PSC Insurance Group Limited ANNUAL REPORT 2020 PSC Insurance Group Limited & Controlled Entities ACN 147 812 164 Level 4, 96 Wellington Parade East Melbourne VIC 3002 www.pscinsurancegroup.com.au 2 CONTENTS Chairman’s Letter ............................................................................................................................................... 1 Managing Director’s Report ...........................................................................................................................2 Corporate Governance Statement ................................................................................................................5 Directors’ Report ................................................................................................................................................9 Auditors Independence Declaration......................................................................................................... 22 Financial Statements ...................................................................................................................................... 23 Notes To The Financial Statements .......................................................................................................... 27 Directors’ Declaration .................................................................................................................................... 85 Independent Auditor’s Report .................................................................................................................... 86 Shareholder Information ...............................................................................................................................91 Corporate Information .................................................................................................................................. 93 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES CHAIRMAN’S LETTER 1 My Fellow Shareholders, It is a pleasure to be able to write to you post release of another record underlying earnings result for the financial year ending June 2020. To have grown underlying earnings by 34% and, as importantly, grown underlying earnings per share by 23% is a fantastic achievement, particularly in this environment and the conditions we have all been enduring particularly with COVID-19. Our Managing Director’s Report will provide detail on the financial and operating results for 2020. An important contributor to that growth has been the mergers that occurred this year, the largest of which was Paragon. The two principal shareholders of Paragon prior to the merger were James Kalbassi and Tara Falk. Both continue to play pivotal roles in Paragon and are having a positive impact across the Group, including via the expansion of Tara Falk’s responsibilities in joining the PSC Group Board. Tara is already making a significant contribution to the Board and we thank her for taking on that additional responsibility. The success of the year is a product of the efforts of everyone in PSC. Everyone has faced challenges in 2020 and to have delivered the result notwithstanding those difficulties is a tribute to all involved in the Group. It has been a year that has shown our strength in diversity and our ability to continue to grow, despite the challenges in the external environment. What a great business, industry and team of people. Our business has been able to adapt to the challenging work constraints very quickly and is a credit to all involved in allowing the continued delivery of services to all our customers and suppliers, together with those within the PSC Group. It has been challenging as travel has become restricted with our offices around the globe, yet our people have grasped the challenge and excelled. The gratitude to all within PSC and all business units from the Board cannot be overstated. As I have stated previously, at PSC we believe the best businesses can grow organically, grow via acquisitions and be strong dividend payers. I am pleased to announce an increase in the fully franked final dividend to 5.5 cents per share, for total dividends for the year of 9.0 cents per share. Please also note that the Group has not received any government assistance via JobKeeper. Dividends have grown at a compound rate of 25% over the last 4 years since listing. Our strong dividend history is shown below: DIVIDENDS - CPS FY20 UNDERLYING NPATA TO STATUTORY NPAT 10 8 6 4 2 0 1H 2H FY2016 FY2017 FY2018 FY2019 FY2020 We are now advanced in our plans as to what can be achieved in the new financial year and we are confident that we can continue to achieve material earnings and earnings per share growth. PSC INSURANCE GROUP LTD FY19 TO FY20 BRIDGE Thanks again to my fellow Directors for their continued commitment and support and together we thank all the PSC staff for their continued and passionate support allowing our Group to make 2020 such a success. Unquestionably, they continue to be the greatest strength of the Group. We do look forward to being able to revisit many of our staff and customers throughout our numerous offices in the future, which has been constrained recently. In a personal business we will endeavour to maintain this contact as soon as $65,000,000 possible. $60,000,000 $70,000,000 $50,000,000 To my fellow Shareholders, thank you for your continued support and confidence you have placed in your Board. This year’s AGM is almost certainly going to be conducted online. I will miss the opportunity to meet with you personally, however look forward to connecting further at that time. $45,000,000 $55,000,000 $40,000,000 $35,000,000 Yours sincerely, $30,000,000 Underlying NPATA Pro Forma Tax Underlying NPBTA $Fair Value Adjustments (Investments) Transaction Related Costs *Other Non-Recurring, Non-Operational Items Amortisation NPAT Stat Actual Tax Expense $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 FY20 UNDERLYING EBITDATO FY21 NPATA $75,000,000 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 FY19 Underlying EBITDA Restructuring Businesses Invest Divs Bolt-Ins Acquisitions - New Units Organic Revenue Organic Costs AASB16 FY20 Underlying EBITDA Interest Depreciation Normalised Tax FY20 NPATA FY20 Underlying EBITDA Annualised Acquisitions Organic Revenue Growth Known Organic Cost Increases Cost Savings EBITDA (f) FY20 Annualised FY21 Underlying Interest Depreciation Normalised Tax FY21 NPATA (f) Brian Austin Chairman PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 2 MANAGING DIRECTOR’S REPORT Key financial highlights in 2020 were: • UNDERLYING REVENUE UP 49% TO $176.7M. • UNDERLYING EBITDA UP 33% TO $57.7M1. • UNDERLYING NPATA UP 34% TO $37.4M. • EPS GROWTH OF 23% TO 13.9 CPS. Year in Review: What an exceptional year. Exceptional in so many ways: a. Our two largest mergers, Paragon and Griffiths Goodall. b. One of the most difficult years for placing risks. c. An extraordinary social and business environment. Any one of these alone would make it an exciting and challenging year. All three together have stretched our people and our business. Perhaps that is the most exceptional part of the year. Just how well our people and our businesses have adapted, adjusted and responded to all of the above while continuing to focus on servicing our customers and driving themselves and the business forward. The outstanding financial results are the final record of those efforts by our people and the businesses. It is worth talking about some of these in a little more detail given their significance to us and also due to most of these challenges are continuing into this financial year. Firstly, the Paragon and Griffiths Goodall mergers. While all transactions see us acquire the right to future profit from historic shareholders, in every other way these are mergers. We combine businesses into PSC with the goal being for PSC to end up a more diversified and smarter Group. The outcome from these two mergers is that we are definitely a better business. Paragon is enormously well regarded in the insurance industry both in the UK and the USA and has been rated by its peers as the most capable broker in many of its professional and financial lines specialties. Its inclusion into PSC has increased the depth and capability in these areas and that has already helped us retain and gain clients in Australia. It has also allowed us to bring a person of significant insurance and commercial experience on to the PSC Board. Tara Falk has already made a great contribution in her new role as a PSC Director. Griffiths Goodall has also a made a difference to the Group. While its centre of gravity is regional Australia, its client base is Australia- wide and its expertise in a number of areas has been of value across the Group. It would be remiss to not mention the successful other transactions we have completed during the financial year 2020 (“FY20”) period. While smaller they are important as they have also brought great people into the Group. The size difference is more about the number of people joining the Group through an individual transaction than the importance of that transaction. The people who are joining the Group as part of any merger are the key factor in assessing the value of the opportunity and so our interest. With the acquisition of the Walker Insurance and Australian Unity GI broking businesses in Australia and the Carroll Insurance business in the UK, we have recruited some wonderful people to the Group. No report this year would be complete without mentioning the impact of COVID-19 on the business and social environment. The demands on people from this have been significant. It has made the underwriting market harder to access and it has been more difficult to place risks. Underwriters in Australia and the UK have all spent long periods of time working from home and so accessing them and selling them on the risks we are wanting to insure has been difficult. This is on top of a hardening market that has seen key global capacity being actively reduced, particularly in Lloyds. Dealing with those challenges has increased the demands on our people. That, coupled with the impact from COVID-19 on our clients and restrictions we have faced in physically visiting with many clients through this period has made it a very challenging period for the people and our business. 1. Adjusted for AASB16 impact of ~ -$0.3m to ensure like for like comparison. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 3 Those difficulties need to be recognised. Schools have been closed, placing demands on families to step up to additional roles, some families have dependents needing more support, and all people have lost interactions at work and with the social networks. Yet we have achieved a terrific result. For our clients, ourselves and for our shareholders. We have solved problems, made good decisions and benefitted from the foundations that have been laid in the Group over the preceding years. As we look forward, the changes we have made to adapt to this new environment, the continuing tailwinds of recent acquisitions, the calibre of the people in the Group and the commitment they have to their clients makes us confident that we will also achieve great results in FY21 and beyond. DIVIDENDS - CPS FY20 UNDERLYING NPATA TO STATUTORY NPAT 10 8 The FY21 year will be a year where we return our focus to achieving strong organic profit growth. We are well placed to do that given the abilities of our people and their resilience and also the recent efforts to reset the costs in a number of areas of the Group. That, coupled with the benefit of full year contributions from some of the acquisitions we made during FY20, makes us confident that we will see significant profit and EPS growth in the FY21 period. 4 6 2 0 Thank you to everyone involved in the Group and mostly thank you to people at the front of our businesses working with our clients to achieve great outcomes for them. FY2020 FY2017 FY2018 FY2016 FY2019 1H 2H Year in Review (Financial Commentary): We summarise the components of our 2020 growth below: $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Underlying NPATA Pro Forma Tax Underlying NPBTA $Fair Value Adjustments (Investments) Transaction Related Costs *Other Non-Recurring, Non-Operational Items Amortisation NPAT Stat Actual Tax Expense PSC INSURANCE GROUP LTD FY19 TO FY20 BRIDGE FY20 UNDERLYING EBITDATO FY21 NPATA FY19 Underlying EBITDA Restructuring Businesses Invest Divs Bolt-Ins Acquisitions - New Units Organic Revenue Organic Costs AASB16 FY20 Underlying EBITDA Interest Depreciation Normalised Tax FY20 NPATA FY20 Underlying EBITDA Annualised Acquisitions Organic Revenue Growth Known Organic Cost Increases Cost Savings EBITDA (f) FY20 Annualised FY21 Underlying Interest Depreciation Normalised Tax FY21 NPATA (f) $75,000,000 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 Comments: • The acquisitions of Paragon and Griffiths Goodall were the key driver of earnings growth, contributing $17.4m. The Paragon result of ~ $12m was the largest contributor and represented a 9 month contribution. All acquisitions have performed well. • There have been three businesses that have adversely impacted the organic growth by ~ $2.4m compared to the prior period. These were Breeze Underwriting Australia, Online Travel and Reliance Partners. We have and are actively making changes to all these units so they remain viable businesses in the Group. • Organic revenue growth across the Group was $6.2m (5.6%), and this was broadly based across the 3 operating segments. In Distribution, the Broking businesses performed well, aided by the hardening premium cycle and customer and Authorised Rep (AR) growth. In Agency, Chase Underwriting performed strongly with revenue growth of 11%. In the UK, Carrolls, Breeze Underwriting UK and Chase UK all performed strongly. • Organic cost growth across the Group was $6.4m (8.9%). Prior to COVID-19, the Group invested in additional capability to underpin the medium term prospects for the Group. Given the change in economic environment and outlook in Q4 the Group has reduced its cost base commensurately and these changes will be evident in FY21. • The overall result was adversely impacted by ~ $1.1m in lower dividends from non-operating investments held by the Group, largely BP Marsh and after the sale of our JLG investment. • The incremental contribution from bolt-in acquisitions was ~ $0.7m and the negative impact of AASB16 where the P&L impact exceeded the rental cash costs by ~ $0.3m. • Interest costs have increased over the period as a result of increased debt to fund the Paragon and Griffiths Goodall acquisitions. All debt facilities have remaining maturities greater than 4 years and covenants are comfortably covered. Leverage Ratio for the Group is ~ 2.5 times on a pro-forma historical basis. • The normalised tax adjusts for the impact of fair-value change in our investments and other non-recurring items. The normalised tax charge of $11.9m equates to an average tax rate of 24.2%, with the increased contribution from UK operations impacting this result. We expect this to be in the range of 26-27% in FY21. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 4 DIVIDENDS - CPS FY20 UNDERLYING NPATA TO STATUTORY NPAT Key adjustments to reconcile underlying to statutory results are below: $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 10 8 6 4 2 0 10 8 6 4 2 0 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 DIVIDENDS - CPS FY2016 FY2017 FY2018 FY2019 FY2020 1H 2H PSC INSURANCE GROUP LTD FY19 TO FY20 BRIDGE FY19 Underlying EBITDA Restructuring Businesses Invest Divs Bolt-Ins Acquisitions - New Units Organic Revenue Organic Costs AASB16 Interest Depreciation Normalised Tax FY20 NPATA FY20 Underlying EBITDA FY2016 FY2017 FY2018 FY2019 FY2020 1H 2H $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Comments: Underlying NPATA Pro Forma Tax Underlying NPBTA $Fair Value Adjustments (Investments) Transaction Related Costs *Other Non-Recurring, Non-Operational Items Amortisation Actual Tax Expense NPAT Stat FY20 UNDERLYING EBITDATO FY21 NPATA • Fair Value (Investments) – adjustment of ~ -$8.0m relates to changes in market value of the Group’s on balance sheet investments. On a net basis, this was the movement in the market value of our BP Marsh investment, which was impacted by the COVID-19 $75,000,000 induced market correction. $70,000,000 $65,000,000 • Transaction Related Costs – adjustment of ~ -$8.3m relate to 2 separate amounts, 1) ~ $3.7m in transaction related costs, principally $60,000,000 from Paragon, Griffiths Goodall and Carroll Insurance Group and 2) ~ $4.6m in the fair value adjustments in the deferred $55,000,000 consideration liabilities, and in turn these largely relate to the higher payments for both Paragon and Turner Insurance, which were $50,000,000 ahead of expectation. $45,000,000 • Other Non-Recurring Costs – of ~ $1.2m on a net basis relate to non-recurring costs from restructures to various businesses, as well $40,000,000 as movements in unrealised FX balances and FX hedge fair values. $35,000,000 $30,000,000 • Amortisation – of ~ $6.5m, which has increased materially over FY19, given the amortisation of acquired intangible assets as a result FY20 Annualised Cost Savings FY20 Underlying EBITDA Organic Revenue Growth FY21 Underlying EBITDA (f) Known Organic Cost Increases Annualised Acquisitions Normalised Tax FY21 NPATA (f) Depreciation Interest of the acquisitions. • The actual tax expense is ~ $5.3m lower than the pro-forma tax position of ~ $11.9m given the impact of these non-operating balances as well as deductions related to prior year acquisitions of client lists. Dividend and Outlook: The Chairman announced an increased final, fully franked dividend to 5.5 cents per share, bringing total dividends for the financial period to 9.0 cents per share. FY20 UNDERLYING NPATA TO STATUTORY NPAT $60,000,000 This represents a payout ratio of approximately 68%, based on underlying NPATA. Despite the uncertain economic conditions, we remain confident in the outlook of the Group for FY21, noting as follows: $50,000,000 $40,000,000 • The result will have a full annualised contribution from Paragon (Q1 FY21), plus the contribution from Carroll Insurance Group and other bolt-in acquisitions. $30,000,000 • The annualised impact of reduced costs implemented in Q4 FY20. $20,000,000 • An expectation for continued hard market conditions, which is expected to outweigh any potential volume reductions from $10,000,000 potentially weak economic conditions in our key Australian and UK markets. $0 On this basis we expect an underlying EBITDA range of $65-70m and underlying NPATA range of $40-43m. This is represented below at slightly ahead of the mid-point: $Fair Value Adjustments (Investments) Transaction Related Costs *Other Non-Recurring, Non-Operational Items Underlying NPATA Pro Forma Tax Underlying NPBTA Amortisation NPAT Stat Actual Tax Expense PSC INSURANCE GROUP LTD FY19 TO FY20 BRIDGE FY20 UNDERLYING EBITDATO FY21 NPATA $75,000,000 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 FY19 Underlying EBITDA FY20 Underlying EBITDA Restructuring Businesses Invest Divs Bolt-Ins Acquisitions - New Units Organic Revenue Organic Costs AASB16 Interest Depreciation Normalised Tax FY20 NPATA FY20 Underlying EBITDA Annualised Acquisitions Organic Revenue Growth Known Organic Cost Increases FY20 Annualised Cost Savings FY21 Underlying EBITDA (f) Interest Depreciation Normalised Tax FY21 NPATA (f) PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 5 CORPORATE GOVERNANCE STATEMENT The Board is responsible for the corporate governance of the Group. Outlined are policies and practices adopted by the Group. We are committed to high standards in accordance with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations unless stated otherwise. Principle 1 – Lay solid foundations for management and oversight The Board’s role includes guiding the Group’s strategic direction, driving its performance and overseeing the activities of management and the operation of the Group. The respective roles and responsibilities of the Board and Executives are defined in the Board Charter, a copy of which is available on the Group’s website at www.pscinsurancegroup.com.au. There is a clear delineation between the Board’s responsibility for the Group’s strategy and activities, and the day-to-day management of operations conferred upon the Group’s officers. More specifically, the Board is responsible for: Strategy and financial performance These include: • develop, approve and monitor the Group’s corporate strategy, investment and financial performance objectives; • determine the Group’s dividend policy; • evaluate, approve and monitor all aspects of capital management, including material acquisitions, divestitures and other corporate transactions, including the issue of securities of the Group and undertaking of new debt facilities or issue of debt securities; • approve all financial reports and material reporting and external communications by the Group; • appoint the Chair of the Board and, where appropriate, any Deputy Chair or Senior Independent Director. Executive and Board management These include: • appoint, monitor and manage the performance of the Group’s Directors; • manage succession planning for the Group’s Executive Directors and any other key management positions as identified from time to time; • • ratify the appointment and, where appropriate, the removal of senior management of the Group and any subsidiaries; review and approve the remuneration of individual Board members and Senior Executives, having regard to their performance. Audit and risk management These include: • appoint the external auditor and determine its remuneration and terms of appointment; • ensure effective audit, risk management and regulatory compliance programs are in place; • approve and monitor the Group’s risk and audit framework and its Risk Management Policy; • monitor the Group’s operations in relation to, and in compliance with, relevant regulatory and legal requirements; • approve and oversee the integrity of the accounting, financial and other corporate reporting systems and monitor the operation of these systems. Corporate governance and disclosure These include: • • evaluate the overall effectiveness of the Board, its committees and its corporate governance practices and policies; supervise the public disclosure of all matters that the law and the ASX Listing Rules require to be publicly disclosed in a manner consistent with the Continuous Disclosure Policy; • approve the appointment of Directors to committees established by the Board and oversee the conduct of each committee. The Group Secretary, Stephen Abbott, reports directly to the Chairman of the Board. The role of the Group Secretary is outlined in the Board Charter. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 6 CORPORATE GOVERNANCE STATEMENT (continued) The responsibility for the operation of the Group is delegated by the Board to the Managing Director. The Board and senior management monitor the performance of the Group through monthly reporting of the operating performance of each business, with reference to Board approved budgets and prior corresponding periods. The Remuneration and Nominations Committee monitors the performance of Key Management Personnel. All Directors have a written agreement setting out the terms of their employment. Principle 2 – Structure the Board to add value The Board currently comprises three Non-Executive Directors and three Executive Directors. Of these six Directors, two are independent Non-Executive Directors; Mr Brian Austin and Mr Melvyn Sims. The Board are highly invested in the Group and believe this is in the best interests of all shareholders to drive the performance and add value. Mr Brian Austin, Mr Paul Dwyer and Mr John Dwyer are all substantial shareholders in the Group. While Mr Austin’s direct and indirect shareholding in the Group may be an indicator that he may not be an independent Director under ASX guidelines, the Board believes he continues to act independently of management and in the best interests of all shareholders and consequently the Board has deemed that he is independent. The experience and expertise relevant to the position of Director held by each Director at the date of this report is included in the Directors’ Report. The term in office held by each Director at the date of this report is as follows: Name Brian Austin – Chairman, Independent Non-Executive Director Paul Dwyer – Deputy Chairman, Non-Executive Director Antony Robinson – Managing Director John Dwyer – Executive Director Tara Falk – Executive Director Melvyn Sims – Independent Non-Executive Director Term in office 10 years 10 years 5 years 10 years 1 year 4 years Principal 2.4 and 2.5 of the ASX Corporate Governance Principals and Recommendations recommends that the Board comprise a majority of Directors who are independent. The Board as currently composed does not comply with those recommendations. The Board has established two committees to assist it in its endeavours: • Audit & Risk Committee. • Remuneration & Nominations Committee. The charter of each of these committees can be reviewed at www.pscinsurancegroup.com.au. In considering the skills required by members of the Board, consideration is given to the following: • Insurance industry experience. • Executive management experience. • Financial acumen. • Legal knowledge. • UK business experience. • Operational and acquisition experience. The Board has considered these requirements and is satisfied with the current composition. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 7 To enable performance of their duties, all Directors: • Are provided with appropriate information in a timely manner and can request additional information at any time, • Have access to the Company Secretary; • Are able to seek independent professional advice at the company’s expense; • Are able to undertake professional development opportunities to further develop their knowledge and skill needed to perform their role as Director; and • Have undergone an induction process to enable them to be effective Directors and gain substantial knowledge of the company. Principle 3 – Promote ethical and responsible decision making The Group is committed to operating honestly and ethically in all its business dealings and to embody this commitment has adopted a Code of Conduct which applies to all Directors, officers, employees, contractors or consultants of the Group as well as a Securities Trading Policy. Each of these has been prepared having regard to the ASX Corporate Governance Principles and Recommendations and is available on the Group’s website at www.pscinsurancegroup.com.au. The Group has adopted a Diversity Policy, a copy of which is available on the Group’s website at www.pscinsurancegroup.com.au. Where candidates for Board and Executive positions have commensurate experience and expertise, the Group will have a preference for appointments that enhance our diversity. Presently, the proportion of female employees across the Group is 46%. Principle 4 – Safeguard integrity in financial reporting The Group has established an Audit & Risk Management Committee to oversee the management of financial and internal risks. The Committee is chaired by Non-Executive Director, Mr Paul Dwyer. Mr Antony Robinson is the other member of this committee. Principal 4.1 of the ASX Corporate Governance Principals and Recommendations recommends that the audit committee have at least three members all of whom are Non-Executive Directors. The Audit & Risk Management Committee is governed by an Audit & Risk Management Committee Charter, a copy of which is available on the Group’s website at www.pscinsurancegroup.com.au. Key roles of the Committee include: • Review of the half year and full year statutory financial statements; • Consideration of the performance of the external audit and the periodic rotation of that role; • Review of risk management assessment and the Group’s Risk Management Policy and internal financial controls; • The Audit & Risk Committee met three times during the year and each member attended all meetings. Prior to the approval of the financial statements, the Board received a declaration from the Managing Director, Group Chief Executive Officer and Chief Financial Officer that, in their opinion, the financial records have been properly maintained, are in accordance with Australian Accounting Standards and give a true and fair view of the financial performance and financial position of the Group. The company’s auditor, Ernst & Young, has indicated they will be attending the Annual General Meeting. Principle 5 – Make timely and balanced disclosure The Group is committed to providing timely and balanced disclosure to the market in accordance with its Continuous Disclosure Policy, a copy of which is available on the Group’s website at www.pscinsurancegroup.com.au. The Continuous Disclosure Policy is designed to ensure compliance with ASX Listing Rules and the Corporations Act 2001. All disclosures are subject to Board ratification. Principle 6 – Respect the rights of Shareholders The Group has adopted a Shareholder Communications Policy for Shareholders wishing to communicate with the Board, a copy of which is available on the Group’s website at www.pscinsurancegroup.com.au. The Group seeks to recognise numerous modes of communication, including electronic communication, to ensure that its communication with Shareholders is timely, frequent, clear and accessible. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 8 CORPORATE GOVERNANCE STATEMENT (continued) The Group provides investors with comprehensive and timely access to information about itself and its governance on its website at www.pscinsurancegroup.com.au. All Shareholders are invited to attend the Group’s annual meeting, either in person or by representative. The Board regards the annual meeting as an excellent forum in which to discuss issues relevant to the Group and accordingly encourages full participation by Shareholders. Shareholders have an opportunity to submit questions to the Board and to the Group’s auditor. Principle 7 – Recognise and manage risk In conjunction with the Group’s other corporate governance policies, the Group has adopted a Risk Management Policy, which is designed to assist the Group to identify, evaluate and mitigate risks affecting the Group. The Audit & Risk Management Committee is responsible for reviewing whether the Group has any material exposure to any economic and commercial risks, and if so, to develop strategies to manage such risks, and present such strategies to the Board. The Audit & Risk Management Committee is supported by the Group Manager Governance and Compliance who has a direct line of report into this committee. The Group has identified certain key risks that could materially impact its performance, and implemented measures to manage these risks. These include, however are not limited to: • Regulatory risk – as a Group of regulated financial services businesses, changes in regulation or actions by regulators could impact the Group; • Personnel risk – competent employees and management are very important to the ongoing success of the Group; • Financial risk – sound risk management of the financial controls around client monies and financial reporting are very important; • Underwriter risk – the Group’s underwriting agency businesses require the ongoing support of their underwriters. If this support is withdrawn it could impact the Group. Risk management within the Group is further enhanced by a separate Compliance and Risk Management committee that meets quarterly to assess operational compliance risks across the Group and is comprised of the Group’s compliance managers, finance staff, Company Secretary and chaired by the Group Manager Governance and Compliance. This committee provides a written report to each full Board Meeting via the Group Manager Governance and Compliance. The Group Manager Governance and Compliance attends each full Board Meeting. Compliance managers are responsible for monitoring and auditing insurance related operational functions to ensure continuing compliance with respective jurisdictional licensing requirements. Regular internal communication between the Group’s management and Board supplements the Group’s Risk Management Policy. The Group at least annually evaluates the effectiveness of its risk management framework to ensure that its internal control systems and processes are monitored and updated on an ongoing basis. Under the Audit & Risk Management Committee Charter, the Audit & Risk Management Committee is responsible for providing an independent and objective assessment to the Board regarding the adequacy, effectiveness and efficiency of the Group’s risk management and internal control process. A copy of the Group’s Risk Management policy is available on the Group’s website at www.pscinsurancegroup.com.au. Principle 8 – Remunerate fairly and responsibly The Group has a Remuneration & Nominations Committee to oversee the level and composition of remuneration of the Group’s Directors and Executives. The Group’s Remuneration & Nomination Committee is governed by a Remuneration & Nomination Committee Charter, a copy of which is available on the Group’s website at www.pscinsurancegroup.com.au. The committee comprises two Directors: • Brian Austin (Chairman) • Paul Dwyer Principal 8.1 of the ASX Corporate Governance Principals and Recommendations recommends that the Remuneration and Nominations Committee have at least three members all of whom are Non-Executive Directors. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES DIRECTORS’ REPORT 9 The Directors present their report together with the financial report of the Group consisting of PSC Insurance Group Limited and the entities it controlled, for the financial year ended 30 June 2020 and auditor’s report thereon. This financial report has been prepared in accordance with Australian Accounting Standards. Directors The names of directors in office at any time during or since the end of the year are: Brian Austin Paul Dwyer Antony Robinson John Dwyer Melvyn Sims Tara Falk (appointed 8 October 2019) The Directors have been in office since the start of the year to the date of this report unless otherwise stated. Company Secretary Mr Stephen Abbott holds the office of Company Secretary (appointed 18 May 2015). Principal activities The principal activity of the Group during the course of the financial year remained unchanged, namely operating a diverse range of insurance services businesses across Australia, the UK and New Zealand, the results of which are disclosed in the attached financial statements. These services include risk financing, insurance, risk management and claims management solutions. Results The consolidated profit after income tax and eliminating non-controlling interest attributable to the members of PSC Insurance Group Limited was $17,887,000 (2019: $24,693,000). Review of operations A review of the operations of the Group during the financial year and the results of those operations are as follows: Statutory revenue increased from $126.2m to $169.0m and statutory net profit after tax attributable to owners of PSC Insurance Group Limited decreased from $24.7m to $17.9m. Underlying operating revenue increased 49% from $119.0m to $176.7m, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 33% from $43.3m to $57.4m and underlying net profit after tax before amortisation (NPATA), increased 34% from $27.8m to $37.4m. The Group remains well capitalised with a sound balance sheet position. The Board maintains a positive view and outlook on the prospects of the business. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 10 DIRECTORS’ REPORT (continued) After balance date events The Group has completed one acquisition since balance date. Please refer to Note 38: Subsequent Events for full details. Likely developments The Group will continue to focus on creating, acquiring and enhancing its operations to create shareholder value over the medium term to ensure our clients get the best possible service and value. Environmental regulation The Group’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. Dividend paid, recommended and declared Details of dividends paid, declared or recommended are as follows: (a) Dividends paid or declared by PSC Insurance Group Limited Dividends paid fully franked (b) Dividends paid to non-controlling interests Dividends paid partially franked (c) Dividend declared after the reporting period and not recognised 2020 $ 2019 $ 23,195,566 18,625,261 445,546 464,797 Since the end of the reporting period the directors have recommended / declared dividends of 5.5 cents per share (2019: 5.2 cents per share) fully franked 15,786,064 13,690,648 Since the end of the reporting period the directors have recommended / declared dividends to non- controlling interests - - Shares under option Unissued ordinary shares of PSC Insurance Group Limited under option at the date of this report as follows: Name of option holder Melvyn Sims Antony Robinson (held through a related entity, Rowena House Pty Ltd) Antony Robinson (held through a related entity, Rowena House Pty Ltd) Antony Robinson (held through a related entity, Rowena House Pty Ltd) Antony Robinson (held through a related entity, Rowena House Pty Ltd) Shares issued on exercise of options Date option granted Number of unissued ordinary shares under option Issue price of shares Expiry date of the options 8 August 2016 600,000 $1.66 per share 8 July 2021 16 May 2019 3,500,000 $3.00 per share 16 May 2019 1,500,000 $3.25 per share 16 May 2019 1,500,000 $3.50 per share 16 May 2019 1,500,000 $3.75 per share 31 December 2022 31 December 2022 31 December 2022 31 December 2022 No shares were issued during the reporting period or up to the date of this report on exercise of options. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 11 Information on directors and company secretary The qualifications, experience and special responsibilities of each person who has been a director of PSC Insurance Group Limited at any time during or since 1 July 2019 is provided below, together with details of the company secretary as at the year end. Director Brian Austin Non-Executive Chairman Member of Remuneration and Nomination Committee Paul Dwyer Non-Executive Director and Deputy Chairman Dip Fin Serv (Ins) Member of Audit and Risk Management Committee and Remuneration and Nomination Committee Antony Robinson Managing Director B Com (Melb), ASA, MBA (Melb) Member of Audit and Risk Management Committee Expertise, experience and qualifications Brian Austin, an Independent Director, was appointed to the Board on 10 December 2010. With over 35 years industry experience, Mr Austin has held senior executive positions in the insurance industry, including CEO of OAMPS Insurance Brokers Limited. Over that time Mr Austin has been instrumental in setting the strategy of capital raising and acquisitions. The executive positions Mr Austin has held has enabled him to develop a global network of key relationships that allow the future growth strategies of the entity to be pursued with much confidence. Mr Austin was a Director of the ASX listed AMA Group Limited until 21 February 2020. Paul Dwyer, a Non-Executive Director and Deputy Chairman, was appointed to the Board on 10 December 2010. Prior to founding PSC Insurance Group, Mr Dwyer held a senior executive position with OAMPS Insurance Brokers Limited and previous to that role was a Regional Underwriter with CGU. Mr Dwyer’s focus is the strategic direction of the entity, exploring acquisition and organic growth opportunities and to manage and work with the executive and staff within the entity to continually improve business operations. Antony Robinson, the Managing Director, was appointed to the Board on 13 July 2015. Mr Robinson has significant experience in wealth management and insurance, including Managing Director of Centrepoint Alliance Limited, Chief Executive Officer and Executive Director of IOOF Holdings Ltd and OAMPS Limited, joint Managing Director of Falkiners Stockbroking, Managing Director of WealthPoint, and senior executive positions at Link Telecommunications and Mayne Nickless. Mr Robinson’s appointment carries with it the responsibility to ensure that finances and decision-making are robust and the business is aligned to the growth strategy of the Board. Mr Robinson is a Director of ASX listed entities Bendigo and Adelaide Bank Limited, Pacific Current Group Limited and Longtable Group Limited (resigned 29 November 2019). John Dwyer Executive Director Dip Fin Serv (Ins) John Dwyer, an Executive Director, was appointed to the Board on 10 December 2010. Mr Dwyer has over 30 years experience in the insurance industry, spending time with QBE as a Regional Underwriting Manager, commencing a joint venture with OAMPS Insurance Brokers Limited and eventually becoming Eastern Region Manager (NSW & ACT). As Director of Broking across the PSC Insurance Group, Mr Dwyer brings specialist business integration and practical operational skills pivotal to a growing business. Mr Dwyer has not held directorships of other listed companies in the last three years. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 12 DIRECTORS’ REPORT (continued) Director Expertise, experience and qualifications Melvyn Sims Non-Executive Director LLB (Hons) Nottm. Mel Sims, an Independent Director, was appointed to the Board on 8 August 2016. Mr Sims is a highly regarded London based corporate lawyer with extensive experience in the insurance industry gained during his 29 years as a partner in the international law firm DLA Piper and since July 2015 as a partner in the international law firm DWF Group PLC which is listed on the London Stock Exchange. Over the course of Mr Sims’ career he has held senior management roles, including managing DLA Piper Offices and practice groups in the Middle East and advised businesses in commercial and transactional matters often with an international perspective and in diverse markets ranging from general retail, aviation, sport and leisure through to regulated financial services businesses. Mr Sims has extensive board experience, having served as a board member of the UK listed Towergate Insurance Limited for over 15 years. Mr Sims has not held directorships of other listed companies in the last three years. Tara Falk was appointed to the Board on 8 October 2019. Ms Falk has over 30 years in the insurance industry and is co-founder and co-CEO of Paragon International Insurance Brokers Ltd. Ms Falk has extensive experience in all operations of running a specialist Lloyd’s insurance broker, working with leading insurers in Lloyd’s, Europe, Bermuda and the United States. Ms Falk is involved with the placement of complex insurance programmes for many large professional service firms around the world and is also on the Board of LIIBA, London & International Insurance Brokers’ Association. Tara Falk Executive Director Stephen Abbott BBus, CA, CTA Stephen Abbott was appointed Company Secretary on 18 May 2015, having joined the PSC Insurance Group in March 2012. Mr Abbott has over 35 years experience in accounting and finance both within industry and commerce and professional services firms with the last 13 years in insurance broking. Directors’ meetings The number of meetings of the Board of Directors and of each Board Committee held during the financial year and the numbers of meetings attended by each director were: Brian Austin Paul Dwyer Antony Robinson John Dwyer Melvyn Sims Tara Falk Board of Directors Audit & Risk Committee Remuneration Committee Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended 12 12 12 12 12 7 10 12 12 12 12 7 - 3 3 - - - - 3 3 - - - 1 1 - - - - 1 1 - - - - In addition to the scheduled Board Meetings, the Board has informal discussions on a regular basis to consider relevant issues. It also discusses strategic, operational and risk matters with senior management on an ongoing basis. Director’s interests in contracts Directors’ interests in contracts are disclosed in the remuneration report. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 13 Directors’ interests in shares or options Directors’ relevant interests in shares of PSC Insurance Group Limited or options over shares in the company are detailed below. Directors’ relevant interests in: Ordinary shares of PSC Insurance Group Limited Options over shares in PSC Insurance Group Limited Brian Austin Paul Dwyer Antony Robinson John Dwyer Melvyn Sims Tara Falk 35,611,300 67,174,852 802,565 35,521,351 - 7,286,200 - - 8,000,000 - 600,000 - Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. Non-Audit Services Non-audit services are approved by resolution of the Audit Committee to the Board. Non-audit services provided by the auditors of the Group, Ernst & Young (Melbourne), network firms of Ernst & Young, and other non-related audit firms, are detailed below. The Directors are satisfied that the provision of the non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 for the following reasons: • all non-audit services were subject to the corporate governance procedures adopted by PSC Insurance Group Limited Ltd and have been reviewed and approved by the Audit Committee to ensure they do not impact on 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 PSC Insurance Group Limited Ltd or any of its related entities, acting as an advocate for PSC Insurance Group Limited Ltd or any of its related entities, or jointly sharing risks and rewards in relation to the operations or activities of PSC Insurance Group Limited Ltd or any of its related entities. Amounts paid/payable to Ernst & Young (Melbourne) for non-audit services: Consulting Services Taxation Services Amounts paid/payable to non-related auditors of group entities for non-audit services: Taxation Services Other Services Total Amount Paid/Payable *Fees paid in 2019 were to Pitcher Partners (Melbourne), the previous auditor 2020 $ 50,000 45,974 95,974 10,745 - 10,745 106,719 2019* $ 14,324 17,015 31,339 18,524 21,541 40,065 71,404 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 14 DIRECTORS’ REPORT (continued) Indemnification and insurance of directors, officers and auditors During or since the end of the year, the Group has given indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums in order to indemnify the directors of the Group. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract. No indemnities have been given or insurance premiums paid, during or since the end of the year, for any person who is or has been an auditor of the Group. Proceedings on behalf of the Group No person has applied for leave of Court to bring proceedings on behalf of PSC Insurance Group Limited or any of its subsidiaries. Rounding Amounts In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in the Directors’ Report and in the financial statement have been rounded to the nearest one thousand dollars, unless otherwise indicated. Remuneration Report (Audited) The Directors present the Group’s 2020 remuneration report which details the remuneration information for PSC Insurance Group Limited’s Executive Directors, Non-Executive Directors and other key management personnel. This remuneration report forms part of the Directors’ Report and has been audited in accordance with the Corporations Act 2001. A. Details of the Key Management Personnel Directors Brian Austin Paul Dwyer Antony Robinson John Dwyer Melvyn Sims Tara Falk Period of Responsibility Position Full Year Full Year Full Year Full Year Full Year Chairman, Independent Non-Executive Director Deputy Chairman, Non-Executive Director Managing Director Executive Director Independent, Non-Executive Director From 8 October 2019 Executive Director Other Key Management Personnel Rohan Stewart Joshua Reid Period of Responsibility Full Year Full Year Position Group Chief Executive Officer Chief Financial Officer PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 15 B. Remuneration Policies Remuneration and Nomination Committee The Remuneration and Nomination Committee of the Board of Directors was established on 1 June 2015 and is responsible for making recommendations to the Board on the remuneration arrangements for all key management personnel. The current members of the Remuneration and Nomination Committee are: Brian Austin and Paul Dwyer. The Remuneration Committee assess the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of high quality, high performing directors and executive team. In determining the level and composition of executive remuneration, the Remuneration and Nomination Committee may also engage external consultants to provide independent advice. The primary responsibility of the Remuneration and Nomination Committee is to review and recommend to the Board: • Executive remuneration and incentive policies and practices; • The Executive Director’s total remuneration having regard to remuneration and incentive policies; • The design and total proposed payments from any incentive plan and reviewing the performance hurdles for any equity based plan; • The remuneration and related policies of Non-Executive Directors for serving on the board and any committee (both individually and in total). The total aggregate amount of remuneration of Non-Executive Directors is approved by holders of its ordinary securities; and • Any other responsibilities as determined by the Remuneration and Nomination Committee or the Board from time to time. Remuneration Strategy The remuneration strategy of the Group is designed to attract, motivate and retain employees, executives and non-executive directors by identifying and rewarding high performers and recognising the contribution of executives and employees to the continued growth and success of the Group. To this end, the key objectives of the Group’s reward framework are to: • Align remuneration with the Group’s business strategy; • Offer an attractive mix of remuneration benchmarked against the applicable market’s region; • Provide strong linkage between individual and the Group’s performance and rewards; and • Support the corporate mission statement, values and policies through the approach to recruiting, organizing and managing people. Remuneration Structure In accordance with best practice corporate governance, the structure of the Non-Executive Directors and Executive remuneration is separate and distinct. Non-Executive Director Remuneration Structure The ASX Listing Rules specify that an entity must not increase the total aggregate amount of remuneration of Non-Executive Directors without the approval of holders of its ordinary securities. The Board and the Remuneration Committee, considers the level of remuneration required to attract and retain Directors with the necessary skills and experience for the Group’s Board. This remuneration is reviewed with regard to market practice and Directors’ duties and accountability. The Group set the following annual Non-Executive Directors’ fees: • Chairman: $350,000 per annum inclusive of superannuation; • Non-Executive Directors (Australia based): $100,000 per annum inclusive of superannuation; and • Non-Executive Directors (United Kingdom based): £90,000 per annum. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 16 DIRECTORS’ REPORT (continued) The Group determines the maximum amount for remuneration, including thresholds for share-based remuneration for Executives, by resolution. The remuneration received by the Non-Executive Directors for the year ended 30 June 2020 is detailed in Table 1 of this section of the report. Executive Remuneration Structure The contracts for service between the Group and executives are on a continuing basis, the terms of which are not expected to change in the immediate future. Remuneration may consist of the following elements: • Fixed remuneration (base salary and superannuation); • Variable remuneration – short term incentives (STI) in the form of performance based incentives; and • Long term incentive (LTI) (shares, options, performance rights and/or loan funded shares). Fixed Remuneration Fixed remuneration is reviewed annually by the Board / Remuneration and Nomination Committee. The process consists of a review of the Group and individual performance, relevant comparative remuneration from external and internal sources. Variable Remuneration – short-term incentive (STI) Objective The key objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the Managing Director charged with meeting those targets. Structure Any STI payments granted depends on the extent to which specific targets set at the beginning of the financial year or on appointment are met. The Key Milestones or Key Performance Indicators (KPIs) can cover individual, divisional and organisational financial measures of performance. The Group has predetermined benchmarks that must be met in order to trigger bonus payments. On a financial year basis, after consideration of performance against the Key Milestones or KPIs, the Remuneration Committee, in line with their responsibilities determine the amount, if any, of the STI to be paid to the Managing Director. There have been no STI payments to either Managing Director or other Key Management Personnel in the 2020 year. (2019 : $nil) - See Table 3. Variable Remuneration – long-term incentive (LTI) Objective The objectives of providing long-term incentives are: to attract, motivate and retain key PSC Directors and staff through the acquisition of, or entitlements to, shares and options. Structure The Board offers LTIs to reward the performance of Directors and staff, which is in alignment with shareholders’ interests and the long- term benefit of the Group. LTI awards are made under the PSC Insurance Group Limited Long Term Incentive Plan (Plan). Rewards under the LTI Plan will only vest and be exercisable if the applicable performance hurdles to vesting conditions have been satisfied, waived by the Board or are deemed to have been satisfied under the Plan Rules. There are currently no performance hurdles or vesting conditions attached to outstanding options or loan funded shares. Service Agreements The Group has entered into Agreements with all Executives, including the Managing Director. The Group may terminate the Executive Director’s Employment Agreements by providing at least six month’s written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive’s remuneration). The Group may terminate the contract at any time without notice if serious misconduct has occurred. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 17 Managing Director’s Remuneration Under Antony Robinson’s employment agreement his fixed remuneration is $600,000 per year inclusive of superannuation with 5 weeks annual leave. Mr Robinson is eligible to participate in the Long-term incentive arrangements operated by the Group in accordance with the terms and conditions governing those arrangements and as agreed to by the Board. On Mr Robinson’s appointment as Managing Director he received 8 million options under LTI, full details of which are disclosed further down in this report. Mr Robinson volunteered a one off pay cut in Financial year 2020 to support cost saving initiatives. C. Details of Remuneration of Key Management Personnel (a) Directors’ remuneration: Table 1 Short- term Post-employment Long-term TOTAL Options as % of total Salary fees (a) Superannuation (b) LSL accruals (c) Loan funded Shares Options 2020 $ $ $ Executive Directors Antony Robinson John Dwyer (i) Tara Falk Non-Executive Directors Brian Austin (ii) Paul Dwyer (iii) Melvyn Sims 504,638 350,000 386,951 350,000 94,343 168,887 1,854,819 19,208 9,652 - 53,399 - - - - - - - 72,607 9,652 $ - - - - - - - $ - - - - - - - $ % 533,498 350,000 440,350 350,000 94,343 168,887 1,937,078 - - - - - - - (a): Salary fees include amounts paid in cash and annual leave accruals which are determined in accordance with AASB 119 Employee Benefits. (b): Antony Robinson receives superannuation of $22,000 per year. Tara Falk’s superannuation is employers national insurance at 13.8% of salary. (c): Long service leave accruals are determined in accordance with AASB 119 Employee Benefits. John Dwyer provides his services via Glendale Dwyer Pty Ltd (ATF Dwyer Family Trust). i. ii. Brian Austin provides his services via Melimar Estate Pty Ltd iii. Paul Dwyer provides his services via Crathre Pty Ltd PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 18 DIRECTORS’ REPORT (continued) Short- term Salary fees (a) $ 285,655 45,253 325,000 325,000 8,431 68,303 134,062 1,191,704 2019 Executive Directors Paul Dwyer Antony Robinson John Dwyer Non-Executive Directors Brian Austin Paul Dwyer Antony Robinson Melvyn Sims Post-employment Long-term Superannuation LSL accruals (b) Loan funded Shares $ - $ - 1,692 279 - - - 6,236 - 7,928 - - - - - 279 $ - - - - - - - - TOTAL Options as % of total Options $ $ % - 285,655 1,558,956 1,606,180 - 325,000 - - - - 325,000 8,431 74,539 134,062 - 97% - - - - - 1,558,956 2,758,867 57% (b) Other Key Management Personnel remuneration: Table 2 Short- term Salary fees (a) $ 2020 Other Key Management Personnel Rohan Stewart (i) 450,000 Joshua Reid 363,231 813,231 Post-employment Long-term Superannuation LSL accruals (b) Loan funded Shares Options TOTAL Options as % of total $ - 34,703 34,703 $ - 6,100 6,100 $ 33,527 64,207 97,734 $ - - - $ 483,527 468,241 951,768 % - - - (a): Salary fees include amounts paid in cash and annual leave accruals are determined in accordance with AASB 119 Employee Benefits. (b): Long service leave accruals are determined in accordance with AASB 119 Employee Benefits. i. Rohan Stewart provides his services via H&S Nominee Holdings Pty Ltd Short- term Salary fees (a) $ 2019 Other Key Management Personnel Rohan Stewart Joshua Reid 450,000 374,540 824,540 Post-employment Long-term Superannuation LSL accruals (b) Loan funded Shares Options TOTAL Options as % of total $ - $ - 34,703 34,703 10,990 10,990 $ 25,145 55,825 80,970 $ - - - $ 475,145 476,058 951,203 % - - - PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 19 D. Relationship between remuneration and Group performance (a) Remuneration not dependent on satisfaction of performance condition Executives and Non-Executives remuneration policy is not directly related to the Group’s performance. The Board considers a remuneration policy based on short-term returns may not be beneficial to the long-term creation of wealth by the Group for shareholders. During the year, no elements of remuneration paid to Key Management Personnel for the Group were subject to the satisfaction of a performance condition. (b) Historical performance of the Group The following table summarises the Group’s performance and key performance indicators: Table 3 2020 2019 2018 2017 2016 Revenue and other income 169,043,569 126,236,558 118,685,706 84,475,859 67,766,163 % increase in revenue and other income 34% 7% 40% 25% 30% Profit before tax 25,273,711 36,834,805 40,327,294 27,114,780 15,973,533 % (decrease)/increase in profit before tax Change in share price (31%) ($0.05) (9%) ($0.27) 49% $0.60 70% $0.55 36% N/a Dividend paid to shareholders 23,195,566 18,625,261 15,639,646 10,148,015 6,505,295 Return of capital 10% 13% 11% 12% 16% E. Key management personnel’s share-based compensation (a) Details of compensation Options In 2020, no options were granted to Key Management Personnel. In 2020, Antony Robinson exercised 300,000 options at $1 per share. (b) Details of Loan Funded Shares In 2020, no loan funded shares were granted to Key Management Personnel. F. Key management personnel’s equity holdings (a) Number of options held by key management personnel As at 30 June 2020 key management personnel hold options under PSC’s Long-term Incentive Plan to purchase 8,600,000 ordinary shares of the Group. Table 4 2020 Key management personnel Antony Robinson Melvyn Sims Balance 1/07/19 Exercised Balance 30/06/20 8,300,000 (300,000) 8,000,000 600,000 8,900,000 - (300,000) 600,000 8,600,000 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 20 DIRECTORS’ REPORT (continued) (b) Number of shares held by key management personnel (consolidated) The relevant interest of each key management personnel in the share capital of the Group at 30 June 2020 is as follows: Table 5 2020 Directors Brian Austin Paul Dwyer Antony Robinson John Dwyer Melvyn Sims Tara Falk Balance 1/07/19 Shares issued from sale of Paragon (Net sale) / purchase of shares Exercise of options Balance 30/06/20 35,440,600 66,303,000 418,000 35,390,522 - - - - - - - 170,700 871,852 84,565 130,829 - 6,786,200 500,000 - - 300,000 - - - - - 35,611,300 67,174,852 802,565 35,521,351 - 7,286,200 2,812,778 1,170,299 Other Key Management Personnel Rohan Stewart Joshua Reid 3,312,778 1,170,299 - - (500,000) - 142,035,199 6,786,200 1,257,946 300,000 150,379,345 G. Loans to and from key management personnel (a) Aggregate of loans made There have been no loans made, guaranteed or secured, directly or indirectly, by the Group and any of its subsidiaries, in the financial year to a particular key management person, close members of the family of the key management person and entities related to them. (b) Aggregate of loans received There have been no loans received, guaranteed or secured, directly or indirectly, by the Group and any of its subsidiaries, in the financial year to a particular key management person, close members of the family of the key management person and entities related to them. H. Other transactions with Key Management Personnel Fuse Recruitment Pty Ltd, ADD Aviation Services Pty Ltd, P Capital Pty Ltd and The Lead Agency Pty Ltd (until 31 December 2018) are related parties as they are entities where John Dwyer, Paul Dwyer and Brian Austin or their closely related entities are shareholders. DWF LLP is a related party as Mel Sims is a Partner at the Company. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 21 During the year ended 30 June 2020 the following related entities provided services to the Group: Related party Fees Paid or Payable to associates (ex GST): Fuse Recruitment Pty Ltd Fuse Recruitment Pty Ltd The Lead Agency Pty Ltd Service received Recruitment Fees Contractor Fees 2020 $ 2019 $ 141,492 208,065 41,380 217,418 Marketing service fees - 94,371 ADD Aviation Services Pty Ltd Transportation service fees 12,860 131,394 DWF LLP Legal service fees 292,398 372,377 All the above services received from identified related parties of key management personnel were in the normal course of business, on terms and conditions no more favourable than those that it is reasonable to expect the party would have adopted if dealing at arms-length with an unrelated person. The outstanding balance of the above services is $19,906 from Fuse Recruitment Pty Ltd (2019: $21,249), which is expected to be settled within 30 days. The Group provided insurance services to related parties of a Director totalling $96,959 (2019: $206,061). The services supplied were in the normal course of business and on normal commercial terms and conditions. The fees outstanding for these services at balance date are $nil (2019 $5,766). The Group received trust distributions from a related party of a Director totalling $nil (2019: $289,432). The entity ceased to be a related party on 7 December 2018. The Group paid $700,000 to P Capital Pty Ltd during the year. The amount made relates to part payment of the purchase price for Charter Gilman Insurance Holdings Limited and Globe transactions approved at the EGM held during the year. The payment allowed PSC to take operational control earlier than otherwise. The balance of the purchase price payments were made post balance date when regulatory filings were completed as disclosed in Note 38. No other transactions occurred between key management personnel of the entity, their personally related entities or other related parties. I. Use of remuneration consultants No remuneration consultants were engaged during the course of the 2020 financial year. Signed in accordance with a resolution of the directors Brian Austin Chairman Melbourne Date: 24 August 2020 Antony Robinson Managing Director Melbourne Date: 24 August 2020 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 22 AUDITORS INDEPENDENCE DECLARATION Ernst & Young 8 Exhibit ion Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Audit or’s Independence Declarat ion t o t he Dir ect ors of PSC Insurance Group Limit ed As lead auditor for the audit of the financial report of PSC Insurance Group Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of PSC Insurance Group Limited and the entities it controlled during the financial year. Ernst & Young T M Dring Part ner 24 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislat ion PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 23 For The Year Ended 30 June 2020 Revenue and other income Fee and commission income Other revenue Interest income Other income Investment income Less: expenses Administration and other expenses Depreciation and amortisation expense Employee benefits expense Finance costs Employee contractors Information technology costs Professional fees Profit before income tax expense Income tax expense Net profit from continuing operations Other comprehensive income Items that will not be reclassified subsequently to profit or loss Revaluation of property, plant and equipment Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations Other comprehensive income for the year Total comprehensive income Profit is attributable to: - Owners of PSC Insurance Group Limited - Non-controlling interests Total comprehensive income is attributable to: - Owners of PSC Insurance Group Limited - Non-controlling interests 30-Jun 2020 $’000 30-Jun 2019 $’000 Notes 3 3 3 3 3 3 4 4 4 4 5 173,283 113,680 825 1,037 (6,625) 524 460 1,461 8,998 1,637 169,044 126,236 (27,979) (11,318) (87,302) (6,807) (3,292) (4,134) (2,938) (21,818) (2,947) (52,755) (3,449) (3,145) (3,663) (1,624) (143,770) (89,401) 25,274 (6,552) 18,722 36,835 (11,478) 25,357 - 1,100 (4,029) (4,029) 14,693 210 1,310 26,667 17,887 24,693 835 18,722 664 25,357 13,858 26,003 835 664 14,693 26,667 Earnings per share for profit attributable to the equity holders of the parent entity: Basic earnings per share Diluted earnings per share 31 31 6.7 cents 10.1 cents 6.5 cents 10.0 cents The above statement should be read in conjunction with the accompanying notes. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 24 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As At 30 Jun 2020 Current assets Cash and cash equivalents Other financial assets - trust cash Receivables Contract assets - broking Other assets Total current assets Non-current assets Receivables Other financial assets Equity accounted investments Property, plant and equipment Intangible assets Right of use asset Deferred tax assets Total non-current assets Total assets Current liabilities Payables Borrowings Provisions Current tax liabilities Financial liabilities Lease liabilities Other liabilities Total current liabilities Non-current liabilities Borrowings Provisions Deferred tax liabilities Financial liabilities Lease Liabilities Other liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Equity attributable to owners of PSC Insurance Group Limited Non-controlling interests Total equity * Prior period comparatives have been revised. Refer to note 1 (y) for details. The above statement should be read in conjunction with the accompanying notes. Notes 7 8 9 10 11 9 12 13 15 16 17 5 18 19 20 5 22 23 21 19 20 5 22 23 21 24 25 25 27 30-Jun 2020 $’000 25,973 167,904 11,612 49,552 9,046 30-Jun 2019* $’000 21,475 111,480 8,454 33,158 2,446 264,087 177,013 3,400 34,453 8,512 16,763 3,373 51,498 7,571 15,261 316,372 108,075 14,754 3,941 398,195 662,282 - 3,359 189,137 366,150 183,021 118,054 - 4,542 3,991 1,127 2,341 24,829 219,851 158,505 565 20,154 205 13,909 4,572 197,910 417,761 244,521 243,043 (40,449) 39,235 241,829 2,692 244,521 1,192 3,183 8,004 - - 10,152 140,585 55,831 455 13,255 - - 4,973 74,514 215,099 151,051 140,572 (36,473) 44,807 148,906 2,145 151,051 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For The Year Ended 30 June 2020 Balance as at 1 July 2018 Share capital $’000 Reserves* $’000 140,395 (37,368) Adjustment due to change of accounting policy, net of tax - - 140,395 (37,368) Restated opening balance Profit for the year Revaluation of property, plant and equipment, net of tax Exchange differences on translation of foreign operations, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Non-controlling interest arising from business combination Decrease in non-controlling interests In specie distributions Put option Employee share issues Dividends paid Total transactions with owners Balance as at 30 June 2019 Balance as at 1 July 2019 Restated opening balance Profit for the year Exchange differences on translation of foreign operations, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Capital issued Capital issuing costs Shares in lieu of cash for acquisition of subsidiary Converted share options Dividend reinvestment Non-controlling interest arising from business combination Put option reserve revaluation Employee share issues Dividends paid Total transactions with owners Balance as at 30 June 2020 * Prior period comparatives have been revised. Refer to note 1 (y) for details. The above statement should be read in conjunction with the accompanying notes. 25 Retained Earnings Non- controlling Interest* $’000 40,429 (1,245) 39,184 24,693 - - $’000 1,964 (28) 1,936 664 - - Total Equity $’000 145,420 (1,273) 144,147 25,357 1,100 210 - - (445) - - (18,625) (19,070) 44,807 1,219 (339) - (870) - (465) (455) 2,145 Retained Earnings Non- controlling Interest* $’000 44,807 (263) 44,544 17,887 $’000 2,145 - 2,145 835 1,219 (339) (445) (3,122) 2,014 (19,090) (19,763) 151,051 Total Equity $’000 151,051 (263) 150,788 18,722 1,310 24,693 664 26,667 - - - - - - - - 177 - 177 - 1,100 210 - - - (2,252) 1,837 - (415) 140,572 (36,473) Share capital $’000 Reserves* $’000 140,572 (36,473) 140,572 (36,473) - - - - 35,000 (577) 66,035 300 1,076 - - 637 - 102,471 243,043 (4,029) - - (4,029) (4,029) 17,887 835 14,693 - - - - - - (246) 299 - 53 (40,449) - - - - - - - - (23,196) (23,196) 39,235 - - - - - 245 (87) - (446) (288) 2,692 35,000 (577) 66,035 300 1,076 245 (333) 936 (23,642) 79,040 244,521 Adjustment due to change of accounting policy, net of tax - - PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 26 CONSOLIDATED STATEMENT OF CASH FLOWS For The Year Ended 30 June 2020 Cash flow from operating activities Receipts from customers Payments to suppliers and employees Trust distributions / dividends received Interest received Interest paid Income tax paid Operating cash before movement in customer trust accounts Net movement in customer trust accounts Net cash provided by operating activities Cash flow from investing activities Payment for property, plant and equipment Proceeds from sale of financial assets Payment for financial assets Payment for other investments Payment for equity investments Proceeds from sale of equity investments Net cash flow (used in) investing activities Cash flow from financing activities 30-Jun 2020 $’000 30-Jun 2019 $’000 Notes 181,137 117,416 (140,971) (88,047) 28 (b) 990 1,037 (4,290) (10,608) 27,295 (3,388) 23,907 (2,138) 5,706 (539) (721) (960) 633 1,981 997 1,461 (3,449) (7,814) 20,564 (2,892) 17,672 (1,883) 13,927 (33,876) - (647) 2,511 (19,968) Payments for deferred consideration/business acquisitions (129,863) (10,824) Proceeds from borrowings Repayments of borrowings Capital issued Capital issuing costs Proceeds from converted share options Payment of lease liabilities Dividends paid Loans to related parties Net cash provided by / (used in) financing activities Reconciliation of cash Cash at beginning of the year Net (decrease) / increase in cash held Effect of exchange rate fluctuation on cash held Cash at end of the year The above statement should be read in conjunction with the accompanying notes. 108,149 (7,513) 35,000 (825) 300 (3,290) 3,547 (971) - - - - (22,565) (19,090) (1,288) (192) (21,895) (27,530) 21,475 51,170 3,993 (29,826) 505 131 28 (a) 25,973 21,475 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 27 NOTES TO THE FINANCIAL STATEMENTS For The Year Ended 30 June 2020 Note 1: Statement Of Significant Accounting Policies The following is a summary of significant accounting policies adopted by the Group in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) Basis of preparation of the financial report This financial report is a general purpose financial report that has been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards, Interpretations and other applicable authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report covers PSC Insurance Group Limited and controlled entities as a Group. PSC Insurance Group Limited is a company limited by shares, incorporated and domiciled in Australia. The address of PSC Insurance Group Limited’s registered office and principal place of business is 96 Wellington Parade, East Melbourne, Victoria, 3002. PSC Insurance Group Limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS The consolidated financial statements of the Group also comply with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Historical cost convention The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes of assets as described in the accounting policies. Fair value measurement For financial reporting purposes, ‘fair value’ is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants (under current market conditions) at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. When estimating the fair value of an asset or liability, the Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Inputs to valuation techniques used to measure fair value are categorised into three levels according to the extent to which the inputs are observable: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 inputs are unobservable inputs for the asset or liability. Significant accounting estimates The preparation of the financial report requires the use of certain estimates and judgements in applying the Group’s accounting policies. Those estimates and judgements significant to the financial report are disclosed in Note 2 to the consolidated financial statements. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 28 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 (b) New and revised accounting standards effective at 30 June 2020 The Group has applied all new and revised Australian Accounting Standards that apply to annual reporting periods beginning on or after 1 July 2019. AASB 16: Leases AASB 16 has replaced AASB 117. AASB 16 requires a lessee to recognise most leases on balance sheet as lease liabilities, with corresponding right of use assets. Lessees are not required to recognise short term leases with a term of less than 12 months and leases of low value assets. Right-of-use assets are initially measured at their cost and lease liabilities are initially measured on a present value basis. As a result of the adoption of AASB 16, the nature of expenses relating to leases has changed. The Group has recognised depreciation expense for right of use assets and interest expense for lease liabilities. Previously lease costs were recognised as occupancy expenses. The Group has adopted the standard on 1 July 2019 by applying the modified retrospective approach on transition. Under this approach the cumulative effect of adoption has been recognised as an adjustment to opening retained earnings at 1 July 2019, with no restatement of comparative information. The Group applied the following available practical expedients: • Used a single discount rate to a portfolio of leases with reasonably similar characteristics • Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application and leases of low value. Impact The impact on transition at 1 July 2019 to the consolidated statement of financial position was as follows: Assets Increase in right of use assets Increase in deferred tax asset Liabilities Increase in lease liabilities Equity Decrease in retained earnings 2019 $’000 6,097 96 (6,456) 263 The table below is a reconciliation of the operating lease commitments disclosed in the Group’s 30 June 2019 financial statements, to the lease liabilities recognised on the transition date: Operating lease commitments disclosed at 30 June 2019 (less) impact of discounting the future lease cash flows at the incremental borrowing rate of each lease (Less) leases with a remaining term of less than one year and low value leases (Less) leases committed to but with a start date after 1 July 2019 Lease Liabilities recognised at 1 July 2019 2019 $’000 9,338 (512) (330) (2,040) (6,456) The Group applied a range of incremental borrowing rates between 4.60% and 6.50% (weighted average discount rate of 4.97%). The consolidated statement of profit and loss and other comprehensive income for the half year was lower by $0.3m due to application of the new standard being lease interest of $0.7m and lease depreciation of $2.9m, compared to rent expense of $3.3m on an equivalent basis. Further details of the Group’s accounting policies in relation to accounting for leases under AASB 16 are contained in note 1 (H). PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 29 IFRIC Interpretation 23: Uncertainty over Income Tax Treatments The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically addresses whether an entity considers uncertain tax treatments separately, the assumptions an entity makes about the examination of tax treatments and how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. Impact The new interpretation has not had a significant material impact on the financial statements the Group. (c) Going concern The financial report has been prepared on a going concern basis. (d) Principles of consolidation The consolidated financial statements are those of the Group, comprising the financial statements of the parent entity and of all entities which the parent entity controls. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies, which may exist. All inter-company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation. Subsidiaries are consolidated from the date on which control is established and are de-recognised from the date that control ceases. Equity interests in a subsidiary not attributable directly or indirectly to the Group are presented as non-controlling interests. Non- controlling interests are initially recognised either at fair value or at the non-controlling interests’ proportionate share of the acquired entity’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. Non-controlling interests in the results of subsidiaries are shown separately in the consolidated Statement of Profit or Loss and other Comprehensive Income and consolidated Statement of Financial Position respectively. Details of the Group’s controlling and non-controlling interests are detailed in Note 27. (e) Revenue The Group derives revenue from the provision of insurance services. Revenue is recognised as, or when, services are transferred to the customer, and is measured at an amount that reflects the consideration to which the Group expects to be entitled in exchange for the services. Provision of insurance services Commission, brokerage and fees are recognised when the Group has satisfied its performance obligations, which occurs at the point in time that control of the services are transferred to the customer. The performance obligation relating to commission, brokerage and fee income relates to the provision of insurance broking services. Commission, brokerage and fees are recognised when the Group has satisfied its performance obligations, which occurs at the point in time that control of the services are transferred to the customer. Revenue is constrained to reflect potential lapses and cancellations based on past experiences and future expectations. Where there is a future performance obligation to provide claims handling services, a portion of revenue relating to these services is deferred and recognised over time as the performance obligation is satisfied. Interest income Interest income is recognised in accordance with the effective interest method. Investment income Dividend income is recognised when the right to receive a dividend has been established. Dividends received from associates and joint ventures are accounted for in accordance with the equity method. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 30 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Other revenue Other revenue is recognised when the right to receive payment is established. Other income Profit on sale of financial assets is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal, net of disposal costs. This is recognised as an item of revenue in the year in which the significant risks and rewards of ownership transfer to the buyer. All revenue is stated net of the amount of goods and services tax (GST). Receivables from contracts with customers A receivable from a contract with a customer represents the Group’s unconditional right to consideration arising from the transfer of services to the customer (i.e., only the passage of time is required before payment of the consideration is due). Subsequent to initial recognition, receivables from contracts with customers are measured at amortised cost and are tested for impairment. Contract liabilities A contract liability represents the Group’s obligation to transfer services to the customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Amounts recorded as contract liabilities are subsequently recognised as revenue when the Group transfers the contracted services to the customer. (f) Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position comprise cash at bank, in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents as defined above are shown net of outstanding bank overdrafts. Cash held on trust is held for insurance premiums received from policyholders which will ultimately be paid to underwriters, is separately disclosed in the Statement of Financial Position as “Other Financial Assets – trust cash”. Cash held on trust cannot be used to meet business obligations/operating expenses other than payments to underwriters and/or refunds to policyholders. (g) Property, plant and equipment Each class of property, plant and equipment is measured at cost or fair value less, where applicable, any accumulated depreciation and any accumulated impairment losses. Plant and equipment Plant and equipment is measured at cost, less accumulated depreciation and any accumulated impairment losses. Property Land and buildings are measured at revalued amounts, being the fair value at the date of the revaluation, less any subsequent accumulated depreciation and any accumulated impairment losses. At each reporting date the carrying amount of each asset is reviewed to ensure that it does not differ materially from the asset’s fair value at reporting date. Where necessary, the asset is revalued to reflect its fair value. Increases in the carrying amounts arising on revaluation of land and buildings are recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. To the extent that the increase reverses a decrease of the same asset previously recognised in profit or loss, the increase is recognised in profit or loss. Decreases that offset previous increases of the same asset are recognised in other comprehensive income under the heading of revaluation surplus; all other decreases are charged to profit or loss. Depreciation Land is not depreciated. The depreciable amounts of all property, plant and equipment are depreciated over their estimated useful lives commencing from the time the asset is held ready for use. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 31 Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful lives for each class of assets are: Leasehold improvements at cost Buildings Office equipment at cost Computer equipment at cost Motor Vehicles at cost (h) Leases Liabilities Depreciation Rate Depreciation Basis 2.5% - 30% 2.5% 2%-67% 10% - 67% 12.50% Straight line and diminishing Value Straight line Straight line and diminishing value Straight line and diminishing value Straight line At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The determination of the lease term and the incremental borrowing rate requires the use of judgement. (i) Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. The lease term determined by the Group comprises non-cancellable periods of leases and periods covered by options to extend the lease, if the Group is reasonably certain to exercise that option. (j) Business combinations A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses and results in the consolidation of the assets and liabilities acquired. Business combinations are accounted for by applying the acquisition method. The consideration transferred is the sum of the acquisition date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquired. Deferred consideration payable is measured at its acquisition date fair value. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. At each reporting date subsequent to the acquisition, contingent consideration payable is measured at its fair value with any changes in the fair value recognised in profit or loss unless the contingent consideration is classified as equity, in which case the contingent consideration is carried at its acquisition date fair value. Goodwill is recognised initially at the excess over the aggregate of the consideration transferred, the fair value of the non-controlling interest, and the acquisition date fair value of the acquirer’s previously held equity interest (in the case of step acquisition), less the fair value of the identifiable assets acquired and liabilities assumed. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 32 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 If the net fair value of the acquirer’s interest in the identifiable assets acquired and liabilities assumed is greater than the aggregate of the consideration transferred, the fair value of the non-controlling interest, and the acquisition date fair value of the acquirer’s previously held equity interest (in case of step acquisition), the gain is immediately recognised in the profit or loss. Acquisition related costs are expensed as incurred. (k) Intangibles Goodwill Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identifiable or separately recognised. Refer to Note 1(j) for a description of how goodwill arising from a business combination is initially measured. Goodwill on consolidation represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired entities at the date of acquisition. Goodwill is not amortised but is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is carried at cost less accumulated impairment losses. Identifiable intangible assets Identifiable intangible assets acquired separately from a business combination are initially measured at fair value. The cost of an intangible asset acquired in a business combination is its fair value as at acquisition date. The useful lives of these intangible assets are assessed on acquisition. Following initial recognition, intangible assets are adjusted for any accumulated amortisation and impairment losses. Intangible assets with finite lives are amortised over the useful lives, currently estimated to be up to 10 years. Useful lives are reviewed annually. (l) Impairment of non-financial assets Goodwill, intangible assets not yet ready for use and intangible assets with indefinite useful lives are not subject to amortisation and are therefore tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. For impairment assessment purposes, assets are generally grouped at the lowest levels for which there are largely independent cash flows (‘cash generating units’). Accordingly, most assets are tested for impairment at the cash-generating unit level. Because it does not generate cash flows independently of other assets or groups of assets, goodwill is allocated to the cash generating unit or units that are expected to benefit from the synergies arising from the business combination that gave rise to the goodwill. Assets other than goodwill, intangible assets not yet ready for use and intangible assets with indefinite useful lives are assessed for impairment whenever events or circumstances arise that indicate the asset may be impaired. An impairment loss is recognised when the carrying amount of an asset or cash generating unit exceeds the asset’s or cash generating unit’s recoverable amount. The recoverable amount of an asset or cash generating unit is defined as the higher of its fair value less costs to sell and value in use. Refer to Note 2 for a description of how management determines value in use. Impairment losses in respect of individual assets are recognised immediately in profit or loss unless the asset is carried at a revalued amount such as property, plant and equipment, in which case the impairment loss is treated as a revaluation decrease in accordance with the applicable Standard. Impairment losses in respect of cash generating units are allocated first against the carrying amount of any goodwill attributed to the cash generating unit with any remaining impairment loss allocated on a pro rata basis to the other assets comprising the relevant cash generating unit. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 33 (m) Income tax Current income tax expense or revenue is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities. Deferred tax balances Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets are expected to be recovered or liabilities are settled. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Deferred tax assets and liabilities are shown on a net basis in the statement of financial position. Tax consolidation The parent entity and it’s 100% Australian controlled entities formed an income tax consolidated group under the tax consolidation legislation on 8 December 2015. This replaced the three pre-existing tax consolidated groups on that date. Within the consolidated group there is an additional tax consolidated group with AR (WA) Pty Ltd as the head entity. For details of members of the respective tax consolidated groups and other changes to those groups please refer to note 27. The parent entity in each tax consolidated group is responsible for recognising the current tax liabilities and deferred tax assets arising in respect of tax losses for the tax consolidated group. The tax consolidated groups have also entered into a tax funding agreement with their members whereby each company in the Group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group. Each tax consolidated group also has a tax sharing agreement in place to limit the liability of subsidiaries in the tax consolidated group arising under the joint and several liability requirements of the tax consolidation system in the event of default by the parent entity to meet its payment obligations. (n) Payables on broking, reinsurance and underwriting agency operations These amounts represent insurance premium payable to the insurance companies for broking, reinsurance and underwriting agency operations on invoiced amounts to customers and liabilities for goods and services provided to the Group prior to the end of the financial period and which are unpaid. The amounts are unsecured and are usually paid within 30 to 90 days of recognition. (o) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 34 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 (p) Employee benefits i. Short-term employee benefit obligations Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits (other than termination benefits) expected to be settled wholly before twelve months after the end of the annual reporting period are measured at the (undiscounted) amounts based on remuneration rates which are expected to be paid when the liability is settled. The expected cost of short-term employee benefits in the form of compensated absences such as annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables in the Consolidated Statement of Financial Position. ii. Other Long-term employee benefit obligation The provision for employee benefits in respect of long service leave and annual leave which, are not expected to be settled within twelve months of the reporting date, are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee turnover, and are discounted at rates determined by reference to market yields at the end of the reporting period on high quality corporate bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the change occurs. Employee benefit obligations are presented as current liabilities in the Consolidated Statement of Financial Position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. iii. Retirement benefit obligations Defined contribution superannuation plan The Group makes contributions to the employee’s defined contribution superannuation plans of choice in respect of employee services rendered during the year. These superannuation contributions are recognised as an expense in the same period when the employee services are received. The Group’s obligation with respect to employee’s defined contributions entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the Consolidated Statement of Financial Position. iv. Share-based payments The Group operates share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is measured at the market bid price at grant date. In respect of share-based payments that are dependent on the satisfaction of performance conditions, the number of shares and options expected to vest is reviewed and adjusted at each reporting date. The amount recognised for services received as consideration for these equity instruments granted is adjusted to reflect the best estimate of the number of equity instruments that eventually vest. v. Bonus plan The Group recognises a provision when a bonus is payable in accordance with the employee’s contract of employment, and the amount can be reliably measured. vi. Termination benefits Termination benefits are payable when employment of an employee or group of employees is terminated before the normal retirement date, or when the entity provides termination benefits as a result of an offer made and accepted in order to encourage voluntary redundancy. The Group recognises a provision for termination benefits when the entity can no longer withdraw the offer of those benefits, or if earlier, when the termination benefits are included in a formal restructuring plan that has been announced to those affected by it. (q) Borrowing costs Borrowing costs can include interest expense calculated using the effective interest method, finance charges in respect of finance leases, and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 35 (r) Financial instruments Classification Financial assets recognised by the Group are subsequently measured in their entirety at either amortised cost or fair value, subject to their classification and whether the Group irrevocably designates the financial asset on initial recognition at fair value through other comprehensive income. Financial assets not irrevocably designated on initial recognition at fair value through other comprehensive income are classified as subsequently measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss on the basis of both: a. the Group ’s business model for managing the financial assets; and b. the contractual cash flow characteristics of the financial asset. Initial recognition and measurement Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value adjusted for transaction costs, except where the instrument is classified as fair value through profit or loss, in which case transaction costs are immediately recognised as expenses in profit or loss. Trade and other receivables Receivables from broking, reinsurance and underwriting agency operations are initially recognised based on the invoiced amount to customers and are generally due for settlement within 14 to 60 days. After initial recognition, provision is made for lapses or cancellations of insurance policies or other matters that may lead to cancellation. Receivables from reinsurance broking are initially recognised based on contract value. Following fulfilment of the contract, amounts are then invoiced to customers. Consistent with both the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the assets, trade and other receivables are subsequently measured at amortised cost. Held for trading equity instruments Held for trading equity instruments comprise those ordinary shares and options in listed entities that have been acquired by the Group principally for the purpose of sale in the near term. Held for trading investments are classified (and measured) at fair value through profit or loss. Fair values of listed entities are based on closing bid prices at the reporting date. A financial asset meets the criteria for held for trading if: a. b. it has been acquired principally for the purpose of sale in the near term; on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or c. it is a derivative other than a designated and effective hedging instrument. Other shares and units held Other shares and units held comprise of equity investments in non listed entities. Other shares and units held are classified (and measured) at fair value through profit or loss. For investments where there is no quoted market price, fair value is determined by reference to expected future cash flows and valuations of the underlying net asset base of the investment. Loans and receivables Loans and receivables are debt instruments, and are classified (and measured) at amortised cost using the effective interest rate method on the basis that: a. they are held within a business model whose objective is achieved by the Group holding the financial asset to collect contractual cash flows; and b. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 36 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Impairment of financial assets The following financial assets are tested for impairment at each financial year end: a. debt instruments measured at amortised cost; b. receivables from contracts with customers and contract assets. The Group provides for allowances for credit losses for both receivables from contracts with customers and contract assets. Under the AASB 9, the Group determines the allowance for credit losses for receivables from contracts with customers and contract assets on the basis of the lifetime expected credit losses of the instrument. Lifetime expected credit losses represent the expected credit losses that are expected to result from default events over the expected life of the financial asset. For all other financial assets subject to impairment testing, when there has been a significant increase in credit risk since the initial recognition of the financial asset, the allowance for credit losses is recognised on the basis of the lifetime expected credit losses. When there has not been an increase in credit risk since initial recognition, the allowance for credit losses is recognised on the basis of 12-month expected credit losses. ’12-month expected credit losses’ is the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date. The Group considers a range of information when assessing whether the credit risk has increased significantly since initial recognition. This includes such factors as the identification of significant changes in external market indicators of credit risk, significant adverse changes in the financial performance or financial position of the counterparty, significant changes in the value of collateral, and past due information. Where there is a trade receivables balance, assessment is given to establish whether credit risk against this balance is mitigated in full as a result of the allowance for expected revenue losses on policy lapses and cancellations. The gross carrying amount of a financial asset is written off when the counterparty is in severe financial difficulty and the Group has no realistic expectation of recovery of the financial asset. Financial liabilities Financial liabilities include trade payables, other creditors, loans from third parties and loans or other amounts due to director-related entities. Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the Groups’ consolidated statement of financial position if there is an enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. (s) Investments in associates An associate is an entity over which the Group is able to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. The Group’s interests in associates are brought to account using the equity method after initially being recognised at cost. Under the equity method, the profits and losses of the associate are recognised in Group’s profit or loss and the Group’s share of the associate’s other comprehensive income items are recognised in the Group’s other comprehensive income. Details relating to associates are set out in Note 14. Unrealised gains and losses on transactions between the Group and an associate are eliminated to the extent of the Group’s share in an associate. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 37 (t) Interests in joint ventures Joint venture entities The Group’s interest in joint venture entities are brought to account using the equity method after initially being recognised at cost. Under the equity method, the profits or losses of the joint venture entity is recognised in profit or loss and the share of other comprehensive income items is recognised in other comprehensive income. Details relating to the joint venture entity are set out in Note 14. (u) Foreign currency translations and balances Functional and presentation currency The financial statements of each entity within the Group are measured using the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars which is the Group’s functional and presentation currency. Transactions and Balances Transactions in foreign currencies of entities within the Group are translated into functional currency at the rate of exchange ruling at the date of the transaction. Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the financial year. All resulting exchange differences arising on settlement or re-statement are recognised as revenues and expenses for the financial year. Foreign subsidiaries Subsidiaries that have a functional currency different from the presentation currency of the Group are translated as follows: a. Assets and liabilities are translated at the closing rate on reporting date. b. a. All resulting exchange differences are recognised in other comprehensive income. Items of revenue and expense translated at average rate. (v) Segment reporting Determination and presentation of operating segments The Group determines and presents operating segments based on information that is internally provided to the Group’s chief operating decision maker. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s components. All operating segment results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Refer to Note 37 for details on how management determine the operating segments. Segment results that are reported to the Group’s chief operating decision maker include items directly attributable to a segment, as well as these that can be allocated on a reasonable basis. (w) Goods and services tax (GST) Revenues, expenses and purchased assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Consolidated Statement of Financial Position are shown inclusive of GST. Cash flows are presented in the Consolidated Statement of Cash Flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (x) Comparatives and Rounding of amounts Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. The parent entity and the Group have applied the relief available under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and accordingly, the amounts in the consolidated financial statements and in the directors’ report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar (where indicated). PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 38 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 (y) Restatement of comparative balances: 1. Broker receivables and payables Summary The Group has reassessed its accounting policy in relation to recognition of insurance premium receivables owed by policy holders upon entering into a policy and the corresponding premium payable to underwriters. The Group has determined that the premium receivable should no longer be recognised on the basis that the company’s role is an insurance intermediary and it is not performing the role or assuming liability as principals. The Group has determined that a more appropriate policy is to recognise premiums payable to the underwriter when the cash has been received from the policy holder, creating a liability to remit these monies to the underwriter. This change is aligned to emerging global practises. Amounts have been restated to ensure comparability between reporting periods. Impact: The impact of the change on the 30 June 2019 statement of financial position comparative balances was as follows: Current Assets Cash and cash equivalents Other financial assets - trust cash Receivables Contract assets - broking Other assets Total Current Assets Current liabilities Payables Total Current liabilities Year ended 30 June 2019 $’000 132,955 - 438,169 - 6,206 577,330 518,371 540,902 As restated for the year ended 30 June 2019 $’000 21,475 111,480 8,454 33,158 2,446 177,013 118,054 140,585 Change $’000 (111,480) 111,480 (429,715) 33,158 (3,760) (400,317) (400,317) (400,317) There was no impact on the consolidated statement of profit and loss and other comprehensive income. 2. Put Option Summary A financial liability has been recognised for the value the Group could be required to pay on the future exercise by holders of a put option in relation to the acquisition of Turners Financial Services Pty Ltd. After initial recognition, the fair value of the put option is reassessed at each reporting period with reference to profitability of the underlying entity. Amounts have been restated to ensure comparability between reporting periods. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 39 Impact: The impact of the change on the 30 June 2019 statement of financial position comparative balances was as follows: Non-Current Liabilities Other liabilities Total Non-Current Liabilities Equity Put option reserve Non-controlling interests Total Equity Year ended 30 June 2019 $’000 1,851 71,392 - 3,015 154,173 As restated for the year ended 30 June 2019 $’000 4,973 74,514 (2,252) 2,145 151,051 Change $’000 3,122 3,122 (2,252) (870) (3,122) There was no impact on the consolidated statement of profit and loss and other comprehensive income. (z) Accounting standards issued but not yet effective at 30 June 2020 The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. Title Effective date Financial year mandatory Note AASB 2018-6 - Amendments to Australian Accounting Standards – Definition of a Business AASB 2019-1 - Conceptual Framework AASB 2018-7 - Amendments to Australian Accounting Standards – Definition of Material 1 January 2020 30 June 2021 1 January 2020 30 June 2021 1 January 2020 30 June 2021 AASB 2019-5 - Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia 1 January 2020 30 June 2021 AASB 2014-10 - Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2022 30 June 2023 (i) (ii) (ii) (ii) (ii) (i) In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition. (ii) The Group does not expect the impact of the new and amended standards to have a significant impact on the financial statements. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 40 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 2: Significant Accounting Estimates And Judgements Certain accounting estimates include assumptions concerning the future, which, by definition, will seldom represent actual results. Estimates and assumptions based on future events have a significant inherent risk, and where future events are not as anticipated there could be a material impact on the carrying amounts of the assets and liabilities discussed below: (a) Business combinations and goodwill When a business combination occurs, the fair values of the identifiable assets and liabilities assumed, including intangible assets, are recognised. The determination of the fair values of acquired assets and liabilities is based, to a considerable extent, on management’s judgement. If the purchase consideration exceeds the fair value of the net assets acquired then the difference is recognised as goodwill. If the purchase price consideration is lower than the fair value of the assets acquired then a gain is recognised in the income statement. Allocation of the purchase price between finite life assets and indefinite life assets such as goodwill affects the results of the Group as finite lived intangible assets are amortised, whereas indefinite life intangible assets, including goodwill, are not amortised. (b) Impairment of goodwill Goodwill is allocated to cash generating units (CGU’s) according to applicable business operations. The recoverable amount of a CGU is based on value in use calculations or fair value assessments. Fair value calculations are based on estimates of sustainable revenue for each CGU multiplied by a revenue multiple appropriate for similar businesses, less costs to sell. Value in use calculations are based on projected cash flows approved by management covering a period of 5 years. Management’s determination of cash flow projections are based on past performance and its expectation for the future, including any potential impacts from COVID-19. The present value of future cash flows has been calculated using an average revenue growth rate of 3% (2019: 5%) and expense growth rate of 2% (2019: 3%) for cash flows in year two to five and a terminal value growth rate of 2% (2019: 2%). A pre-tax discount rate of 10%-14% (2019: 16.67%) to determine value-in-use has been used. The pre-tax discount rate used is dependent on specific attributes of the segments and determined by the Board. (c) Income Tax Deferred tax assets and liabilities are based on the assumption that no adverse change will occur in the income tax legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise those temporary differences. (d) Deferred consideration The Group has made a best estimate of consideration payable for the acquisitions where there is a variable purchase price (generally a multiple of revenue). Should the final revenue vary from estimates, the Group will be required to vary the consideration payable and recognise the difference as an expense or income. (e) Intangible assets The carrying value of intangible assets with finite lives are assessed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated on the same basis as goodwill above. An impairment loss is recognised if the carrying value of the intangible assets exceed their recoverable amount. (f) Employee benefits The determination of employee benefit provisions required is dependent on a number of forward estimate assumptions including expected wage increases, length of employee service and bond rates. (g) Share based payment transactions The Group measures the cost of equity-settled transactions with the employees by reference to the fair value of the options at the date at which they are granted. The fair value of options has been valued taking into account the vesting period, expected dividend payout and the share price at the date the options were granted. (h) Other shares and units held The Group measures the fair value for other shares and units held where there is no quoted market price, by reference to expected future cash flows and valuations of the underlying net asset base of the investment. The inputs into the valuations are based on the best information available about assumptions that market participants would use when pricing the assets. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 3: Revenue And Other Income Fee and commission income Commission income Fees income Other fees Other revenue Interest income Other Income Share of equity accounted results Gain / (loss) on fair value adjustments Gain / (loss) on derivatives Profit on sales of shares Profit on sale of subsidiary Investment Income Dividend income and trust distributions 41 2020 $’000 2019 $’000 126,044 36,061 11,178 72,610 31,039 10,031 173,283 113,680 825 460 1,037 1,461 98 (16,623) 1,249 8,651 - (6,625) 154 7,879 - - 965 8,998 524 1,637 169,044 126,236 Amounts that relate to performance obligations that have not been satisfied (or partially satisfied) by the Group are included in Note 21 as a contract liability. The contract liability balance at 30 June 2019 of $2.4m has been recognised in fee and commission income during the year ended 30 June 2020. The Group has disaggregated revenue recognised from contracts with customers (Fee and commission income) into categories that depict how the uncertainty of revenue and cash flows are affected by economic factors. Disaggregated revenue information has also been included in Note 37 Information. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 42 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 4: Operating Profit Profit before income tax has been determined after: Finance costs Finance costs - lease liabilities Total finance costs Depreciation - Leasehold Improvements - Building - Motor Vehicles - Office Equipment - Computer Equipment - Right of use assets Total depreciation Amortisation of non-current assets - Identifiable intangibles Depreciation and amortisation expense Rental expense on operating leases Foreign currency translation losses / (gains) Employee benefits - Share-based payments - Superannuation - Other Employee benefits Administration and other expenses includes: Acquisition legal and professional fees Other acquisition and transactions related costs Non-recurring employment costs Foreign Exchange (gains)/losses Expected credit loss Net deferred consideration loss relating to business combinations Share-based payment expense Other Other income includes: Fair value revaluation of assets (Gain) / loss on Derivatives (Profit) on sale of shares Total 2020 $’000 6,086 721 6,807 762 197 11 261 754 1,985 2,856 4,841 6,477 11,318 898 (67) 264 5,325 81,713 87,302 1,143 1,112 1,463 (1,091) 1,613 4,626 264 1,598 16,623 (1,121) (8,651) 17,579 2019 $’000 3,449 - 3,449 129 178 13 237 797 1,354 - 1,354 1,593 2,947 2,933 15 2,014 3,529 47,212 52,755 742 719 2,971 196 3 1,127 2,014 143 (7,879) - - 36 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 5: Income Tax (a) Components of tax expense Current tax Deferred tax Adjustment to tax expense on recognition of prior year losses Under/(over) provision in prior years (b) Prima facie tax payable 43 2020 $’000 10,147 (4,264) 71 598 6,552 2019 $’000 13,029 (1,368) - (183) 11,478 2020 $’000 2019 $’000 The prima facie tax payable on profit before income tax is reconciled to the income tax expense as follows: Prima facie income tax payable on profit before income tax at 30.0% (2019: 30.0%) 7,582 11,051 Add tax effect of: • Other non-allowable items • Gross up of franking credits • Non assessable gain / non deductible loss on business acquisition rise and fall • Amortisation • • Interentity dividends Income tax losses not recognised • Over provision for income tax in prior years Less tax effect of: • Overseas tax rate differential • Over provision for income tax in prior years • Franking credit offset • Capitalised costs deductible for tax • Net capital loss • Other non-assessable items Income tax expense attributable to profit (c) Current tax Current tax relates to the following: • Opening balance • Income tax • Tax payments • Utilisation of losses against current period liability • Under provisions • Exchange translation difference • Transfer to/(from) deferred tax Current tax liabilities 261 125 1,072 773 30 71 598 1,108 129 349 223 - (146) (183) 2,930 1,480 1,368 418 2,077 97 - 3,960 6,552 2020 $’000 8,004 10,147 (14,883) - 109 (157) 771 3,991 470 429 - - 154 1,053 11,478 2019 $’000 3,279 13,029 (7,814) (172) (183) 11 (146) 8,004 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 44 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 5: Income Tax (continued) (d) Deferred tax Deferred tax relates to the following: Deferred tax assets The balance comprises: • Tax losses carried forward • Employee benefits • Allowance for expected credit losses • Income provisions • Contract liabilities • Accrued expenses • Listing and share issue expenses • Fair value adjustments Deferred tax liabilities The balance comprises: • Customer Lists • Accrued income • Prepayments • Financial assets at fair value through profit and loss • Capital allowances • Right of use asset Net deferred tax assets/(liabilities) (e) Deferred income tax (revenue) / expense included in income tax expense comprises Decrease / (increase) in deferred tax assets (Decrease) / increase in deferred tax liabilities 2020 $’000 2019 $’000 388 1,324 83 954 - 114 526 552 747 1,091 - 206 565 233 517 - 3,941 3,359 12,745 6,712 - - 453 244 20,154 (16,213) 2020 $’000 (428) (3,836) (4,264) 2,614 6,204 79 3,869 489 - 13,255 (9,896) 2019 $’000 67 (1,435) (1,368) PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 6: Dividends (a) Dividends paid or declared 45 2020 $’000 2019 $’000 Dividends paid at 8.7 cents per share (2019: 7.6 cents per share) by PSC Insurance Group fully franked 23,196 18,625 Dividends paid to non-controlling interests (b) Dividends declared after the reporting period and not recognised Since the end of the reporting period the directors have recommended / declared dividends of 5.5 cents per share (2019: 5.2 cents per share) fully franked (c) Franking account Balance of franking account on a tax paid basis at financial year-end adjusted for franking credits arising from payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and any credits that may be prevented from distribution in subsequent years Note 7: Cash And Cash Equivalents Cash on hand Cash at bank Cash on deposit 446 465 23,642 19,090 2020 $’000 2019 $’000 15,786 13,691 15,786 13,691 2020 $’000 2019 $’000 4,807 4,085 2020 $’000 13 20,371 5,589 25,973 2019 $’000 3 5,643 15,829 21,475 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 46 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 8: Other Financial Assets - Trust Cash Cash held on trust Note 9: Receivables Current Other receivables (a) Related parties loans and receivables Non Current Related parties loans and receivables (a) Other receivables include amounts due from insurers for commercial services fees and sundry receivables. (b) Ageing of Receivables - 0-30 Days - 30-60 Days - 60-90 Days - Over 90 Days Note 10: Contract Assets - Broking Current Contract assets 2020 $’000 167,904 167,904 2019 $’000 111,480 111,480 2020 $’000 9,204 2,408 11,612 2019 $’000 7,070 1,384 8,454 3,400 3,373 2020 $’000 2019 $’000 8,142 6,247 17 201 844 13 156 654 9,204 7,070 2020 $’000 49,552 49,552 2019 $’000 33,158 33,158 Contract assets represent the amounts due from policyholders in respect of insurances arranged by controlled entities. Should policyholders not pay, the insurance policy is cancelled by the insurer and a credit given against the amount due. The Group’s credit risk exposure in relation to these amounts is limited to commissions and fees charged. Commission and fee income is recognised after taking into account an allowance for expected losses (on policy lapses and cancellations) based on past experiences and future expectations. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 11: Other Current Assets Current Prepayments Bonds and deposits Note 12: Other Financial Assets Non Current Financial assets Other shares and units held Shares in listed corporations Total financial assets Note 13: Equity Accounted Investments Non Current Equity accounted associates 47 2020 $’000 8,989 57 9,046 2019 $’000 2,399 47 2,446 2020 $’000 2019 $’000 1,966 32,487 34,453 3,516 47,982 51,498 2020 $’000 2019 $’000 8,512 7,571 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 48 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 14: Interests In Associates And Joint Ventures (a) Associates and joint ventures Investments in associates and joint ventures are accounted for using the equity method in the Group and carried at cost in the parent entity. Interests are held in the following associated companies: Associated Companies Associates BCS Broking Pty Ltd Charter Gilman Ltd Just Motorsport Limited Just Business Cover Ltd (UK) PSC Bloodstock Services Pty Ltd PSC Insurenet JV Pty Ltd PSC Property Lync Insurance Brokers Pty Ltd RP-Baulkham Hills Pty Ltd RP-Broadbeach Pty Ltd RP-Bundoora Pty Ltd RP-Cannington Pty Ltd RP-Carlton Pty Ltd RP-Exchange Insurance Pty Ltd RP-Edwardstown Pty Ltd RP-Fremantle Pty Ltd RP-Horsham Pty Ltd RP Hoppers Crossing Pty Ltd RP-My Insurance Kit Pty Ltd RP-Ipswich Pty Ltd RP-Melbourne Pty Ltd RP-Mona Vale Pty Ltd RP-Morayfield Pty Ltd RP-Nerang Pty Ltd RP-Newcastle Pty Ltd RP-Penrith Pty Ltd RP Professional Risk Pty Ltd RP Randwick Pty Ltd RP-Rockingham Pty Ltd RP-South Perth Pty Ltd RP-Southport Pty Ltd RP-Tullamarine Pty Ltd RP-Tweed Heads Pty Ltd RP-Warragul Pty Ltd Principal place of business Australia Hong Kong United Kingdom United Kingdom Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ownership Interest 2020 30.00% 50.00% 35.03% 42.50% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 0.00% 50.00% 50.00% 50.00% 50.00% 25.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 0.00% 2019 30.00% 0.00% 35.03% 42.50% 50.00% 50.00% 50.00% 50.00% 0.00% 50.00% 50.00% 50.00% 0.00% 50.00% 50.00% 50.00% 50.00% 0.00% 50.00% 50.00% 25.00% 50.00% 50.00% 50.00% 50.00% 0.00% 50.00% 50.00% 50.00% 0.00% 50.00% 50.00% 50.00% PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 15: Property, Plant And Equipment Leasehold improvements Leasehold improvements at cost Accumulated depreciation Land and Buildings Land and buildings Accumulated depreciation Artwork Artwork Accumulated depreciation Plant and equipment Motor vehicles at cost Accumulated depreciation Office equipment at cost Accumulated depreciation Computer equipment at cost Accumulated depreciation Total plant and equipment Total property, plant and equipment 49 2020 $’000 4,888 (3,180) 1,708 2019 $’000 1,953 (1,189) 764 12,000 12,000 (295) (98) 11,705 11,902 92 - 92 58 (29) 29 4,320 (3,046) 1,274 6,534 (4,579) 1,955 3,258 - - - 58 (18) 40 2,770 (1,941) 829 4,883 (3,157) 1,726 2,595 16,763 15,261 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 50 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 15: Property, Plant And Equipment (continued) (a) Reconciliations Leasehold improvements Carrying amount at beginning of year Additions Additions through acquisition of entities/operations Depreciation expense Net foreign currency movements arising from foreign operation Carrying amount end of year Land and buildings Carrying amount at beginning of year Additions Reclassification from office equipment Revaluation (b) Depreciation expense Carrying amount end of year Artwork Carrying amount at beginning of year Additions through acquisition of entities/operations Net foreign currency movements arising from foreign operation Carrying amount end of year Plant and equipment Motor vehicles Carrying amount at beginning of year Disposals Depreciation expense Carrying amount end of year Office equipment Carrying amount at beginning of year Additions Additions through acquisition of entities/operations Reclassification to land and buildings Depreciation expense Net foreign currency movements arising from foreign operation Carrying amount end of year 2020 $’000 764 1,477 227 (762) 2 1,708 11,902 - - - (197) 2019 $’000 338 533 22 (129) - 764 9,718 305 486 1,571 (178) 11,705 11,902 - 96 (4) 92 40 - (11) 29 829 437 275 - (261) (6) 1,274 - - - - 55 (2) (13) 40 1,289 242 18 (486) (237) 3 829 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES (a) Reconciliations (continued) Computer equipment Carrying amount at beginning of year Additions Additions through acquisition of entities/operations Depreciation expense Net foreign currency movements arising from foreign operation Carrying amount end of year Total plant and equipment Total property, plant and equipment 51 2019 $’000 1,567 803 149 (797) 4 1,726 2,595 2020 $’000 1,726 805 163 (754) 15 1,955 3,258 16,763 15,261 Additions through acquisitions represent assets acquired through acquisitions per Note 29. (b) Valuation of land and buildings The fair values of land and buildings have been based on independent valuations. Such valuations are performed on a fair value basis, being the amounts for which the assets could be exchanged between market participants in an arm’s length transaction at the valuation date. This is deemed to be a Level 2 fair valuation per the fair value hierarchy disclosed in Note 1. Note 16: Intangible Assets Goodwill at cost Identifiable intangible assets at cost Accumulated amortisation and impairment Total intangible assets 2020 $’000 2019 $’000 257,040 94,952 71,229 (11,897) 59,332 17,628 (4,505) 13,123 316,372 108,075 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 52 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 16: Intangible Assets (continued) (a) Reconciliations Reconciliation of the carrying amounts of intangible assets at the beginning and end of the current financial year Goodwill at cost Opening balance Additions (a) Net foreign currency movement arising from foreign operations Closing balance Identifiable Intangible assets at cost Opening balance Additions through business combination (a) Acquired through business combination (b) Other additions Amortisation expense Movements on degrouped entities Net foreign currency movement arising from foreign operations Closing balance Total intangible assets 2020 $’000 2019 $’000 94,952 85,033 166,878 (4,790) 9,659 260 257,040 94,952 13,123 50,659 1,627 895 (6,477) - (495) 10,639 3,135 - 2,037 (1,593) (1,129) 34 59,332 13,123 316,372 108,075 a. Additional goodwill and customer lists include the business acquisitions of Griffiths Goodall Insurance Brokers Pty Ltd, Walker Insurance & Financial Services Pty Ltd, Paragon International Holdings Ltd, Carroll Insurance Group, Ultimate Safety Solutions Australia Pty Ltd, Eden Software Pty Ltd and also an increase in existing holdings in RP-Maroochydore Pty Ltd. b. Acquired intangibles are from the Paragon International Holdings Ltd acquisition. The Group performs, on an annual basis, impairment testing for goodwill and any identifiable intangible assets (customer relationships) which have impairment indicators. There was no impairment for the year ended 30 June 2020 (2019: no impairment provision). In performing impairment testing, each subsidiary acquired or portfolio of businesses acquired is considered a separate cash generating unit (CGU) or grouped into one CGU where operations are linked. The methodologies used in the impairment testing are: • Value in use - a discounted cash flow model, based on a five year projection commencing with the year one approved budget of the tested CGUs plus a terminal value: and • Fair value - based on the Group’s estimates of sustainable revenue for each CGU multiplied by a revenue multiple appropriate for similar businesses less costs to sell. The Group performed its annual impairment test in June 2020 and June 2019. As a quick reference test, the Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment. As at 30 June 2020, the market capitalisation of the Group was far in excess of the book value of its equity, indicating there was no evidence of goodwill impairment of the assets of the operating segments. Notwithstanding, the Goodwill of each CGU was tested for impairment. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 53 Distribution CGU The recoverable amount of the distribution CGU of $422m as at 30 June 2020 has been determined based on a value in use calculation using cash flow projections from financial forecasts approved by senior management, and extrapolated forward covering a five-year period. Total goodwill allocated to this CGU is $106.68m. The pre-tax discount rate applied to cash flow projections is 11% (2019: 16.67%) and the terminal value cash flows beyond the five-year period valued with a 2% terminal growth rate. Year 1-5 growth rates for revenue and expenses are a prudent assessment of the average growth rate for the Insurance Broking industry. It was concluded that the fair value less costs exceeded the value in use. As a result of this analysis, Management did not identify an impairment for this CGU. Agency CGU The recoverable amount of the agency CGU of $38m as at 30 June 2020 has been determined based on a value in use calculation using cash flow projections from financial forecasts approved by senior management, and extrapolated forward covering a five-year period. Total goodwill allocated to this CGU is $9.89m. The pre-tax discount rate applied to cash flow projections is 13% (2019: 16.67%) and the terminal value cash flows beyond the five-year period valued with a 2% terminal growth rate. Year 1-5 growth rates for revenue and expenses are a prudent assessment of the average growth rate for the Insurance Broking industry. It was concluded that the fair value less costs exceeded the value in use. As a result of this analysis, Management did not identify an impairment for this CGU. United Kingdom (UK) CGU The recoverable amount of the UK CGU of $250m as at 30 June 2020 has been determined based on a value in use calculation using cash flow projections from financial forecasts approved by senior management, and extrapolated forward covering a five-year period. Total goodwill allocated to this CGU is $140.48m. The pre-tax discount rate applied to cash flow projections is 12% (2019: 16.67%) and the terminal value cash flows beyond the five-year period valued with a 2% terminal growth rate. Year 1-5 growth rates for revenue and expenses are a prudent assessment of the average growth rate for the Insurance Broking industry. It was concluded that the fair value less costs exceeded the value in use. As a result of this analysis, Management did not identify an impairment for this CGU. Key assumptions used in value in use calculations and sensitivity to changes in assumptions EBITDA margins − EBITDA margins (after allocation of central costs) are based on average values achieved in twelve months preceding the beginning of the forecast period. These are increased over the budget period for anticipated efficiency improvements, in line with the respective revenue and expense growth drivers. Discount rates − Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets, including any potential impacts of COVID-19 on the CGUs. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Sensitivity analysis has been conducted and no reasonable change in the key assumptions of the value in use calculations would result in impairment. The discount rate used is dependent on specific attributes of the transactions and determined by the Board. The following table sets out the key assumptions for the value in use model: Revenue growth Cost growth Terminal growth rate (EBITDA) Discount rate (pre tax) 2020 % 2019 % 3% pa for first 5 years 5% pa for first 5 years 2% pa for first 5 years 3% pa for first 5 years 2.00% 10% to 14% 2.00% 16.67% PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 54 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 17: Right Of Use Assets Non-Current Right of use assets Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year: Opening balance 1 July Adjustment due to adoption of AASB 16 Additions Depreciation expense Closing balance at 30 June The following are the amounts recognised in profit or loss: Depreciation expense of right-of-use assets Interest expense on lease liabilities Expense relating to short-term leases or low-value assets (included in Administration and other expenses) Total amount recognised in profit or loss 2020 $’000 14,754 14,754 2020 $’000 - 6,097 11,513 (2,856) 14,754 2020 $’000 (2,856) (721) (898) (4,475) 2019 $’000 - - 2019 $’000 - - - - - 2019 $’000 - - - - The Group had total cash outflows for leases of $3.3m in 2020. The Group also had non-cash additions to right-of-use assets and lease liabilities after initial application of AASB 16 of $11.5m in 2020. The future cash outflows relating to leases that have not yet commenced are disclosed in Note 30. Note 18: Payables Current Unsecured liabilities Trade creditors Payables from broking, reinsurance and underwriting agency operations Sundry creditors and accruals 2020 $’000 2019 $’000 3,427 1,818 166,948 112,088 12,646 4,148 183,021 118,054 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 19: Borrowings Current Secured liabilities Bank loans Non-Current Secured liabilities Bank loans 55 2020 $’000 2019 $’000 - 1,192 158,505 55,831 (a) Terms and conditions and assets pledging as security relating to the above financial instruments The Group has two primary funding facilities: • PSC Insurance Group Limited – Syndicated Facility Agreement - Limit $100,000,000 plus a further $3,000,000 revolving Overdraft / Bank Guarantee Facility • PSC UK Pty Ltd - Loan Note Syndication Agreement - Limit £44,000,000 ($78,796,562) There is also a funding facility to PSC Property Holdings Pty Ltd, totalling $7,624,000. The key terms and conditions are as follows: Syndicated Facility Agreement (SFA) The syndication is led by Commonwealth Bank of Australia, and Macquarie Bank Limited are a participant in the syndicate. Security was granted in favour of a security trustee, including a registered first ranking security over all assets and undertakings of the parent entity and certain subsidiaries of the parent entity. The SFA contains a number of representations, warranties and undertakings (including financial covenants and reporting obligations) from the parent entity and each guarantor that are customary for a facility of this nature, including covenants ensuring the parent entity maintains a debt to EBITDA ratio below agreed levels and a debt service cover ratio above agreed levels. These covenants have been met during the year. The SFA is interest only with a maturity date of December 2024. The interest rate is a variable interest rate based on BBSY plus a margin. Loan Note Syndication Agreement (LNSA) The debt facility with Baring Asset Management is a UK debt facility to support the Group’s growth in the UK markets. The LNSA contains a number of representations, warranties and undertakings, including financial covenants and reporting obligations. The financial covenants cover part of the Group’s UK assets and include debt to EBITDA being below agreed levels and a debt service cover ratio being above agreed levels. These covenants are measured quarterly and have been met during the year. The LNSA is interest only with a maturity date of November 2024. The interest rate is a variable interest rate based on LIBOR plus a margin. Commonwealth Bank of Australia (Property Loan) The facility provided to fund the property at 96 Wellington Parade, East Melbourne, which the parent entity and its subsidiaries occupy. The facility is secured by a first registered mortgage over the property and supporting guarantees from the parent entity and various subsidiaries. The loan is interest only with a maturity date of December 2024. The interest rate is a variable interest rate based BBSY plus a margin. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 56 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 20: Provisions Current Employee benefits Non Current Employee benefits Total employee benefits liability Note 21: Other Liabilities Current Contract liabilities (a) Amounts payable to vendors (b) Non Current Amounts payable to vendors (b) 2020 $’000 2019 $’000 4,542 3,183 565 5,107 455 3,638 2020 $’000 5,326 19,503 24,829 2019 $’000 2,421 7,731 10,152 4,572 4,973 a. Contract liabilities represent the Group’s obligation to transfer services to the customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Amounts recorded as contract liabilities are subsequently recognised as revenue when the Group transfers the contracted services to the customer. A contract liability arises in relation to claims handling income when consideration is received from the customer in advance of the claims handling service being performed. b. Amounts payable to vendors represents deferred and contingent consideration expected to be made to vendors for acquisitions. The contingent consideration payable is calculated based on a multiple of revenue as defined in the various sale and purchase agreements. Note 22: Financial Liabilities Current Derivatives not designated as hedging instruments Foreign exchange forward contracts Non Current Derivatives not designated as hedging instruments Foreign exchange forward contracts Total derivatives 2020 $’000 2019 $’000 1,127 205 1,332 - - - Derivatives not designated as hedging instruments reflect the negative change in fair value of those foreign exchange forward contracts that are not designated in hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 23: Lease Liabilities Current Lease liabilities Non Current Lease liabilities Total lease liabilities Note 24: Share Capital (a) Issued and paid-up capital 287,019,337 Ordinary shares fully paid (2019: 245,875,876) Fully paid ordinary shares carry one vote per share and have the right to dividends. (b) Movements in shares on issue 2020 Beginning of financial year Shares in lieu of cash for acquisition of subsidiary Capital issued Capital issuing costs Loan funded shares Dividend reinvestment Employee share issues Converted share options End of financial year 2019 Beginning of financial year Employee share issues Loan funded shares End of financial year 57 2020 $’000 2,341 13,909 16,250 2019 $’000 - - - 2020 $’000 2019 $’000 243,043 140,572 Parent Entity No of shares $’000 245,875,876 140,572 26,242,890 66,035 13,461,529 35,000 - 524,463 407,088 207,491 300,000 (577) - 1,076 637 300 287,019,337 243,043 244,453,508 140,395 59,986 1,362,382 177 - 245,875,876 140,572 (c) Rights of each type of share Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders meetings each ordinary share gives entitlement to one vote when a poll is called. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 58 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 24: Share Capital (continued) (d) Capital Management When managing capital, management’s objective is to ensure the Group continues to maintain optimal returns to shareholders. This is achieved through the monitoring of historical and forecast performance and cash flows. During 2020, management paid dividends of: • Dividends paid by PSC Insurance Group Limited $23,195,566 (2019: $18,625,261) • Dividends paid to non-controlling interests $445,546 (2019: $464,797) Management manages capital by proactively assessing future funding needs and determining the best funding measures, principally through retained earnings and debt facilities. When considering prudent gearing levels, the Group considers its gross debt levels against the forecast levels of EBITDA and free cash flow. The Group also considers the gearing ratio being net debt / total capital. Net debt is calculated as total borrowings as shown in the balance sheet less cash and cash equivalents (excluding cash held in trust) and total capital includes net debt and book equity. Note 25: Reserves And Retained Earnings Share-based payment reserve Foreign currency translation reserve Revaluation surplus Put option reserve Non-controlling interest reserve Reserves Retained Earnings (a) Share-based payment reserve 2020 $’000 2,459 (4,159) 1,100 (2,498) (37,351) (40,449) 2019 $’000 2,160 (130) 1,100 (2,252) (37,351) (36,473) 39,235 44,807 (i) Nature and purpose of reserve The share-based payment reserve comprises the fair value of options and performance share rights recognised as an expense. Upon exercise of options or performance share rights, any proceeds received are credited to share capital. The share-based payment reserve remains as a separate component of equity. (ii) Movements in reserve Opening balance Fair value of options and performance share rights issued during the year Closing balance 2020 $’000 2,160 299 2,459 2019 $’000 323 1,837 2,160 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 59 (b) Foreign currency translation reserve (i) Nature and purpose of reserve The foreign currency translation reserve is used to record the unrealised exchange differences arising on translation of a foreign entity and is not distributable. (ii) Movements in reserve Opening balance Exchange differences on translation of foreign operations Closing balance (c) Revaluation surplus 2020 $’000 (130) (4,029) (4,159) 2019 $’000 (340) 210 (130) (i) Nature and purpose of reserve In December 2018, an independent valuer undertook a valuation of land and buildings held by the Group. The net of tax adjustment from the carrying amount to the revalued amount has been accounted for in the revaluation surplus. (ii) Movements in reserves Opening balance Revaluation of property, plant and equipment Closing balance (d) Non-controlling interest reserve 2020 $’000 1,100 - 1,100 2019 $’000 - 1,100 1,100 (i) Nature and purpose of reserve The non-controlling interest reserve is used to record the fair value of shares issued to buyout non-controlling interests (ii) Movements in reserves Opening Balance (e) Retained Earnings Retained earnings at beginning of year Adjustment due to change of accounting policy, net of tax Net profit In specie distributions Dividends provided for or paid 2020 $’000 (37,351) (37,351) 2019 $’000 (37,351) (37,351) 2020 $’000 2019 $’000 44,807 40,429 (263) 17,887 - (1,245) 24,693 (445) (23,196) (18,625) 39,235 44,807 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 60 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 26: Share Based Payments The Group has adopted the long term incentive plan (LTIP) to assist in the reward, retention and motivation of certain employees and Directors of the Group. The Group may grant shares, loan funded shares, options and/or performance rights (awards) to eligible participants under its LTIP. Share Options Under the Group’s LTIP, share options of PSC Insurance Group Limited have been granted to certain Directors. The share options vest immediately. The fair value of the share options is estimated at the grant date using a Black Scholes option pricing model taking into account the terms and conditions on which the share options were granted. The movement in the number of options and the weighted average exercise price during the year are: Opening balance 1 July Granted during the year Exercised during the year (a) Outstanding at 30 June Exercisable at 30 June 2020 2019 8,900,000 900,000 - 8,000,000 (300,000) - 8,600,000 8,900,000 8,600,000 8,900,000 a. The weighted average share price at the date of exercise of these options was $2.92. The issue price of the shares was $1.00. The range of exercise prices for options outstanding at the end of the year was $1.66 to $3.75 (2019: $1.00 to $3.75) No expense was recognised during the year for the above options (2019: $1,558,956). Unissued ordinary shares of PSC Insurance Group Limited under option at 30 June 2020 are: Name of option holder Melvyn Sims Antony Robinson (held through a related entity, Rowena House Pty Ltd) Antony Robinson (held through a related entity, Rowena House Pty Ltd) Antony Robinson (held through a related entity, Rowena House Pty Ltd) Antony Robinson (held through a related entity, Rowena House Pty Ltd) Date option granted Number of unissued ordinary shares under option Issue price of shares Expiry date of the options 8 August 2016 600,000 $1.66 per share 8 July 2021 16 May 2019 3,500,000 $3.00 per share 16 May 2019 1,500,000 $3.25 per share 16 May 2019 1,500,000 $3.50 per share 16 May 2019 1,500,000 $3.75 per share 31 December 2022 31 December 2022 31 December 2022 31 December 2022 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 61 Loan Funded Shares Under the Group’s LTIP, loan funded shares have been granted to certain employees of the Group. The shares were issued immediately. The fair value of the loan funded shares is estimated at the grant date using a Black Scholes option pricing model taking into account the terms and conditions on which the loan funded shares were issued. The expense recognised during the year for loan funded shares was as follows: Expense arising from equity-settled share-based payment transactions Total expense arising from loan funded share-based transactions The movement in the number of loan funded shares during the year was as follows: Opening balance 1 July Issued during the year (a) Forfeited during the year (b) Loan funded shares at 30 June a. Issued during the year 2020 $’000 264 264 2019 $’000 455 455 2020 2019 2,362,382 1,000,000 794,629 1,362,382 (270,166) - 2,886,845 2,362,382 • 559,960 fully paid shares were issued on 1 October 2019 at a share price of $2.71. • 234,669 fully paid shares were issued on 28 February 2020 at a share price of $3.15. b. Forfeited during the year • • 102,178 fully paid shares issued on 27 September 2018 were forfeited due to employees ceasing employment with the Group. 167,988 fully paid shares issued on 1 October 2019 were forfeited due to an employee ceasing employment with the Group. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 62 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 27: Interests In Subsidiaries (a) Subsidiaries Subsidiaries of the Group AB Risk Solutions Ltd Agency Holding Corporation Pty Ltd Alsford Page & Gems (Holdings) Limited Alsford Page & Gems Limited AR (WA) Pty Ltd Breeze Underwriting (Aust) Pty Ltd Breeze Underwriting Limited Breeze Underwriting Pty Ltd Capital Insurance Brokers Pty Ltd Carroll & Partners Limited Carroll Holman Limited Carroll Harvey Limited *** Carroll London Markets Holdings Ltd Carroll London Markets Ltd Carroll Insurance Brokers Ltd *** Carroll Insurance Group Ltd *** Carvan Pty Ltd Certus Life Australia Pty Ltd Certus Life Melbourne Pty Ltd Certus Life Pty Ltd Chase Global UK Ltd Chase Surety Pty Ltd Chase UK Holdings Pty Ltd Chase Underwriting Pty Ltd Connect Life Pty Ltd Deskhaven Pty Ltd Easy Broking Online Ltd Eden Software Pty Ltd *** Country of incorporation Ownership interest held by group Ownership interest held by NCI 2020 2019 2020 2019 United Kingdom 100.00% 100.00% Australia 100.00% 100.00% United Kingdom 100.00% 100.00% United Kingdom 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 70.00% 70.00% 30.00% 30.00% Australia Australia 100.00% 100.00% United Kingdom 100.00% 100.00% Australia Australia 100.00% 100.00% 100.00% 100.00% United Kingdom 100.00% 100.00% United Kingdom 100.00% 100.00% United Kingdom 100.00% 0.00% United Kingdom 100.00% 100.00% United Kingdom 100.00% 100.00% United Kingdom 100.00% United Kingdom 100.00% 0.00% 0.00% Australia Australia Australia Australia 100.00% 51.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% United Kingdom 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 49.00% 0.00% 0.00% 0.00% 0.00% Australia 100.00% 80.00% 20.00% 20.00% United Kingdom 100.00% 100.00% Australia Australia Australia 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% United Kingdom 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% Australia 75.00% 0.00% 25.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Fenchurch Insurance Risk Management Limited United Kingdom 100.00% 100.00% Insurance Holdings Limited United Kingdom 100.00% 100.00% Insurance Marketing Group of Australia Pty Ltd Jolimont Underwriting Pty Ltd McKenna Hampton Insurance Brokers Pty Ltd Medisure Indemnity Australia Pty Ltd Online Insurance Solutions Pty Ltd Paragon Brokers (Bermuda) Ltd *** Paragon International Holdings Ltd *** Paragon International Insurance Brokers Ltd *** Professional Services Corporation Pty Ltd PSC Coast Wide Newcastle Pty Ltd Australia Australia Australia Australia Australia Bermuda 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% United Kingdom 100.00% United Kingdom 100.00% Australia Australia 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 63 (a) Subsidiaries (continued) Subsidiaries of the Group PSC Connect NZ Ltd PSC Connect Pty Ltd PSC Connect Life NZ Ltd PSC Direct Pty Ltd PSC Foundation Pty Ltd PSC Group Holdings Pty Ltd PSC Holdings (Aust) Pty Ltd PSC Insurance (Europe) Ltd ** PSC Insurance Brokers (Aust) Pty Ltd PSC Insurance Brokers (Brisbane) Pty Ltd PSC Insurance Brokers (Darwin) Pty Ltd PSC Insurance Brokers (Melbourne) Pty Ltd PSC Insurance Brokers (Victoria) Pty Ltd (formally PSC International Pty Ltd ) PSC Insurance Brokers (Wagga) Pty Ltd PSC Insurance Brokers (Western) Pty Ltd PSC Insurance Brokers Pty Ltd PSC Insurance Services Pty Ltd PSC International Holdings Pty Ltd PSC JLG Investment Pty Ltd PSC McKenna Hampton Insurance Brokers Pty Ltd PSC National Franchise Insurance Brokers Pty Ltd PSC NFIB Markets Pty Ltd PSC Nominees Pty Ltd Country of incorporation Ownership interest held by group Ownership interest held by NCI 2020 2019 2020 2019 New Zealand 100.00% 100.00% Australia 100.00% 100.00% New Zealand 100.00% 100.00% Australia Australia Australia Australia Ireland Australia Australia Australia Australia 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Australia 100.00% 100.00% 0.00% 0.00% Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 96 Wellington Parade Pty Ltd (formally PSC Property Holdings Pty Ltd) Australia 100.00% 100.00% 0.00% 0.00% PSC Rainbow Holdings Ltd (UK) *** United Kingdom 100.00% 0.00% 0.00% 0.00% PSC Reliance Pty Ltd (formally PSC Reliance Franchise Partners Pty Ltd) Australia 100.00% 100.00% 0.00% 0.00% PSC Safex Pty Ltd ** PSC UK Holdings Limited PSC UK Pty Ltd PSC Workers Compensation and Consulting Pty Ltd PSC Workers Compensation Holdings Pty Ltd ** PSC Wright Fahey Pty Ltd Reliance Workplace Solutions Pty Ltd RP-Canning Vale Pty Ltd RP-Maroochydore Pty Ltd RP-Parramatta Pty Ltd RP-Windsor Pty Ltd RP-Parramatta Pty Ltd RP-Windsor Pty Ltd Australia 70.00% 0.00% 30.00% United Kingdom 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% Australia Australia Australia Australia Australia Australia Australia Australia Australia 100.00% 100.00% 75.00% 75.00% 25.00% 25.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 70.00% 70.00% 30.00% 30.00% 100.00% 50.00% 0.00% 80.00% 50.00% 20.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 50.00% 50.00% 0.00% 0.00% United Kingdom 70.00% 70.00% 30.00% 30.00% United Kingdom 70.00% 70.00% 30.00% 30.00% PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 64 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 27: Interests In Subsidiaries (continued) (a) Subsidiaries (continued) Subsidiaries of the Group Turner Financial Services Limited Turner Insurance Services Limited UK Facilities Limited Upper Hillwood Holdings Limited Country of incorporation Ownership interest held by group Ownership interest held by NCI 2020 2019 2020 2019 United Kingdom 70.00% 70.00% 30.00% 30.00% United Kingdom 70.00% 70.00% 30.00% 30.00% United Kingdom 100.00% 100.00% United Kingdom 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 1 - ** Entity entered Group during the 2020 financial year 2 - *** Entity acquired during the 2020 financial year (b) Reconciliation of the non-controlling interest Accumulated NCI at the beginning of the year Adjustment due to change of accounting policy, net of tax Profit or loss allocated to NCI during the year Movements in degrouped entities Put option reserve revaluation Non-controlling interest arising from business combination Increase in non-controlling interest Dividends paid to NCI Accumulated NCI at the end of the year 2020 $’000 2,145 - 835 - (87) - 245 (446) 2,692 2019 $’000 1,964 (28) 664 (339) (870) 899 320 (465) 2,145 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 65 Note 28: Cash Flow Information (a) Reconciliation of cash Cash at the end of the financial year as shown in the consolidated statement of cash flows is reconciled to the related items in the consolidated statement of financial position as follows: Cash on hand Cash at bank Cash on deposit (b) Reconciliation of net profit after tax to net cash flows from operations Profit from ordinary activities after income tax Add/(Less) items classified as investing/financing activities Loss on deferred consideration Adjustments and non cash items Non-cash items Depreciation and amortisation Expected credit loss Foreign currency translation (gains)/losses Fair value adjustment of shares Share-based payment expense Equity accounted result Derivative (gains)/losses (Profit) on sales of shares Disposal of investment in associates Net cash flows from operations before change in assets and liabilities Change in assets and liabilities (Increase)/decrease in receivables (Increase)/decrease in contract / other assets Increase/(decrease) in payables Increase/(decrease) in provisions Increase/(decrease) in other liabilities Increase/(decrease) in income taxes payable Increase/(decrease) in deferred tax balances Net cash flow from operating activities 2020 $’000 13 20,371 5,589 25,973 2019 $’000 3 5,643 15,829 21,475 2020 $’000 2019 $’000 18,722 25,357 4,626 1,127 8,462 1,613 (1,024) 16,623 264 (98) (1,121) (8,650) 2,947 31 196 (7,879) 2,014 (154) - - - (466) 39,417 23,173 (3,027) (10,683) 3,260 804 3,056 (4,014) (4,906) (3,938) (3,094) (2,512) 450 86 4,275 (768) 23,907 17,672 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 66 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 28: Cash Flow Information (continued) (c) Acquisitions During the year the Group made a number of acquisitions. The fair value of assets acquired and liabilities assumed were as follows: Cash Other financial assets - trust cash Contract assets Property, plant and equipment Identifiable Intangibles Acquired intangibles Trade receivables Other financial assets Right of use assets Lease Liabilities Trade and other creditors Financial Liabilities Income tax payable Provisions Deferred tax balances Net Identifiable assets acquired Net assets exceeding consideration paid Consideration paid in cash Cash acquired Net cash (dispensed) / acquired (d) Loan facilities Loan facilities Amount utilised Unused loan facility (e) Reconciliation of liabilities arising from financing activities Balance at the beginning of the year Payments made Foreign currency movements Other changes Balance at the end of the year 2020 $’000 14,698 59,302 10,558 665 50,659 1,627 2,996 - 2,327 (2,327) 2019 $’000 1,937 - - 189 3,135 - 1,771 - - - (76,645) (2,770) (2,466) (34) (375) (11,223) 49,762 40,227 (89,989) 14,698 (75,291) 2020 $’000 188,435 158,505 29,930 - (452) (149) (724) 2,937 3,705 (6,642) 1,937 (4,705) 2019 $’000 98,091 57,023 41,068 2020 $’000 2019 $’000 57,023 54,345 (7,513) 846 108,149 158,505 (971) 102 3,547 57,023 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 67 2020 $’000 89,989 27,509 - 98,445 215,943 245 2019 $’000 6,642 - 1,965 3,089 11,696 899 Note 29: Business Combinations Consideration Equity Consideration Deferred consideration Contingent consideration Total purchase consideration Fair value of non-controlling interests Acquisitions for the year ended 30 June 2020 In accordance with the Group’s strategy, as series of acquisitions were completed during the year. These included the following acquisition vehicles: i. Client list, employee benefits and other business assets ii. iii. Company and its subsidiary entity/(ies) Increase in existing holdings PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 68 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 29: Business Combinations (continued) (a) Consideration paid/payable 2020 Cash consideration paid Equity Consideration Deferred consideration Contingent consideration Total purchase consideration Ownership share Acquisition vehicle Fair value of non-controlling interest Total Non-controlling interest (b) Identifiable assets and liabilities acquired 2020 Cash and Cash equivalents Other financial assets - trust cash Contract assets Property, plant and equipment Identifiable intangibles Acquired intangibles Trade and other receivables Deferred tax assets Right of use assets Lease liabilities Deferred tax liabilities Trade and other payables Financial liabilities Income tax payable Provisions Griffiths Goodall Insurance Brokers Pty Ltd RP Maroochydore Pty Ltd Walker Insurance Financial Services Pty Ltd Paragon International Carrolls Insurance Australian Solutions Australia Eden Software Ultimate Safety Holdings Ltd $'000 28,711 9,600 - 9,136 47,447 100% (i) - - $'000 200 - - 66 266 80% (ii) 181 181 $'000 1,062 - - 269 1,331 100% (i) - - Griffiths Goodall Insurance Brokers Pty Ltd RP Maroochydore Pty Ltd Walker Insurance Financial Services Pty Ltd $'000 $'000 $'000 Paragon International Carrolls Insurance Australian Solutions Australia Eden Software Holdings Ltd Ultimate Safety Pty Ltd $'000 Pty Ltd $'000 - - - 235 14,456 - - 90 2,296 (2,296) (4,337) - - - (300) 10,144 - - - 5 804 - - 2 31 (31) (241) - - - (5) 565 - - - - 351 - - 5 - - (105) - - - (17) 234 $'000 49,716 17,909 - 85,296 152,921 100% (iii) - - $'000 9,568 57,272 10,118 418 33,225 1,627 2,774 - - - - - (6,313) (74,477) (2,466) 31,746 Group $'000 8,346 - - 3,381 11,727 100% (iii) - - Group $'000 5,130 2,030 440 7 1,091 222 - - - - - - (207) (2,145) (34) 6,534 Unity $'000 1,284 235 1,519 100% - - (i) - - Unity $'000 - - - - - - - - - - - 438 13 (132) (45) 274 Pty Ltd $'000 241 - - 62 303 70% (i) (9) (9) - - - - - - - 2 - - - - - (23) (8) (29) Pty Ltd $'000 429 - - - 429 75% (iii) 73 73 294 - - - - - - - - - - - - - - 294 Total Group $'000 89,989 27,509 - 98,445 215,943 245 245 Total Group $'000 14,698 59,302 10,558 665 50,659 1,627 2,996 112 2,327 (2,327) (11,335) (76,645) (2,466) (34) (375) 49,762 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 29: Business Combinations (continued) (a) Consideration paid/payable 2020 Cash consideration paid Equity Consideration Deferred consideration Contingent consideration Total purchase consideration Ownership share Acquisition vehicle Fair value of non-controlling interest Total Non-controlling interest (b) Identifiable assets and liabilities acquired 2020 Cash and Cash equivalents Other financial assets - trust cash Contract assets Property, plant and equipment Identifiable intangibles Acquired intangibles Trade and other receivables Deferred tax assets Right of use assets Lease liabilities Deferred tax liabilities Trade and other payables Financial liabilities Income tax payable Provisions Ltd $'000 28,711 9,600 - 9,136 47,447 100% (i) - - Ltd $'000 235 14,456 2,296 (2,296) (4,337) - - - - - 90 - - - (300) 10,144 Ltd $'000 200 - - 66 266 80% (ii) 181 181 Ltd $'000 - - - 5 - - 2 31 (31) (241) - - - (5) 565 Ltd $'000 1,062 269 1,331 100% - - (i) - - Ltd $'000 - - - - - - 5 - - - - - (105) (17) 234 804 351 Griffiths Goodall Walker Insurance Insurance Brokers Pty RP Maroochydore Pty Financial Services Pty Paragon International Holdings Ltd Carrolls Insurance Group Australian Unity Ultimate Safety Solutions Australia Pty Ltd Eden Software Pty Ltd $'000 49,716 17,909 - 85,296 152,921 100% (iii) - - $'000 8,346 - - 3,381 11,727 100% (iii) - - $'000 1,284 - - 235 1,519 100% (i) - - $'000 241 - - 62 303 70% (i) (9) (9) $'000 429 - - - 429 75% (iii) 73 73 Griffiths Goodall Walker Insurance Insurance Brokers Pty RP Maroochydore Pty Financial Services Pty Paragon International Holdings Ltd Carrolls Insurance Group $'000 9,568 57,272 10,118 418 33,225 1,627 2,774 - - - (6,313) (74,477) (2,466) - - 31,746 $'000 5,130 2,030 440 7 1,091 - 222 - - - (207) (2,145) - (34) - 6,534 Australian Unity $'000 Ultimate Safety Solutions Australia Pty Ltd $'000 Eden Software Pty Ltd $'000 - - - - 438 - - 13 - - (132) - - - (45) 274 - - - - - - - 2 - - - (23) - - (8) (29) - - - - 294 - - - - - - - - - - 294 69 Total Group $'000 89,989 27,509 - 98,445 215,943 245 245 Total Group $'000 14,698 59,302 10,558 665 50,659 1,627 2,996 112 2,327 (2,327) (11,335) (76,645) (2,466) (34) (375) 49,762 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 70 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 29: Business Combinations (continued) (c) Goodwill on acquisition 2020 Total consideration paid / payable Total net identifiable (assets)/liabilities acquired Fair value of previously held equity interest Non-controlling interests acquired Goodwill on acquisition (Excess over consideration paid/payable) (d) Financial performance since acquisition date 2020 Revenue Profit after tax Financial performance if held for 12 months Revenue Profit after tax Goodwill on acquisition Customer Lists Griffiths Goodall Insurance Brokers Pty Ltd RP Maroochydore Pty Ltd Walker Insurance Financial Services Pty Ltd Paragon International Carrolls Insurance Australian Solutions Australia Eden Software $'000 47,447 10,144 - - 37,303 $'000 266 565 452 181 334 $'000 1,331 234 - - 1,097 121,175 5,193 Griffiths Goodall Insurance Brokers Pty Ltd RP Maroochydore Pty Ltd Walker Insurance Financial Services Pty Ltd $'000 $'000 $'000 Paragon International Carrolls Insurance Australian Solutions Australia Eden Software Ultimate Safety Pty Ltd $'000 Pty Ltd $'000 10,354 2,627 11,296 2,865 37,303 14,456 51,759 361 21 413 24 334 804 1,138 458 137 617 157 1,097 351 1,448 Holdings Ltd $'000 152,921 31,746 - - Holdings Ltd $'000 40,771 6,775 54,361 9,034 121,175 33,225 154,400 Group $'000 11,727 6,534 - - Group $'000 1,908 (564) 3,599 595 5,193 1,091 6,284 Ultimate Safety Pty Ltd $'000 303 (29) - (9) 323 126 (53) 778 157 323 - 323 Unity $'000 1,519 274 - - 1,245 Unity $'000 332 100 630 189 1,245 438 1,683 Pty Ltd $'000 429 294 - 73 208 3 2 8 5 208 294 502 Total Group $'000 215,943 49,762 452 245 166,878 Total Group $'000 54,313 9,045 71,702 13,026 166,878 50,659 217,537 The value of goodwill represents the future benefit arising from the future earnings and synergies expected from the acquisitions. Contingent consideration includes an estimate of agreed multiples of EBITDA, revenue or fees and commission in accordance with the sale and purchase agreements. (e) Acquisition-related costs The Group incurred transaction costs of $2.30 million (2019: $0.26m) in respect of the above business acquisitions. Transaction costs included legal fees, stamp duty, due diligence and other direct costs incurred in relation to these acquisitions. These costs are included within Administration and other expenses in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 29: Business Combinations (continued) (c) Goodwill on acquisition 2020 Total consideration paid / payable Total net identifiable (assets)/liabilities acquired Fair value of previously held equity interest Non-controlling interests acquired Goodwill on acquisition (Excess over consideration paid/payable) (d) Financial performance since acquisition date Financial performance if held for 12 months 2020 Revenue Profit after tax Revenue Profit after tax Goodwill on acquisition Customer Lists sale and purchase agreements. (e) Acquisition-related costs Griffiths Goodall Walker Insurance Insurance Brokers Pty RP Maroochydore Pty Financial Services Pty Paragon International Holdings Ltd Carrolls Insurance Group Australian Unity Ultimate Safety Solutions Australia Pty Ltd $'000 152,921 31,746 - - $'000 11,727 6,534 - - 1,097 121,175 5,193 $'000 1,519 274 - - 1,245 $'000 303 (29) - (9) 323 Eden Software Pty Ltd $'000 429 294 - 73 208 Griffiths Goodall Walker Insurance Insurance Brokers Pty RP Maroochydore Pty Financial Services Pty Paragon International Holdings Ltd Carrolls Insurance Group $'000 40,771 6,775 54,361 9,034 121,175 33,225 154,400 $'000 1,908 (564) 3,599 595 5,193 1,091 6,284 Australian Unity $'000 Ultimate Safety Solutions Australia Pty Ltd $'000 Eden Software Pty Ltd $'000 332 100 630 189 1,245 438 1,683 126 (53) 778 157 323 - 323 3 2 8 5 208 294 502 Ltd $'000 47,447 10,144 - - 37,303 Ltd $'000 10,354 2,627 11,296 2,865 37,303 14,456 51,759 Ltd $'000 266 565 452 181 334 Ltd $'000 361 21 413 24 334 804 1,138 Ltd $'000 1,331 234 - - Ltd $'000 458 137 617 157 1,097 351 1,448 The value of goodwill represents the future benefit arising from the future earnings and synergies expected from the acquisitions. Contingent consideration includes an estimate of agreed multiples of EBITDA, revenue or fees and commission in accordance with the The Group incurred transaction costs of $2.30 million (2019: $0.26m) in respect of the above business acquisitions. Transaction costs included legal fees, stamp duty, due diligence and other direct costs incurred in relation to these acquisitions. These costs are included within Administration and other expenses in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. 71 Total Group $'000 215,943 49,762 452 245 166,878 Total Group $'000 54,313 9,045 71,702 13,026 166,878 50,659 217,537 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 72 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 30: Commitments (a) Lease expenditure commitments (i) Nature of leases Leases comprise lease for premises from which the Group operates and several novated leases of motor vehicles that form part of the salary packages of employees. (ii) Minimum lease payments Not later than one year Later than one year and not later than five years Greater than five years Aggregate lease expenditure contracted for at reporting date 2020 $’000 2,558 9,010 7,111 18,679 2019 $’000 2,719 6,334 285 9,338 (c) Bank guarantee commitments The Group has provided bank guarantees in relation to a number of rental premises from which various businesses operate. Total bank guarantees outstanding $985,779 (2019: $928,900). (d) Contingent liabilities The Group has provided guarantees on indebtedness amounting to $441,319 (2019: $821,201). This contingent liability relates to the guarantee of loans made to non-group interests in certain associate entities and is supported by Put Option agreements held by the lender over the non-group holdings in these associate entities. Alsford Page & Gems is in discussions with the FCA relating to a discontinued line of business (extended warranty insurance distributed by Authorised Representatives). This business was discontinued over 4 years ago and was commenced prior to our ownership of the company. As part of these discussions, the subsidiary is exploring redress options to the policy holders. The potential quantum of these amounts are not able to be reliably estimated with any certainty at the present time. To the extent the matter progresses, any net liability to the subsidiary and Group is not expected to be material. Note 31: Earnings Per Share Reconciliation of earnings used in calculating earnings per share: Profit from continuing operations attributable to owners of PSC Insurance Group Limited attributable to owners of PSC Insurance Group Limited Profit used in calculating basic earnings per share Profit used in calculating diluted earnings per share Earnings used in calculating diluted earnings per share 2020 $’000 2019 $’000 17,887 24,693 17,887 17,887 17,887 24,693 24,693 24,693 Weighted average number of ordinary shares used in calculating basic earnings per share 268,477,272 245,536,621 Effect of dilutive securities: Share options 8,600,000 1,889,011 Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 277,077,272 247,425,632 2020 2019 No of Shares No of Shares PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 32: Financial Risk Management The Group is exposed to a variety of financial risks comprising: • Market price risk • Currency risk • Interest rate risk • Credit risk • Liquidity risk The Board of Directors has overall responsibility for identifying and managing operational and financial risks. The Group holds the following financial instruments: Financial assets Amortised cost: Cash and cash equivalents Bonds and deposits Cash held on trust Receivables from broking, reinsurance and underwriting agency operations Other receivables Loans to related parties Fair value through profit or loss (mandatory classification): Financial assets Financial liabilities Amortised cost: Trade creditors Payables from broking, reinsurance and underwriting agency operations Sundry creditors and accruals Lease liabilities Borrowings Amounts payable to vendors - deferred consideration Fair value through profit or loss (mandatory classification): Derivatives Amounts payable to vendors - contingent consideration 73 2020 $’000 2019 $’000 25,973 21,475 57 47 167,904 111,480 - 9,204 5,808 7,070 4,757 34,453 51,498 243,399 196,327 3,427 1,818 166,948 112,088 12,646 16,250 4,148 - 158,505 57,023 - 2,410 1,332 - 24,075 10,292 383,183 187,779 (a) Market price risk Market 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 (other than those arising from interest rate risk or currency risk). Sensitivity The Group holds two market securities, currently held at fair value. Price sensitivity at 30 June 2020 at +/- 10% represents exposure of $3,249,000 (2019 : $4,798,000). PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 74 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 32: Financial Risk Management (continued) (b) Currency risk 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. Sensitivity If foreign exchange rates were to increase/decrease by 10% from rates used to determine fair values of all financial instruments as at the reporting date, assuming all other variables that might impact on fair value remain constant, then the impact on profit for the year and equity is as follows: + / - 10% Impact on profit after tax Impact on equity 2020 $’000 607 1,786 2019 $’000 307 1,422 (c) Fair value of Financial Instruments The Group’s financial assets and contingent consideration liabilities are measured at fair value at the end of each reporting period. The following table gives information about how their fair values are determined, including the valuation technique and inputs used. Financial instrument Fair value hierarchy Valuation technique Significant unobservable inputs Relationship of unobservable inputs to fair value Financial assets - Other shares and units held Level 3 Financial assets - Shares in listed corporations Level 1 Financial liabilities - Derivatives (forward exchange contracts) Amounts payable to vendors - contingent consideration Level 2 Level 3 The fair value is determined by reference to expected future cash flows and valuations of the underlying net asset base of the investment. The fair value is calculated based on closing bid prices at the reporting date. The fair value is calculated based on contracted exchange rates and current forward rates as determined by the issuer of the contract. The fair value is calculated based on an agreed multiple of EBITDA or fees and commissions. The discount used for long term deferred consideration is 6%. Forecast earnings and valuations of the underlying assets. The fair value would increase/ (decrease) if: - The forecast assumptions were higher/(lower) None n/a None The fair value would increase/ (decrease) if: - The forecast foreign exchange rates were higher/(lower) Forecast EBITDA or fees and commissions The fair value would increase/ (decrease) if: - The forecast EBITDA or fees and commissions were higher/(lower) Reconciliation of level 3 contingent consideration Opening balance Additions from acquisitions Deferred payments / revaluations Deferred share issues Net foreign currency movement arising from foreign operations Closing balance 2020 $’000 10,292 100,697 (50,248) (38,526) 1,860 24,075 2019 $’000 6,606 7,149 (3,482) - 19 10,292 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 75 (d) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The exposure to interest rate risks in relation to future cash flows and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: Financial Instruments 2020 (i) Financial assets (variable) Cash Bonds and deposits Cash held on trust Receivables from broking, reinsurance and underwriting agency operations Other receivables Loans to related entities Financial Assets Total financial assets (ii) Financial liabilities (variable) Trade creditors Payables from broking, reinsurance and underwriting agency operations Sundry creditors and accruals Lease Liabilties Borrowings Derivatives Amounts payable to vendors - deferred consideration Interest- bearing $’000 Non- interest bearing $’000 Total carrying amount $’000 Weighted average effective interest rate % 25,973 - 167,904 - - 5,808 - 199,685 - - - 16,250 158,505 - 57 - 9,204 - 34,453 43,714 25,973 0.70% 57 167,904 - 9,204 5,808 34,453 243,399 2.63% 3,427 3,427 166,948 166,948 12,646 - - 12,646 16,250 158,505 4.79% - - 1,332 1,332 - - Amounts payable to vendors - contingent consideration 4,572 19,503 24,075 Total financial liabilities 2019 (i) Financial assets (variable) Cash Bonds and deposits Cash held on trust Other receivables Loans to related entities Financial assets Total financial assets 179,327 203,856 383,183 21,475 - 111,480 - 47 - 7,070 4,757 - 137,712 - 51,498 58,615 21,475 0.99% 47 111,480 7,070 4,757 51,498 196,327 2.63% PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 76 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 32: Financial Risk Management (continued) (d) Interest rate risk (continued) Financial Instruments (ii) Financial liabilities (variable) Trade creditors Payables from broking, reinsurance and underwriting agency operations Sundry creditors and accruals Borrowings Contract liabilities Interest- bearing $’000 Non- interest bearing $’000 Total carrying amount $’000 Weighted average effective interest rate % - - - 1,818 1,818 112,088 112,088 4,148 4,148 57,023 - 57,023 4.79% Amounts payable to vendors - deferred consideration Amounts payable to vendors - contingent consideration Total financial liabilities - 1,851 2,410 8,441 2,410 10,292 58,874 128,906 187,779 No other financial assets or financial liabilities are expected to be exposed to interest rate risk. Sensitivity If interest rates were to increase/decrease by 100 basis points from rates used to determine fair values as at the reporting date, assuming all other variables that might impact on fair value remain constant, then the impact on profit for the year and equity is as follows: + / - 100 basis points Impact on profit after tax Impact on equity 2020 $’000 (143) (143) 2019 $’000 (546) (546) (e) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Credit risk of the Group mainly arises from cash and cash equivalents, trade and other receivables, loan to shareholders and loan to a joint venture. Although there is a concentration of cash and cash equivalents held with a major bank, credit risk is not considered significant. The Group’s exposure to credit risk is concentrated in the financial services industry with parties which are considered to be of sufficiently high credit quality to minimise credit risk losses. Receivables include amounts due from policyholders in respect of insurances arranged by controlled entities. Insurance brokers and underwriting agencies have credit terms of 90 days from policy inception to pay funds received from policyholders to insurers. Should policyholders not pay, the insurance policy is cancelled by the insurer and a credit given against the amount due. The Group’s credit risk exposure in relation to these receivables is limited to commissions and fees charged. Commission revenue is recognised after taking into account an allowance for expected revenue losses on policy lapses and cancellations, based on past experiences. (f) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group’s risk management includes maintaining sufficient cash and the availability of funding via an adequate amount of credit facilities as disclosed in note 19. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 77 (g) Fair value compared with carrying amounts The fair value of financial assets and financial liabilities approximates their carrying amounts as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. (h) Maturity analysis The tables below represent the undiscounted contractual settlement terms for financial instruments and management’s expectation for settlement of undiscounted maturities. 2020 Cash and cash equivalents Cash held on trust Receivables Other financial assets Payables Borrowings Lease Liabilities Derivatives Other financial liabilities Net maturities 2019 Cash and cash equivalents Cash held on trust Receivables Other financial assets Payables Borrowings Other financial liabilities Net maturities < 6 Months 6-12 Months 1-5 years Carrying amount $’000 $’000 $’000 $’000 25,973 167,904 8,782 - - - 422 - - - - 34,453 25,973 167,904 9,204 34,453 (78,465) (88,483) - (166,948) - (1,171) (897) - (158,505) (158,505) (1,171) (230) (13,909) (205) (4,572) (16,250) (1,332) (29,401) (10,363) (14,466) 111,763 (103,927) (142,738) (134,902) < 6 Months $’000 6-12 Months $’000 1-5 years Carrying amount $’000 $’000 21,475 111,480 6,743 - - - 327 - - - - 51,498 21,475 111,480 7,070 51,498 (52,681) (59,407) - (112,088) (596) (6,026) 80,395 (596) (4,126) (63,802) (55,831) (1,851) (6,184) (57,023) (12,003) 10,409 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 78 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 33: Directors’ And Executives’ Compensation Key management personnel during the year are the Directors, Group Chief Executive Officer and Chief Financial Officer. The names of Directors who have held office during the year are: Name Brian Austin Paul Dwyer John Dwyer Antony Robinson Melvyn Sims Tara Falk Other key management personnel during the year are: Name Rohan Stewart (Group Chief Executive Officer) Joshua Reid (Chief Financial Officer) Compensation by category Short-term employment benefits Post-employment benefits Long-term incentive plans Share-based payments Note 34: Related Party Disclosures (a) Ownership interests in related parties Details of interests in controlled entities are set out in Note 27. Appointment Date 10 December 2010 10 December 2010 10 December 2010 13 July 2015 8 August 2016 8 October 2019 Appointment Date 2 May 2018 15 December 2015 2020 $ 2019 $ 2,668,050 2,016,244 107,310 113,486 42,631 92,239 - 1,558,956 2,888,846 3,710,070 (b) Related party transactions The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year: (i) Transactions with subsidiaries All transactions that have occurred among the subsidiaries within the Group have been eliminated for consolidation purposes. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 79 (ii) Transactions with entities with director related entities Fuse Recruitment Pty Ltd, ADD Aviation Services Pty Ltd, P Capital Pty Ltd and The Lead Agency Pty Ltd (until 31 December 2018) are owned by Directors of the Group and are therefore considered related entities. DWF LLP is a related party as a Director of the Group is a Partner at the Company. Related party Service received 2020 $ 2019 $ Fees Paid or Payable to associates (ex GST): Fuse Recruitment Pty Ltd Fuse Recruitment Pty Ltd The Lead Agency Pty Ltd Recruitment Fees Contractor Fees 141,492 208,065 41,380 217,418 Marketing service fees - 94,371 ADD Aviation Services Pty Ltd Transportation service fees 12,860 131,394 DWF LLP Legal service fees 292,398 372,377 All the above services received from identified related parties of key management personnel were in the normal course of business, on terms and conditions no more favourable than those that it is reasonable to expect the party would have adopted if dealing at arms-length with an unrelated person. The outstanding balance of the above services is $19,906 from Fuse Recruitment Pty Ltd (2019: $21,249), expected to be settled within 30 days. The Group provided insurance services to related parties of a Director totalling $96,959 (2019: $206,061). The services supplied were in the normal course of business and on normal commercial terms and conditions. The fees outstanding for these services at balance date are $nil (2019 $5,766). The Group received trust distributions from a related party of a Director totalling $nil (2019: $289,432). The entity ceased to be a related party on 7 December 2018. The Group paid $700,000 to P Capital Pty Ltd during the year. The amount made relates to part payment of the purchase price for Charter Gilman Insurance Holdings Limited and Globe transactions approved at the EGM held during the year. The payment allowed PSC to take operational control earlier than otherwise. The balance of the purchase price payments were made post balance date when regulatory filings were completed as disclosed in Note 37. Remuneration paid to the Directors for services provided is paid to their respective companies, as disclosed in the Remuneration Report. The following balances are outstanding at the reporting date in relation to loans and receivables with related parties. Current receivables Related parties loans and receivables Non-Current receivables Related parties loans and receivables 2020 $ 2019 $ 2,408,376 1,383,668 3,400,453 3,373,299 All loans with related parties are granted at arms length commercial terms for repayment. All pre-listing related party loans met the minimum requirements of the Income Tax Assessment Act 1936 Division 7A in relation to interest rates and repayment terms. All post-listing related party loans are interest bearing at a minimum rate of the Fringe Benefit Tax benchmark interest rate. The maximum loan term is 7 years. (ii)Transactions with joint ventures in which the Group is a venturer There were no transactions with joint ventures in this financial year. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 80 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 35: Auditor’s Remuneration (a) Amounts paid and payable to Ernst & Young (Melbourne): (i) Fees to Ernst & Young (Australia) Fees for auditing the statutory financial report of the parent covering the Group and auditing the statutory financial reports of any controlled entities 2020 $ 2019* $ 327,700 288,500 Fees for assurance services that are required by legislation to be provided by the auditor 125,000 152,750 Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements where there is discretion as to whether the service is provided by the auditor or another firm 50,000 - Fees for other services - Tax compliance - Other Total fees to Ernst & Young (Australia) (ii) Fees to other overseas member firms of Ernst & Young (Australia) Fees for auditing the financial report of any controlled entities Fees for other services - Tax compliance - Other Total fees to Ernst & Young (Australia) Total fees to Ernst & Young (Australia) *Fees paid in 2019 were to Pitcher Partners (Melbourne), the previous auditor 45,974 - 17,015 14,324 548,674 472,589 2020 $ 2019* $ 335,250 190,595 10,745 - 18,524 21,541 345,995 230,660 894,669 703,249 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES Note 36: Parent Entity Information (a) Summarised statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity (b) Summarised statement of comprehensive income Profit for the year Total comprehensive income for the year 81 2020 $’000 2019 $’000 281,710 137,885 54,492 55,787 336,202 193,672 1,190 77,990 79,180 373 42,133 42,506 257,022 151,166 249,519 147,048 2,349 5,154 2,113 2,005 257,022 151,166 2020 $’000 25,255 25,255 2019 $’000 20,013 20,013 (c) Parent entity guarantees The amount of $441,319 (2019: $821,201) of this contingent liability relates to the guarantee of loans made to non-group interests in certain associate entities and is supported by Put Option agreements held by the lender over the non-group holdings in these associate entities. (d) Parent entity contractual commitments - Bank guarantee commitments Total parent entity contractual commitments 2020 $’000 986 986 2019 $’000 929 929 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 82 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 37: Segment Information (a) Description of segments The Group has four reportable segments as described below: • Distribution: Insurance Broking, including Broker Networks (PSC Connect, PSC Reliance Franchise Partners), life broking and PSC Workers Compensation Consulting. • Agency: Underwriting agencies, including Chase Underwriting, Breeze Underwriting, Online Travel Insurance, Medical Indemnity Australia and PSC Claims Services. • United Kingdom: United Kingdom businesses including Paragon, Caroll Holman, Breeze Underwriting (UK), Alsford Page & Gems, Turner, Easy Broking Online and Chase Underwriting (UK). • Group: Group income and investments from non-operating assets and any net group costs not recovered from operating segments. All these operating segments have been identified based on internal reports reviewed by the Group’s chief operating decision maker in order to allocate resources to the segments and assess their performance. (b) Segment information The Group’s chief operating decision maker uses segment revenue, segment result, segment assets and segment liabilities to assess each operating segment’s financial performance and position. Amounts reported for each operating segment are the same amount recorded in the internal reports to the chief operating decision maker. Segment information is measured in the same way as the financial statements. They include items directly attributable to the segment and those that can reasonably be allocated to the segment based on the operations of the segment. Inter-segment revenue is determined on an arm’s length basis. Segment information is reconciled to financial statements and underlying profit disclosure notes if provided elsewhere where these amounts differ. 2020 Segment revenue Commission income Fees income Other fees Investment income Interest income Other revenue / Other income Total segment revenue Segment revenue from external source Segment result Total segment result Segment result from external source Items included within the segment result: Interest income Interest expense Depreciation and amortisation expense Income tax expense Share of net profits/(losses) of associates and joint ventures accounted for using the equity method Fair Value gains relating to shares in listed corporations Total segment assets Total segment assets include: Distribution Agency $’000 $’000 UK $’000 Group $’000 Total $’000 12,470 74,609 38,965 33,430 10,635 - 666 138 83,834 83,834 22,753 22,753 666 (508) (5,030) (6,706) - - 2,493 705 - 78 - 15,746 15,746 3,398 3,398 78 (31) (589) (1,160) - - 138 (162) - 102 2,050 76,737 76,737 - - - 524 191 (7,988) (7,273) (7,273) 126,044 36,061 11,178 524 1,037 (5,800) 169,044 169,044 7,100 7,100 (14,529) (14,529) 18,722 18,722 102 (451) (5,236) (2,931) - - 191 1,037 (5,817) (463) 4,245 (6,807) (11,318) (6,552) 98 98 (16,623) (16,623) 138,043 14,318 138,919 371,002 662,282 Investments in equity accounted associates and joint ventures 5,706 - - 2,806 8,512 Total segment liabilities 125,619 14,149 121,572 156,421 417,761 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 83 2019 Segment revenue Commission income Fees income Other fees Investment income Interest income Other revenue / Other income Total segment revenue Segment revenue from external source Segment result Total segment result Segment result from external source Items included within the segment result: Interest income Interest expense Depreciation and amortisation expense Income tax expense Share of net profits/(losses) of associates and joint ventures accounted for using the equity method Fair Value gains relating to shares in listed corporations Total segment assets Total segment assets include: Distribution Agency $’000 $’000 UK $’000 Group $’000 Total $’000 30,188 27,929 9,611 - 1,109 1,132 69,969 69,969 20,882 20,882 1,109 (76) (1,636) (7,530) - - 12,392 30,030 2,808 511 - 171 - 302 (91) - 20 286 - - - 1,637 161 8,040 72,610 31,039 10,031 1,637 1,461 9,458 15,882 30,547 9,838 126,236 15,882 30,547 9,838 126,236 3,473 3,473 3,246 3,246 (2,244) (2,244) 25,357 25,357 171 (2) (395) (1,470) - - 20 (338) (666) (926) - - 161 1,461 (3,033) (250) (3,449) (2,947) (1,552) (11,478) 154 154 7,879 7,879 114,347 19,589 64,066 168,148 366,150 Investments in equity accounted associates and joint ventures Total segment liabilities 5,756 93,914 - - 1,815 7,571 16,679 49,849 54,657 215,099 The total segment result has been adjusted to exclude internal Group charges. The 2019 total segment result comparative has been also adjusted for consistency with current year. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 84 NOTES TO THE FINANCIAL STATEMENTS (continued) For The Year Ended 30 June 2020 Note 38: Subsequent Events Circumstances which have arisen since the end of the financial year that affect the state of affairs of the Group are detailed as follows: (a) Acquisitions Charter Gilman Insurance Holdings Ltd - In August 2020, the Group acquired the remaining 50% of shares in Charter Gilman Insurance Holdings Ltd, a broking business in Hong Kong. The transaction also included Charter Gilman Insurance Holdings Ltd acquiring the shares in Hong Kong based insurance businesses Globe Ltd and Globe Insurance Consultants Ltd. Details of the acquisitions will be disclosed in the next reporting date. The calculation of the fair value of assets is yet to be finalised and accordingly the carrying value of goodwill is yet to be determined. $'000 1,735 709 2,444 Consideration paid/payable Consideration and costs paid Deferred consideration Total Consideration * *Approximate (b) Final dividend On 21 August 2020, the Board declared an interim dividend for 2020 of 5.5 cents per share, 100% franked. Note 39: Entity Details The registered office and principal place of business of the Group is: PSC Insurance Group Limited 96 Wellington Parade East Melbourne Victoria, 3002 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES DIRECTORS’ DECLARATION 85 The Directors declare that the financial statements and notes set out on pages 23 to 84 are in accordance with the Corporations Act 2001, including: a. Comply with Australian Accounting Standards and the Corporations Regulations 2001, and other mandatory professional reporting requirements; b. As stated in Note 1(a) the consolidated financial statements also comply with International Financial Reporting Standards; and c. Give a true and fair view of the financial position of the Group as at 30 June 2020 and of its performance for the year ended on that date. In the Directors’ opinion there are reasonable grounds to believe that PSC Insurance Group Limited will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made by the Chief Executive Officer and Chief Financial Officer to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2020. This declaration is made in accordance with a resolution of the Directors. Antony Robinson Director Melbourne Date: 24 August 2020 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 86 INDEPENDENT AUDITOR’S REPORT Ernst & Young 8 Exhibit ion St reet Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent Audit or's Report t o t he Members of PSC Insurance Group Limit ed Report on t he Audit of t he Financial Report Opinion We have audited the financial report of PSC Insurance Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit and loss and other comprehensive income, consolidated statement of changes in equit y and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a t rue and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated financial performance for the year ended on that date; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the et hical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Mat t ers Key audit matters are those matters that , in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 87 We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Impairment Assessment of Goodwill and ot her Int angibles Why significant How our audit addressed t he key audit mat t er Our audit procedures included the following: Assessed the group’s determination of CGUs based on internal management reporting; Tested the mathematical accuracy of the impairment testing model; Assessed whether the forecast cash flows were consistent with the most recent Board approved cash flow forecasts; We involved our valuation specialists to assist in assessing the appropriateness of key assumptions utilised in the model, including discount and terminal growth rates; We assessed the appropriateness of the implied EBIT multiples with reference to other comparable companies; We performed our own sensitivit y analyses around key assumptions; and (cid:0)Assessed the precision of prior year forecasts by performing a comparison to actual results. We also assessed the adequacy of the disclosures associated with the goodwill impairment assessment . The Group has recognised $316.3 million of goodwill and other intangibles, which collectively represent 48% of its total assets. These assets are the result of acquisitions undertaken in the current and previous periods. In assessing the valuation of goodwill and other intangibles, the Group performs an annual impairment assessment, or more frequently, if impairment indicators are present. The Group has used a discounted cash flow model to estimate the recoverable amount of the assets. The impairment assessment involves subjective estimates and assumptions including: determination of Cash Generating Units (CGUs) forecast cash flows, including assumptions on revenue and expense growth terminal growt h rates discount rates These assumptions are subject to estimation uncertainty, with potential changes in assumptions leading to changes in the recoverable value of the assets. Accordingly, we considered this to be a key audit matter. The Group has disclosed in Note 1(k) and Note 16 the methodology and significant assumptions used in the impairment assessment of goodwill and the results of the impairment assessment. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 88 INDEPENDENT AUDITOR’S REPORT (continued) Business Combinat ions Why significant How our audit addressed t he key audit mat t er The Group undertook a number of business combinations through the year, including the acquisition of Griffiths Goodall Insurance Brokers Pty Limited and Paragon International Insurance Brokers Limited. These were completed for total consideration of $215.9m. The accounting for business combinations is complex and requires significant judgment in determining: the value of identifiable intangible assets fair value of other net assets acquired goodwill acquired total consideration payable, including estimating components of deferred consideration. Accordingly, we considered this to be a key audit matter. The Group has disclosed the accounting policy relating to business combinations in Note 1(j) and the significance of the acquisitions in Note 29. Our audit procedures included the following: Reviewing the sale and purchase agreements relating to each business acquisition; Involving our internal valuation and business modelling team to assess the methodology and appropriateness of key assumptions used to calculate the fair value of identifiable intangible assets, i.e. brand name, customer lists; Testing the mechanical accuracy of management’s models; Testing the calculation of total consideration payable as at acquisition date; and Assessing management’s re-estimation of deferred consideration at 30 June 2020, based on the terms of the sale and purchase agreement. We also assessed the adequacy of the disclosures associated with business combinations. Informat ion Ot her t han t he Financial Report and Audit or’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2020 Annual Report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection wit h our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 89 Responsibilit ies of t he Direct ors for t he Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a t rue and fair view in accordance with Aust ralian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement , whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Audit or's Responsibilit ies for t he Audit of t he Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance wit h the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to t he audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by t he directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, st ructure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 90 INDEPENDENT AUDITOR’S REPORT (continued) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate wit h the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on t he Audit of t he Remunerat ion Report Opinion on t he Remunerat ion Report We have audited the Remuneration Report included in pages 14 to 21 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of PSC Insurance Group Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilit ies The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance wit h section 300A of the Corporations Act 2001. Our responsibilit y is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young T M Dring Partner Melbourne 24 August 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 91 SHAREHOLDER INFORMATION As required under the ASX Listing Rules, the Directors provide the following information. Shareholding Analysis (a) Distribution of Shareholders At 17 August 2020, the distribution of shareholdings was as follows: Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Securities % 275,289,309 95.91 9,609,617 1,198,188 863,861 58,362 3.35 0.42 0.30 0.02 No. of holders 112 299 148 279 163 % 11.19 29.87 14.79 27.87 16.28 287,019,337 100.00 1,001 100.00 (b) Substantial Shareholders The number of shares held by the substantial shareholders listed in the Company’s register of substantial shareholders as at 17 August 2020 were: Name Mrs Melissa Jane Dwyer, PM Dwyer Pty Ltd, Crathre Pty Ltd Austin Superannuation Pty Ltd Glendale Dwyer Pty Ltd, Cumnock Dwyer Pty Ltd Ethical Partners Funds Management Pty Ltd (held through nominees) Number of Shares 67,174,852 35,611,300 35,521,351 14,842,850 (c) Class of shares and voting rights At 17 August 2020, there were 1,001 holders of ordinary shares in the Company. All of the issued shares in the capital of the parent entity are ordinary shares and each shareholder is entitled to one vote per share. PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 92 SHAREHOLDER INFORMATION (continued) (d) Twenty Largest Shareholders (At 17 August 2020): Rank Shareholder Number of Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Mrs Melissa Jane Dwyer Austin Superannuation Pty Ltd HSBC Custody Nominees (Australia) Limited Glendale Dwyer Pty Ltd J P Morgan Nominees Australia Pty Limited National Nominees Limited Tara Falk Walker Insurance & Financial Services Pty Ltd James Kalbassi Citicorp Nominees Pty Limited Locust Fund Pty Ltd Namarong Investments Pty Ltd BNP Paribas Noms Pty Ltd Mr Michael David Gunnion & Mrs Debra Lee Gunnion Uyb.com Pty Ltd Rubi Holdings Pty Ltd Chris London Spenser Lee Dead Grateful Pty Ltd 20 BNG Family Pty Ltd 65,714,555 35,611,300 35,572,784 34,654,315 23,516,226 5,501,271 5,189,933 4,451,168 4,258,955 4,249,521 4,006,539 3,967,731 3,272,803 4,032,679 2,142,479 2,000,000 1,804,573 1,611,629 1,577,715 1,577,715 PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES 93 CORPORATE INFORMATION Directors Brian M Austin (Independent, Non-Executive Chairman) Paul R Dwyer (Non-Executive Director, Deputy Chairman) Antony D Robinson (Managing Director) John R Dwyer (Executive Director) Melvyn S Sims (Independent, Non-Executive Director) Tara Falk (Executive Director) Group Secretary Stephen G Abbott Registered Office 96 Wellington Parade East Melbourne, Victoria, 3002 www.pscinsurancegroup.com.au Auditors Ernst & Young 8 Exhibition Street Melbourne, Victoria, 3000 Share Registry Link Market Services Ltd Tower 4, 727 Collins Street Melbourne, Victoria, 3008 Stock Exchange Listing PSC Insurance Group Ltd shares are listed on the Australian Stock Exchange with ASX Code : PSI PSC INSURANCE GROUP LIMITED AND CONTROLLED ENTITIES