (formerly Link Market Services (Germany)
GmbH)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
Germany
Link Market Services (Frankfurt) GmbH (formerly Registrar Services GmbH)
Germany
HCE Haubrok AG40
Germany
100
100
100
51.3
100
100
100
51.3
100
100
100
100
-
100
100
100
51.3
100
100
100
51.3
100
100
100
100
100
Pacific Custodians (Nominees) (RF) Pty Limited
South Africa
74.85
86.78
D.F. King Limited
Link Administration Support Services Pty Limited
Superpartners Pty Limited
Link Administration Resource Services Pty Limited
Link Market Services (New Zealand) Limited
Pacific Custodians (New Zealand) Limited
Link Fund Solutions Pty Limited (formerly White Outsourcing Pty Limited)
Adviser Network Pty Limited
Link Land Registry Services Pty Limited
Link Land Registries Holdings Pty Limited
United Kingdom
Australia
Australia
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
-
Subsidiaries are entities controlled by the Company. Control exists when Link Group has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences until the date
that control ceases. The accounting policies of subsidiaries have been changed on acquisition when necessary to align
them with the policies adopted by Link Group.
40. HCE Haubrok AG merged with Link Market Services GmbH on 1 July 2016.
122
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Other disclosures
24. Related parties
Key Management Personnel compensation
The aggregate Key Management Personnel (KMP) compensation comprised the following:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Total equity
25. Auditor’s remuneration
Audit of the financial statements
Auditor of the Company
Audit-related services
Auditor of the Company
Other services
Auditor of the Company
Other services includes accounting and IPO-related work provided during the financial year.
2017
$
2016
$
6,953,205
5,539,044
175,470
33,201
528,248
198,462
66,597
-
7,690,124
5,804,103
2017
$
2016
$
902,810
1,072,810
560,698
598,870
615,458
1,685,700
2,078,966
3,357,380
123
Annual Report 2017 3. Notes to the Financial Statements (continued)
Other disclosures (continued)
26. Commitments
Non-cancellable operating lease commitments
Operating lease rentals are payable as follows:
Not later than one year
Later than one year but not later than five years
More than five years
2017
$’000
201641
$’000
29,574
128,268
164,906
322,748
30,491
107,451
142,857
280,799
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.
Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
27. Subsequent events
On 26 June 2017, Link Group announced it had entered into a binding agreement to acquire Capita Asset Services
(CAS) from Capita plc for £888 million ($1,493 million). Completion of the acquisition is subject to mandatory regulatory
approvals and is expected to complete by 31 December 2017. CAS is a business offering a broad range of financial
and administrative services across the UK and Europe and is a strong strategic fit aligned to Link Group’s key business
growth drivers.
Funding for the acquisition will be via a combination of a fully underwritten entitlement offer to raise additional capital
of $883 million, cash and available debt facilities including a new £485 million acquisition debt facility. The entitlement
offer was successfully completed in July 2017 with the issue of 130,839,343 ordinary shares. On 26 June 2017, Link
Group took out a foreign exchange forward contract to hedge against movement in the Australian Dollar/Pound Sterling
exchange rate during the period between the entitlement offer and settlement of the acquisition. The financial impact of
the forward contract is discussed in Note 16.
In July 2017, Link Group used some of the proceeds from the successful entitlement offer to fully repay all of the
$313,500,000 non-current interest-bearing loans. The existing facilities remain available to Link Group in accordance
with the terms described in Note 13 and may be redrawn upon completion of the CAS acquisition or as otherwise
required throughout the remainder of the facility term.
Other than the matters described above, the dividend declared on 18 August 2017 and the introduction of the Link
Group Dividend Reinvestment Plan (DRP - see Note 18), there has not arisen in the interval between the end of the
financial year and the date of this Report any item, transaction or event of a material and unusual nature likely, in
the opinion of the Directors of the Company, to affect significantly the operations of Link Group, the results of those
operations, or the state of affairs of Link Group, in future financial years.
41. Prior year comparatives were restated to reduce lease commitments by $15,794,000 to account for rent-free incentives and future lease payments on operating leases. The
amount of rent-free incentives were dependent upon finalisation of office fitouts, which were in progress as at 30 June 2016.
124
Link Group – Connecting people & technology 3. Notes to the Financial Statements (continued)
Other disclosures (continued)
28. New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning
after 1 July 2017 and have not been applied in preparing these consolidated financial statements. Those which may be
relevant to Link Group are set out below. Link Group does not intend to adopt these standards early.
AASB 9 Financial Instruments replaces the existing guidance in AASB 139 Financial Instruments: Recognition and
Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a
new expected credit loss model for calculating impairment on financial assets and new general hedge accounting
requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from
AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption
permitted. An assessment of the new standard is ongoing, however, it is not expected to result in a change to any
classifications of financial instruments or have a material impact on Link Group.
AASB 15 Revenue from Contracts with Customers replaces existing revenue recognition guidance under Australian
Accounting Standards. The core principle of AASB 15 is to recognise revenues when control of goods or services is
transferred to customers in an amount that reflects the consideration that is expected to be received for those goods
or services. AASB 15 defines a five-step process to achieve this core principle and, in doing so, it is possible more
judgement and estimates may be required within the revenue recognition process than required under existing Australian
Accounting Standards. AASB 15 also allows costs incremental to obtaining a contract to be capitalised as an asset and
expensed consistently with the pattern of revenue recognition arising from the contract.
AASB 15 requires mandatory application by Link Group for the financial year ended 30 June 2019, however, is available
for early adoption. On initial application, AASB 15 permits either full retrospective or a modified retrospective application
approach. Link Group is currently assessing its contracts and evaluating the potential impact on its consolidated
financial statements resulting from the application of AASB 15.
AASB 16 Leases removes the distinction between operating and finance leases for lessees and will require nearly
all leases to be accounted for as both an asset and liability on the statement of financial position. There is also new
guidance on when an arrangement would meet the definition of a lease. AASB 16 is effective for annual reporting
periods beginning on or after 1 January 2019, with early adoption permitted where AASB 15 Revenue from Contracts
with Customers is adopted at the same time.
Link Group is assessing the potential impact of the application of AASB 16 on its financial statements, including
the potential impact of the various transition provisions available to Link Group. Using approximate values, if Link
Group were to adopt AASB 16 as at 30 June 2017, the present value of the future minimum lease payments for non-
cancellable operating leases disclosed in Note 26 would be recognised as a financial liability in the statement of financial
position, and under the transition provisions available, Link Group would also recognise a corresponding amount as
a right-of-use asset. The new standard is also likely to result in a reduction in occupancy expenses as lease costs
will instead be allocated against the lease liability. The lease asset will be amortised over the life of the lease resulting
in a depreciation and amortisation charge. The depreciation and amortisation charge is expected to approximate the
reduction in occupancy expenses.
125
Annual Report 2017 4. Directors’ Declaration
1. In the opinion of the Directors of Link Administration Holdings Limited (Link Group):
(a) The consolidated financial statements and notes that are set out on pages 82 to 125 and the Remuneration Report on
pages 58 to 78 in the Directors’ Report are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of Link Group’s financial position as at 30 June 2017 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 Link Group 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
Managing Director and the Chief Financial Officer for the financial year ended 30 June 2017.
3. The Directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of
compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors:
Dated 18 August 2017 at Sydney.
Michael Carapiet
Chair
John McMurtrie
Managing Director
126
Link Group – Connecting people & technology
5. Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Link Administration Holdings Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of Link
Administration Holdings 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 2017 and of its
financial performance for the year ended on
that date; and
•
•
The Financial Report comprises:
• Consolidated statement of financial position as
at 30 June 2017
• 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
complying with Australian Accounting
Standards and the Corporations Regulations
2001.
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.
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.
Liability limited by a scheme approved under
Professional Standards Legislation.
127
Annual Report 2017
5. Independent Auditor’s Report (continued)
Key Audit Matters
The Key Audit Matters we identified are:
• Valuation of goodwill
• Employee remuneration
•
Investments in unlisted equity securities
• Revenue
Valuation of goodwill ($610.5m)
Refer to Section 3, note 11
Key Audit Matters are those matters that, in our
professional judgment, were of most significance
in our audit of the Financial Report for the current
period.
These matters were addressed in the context of
our audit of the Financial Report as a whole, and in
forming our opinion thereon, and we do not
provide a separate opinion on these matters.
The key audit matter
How the matter was addressed in our audit
The Group’s annual testing of goodwill for
impairment is a Key Audit Matter due to the size of
the goodwill balance (being 49% of total assets)
and the forward-looking assumptions the Group
applied in its Value in Use models including:
•
•
forecast cash flows, growth rates and terminal
growth rates which are impacted by duration,
renewal and key terms of major client
contracts and competitive market conditions.
Estimating the projected cash flow forecast
into the future is inherently subjective and
susceptible to differences in outcome.
discount rate - these are subjective in nature
and vary according to the specific conditions
and environment of Cash Generating Units
(CGUs).
We involved valuation specialists to supplement
our senior audit team members in assessing this
key audit matter.
Our procedures included:
• We considered the appropriateness of the
value in use method applied by the Group to
perform the annual test of goodwill for
impairment against the requirements of the
accounting standards.
• We assessed the integrity of the value in use
models used, including the accuracy of the
underlying calculation formulas.
•
•
•
Assessing the historical accuracy of the
Group’s forecasts by comparing to actual
results, to use in our evaluation of forecasts
incorporated in the value in use model.
Assessing the consistency of the forecast
cash flows assumptions, including analysis of
major client contracts incorporated into the
forecasts, for alignment to the Group’s 2018
budget and our inquiries with the Group.
Performing sensitivity analysis of key
assumptions, in particular discount rates,
forecast growth rates and terminal growth
rates, to identify those assumptions at a
higher risk of bias or inconsistency in
application.
128
Link Group – Connecting people & technology
5. Independent Auditor’s Report (continued)
• Working with our valuation specialists we
used our knowledge of the Group and its
industry to independently develop a discount
rate range considered comparable using
publicly available market data for comparable
entities.
• We assessed the disclosures in the financial
report using our understanding of the
information obtained from our testing and
against the requirements of the accounting
standards.
Employee remuneration ($350.9m)
Refer to Consolidated Statement of Profit and Loss and Other Comprehensive Income and Section 3,
note 21
The key audit matter
How the matter was addressed in our audit
Employee remuneration is a Key Audit Matter due
to:
•
•
the size of the total employee expenses (being
54% of total expenses); and
the complexity of share based payment
disclosures and the related audit effort, in
particular for the new Omnibus Equity Plan
(share based payment plan) for senior
executives and senior management which
was introduced by the Group in 2017.
Our additional audit effort was driven from:
•
•
the complexity of accounting for share based
compensation plan arrangements; and
the new Omnibus Equity Plan for senior
executives and senior management used
terms and definitions which have not been
used before, necessitating our detailed
assessment of the key inputs and conditions
applied. The Group engaged an independent
expert to perform the grant date fair valuation
of the Omnibus Equity Plan. The key inputs to
the valuation model at year end were grant
date, vesting date, performance start date and
vesting conditions.
Our procedures included:
•
•
•
•
•
Testing key controls over the employee
remuneration process and the recording
thereof in the books and records.
For the Omnibus Equity plan, reading the
terms and evaluating the appropriateness of
the accounting treatment under criteria
contained in accounting standards AASB 2
Share- based Payment and/or AASB 119
Employee Benefits, including determination of
the grant, performance start and vesting
dates.
Checking a sample of current year grants to
underlying documentation including employee
signed offer letters and Board meeting
minutes.
Examining the valuation report issued by the
Group’s independent expert and comparing
the key inputs in the valuation model to
underlying documentation such as the
Omnibus Equity Plan.
Assessing the scope, competence and
objectivity of the independent expert engaged
by the Group.
These conditions necessitated senior team
member involvement in assessing complex
matters such as performance start date.
• We assessed the integrity of the valuation
model used, including the accuracy of the
underlying calculation formulas.
129
Annual Report 2017
5. Independent Auditor’s Report (continued)
•
•
•
Evaluating the Group’s judgements of key
vesting conditions, such as number of
employees who are expected to complete the
service period, for consistency with historical
service periods.
Checking the current year share based
payment expense for a sample of employees
to the key terms in employee signed offer
letters.
Assessing the Group’s disclosures as required
by AASB 2 for share based payments reflect
underlying agreements as tested by us above.
Investments in unlisted equity securities ($135.4m)
Refer to Section 3, note 16
The key audit matter
How the matter was addressed in our audit
Investments in unlisted equity securities is a Key
Audit Matter due to:
•
•
the increasing size of the balance; and
the valuation of these investments in unlisted
equity securities held at fair value is based on
a range of inputs, some of which are not
readily available. Where observable market
data is not readily available, the Group is
required to make judgements in selecting the
valuation technique to estimate the fair value
of these assets. We focused our assessment
on the reasonableness and authoritativeness
of the sources used for inputs to the
valuations.
Our audit effort has increased in this area as the
Group’s investment in unlisted equity securities
has increased significantly in the current year.
Our procedures included:
• We considered the appropriateness of the
method applied by the Group to perform
the valuation of the investments in
unlisted equity securities against the
requirements of the accounting standards.
•
•
For these investments in unlisted equity
securities where market data was not
readily available, we obtained details of
the recent capital raising transaction for
the unlisted equity securities, and
compared the value from this external
data source to the value recorded by the
Group.
For the key valuation inputs, including
discount rate and growth rate, we
analysed the change in these inputs from
those used in the capital raising
transaction to those used in the year end
valuation. We compared this to our
understanding of the investments and
knowledge of industry trends. We
investigated significant variances.
• We assessed the disclosure of the
Group’s investments in unlisted equity
securities with reference to the
accounting standard requirements,
130
Link Group – Connecting people & technology
5. Independent Auditor’s Report (continued)
including the appropriateness and
adequacy of disclosures of fair value risks
and sensitivities.
Revenue ($779.9m)
Refer to Consolidated Statement of Profit and Loss and Other Comprehensive Income
The key audit matter
How the matter was addressed in our audit
Revenue is a Key Audit Matter due to:
Our procedures included:
•
•
its significance to the Group’s results; and
the significant audit effort required as a
result of the various streams of revenue
derived from a number of diverse services
and products offered to customers.
The Group generates revenue across its three
business units from a variety of services and
product offerings. Significant revenue streams
include fees from the provision of administration
services to superannuation funds, fees from
provision of services to corporates, and fees from
services and products offered via the Group’s
technology hub.
• Obtaining an understanding of processes and
testing key controls for significant revenue
streams across the three business units. This
included performing walkthroughs with the
Group’s respective business and finance teams
to check our understanding of the processes
and related controls.
• Testing of the Group’s controls over the review
and approval of key calculations and invoices
for significant revenue streams.
• Developing an expectation for contract based
revenue for the significant revenue streams
and comparing this with the actual contracted
revenue for the current year. We based this
upon prior year contract revenue and average
fee increase per signed customer contracts.
We adjusted our expectation for changes in
member numbers, obtained for the separate
revenue streams by checking to customer
invoices. We investigated significant variances.
• Using statistical sampling for other revenue
streams and checking the Group’s recorded
revenue to customer invoices, signed
customer contracts and bank statements.
• Selecting a sample of invoices across the
various revenue streams raised prior to year
end and post year end. We checked the timing
of revenue recorded against the details of the
service description on the invoice.
131
Annual Report 2017
5. Independent Auditor’s Report (continued)
Other Information
Other Information is financial and non-financial information in Link Administration Holdings 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; and
assessing the Group’s ability to continue as a going concern. 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 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_files/ar2pdf. This
description forms part of our Auditor’s Report.
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Link Group – Connecting people & technology
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Link
Administration Holdings Limited for the year ended
30 June 2017, complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for
the preparation and presentation of the
Remuneration Report in accordance with Section
300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report
included in pages 58 to 78 of the Director’s report
for the year ended 30 June 2017.
Our responsibility is to express an opinion on the
Remuneration Report, based on our Audit
conducted in accordance with Australian Auditing
Standards.
KPMG
Andrew Yates Kim Lawry
Partner Partner
Sydney
18 August 2017
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
133
Annual Report 2017
Additional Shareholder Information
Additional information required by the Australian Securities Exchange (ASX) and not shown elsewhere in this report is as
follows. The information is current at 1 August 2017.
Distribution of Shareholders
There are 6,846 holders of 490,636,665 ordinary shares. There are no other classes of quoted equity securities on issue.
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
TOTAL
Ordinary Shares
Number of Holders
Number of Shares
1,774
3,436
865
677
94
6,846
965,642
8,729,782
6,148,641
14,932,915
459,859,685
490,636,665
Unmarketable parcel of shares
The number of security investors holding less than a marketable parcel of 65 securities ($7.810 on 01/08/2017) is 73 and
they hold 638 securities.
Substantial Shareholders
Name
Number of Shares
Current Interest
AustralianSuper Pty Ltd
37,770,883
10.50%
Ausbil Investment Management Limited
22,593,202
Cooper Investors Pty Limited
Challenger Limited
Macquarie Group Limited
22,227,161
24,737,802
19,150,168
6.28%
6.18%
5.34%
5.32%
Last date of Substantial
Shareholder notification
10.05.17
14.09.16
13.01.17
11.07.17
10.07.17
134
Link Group – Connecting people & technology Additional Shareholder Information (continued)
Top Twenty Shareholders (Ungrouped)
Name
J P Morgan Nominees Australia
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
Boston & Baxter Pty Limited
Bond Street Custodians Limited
John Menzies McMurtrie
Custodial Services Limited
William John Hawkins
RBC Investor Services Australia Nominees Pty Ltd
AMP Life Limited
HSBC Custody Nominees (Australia) Limited
Australian United Investment Company Limited
Mr Phillip Muhlbauer
Holdco 2007 (No.2) Pty Limited
Australian Foundation Investment Company Limited
Australian Foundation Investment Company Limited
Number of Ordinary
Shares held
145,449,208
94,377,430
55,602,474
40,014,698
28,557,966
12,797,536
10,772,014
8,274,750
6,177,741
5,302,687
4,172,238
3,189,643
2,978,303
2,541,187
2,431,766
2,210,000
1,850,000
1,779,128
1,740,667
1,655,698
%
29.64
19.24
11.33
8.16
5.82
2.61
2.20
1.69
1.26
1.08
0.85
0.65
0.61
0.52
0.50
0.45
0.38
0.36
0.35
0.34
Total Top 20
431,875,134
88.02
135
Annual Report 2017 Additional Shareholder Information (continued)
On-Market Buy Back
There is no current on-market buy back.
Voting Rights
The voting rights attached to ordinary shares are set out below.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
There are no other classes of quoted equity securities.
Unquoted equity securities
Link Administration Holdings Limited has 678,759 unquoted equity securities.
Securities subject to Voluntary Escrow
Period escrow ends
Management (2)
Until 29 June 2020
Total of Escrowed Shares
Use of Cash and Assets
Number of securities subject to escrow
600,000
600,000
Link Administration Holdings Limited has used the cash and assets in a form readily convertible to cash at the time of
admission to the ASX in a way that is consistent with its business objectives as stated in its Prospectus.
Stock Exchange Listing
Link Administration Holdings Limited securities are only listed on the ASX.
Corporate Information
Chief Financial Officer & Joint Company Secretary
John Hawkins
General Counsel & Joint Company Secretary
Janine Rolfe
Registered Office and Principal Administrative Office
Address:
Level 12, 680 George Street
Sydney NSW 2000, Australia
Telephone Number: +61 2 8280 7100
Web: www.linkgroup.com
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Link Group – Connecting people & technology
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Annual Report prepared by Fallon Dasey (www.fallondasey.com)