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2023 ReportAppendix 4E Preliminary final report 1. COMPANY DETAILS Name of entity: ABN: Reporting period: Previous period: Sequoia Financial Group Limited 90 091 744 884 For the year ended 30 June 2017 For the year ended 30 June 2016 2. RESULTS FOR ANNOUNCEMENT TO THE MARKET Revenues from ordinary activities up 93.1% to 44,364,946 Profit from ordinary activities after tax attributable to the owners of Sequoia Financial Group Limited up 121.5% to 709,799 up 121.5% to 709,799 Profit for the year attributable to the owners of Sequoia Financial Group Limited Dividends There were no dividends paid, recommended or declared during the current financial period. Comments The profit for the Group after providing for income tax and non-controlling interest amounted to $709,799 (30 June 2016: $320,397). 3. NET TANGIBLE ASSETS Net tangible assets per ordinary security 3.04 0.01 Reporting period Cents Previous period Cents 4. CONTROL GAINED OVER ENTITIES Not applicable. 5. LOSS OF CONTROL OVER ENTITIES Not applicable. 6. DIVIDENDS Current period There were no dividends paid, recommended or declared during the current financial period. Previous period There were no dividends paid, recommended or declared during the previous financial period. 7. DIVIDEND REINVESTMENT PLANS Not applicable. i SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Appendix 4E Preliminary final report 8. DETAILS OF ASSOCIATES AND JOINT VENTURE ENTITIES Not applicable. 9. FOREIGN ENTITIES Details of origin of accounting standards used in compiling the report: Not applicable. 10. AUDIT QUALIFICATION OR REVIEW Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unqualified opinion has been issued. 11. ATTACHMENTS Details of attachments (if any): The Annual Report of Sequoia Financial Group Limited for the year ended 30 June 2017 is attached. 12. SIGNED Date: 31 August 2017 Michael Carter Chairman Sequoia Financial Group Sydney i i SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Sequoia Financial Group Limited ABN 90 091 744 884 Annual Report 30 JUNE 2017 CONTENTS Portfolio of Companies ......................................................................................................3 Chairman’s report ..............................................................................................................4 Directors’ report .................................................................................................................6 Auditor’s independence declaration ...........................................................................23 Consolidated statement of profit or loss and other comprehensive income ..........24 Consolidated statement of financial position ..............................................................25 Consolidated statement of changes in equity ............................................................26 Consolidated statement of cash flows .........................................................................27 Notes to the consolidated financial statements ..........................................................28 Directors’ declaration ......................................................................................................78 Independent auditor’s report to the members of Sequoia Financial Group Limited ..............................................................................79 Shareholder information .................................................................................................85 Corporate directory .........................................................................................................87 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Portfolio of Companies D2MX Pty Ltd is an ASX market participant providing advisory and trade execution services to retail investors, institutional and wholesale dealer groups. Services include: • general and personal advice; • corporate advisory; • institutional equity sales; and • wholesale broking. Sequoia Superannuation Pty Ltd provides a complete portfolio administration solution to the SMSF market, designed specifically for anyone that has or wants a SMSF. Sequoia Superannuation also provides SMSF portfolio administration solutions to financial planners, stock brokers, mortgage brokers and accountants Australia wide. Sequoia Direct Pty Ltd (formerly known as Trader Dealer Online Pty Ltd) is an online trading Company providing general advice, execution- only trading and software solutions for clients investing in ASX equities, options and warrants. Bourse Data Pty Ltd is a software technology Company that develops, sells and supports The Bourse market data platform. Proprietary software platforms include d2mxIRESS and Market Analyser. Sequoia Specialist Investments Pty Ltd (“SSI”) is a leading issuer of bespoke investment products to retail, sophisticated and other wholesale investors. SSI has established a suite of products providing investors with exposure to unique investment themes. Sequoia Asset Management Pty Ltd is an investment services firm and holder of an Australian Financial Services License. Our team of experts provide general advice on portfolio management, SMSFs, direct shares, superannuation, structured products, option trading, personal insurance, margin lending and cash solutions. Sequoia Corporate Finance Pty Ltd provides specialised corporate advisory services to clients. Clients include successful domestic and multi-national corporations, emerging growth companies, private equity sponsors and family- owned and entrepreneur-led businesses. We are rigorous in our working practices, ensuring compliance, confidentiality and protection of our client’s business. Sequoia Wealth Management Pty Ltd offers general and personal advice on financial services products. These products include Australian equities, International Shares, options, corporate finance, managed portfolios, margin lending, fixed income, structured products and contracts for difference (CFD’s). Finance TV Pty Ltd (“FNN”) is a partly owned (53.95%) subsidiary of Sequoia Financial Group Ltd. FNN is an independent news organisation that specialises in both the production and distribution of financial news content, digital communications and productions services to ASX-Listed companies and managed funds. Annually FNN produces more than 3000 video news items. Sequoia Funds Management Pty Ltd manages various activities in bringing unit trust and managed schemes to retail investors. 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Chairman’s Report CHAIRMAN’S REVIEW Financial Year 2017 has been a year of growth, investment and development for Sequoia Financial Group Limited (‘Sequoia’ or ‘the Company’), characterised by solid financial results, investment in the business to scale up and strong operational progress across all divisions. Sequoia has continued to evolve into a well-regarded financial services company with a diversified and growing base of recurring revenue streams as well as continued growth and diversification through earnings accretive acquisitions. This growth trajectory is only just beginning. A solid financial performance Sequoia’s 2017 performance is best reflected in its improved financial results recorded for the year. Revenue increased almost 93% to $44.4 million (FY2016: $23.0 million), EBITDA was up 101% to $1.5 million (FY2016: $743,956) and net profit after tax increased 154% to $725,573 (FY2016: $285,733). In reporting these financial results, it is important to recognise as at 30 June Sequoia has net deferred revenue of approximately $3.3 million. The revenue and associated costs have been received and subsequently paid however due to the nature of the investment product and adopting best practice accounting standards the revenue is spread over the lifetime of the investment. Of the $3.3 million, approximately $2.6 million was received in FY17 with approx. $1.3 million to be realised in the current financial year (FY18). Recognising this future income gives greater perspective to the net profit and margins reported this financial year and scope for continued NPAT growth in coming years. Sequoia’s revenue performance from operating divisions is pleasing which has resulted in Sequoia exceeding its overall revenue forecasts. Sequoia has enjoyed a positive cash flow each quarter in financial year 2017 culminating in an operating cash flow of $5.8 million, being a major turnaround from prior years (FY16: negative cash flow of $248,798). This is reflective of the strong cash generating capabilities of the operating divisions. Further to this, loans reduced by 21%. Sequoia ended the year with net cash at bank of $6.2 million, providing sufficient financial flexibility for the current year. Strengthened leadership Sequoia recognises the critical importance of continuously optimising the skills of its Board and management ranks to ensure that it has the expertise necessary to become a leading and respected financial services organisation. As a result of this ongoing process, Sequoia was delighted to welcome highly regarded financial services professional Garry Crole to its’ Board in November 2016. Garry brings more than 30 years’ experience to the role, including extensive expertise in establishing and developing financial services firms. These capabilities have been invaluable as Sequoia takes the next step in its growth. Improved capital structure to facilitate ongoing growth Another important milestone in Sequoia’s transformation in the year has been the streamlining of our capital structure through a 100 to 1 share consolidation to assist meaningful value-accretive acquisitions. The improvement to the capital structure has also been an important step in making the Company more marketable and appealing to the investment community. 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Chairman’s Report Complementary acquisitions During the year, Sequoia continued its track record of growth through complementary acquisitions with the proposed acquisition of Melbourne-based financial and professional services business InterPrac, announced in June 2017. Interprac is highly complementary to Sequoia’s current operating divisions and will add immediate scale to a number of the Company’s divisions including SMSF Administration, Wealth Advisory and Investment Solutions. Pleasing progress has been made towards executing the acquisition and the Sequoia Board will dispatch a Notice of AGM to shareholders to convene a shareholder meeting early in November 2017 to approve this transaction. The Sequoia Board is delighted to present this opportunity to shareholders for their support. A sound foundation now in place Financial year 2018 has commenced well for Sequoia and the Board anticipates continued growth in revenue and earnings, driven by organic growth. Sequoia expect returns on the investments it has made in operational efficiency in 2016 and again in 2017 to further improve performance, including contribution from the Interprac business, subject to shareholder approval of the acquisition. With a stronger Board, a conservative capital structure and growing diversified recurring revenue streams, Sequoia is poised for the next phase of growth. Acquisitions that make a positive contribution to earnings and strengthen existing operations will continue to be a focus, as will organic growth initiatives. I would like to take this opportunity to thank our people for their hard work and commitment during the year. Sequoia now have a team of over 50 professionals and staff in Sydney and Melbourne who represent our brand and values well, and they are to be commended for their efforts. Sequoia and its’ Board are also grateful to our valued shareholders for their ongoing support, and assure you, the Board and Management team is working hard to realise Sequoia’s true value and establish the Company as a trusted, dependable and well recognised Australian financial services business. Improving profit contribution and sharing this with our shareholders in coming years is a priority. Our mission is to generate profitable growth through superior customer service, innovation, quality advice and commitment to our industry. It is early stages but we believe Sequoia has begun the journey on delivering on this objective. In concluding this shareholder update, I would specifically like to thank our Managing Director Scott Beeton for his vision in commencing the Sequoia journey. In particular, for all of his hard work and that of his management team, who have turned the business around to create a strong environment that over time has the potential to deliver shareholders returns on their investment. Michael Carter Chairman 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of Sequoia Financial Group Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2017. DIRECTORS The following persons were directors of Sequoia Financial Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Michael Kenneth Carter Scott Lionel Beeton Marcel John Collignon Garry Peter Crole Non-Executive Chairman Managing Director Executive Director Non-Executive Director (appointed 18 November 2016) PRINCIPAL ACTIVITIES The Group’s principal activities offer diversified financial products, including but not limited to investment and superannuation products, wealth management services and retail, wholesale and institutional trading platforms. DIVIDENDS There were no dividends paid, recommended or declared during the current or previous financial year. 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report REVIEW OF OPERATIONS The profit for the Group after providing for income tax and non-controlling interest amounted to $709,799 (30 June 2016: $320,397). The comprehensive income attributable to owners is $830,652 (30 June 2016: $618,042). Summary of results Operating performance Revenue Expenses Profit before tax Tax expense Profit after tax Cash flow Operating cash flow Investing cash flow Financing cash flow Net increase in cash Opening cash Closing cash Financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Business review 2017 $ 44,364,946 (43,328,524) 1,036,422 (310,849) 725,573 2016 $ 22,980,597 (22,479,006) 501,591 (215,858) 285,733 Change $ Change % 21,384,349 (20,849,518) 534,831 (94,991) 439,840 93% 93% 107% 44% 154% 2017 $ 2016 $ 5,837,865 (114,453) (358,825) 5,364,587 812,831 6,177,418 (248,798) (841,309) 1,289,411 199,304 613,527 812,831 Consolidated 2017 $ 22,707,527 42,399,752 65,107,279 20,915,562 33,989,637 54,905,199 10,202,080 2016 $ 6,317,616 22,115,179 28,432,795 9,004,539 10,132,986 19,137,525 9,295,270 Trading and Execution The Trading and execution division has experienced strong growth to its wholesale client base in financial years 2016 and 2017, with revenue growth in financial year 2017 of 32%. D2MX Pty Ltd (D2MX) is a leading provider of seamless and cost effective third-party stock broking execution solutions to AFSL holders. Its investment of resources into third-party solutions resulted in increased revenue in financial year 2016 and we expect to see realisation of investments in this area over the coming financial year, culminating in a growing market awareness of D2MX with financial services professionals seeking its services. 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report Software Subscriptions During the financial year, we continued to invest in our Fintech business Bourse Data Pty Ltd and released enhanced state-of-the-art software allowing users to have a key cross-platform advantage. The launched software has a mobile application with full trading functionality and offers a white label solution to wholesale clients of D2MX allowing them to offer a customised solution to their clients. We expect this software will create stronger loyalty to D2MX execution clients resulting in increased revenue turnover and overall satisfaction of the end customer. Capital Markets Advisory The Capital Markets Advisory division increased revenue by 255% in financial year 2017. It continued to be a consistent contributor to Group performance with several exclusive mandates signed during the financial year that made a pleasing contribution to revenue. Mandates included IPO’s, secondary capital placements, rights issues, merger and acquisitions, hybrid securities and debt advisory. Self-Managed Superannuation Fund Administration Sequoia Superannuation Pty Ltd continued its consistent revenue growth trajectory during financial year 2017, through an increase in new mandates secured for the administration of SMSFs, resulting in a revenue increase of 14%. The division is a reliable and growing source of recurring revenue streams and has been successful in building the number of SMSFs under administration to more than 850. Wealth Advisory The revenue of the Wealth Advisory Division increased by 93% over financial year 2017. The specialised team of Sequoia Asset Management continued to provide general advice and support with investment solutions including in respect to SMSF’s, portfolio management, securities, derivatives, superannuation, structured products, and insurance whilst Sequoia Wealth Management obtained its own financial services licence during the financial year focusing its activities on recruitment of new advisors and roll outing new product and service offerings to its client base. Investment Solutions The Investments Solutions division experienced revenue growth of 165% due to many of its’ investment offers resonating well with investors and their advisors. Investment in resources to educate external advisers has resulted in greater demand from wholesale clients with a number of bespoke solutions requested and delivered. Growing awareness of our Investment Solutions division together with several planned upcoming investment products are expected to continue to appeal to investors and their advisers and contribute to future revenue. Sequoia Funds Management In its first year of operation, the Sequoia Funds Management division achieved pleasing traction with its flagship investment vehicle, the AIM Gateway Fund. The AIM Gateway Fund is an Australian unit trust and registered managed investment scheme providing investors (including Retail Clients) with exposure to the AIM Global High Conviction Fund, which is a wholesale unit trust only open to wholesale investors. The Gateway Fund is a “feeder fund” which is managed by Sequoia Funds Management Pty Ltd and designed to provide investors with returns linked to the performance of the AIM Fund and Cash (net of fees). 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report An increase in fees payable to the division arranged late in the financial year together with strong fund performance, the AIM Gateway Fund is likely to continue its forward momentum building its funds under management. The fund is seeing increased interest from AFSL holders and expects to gain approval on various investment platforms. Strong direct retail interest is also continuing. All of this is expected to see this division grow its funds under management. Financial News Services FNN contributed $1.3 million to the Group result this financial year following its acquisition in 2016. As the largest supplier of wholesale online finance news specialising in both the production and distribution of financial news content involving greater than 3,000 video news items annually, we believe it will contribute favourably to the Group. The Group vision is represented by the Sequoia tree, with a strong foundation at its base, once it is formed it has the capability to grow to be amongst the tallest, widest, longest and fastest growing organisms on earth. 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS At the Company’s Annual General Meeting (‘AGM’) held on 1 November 2016, the Sequoia Employee Incentive Plan (‘SEIP’) was approved by shareholders. A summary of the key terms of the SEIP is set out in the Company’s notice of the 2016 AGM lodged on the ASX. On 1 September 2016, the Group acquired an additional 3.86% shareholding in Finance TV Pty Ltd bringing its total shareholding to 53.95%. On 1 February 2017, the Company granted 1,300,000 performance rights under the terms and conditions of the Sequoia Employee Incentive Plan. Vesting of performance rights were made subject to prescribed service and performance conditions. Vesting occurs in tranches on 31 January 2018, 31 January 2019 and 31 January 2020 with the expiry date of all performance rights being 31 January 2022. On 19 June 2017, the Company announced that it proposed to acquire InterPrac Limited (‘InterPrac’), a well-established financial and professional services business that is highly complementary to the Group’s existing operations and that, subject to a completion of the proposed acquisition, will deliver immediate scale to a number of the Group’s operating divisions. Completion of the proposed acquisition is subject to a number of conditions, including due diligence to the satisfaction of the Company, entry into formal documentation and all relevant necessary regulatory and shareholder approvals being obtained by the Company. During the financial year, the Company entered into a heads of agreement for new premises in Sydney, the terms of which are still being negotiated. There were no other significant changes in the state of affairs of the Group during the financial year. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR On 27 July 2017, Marika White resigned as Company Secretary. Tharun Kuppanda is now the Company Secretary. On 18 August 2017, Computershare Investor Services Pty Limited ceased as the Company’s registry provider and Registry Direct was appointed service provider and commenced on 21 August 2017. No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The Group does not expect any major developments changes or variation to results if the Group were to continue as normal. However major variation would be expected to revenue and the expected results if shareholders approve any acquisition proposed by the directors. ENVIRONMENTAL REGULATION The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 1 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report INFORMATION ON DIRECTORS Name: Michael Kenneth Carter Title: Non-Executive Chairman Experience and expertise: Michael has over 25 years’ experience in financial services with previous executive roles at companies such as Macquarie Bank (now Macquarie Group), NRMA Insurance Group (now IAG) and Bridges Financial Services / IOOF Holdings. Michael was Managing Director at Bridges Financial Services, Executive Wealth Management and associated entities until April 2014 and was part of the Leadership Group at IOOF Holdings. Bridges was a Market Participant and a major financial planning organisation. Michael has a Bachelor of Engineering (Mining) from the University of New South Wales and Diploma of Financial Services. He is a member of the Australian Institute of Company Directors. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of Audit Committee, Remuneration Committee and Risk and Compliance Committee Interests in shares: 525,000 ordinary shares (directly held) Interests in rights: None Name: Scott Lionel Beeton Title: Managing Director Experience and expertise: Scott has 17 years’ experience in the finance industry working in a variety of roles across Superannuation, funds management, investment management, stockbroking, AFSL dealer services and advice. Scott was appointed Managing Director of SEQ in December 2014, following the approval for SEQ to acquire Sequoia Financial Group and became CEO for the newly formed Group. Scott is co-founder of Sequoia and has developed the capabilities of the various Sequoia businesses. Scott has a Bachelor of Business from Newcastle University. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of Remuneration Committee and Risk and Compliance Committee Interests in shares: 11,658,560 ordinary shares (indirectly held) Interests in rights: None 1 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report Name: Marcel John Collignon Title: Executive Director Experience and expertise: Marcel was appointed as Executive Director in December 2014. Marcel is Founder and Managing Director of Sequoia Specialist Investments and is head of Investment Solutions at Sequoia. For 16 years Marcel, has worked in financial markets developing extensive experience in equities and derivatives, trading, portfolio management, superannuation and financial planning. Marcel holds a Bachelor of Commerce from the Australian National University, a Diploma of Financial Planning and has completed the ASX derivative accreditation course. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of Audit Committee Interests in shares: 4,129,824 ordinary shares (indirectly held) Interests in rights: None Name: Garry Peter Crole Title: Non-Executive Director (appointed 18 November 2016) Experience and expertise: Garry is a highly experienced and well regarded businessman. He founded Deakin Financial Planning, an ASX listed company that was later acquired by IOOF. In more recent years, Garry started Interprac Financial Planning Pty Ltd, which is a leading independently owned Australian Financial Services Licensee. Other current directorships: Non-Executive Director of Glennon Capital Ltd (ASX: GC1) Former directorships (last 3 years): Non-Executive Director of Diversa Ltd (ASX: DVA) which merged with OneVue Ltd (ASX: OVH) Special responsibilities: Chair of Audit Committee, Remuneration and Risk and Compliance Committee Interests in shares: 740,000 ordinary shares (directly held) and 200,000 ordinary shares (indirectly held) Interests in rights: None ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 1 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report COMPANY SECRETARY Mr Tharun Kuppanda was appointed Company Secretary on 27 July 2017. He is employed by Boardroom Pty Ltd in their Corporate Secretarial Services Division in Sydney. He holds a Bachelor of Business and a Bachelor of Laws. During the financial year to 30 June 2017, Ms Marika White was also appointed Company Secretary. Marika has extensive company secretarial experience within the public, private and not for profit sectors in Australia and overseas. Marika is a member of the Australian Institute of Company Directors and the Governance Institute of Australia. MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2017, and the number of meetings attended by each director were: SL Beeton MK Carter MJ Collignon GP Crole SL Beeton MK Carter MJ Collignon GP Crole Full Board Attended Held Audit Committee Held Attended 9 10 10 5 10 10 10 6 - 2 2 1 - 2 2 1 Risk and Compliance Committee Attended Held Remuneration and Nomination Committee Attended Held 9 9 4 6 10 10 4 6 1 1 - 1 1 1 - 1 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. REMUNERATION REPORT (AUDITED) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional information • Additional disclosures relating to key management personnel 1 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage / alignment of executive compensation • transparency The Board of Directors, through its Remuneration and Nomination Committee, accepts responsibility for determining and reviewing remuneration arrangements for the directors and the senior management team. The Remuneration and Nomination Committee assesses the appropriateness of the nature and amount of remuneration of directors and senior managers on a periodic basis by reference to relevant employment market conditions, giving due consideration to the overall profitability and financial resources of the Group, with the objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. The Board proposes to review reward structures and the remuneration arrangements for Directors and executives in conjunction with a return to profitability. In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands which are made of the directors in fulfilling their responsibilities. Non-executive director fees are reviewed annually by the Board. The constitution of the Company provides that the non-executive directors of the Company are entitled to such remuneration, as determined by the Board, which must not exceed in aggregate the maximum amount determined by the Company in general meeting. The most recent determination was at the Annual General Meeting held on 15 December 2006 where the shareholders approved an aggregate remuneration of $200,000. Senior management and executive director remuneration Executive remuneration comprises: • Fixed remuneration component • Variable remuneration component including short-term incentive (STI) and long-term incentive (LTI) • An Employee Share Option Plan was approved at a meeting of shareholders on the 27 November 2015 (LTI) Fixed remuneration Fixed remuneration consists of base remuneration as well as employer contributions to superannuation. Remuneration levels are reviewed annually through a process that considers individual performance and that of the overall Group. Variable remuneration – short term incentive (STI) STIs are available to executives who achieve performance criteria including compliance. The Board is responsible for determining who is eligible to participate in STI arrangements as 1 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report well as the structure of those arrangements. No STI’s, including options have been awarded in the current financial year. Variable remuneration – long term incentive (LTI) The objective of the LTI plan is to reward senior managers in a manner which aligns this element of remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Group’s performance against relevant long term performance hurdles. LTI grants to executives are delivered in the form of options or shares. On 1 February 2017, the Company established an employee equity scheme, called the Sequoia Employee Incentive Plan (‘SEIP’) to offer performance rights to certain employees and executives employed by the Company. All performance rights offered under the February 2017 grant were granted for nil consideration and had a nil exercise price. Performance rights vest in three tranches: Tranche Tranche 1 Tranche 2 Tranche 3 Vesting date 31 January 2018 31 January 2019 31 January 2020 The vesting conditions of the performance rights granted under the February 2017 grant are: • 50% of each tranche where the employee meets the service condition; and • 50% of each tranche where the employee meets the service condition and the Company meets the performance conditions. All performance rights tranches expire on 31 January 2022. The service conditions are that Tranche 1, Tranche 2 and Tranche 3 will vest if continuous employment is maintained with the Company from the date the performance rights are granted until their respective vesting dates. The performance conditions are related to share price hurdles as follows: • Tranche 1 will vest if the Company’s 90 Day VWAP up to and including 31 January 2018 is at least $0.25. • Tranche 2 will vest if the Company’s 90 Day VWAP up to and including 31 January 2019 is at least $0.30. • Tranche 3 will vest if the Company’s 90 Day VWAP up to and including 31 January 2020 is at least $0.35. Any performance rights which meet the vesting conditions above will be available for exercise up until the expiry date. On exercise of vested performance rights Company shares may be acquired and held by an Employee Share Trust (‘EST’) to be established for the purpose of settlement. Shares may be held subject to the EST and the Company’s Securities Trading Policy. If the Company provide an EST, the employee can apply to the Trustee to have their shares transferred or sold from the EST, subject to compliance with the Company’s Securities Trading Policy. 1 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the Group. A portion of cash bonus and incentive payments are dependent on defined earnings per share targets being met. The remaining portion of the cash bonus and incentive payments are at the discretion of the Remuneration and Nomination Committee. Refer to the section ‘Additional information’ below for details of the earnings and total shareholders return for the last four years. Use of remuneration consultants During the financial year ended 30 June 2017, the Group engaged Crichton and Associates Pty Limited, remuneration consultants, to review its existing remuneration policies and provide recommendations. This has resulted in share-based payments remuneration in the form of options (LTI) being implemented. Crichton and Associates Pty Limited were paid $8,070 for these services. Voting and comments made at the Company’s 2016 Annual General Meeting (‘AGM’) At the 1 November 2016 AGM, 97.58% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2016. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. The key management personnel of the Group consisted of the following directors of Sequoia Financial Group Limited: • Michael Kenneth Carter - Non-Executive Chairman • Scott Lionel Beeton - Managing Director • Marcel John Collignon - Executive Director • Garry Peter Crole - Non-Executive Director (appointed 18 November 2016) And the following persons: • Marika White - Company Secretary (appointed 28 December 2016) • Andrew Guy Phillips - Company Secretary (resigned 28 December 2016) • Renee Louise Minchin - Chief Financial Officer 1 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report Short-term benefits Post- employment benefits Long-term benefits Sharebased payments 2017 Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Leave benefits $ Equity-settled $ Total $ Non-Executive Directors: MK Carter GP Crole** Executive Directors: SL Beeton MJ Collignon Other Key Management Personnel: M White* AG Phillips* RL Minchin 119,488 13,532 - - 276,080 246,801 40,000 40,000 24,000 28,000 161,986 869,887 - - - 80,000 - - - - - - - - 10,409 1,286 19,594 19,547 - - 15,389 66,225 - - - - - - - - - - - - - - - - 129,897 14,818 335,674 306,348 24,000 28,000 177,375 1,016,112 * Remuneration is for the period from 1 July 2016 to date of resignation as a key management personnel. ** Remuneration is for the period from date of appointment as a key management personnel to 30 June 2017 Short-term benefits 2016 Cash salary and fees $ Cash bonus $ Non- monetary $ Post- employment benefits Super- annuation $ Long-term benefits Sharebased payments Leave benefits $ Equity- settled $ Total $ Non-Executive Directors: MK Carter Executive Directors: SL Beeton MJ Collignon DP Pagliaccio* BRS Symon* Other Key Management Personnel: AG Phillips RL Minchin 69,745 276,386 246,513 165,000 45,000 102,000 131,667 1,036,311 - - - - - - - - - - - - - - - - 6,626 19,308 19,308 - - - 12,508 57,750 - - - - - - - - - - - - - - - - 76,371 295,694 265,821 165,000 45,000 102,000 144,175 1,094,061 *Remuneration is for the period from 1 July 2015 to date of resignation as a key management personnel. 1 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report The proportion of remuneration linked to performance and the fixed proportion are as follows: Name 2017 2016 2017 2016 2017 2016 Fixed remuneration At risk - STI At risk - LTI Non-Executive Directors: MK Carter GP Crole Executive Directors: SL Beeton MJ Collignon DP Pagliaggio BRS Symon Other Key Management Personnel: M White AG Phillips RL Minchin 100% 100% 100% 100% - - 100% 100% 100% 100% - 100% 100% 100% 100% - 100% 100% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Service agreements Where contracts have been established, employment terms and conditions of key management personnel and Group executives are formalised in standard contracts of employment. All contracts are for no fixed term with one to three months’ notice required for termination by either party. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2017. Performance rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Grant date Vesting date and exercisable date Expiry date Share price hurdle for vesting Fair value per right at grant date 1 Feb 2017 31 Jan 2018 31 Jan 2022 $0.000 $0.320 Name Number of rights granted Grant date Vesting date and exercisable date Expiry date Share price hurdle for vesting Fair value per right at grant date Renee Minchin 150,000 1 Feb 2017 31 Jan 2018 31 Jan 2022 $0.000 $0.320 Performance rights granted carry no dividend or voting rights. 1 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report The number of performance rights over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2017 are set out below: Name Number of rights granted during the year 2017 Number of rights granted during the year 2016 Number of rights vested during the year 2017 Number of rights vested during the year 2016 Renee Minchin 150,000 - - - Details of performance rights over ordinary shares granted, vested and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2017 are set out below: Name Grant date Vesting date Number of rights granted Value of rights granted $ Value of rights vested $ Number of rights lapsed Value of rights lapsed $ Renee Minchin 1 Feb 2017 31 Jan 2018 150,000 - - - - All performance rights under the 1 February 2017 grant were granted for nil consideration and had a nil exercise price. Additional information The earnings of the Group for the four years to 30 June 2017 are summarised below: Sales revenue Profit/(loss) after income tax 2017 $ 2016 $ 2015 $ 2014 $ 44,364,946 22,980,597 21,406,293 19,509,124 725,573 285,733 (17,974,212) 345,892 The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share price at financial year end ($) 0.320 0.200 0.100 0.200 2017 2016 2015 2014 Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares SL Beeton MK Carter MJ Collignon GP Crole AG Phillips RL Minchin 11,958,754 525,000 4,129,824 - 530,714 242,647 17,386,939 - - - - - - - 22,220 - - 940,000 - - 962,220 (322,414) - - - - - (322,414) 11,658,560 525,000 4,129,824 940,000 530,714 242,647 18,026,745 ‘Balance at the start of the year’ holdings have been restated for the 1:100 share consolidation split which occurred during the year. 1 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report Performance rights holding The number of performance rights over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Performance rights over ordinary shares RL Minchin Balance at the start of the year Granted Vested Expired/ forfeited/other Balance at the end of the year - - 150,000 150,000 - - - - 150,000 150,000 This concludes the remuneration report, which has been audited. SHARES UNDER PERFORMANCE RIGHTS Unissued ordinary shares of Sequoia Financial Group Limited under performance rights at the date of this report are as follows: Grant date Expiry date Number under rights 1 February 2017 31 January 2022 1,300,000 No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. 2 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report SHARES ISSUED ON THE EXERCISE OF PERFORMANCE RIGHTS There were no ordinary shares of Sequoia Financial Group Limited issued on the exercise of performance rights during the year ended 30 June 2017 and up to the date of this report. INDEMNITY AND INSURANCE OF OFFICERS The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. INDEMNITY AND INSURANCE OF AUDITOR The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 33 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 33 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. 2 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ report OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF HALL CHADWICK (NSW) There are no officers of the Company who are former partners of Hall Chadwick (NSW). AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. AUDITOR Hall Chadwick (NSW) continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Michael Carter Chairman 31 August 2017 Sydney 2 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Auditor’s Independence declaration 2 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Consolidated statement of profit or loss and other comprehensive income Revenue Expenses Data fees Dealing and settlement Payments to investors Commission and hedging Employee benefits Occupancy Telecommunications Marketing General and administrative Impairment, amortisation and depreciation Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Gain on the revaluation of available-for-sale financial assets, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of Sequoia Financial Group Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Sequoia Financial Group Limited Note 5 6 6 6 7 27 Consolidated 2017 $ 2016 $ 44,364,946 22,980,597 (1,641,570) (10,562,208) (4,783,659) (16,412,144) (6,598,190) (482,232) (439,503) (342,672) (1,606,032) (235,121) (225,193) (1,139,430) (6,498,185) (3,965,169) (4,128,428) (4,103,466) (379,491) (268,881) (203,995) (1,390,344) (160,861) (240,756) 1,036,422 501,591 (310,849) (215,858) 725,573 285,733 120,853 120,853 846,426 15,774 709,799 725,573 15,774 830,652 846,426 297,645 297,645 583,378 (34,664) 320,397 285,733 (34,664) 618,042 583,378 Basic earnings per share Diluted earnings per share Cents Cents 41 41 1.455 1.385 0.007 0.007 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 2 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Consolidated statement of financial position Assets Current assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Deferred costs Other Total current assets Non-current assets Derivative financial instruments Financial assets Property, plant and equipment Intangibles Deferred tax Deferred costs Other Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Derivative financial instruments Income tax Employee benefits Deferred revenue Total current liabilities Non-current liabilities Borrowings Derivative financial instruments Deferred tax Employee benefits Deferred revenue Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Equity attributable to the owners of Sequoia Financial Group Limited Non-controlling interest Total equity Note Consolidated 2017 $ 2016 $ 8 9 10 11 12 10 13 14 15 7 16 17 18 19 10 7 20 21 22 10 7 23 24 25 26 27 28 6,177,418 1,621,161 5,976,249 7,500,455 1,432,244 22,707,527 19,335,325 1,425,575 268,050 8,719,122 5,718,881 6,715,907 216,892 812,831 1,594,641 883,111 2,865,995 161,038 6,317,616 5,278,666 1,836,575 154,647 8,813,012 2,482,036 2,334,591 1,215,652 42,399,752 22,115,179 65,107,279 28,432,795 4,423,857 273,307 5,976,249 849,695 457,323 8,935,131 20,915,562 1,427,868 19,335,325 4,537,561 30,643 8,658,240 2,274,715 2,060,000 883,111 - 370,451 3,416,262 9,004,539 - 5,278,666 1,778,045 32,517 3,043,758 33,989,637 10,132,986 54,905,199 10,202,080 19,137,525 9,295,270 26,724,112 408,335 (17,005,876) 10,126,571 75,509 26,724,112 177,098 (17,670,141) 9,231,069 64,201 10,202,080 9,295,270 The above statement of financial position should be read in conjunction with the accompanying notes 2 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Consolidated statement of changes in equity Consolidated Issued capital $ Available for-sale reserve $ Share-based payments reserve $ Accumulated losses $ Non- controlling interest $ Total equity $ Balance at 1 July 2015 24,765,885 (482,765) Profit/(loss) after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share capital issued Transaction costs Recognition of non-controlling interest on acquisition of subsidiary Transfer from reserves to accumulated losses - - - - 297,645 297,645 1,997,514 (39,287) - - - - - (362,218) Balance at 30 June 2016 26,724,112 177,098 - - - - - - - - - (17,628,320) - 6,654,800 320,397 (34,664) 285,733 - - 297,645 320,397 (34,664) 583,378 - - - - - 98,865 1,997,514 (39,287) 98,865 (362,218) - - (17,670,141) 64,201 9,295,270 Consolidated Issued capital $ Available for-sale reserve $ Share-based payments reserve $ Accumulated losses $ Noncontrolling interest $ Total equity $ Balance at 1 July 2016 26,724,112 177,098 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments Transaction with non-controlling interest - - - - - - 120,853 120,853 - - - - - - (17,670,141) 64,201 9,295,270 709,799 15,774 725,573 - - 120,853 709,799 15,774 846,426 110,384 - - 110,384 - (45,534) (4,466) (50,000) Balance at 30 June 2017 26,724,112 297,951 110,384 (17,005,876) 75,509 10,202,080 The above statement of changes in equity should be read in conjunction with the accompanying notes 2 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Consolidated statement of cash flows Note Consolidated 2017 $ 2016 $ Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes refunded Income taxes paid Net cash from/(used in) operating activities Cash flows from investing activities Payment for purchase of subsidiary, net of cash acquired Payments for purchase of additional equity in subsidiary Payments for property, plant and equipment Payments for intangibles Payments for bonds, guarantees and other assets Proceeds from disposal of financial assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares, net of transaction costs Proceeds from borrowings Repayment of convertible notes Net cash from/(used in) financing activities Net increase in cash and cash equivalents 40 38 14 15 25 Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 8 59,802,560 20,982,069 (53,771,003) (20,827,543) 6,031,557 9,309 154,526 5,338 (225,193) (240,756) 22,192 - 5,837,865 - (167,906) (248,798) - (571,240) (50,000) (229,020) - (301,240) 465,807 (114,453) - 1,001,175 (1,360,000) (358,825) 5,364,587 812,831 6,177,418 - (120,874) (63,556) (127,145) 41,506 (841,309) 1,089,411 200,000 - 1,289,411 199,304 613,527 812,831 The above statement of cash flows should be read in conjunction with the accompanying notes 2 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 1. GENERAL INFORMATION The financial statements cover Sequoia Financial Group Limited as a Group consisting of Sequoia Financial Group Limited (‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year (referred to in these financial statements as the ‘Group’). The financial statements are presented in Australian dollars, which is Sequoia Financial Group Limited’s functional and presentation currency. Sequoia Financial Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 36 50 Bridge Street Sydney NSW 2000 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 31 August 2017. The directors have the power to amend and reissue the financial statements. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. 2 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 37. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Sequoia Financial Group Limited as at 30 June 2017 and the results of all subsidiaries for the year then ended. Sequoia Financial Group Limited. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. 2 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Rendering of services Revenue from the provision of services to customers is recognised upon delivery of the service to the customer. Revenue received that relates to the provision for future services is accounted for as deferred income. Commissions and fee income When the consolidated entity acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the consolidated entity. Commission and fee income is recognised as related services are performed. Where commissions and fees are subject to clawback or meeting certain performance hurdles, they are recognised as income at the point when those conditions can no longer affect the outcome. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. 3 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. 3 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. Fair value hedges Fair value hedges are used to cover the Group’s exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion thereof, that is attributable to a particular risk and could affect profit or loss. The hedged item is adjusted for gains and losses attributable to the risk being hedged and the derivative is remeasured to fair value. Gains and losses from both are taken to profit or loss. Fair value hedge accounting is discontinued if the hedging instrument is sold, terminated, expires, exercised, it no longer meets the criteria for hedge accounting or designation is revoked. Any adjustment to the carrying amount of a hedged financial instrument is amortised to profit or loss using the effective interest rate method. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit; or (ii) designated as such upon initial recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting mismatch. Except for effective hedging instruments, derivatives are also categorised as fair value through profit or loss. Fair value movements are recognised in profit or loss. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets, principally equity securities, that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised in other 3 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) comprehensive income through the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired. Impairment of financial assets The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised had the impairment not been made and is reversed to profit or loss. The amount of the impairment allowance for financial assets carried at cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for similar financial assets. Available-for-sale financial assets are considered impaired when there has been a significant or prolonged decline in value below initial cost. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Leasehold improvements Plant and equipment Over the term of the lease 3 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. 3 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Website Significant costs associated with the development of the revenue generating aspects of the website, including the capacity of placing orders, are deferred and amortised on a straight- line basis over the period of their expected benefit, being their finite life of 3 years. Customer list Customer lists acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years. Regulator memberships and licences Costs in relation to regulatory memberships and licences are capitalised as an asset. These costs are not subsequently amortised but impaired regularly. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. 3 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in- use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On the issue of the convertible notes the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a non-current liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of the proceeds are allocated to the conversion option that is recognised and included in shareholders equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in the subsequent years. The corresponding interest on convertible notes is expensed to profit or loss. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 3 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non- vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: • during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. • from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. 3 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non- financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. 3 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition- date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition- date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Sequoia Financial Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. 3 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2017. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income (‘OCI’). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The Group will adopt this standard from 1 July 2018. Although the directors anticipate that the adoption of AASB 9 may have an impact on the Group’s financial instruments, including hedging activity, it is impracticable at this stage to provide a reasonable estimate of such impact. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, 3 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The Group will adopt this standard from 1 July 2018. Although the directors anticipate that the adoption of AASB 15 may have an impact on the Group’s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the Group. 4 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Provision for impairment of receivables The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor’s financial position. Fair value measurement hierarchy The Group is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. 4 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 3. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED) Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Employee benefits provision As discussed in note 2, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. 4 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 4. OPERATING SEGMENTS Identification of reportable operating segments The Group is organised into seven operating segments which are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The information reported to the CODM is on a monthly basis. Types of products and services The principal products and services of each of these operating segments are as follows: Trading and Execution Software Subscriptions Capital Markets Advisory SMSF Administration Wealth Advisory Investment Solutions Market Data and Financial News Services Managed Fund Provision of execution only, online trading services Provision of financial market data and analysis tools for sophisticated investors Provision of capital markets advice and related services Provision of complete market solutions for SMSF Provision of client advisory services Provision of bespoke investment products Provision of financial news services Provision for retail investors being able to gain exposure to the AIM Global High Conviction Fund All products and services are provided predominantly to customers in Australia. Intersegment transactions Intersegment transactions were made at cost. Intersegment transactions are eliminated on consolidation. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. 4 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 4. OPERATING SEGMENTS (CONTINUED) Operating segment information Consolidated - 30 June 2017 Revenue Revenue Total revenue Trading and Execution $ Software Subscriptions $ Capital Markets Advisory $ SMSF Administration $ Wealth Advisory 10,946,301 1,241,385 2,489,609 2,147,891 2,935,646 10,946,301 1,241,385 2,489,609 2,147,891 2,935,646 Segment result before impairment expense and revaluation increments to fair value (643,213) (100,465) 799,579 248,616 (251,269) Assets Segment assets Liabilities Segment liabilities Consolidated - 30 June 2017 Revenue Revenue Total revenue 3,459,738 797,049 264,663 2,068,327 1,646,999 1,150,208 362,410 27,503 175,752 254,464 Investment Solutions $ Market Data and Financial News Services $ Managed Funds $ Unallocated $ Total $ 23,126,051 1,348,345 23,126,051 1,348,345 15,337 15,337 114,381 44,364,946 114,381 44,364,946 Segment result before impairment expense and revaluation increments to fair value 1,127,058 34,254 (295,518) (187,469) 725,573 Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities 55,922,023 930,161 18,319 - 65,107,279 65,107,279 52,750,765 163,372 20,725 - 54,905,199 54,905,199 4 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 4. OPERATING SEGMENTS (CONTINUED) Consolidated - 30 June 2016 Trading and Execution $ Software Subscriptions $ Capital Markets Advisory $ SMSF Administration $ Wealth Advisory Revenue Revenue Total revenue 8,265,683 1,291,884 701,021 1,884,922 1,520,098 8,265,683 1,291,884 701,021 1,884,922 1,520,098 Segment result before impairment expense and revaluation increments to fair value 277,144 486,914 443,828 562,550 273,027 3,420,738 806,369 583,219 1,872,142 2,357,346 1,377,180 316,884 200,453 169,163 1,137,639 Assets Segment assets Liabilities Segment liabilities Consolidated - 30 June 2016 Revenue Revenue Total revenue Investment Solutions $ Market Data and Financial News Services $ 8,723,043 8,723,043 523,209 523,209 Segment result before impairment expense and revaluation increments to fair value 940,665 (69,454). Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities 18,556,296 836,685 15,751,619 184,587 Managed Funds $ Unallocated $ Total $ - - - - - 70,737 22,980,597 70,737 22,980,597 (2,628,945) 285,729 - 28,432,795 28,432,795 - 19,137,525 19,137,525 4 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 5. REVENUE Sales revenue Data subscriptions fees Brokerage and commissions revenue Superannuation product revenue Structured product revenue Corporate advisory fees Media revenue Other income Other revenue Interest Other revenue Revenue Consolidated 2017 $ 2016 $ 1,235,931 13,446,395 2,142,017 23,168,171 2,769,663 1,348,338 194,319 1,320,224 9,147,216 1,881,653 8,796,832 522,363 520,255 359,610 44,304,834 22,548,153 9,309 50,803 60,112 5,338 427,106 432,444 44,364,946 22,980,597 4 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 6. EXPENSES Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Total depreciation Amortisation Website Customer list Software Black hole Total amortisation Total depreciation and amortisation Impairment Regulator memberships Finance costs Interest and finance charges paid/payable Rental expense relating to operating leases Minimum lease payments Employee benefits Wages and salaries Defined contribution superannuation expense Other employment costs Total employee benefits Consolidated 2017 $ 2016 $ 45,775 69,842 115,617 10,007 76,938 25,614 - 112,559 228,176 9,132 20,555 29,687 5,021 92,400 - 3,753 101,174 130,861 6,945 30,000 225,193 240,756 429,325 351,228 5,346,329 3,092,614 393,437 858,424 264,997 745,855 6,598,190 4,103,466 4 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 7. INCOME TAX Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Deferred tax included in income tax expense comprises: Increase in deferred tax assets Increase/(decrease) in deferred tax liabilities Deferred tax - origination and reversal of temporary differences Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Reverse acquisition Sundry items Adjustment recognised for prior periods Current year tax losses not recognised Prior year temporary differences not recognised now recognised Income tax expense Amounts charged/(credited) directly to equity Deferred tax assets Deferred tax liabilities Consolidated 2017 $ 2016 $ 847,186 (535,977) (360) 221,317 (5,459) - 310,849 215,858 (3,379,133) 2,843,156 (535,977) 1,036,422 310,927 19,853 24,700 355,480 (361) (33,255) (11,015) 310,849 (5,458) (1) (5,459) 501,591 150,477 - 50,039 200,516 - 20,801 (5,459) 215,858 Consolidated 2017 $ 2016 $ 142,288 (83,640) 58,648 845,208 (426,736) 418,472 4 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 7. INCOME TAX (CONTINUED) Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Tax losses Impairment of receivables Employee benefits Accrued expenses Deferred income Share issue expenses Net fair value loss on investment Other Deferred tax asset Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months Movements: Opening balance Credited to profit or loss Charged to equity Closing balance Deferred tax liability Deferred tax liability comprises temporary differences attributable to: Available-for-sale financial assets Deferred expenses Deferred tax liability Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months Movements: Opening balance Charged/(credited) to profit or loss Credited to equity Closing balance Provision for income tax Provision for income tax Consolidated 2017 $ 2016 $ - 18,165 143,020 197,864 5,278,011 48,129 33,692 - 5,718,881 5,637,060 81,821 5,718,881 2,482,036 3,379,133 (142,288) 284,569 10,173 122,038 58,116 1,880,924 83,657 36,367 6,192 2,482,036 2,071,251 410,785 2,482,036 3,321,786 5,458 (845,208) 5,718,881 2,482,036 Consolidated 2017 $ 2016 $ 297,848 4,239,713 4,537,561 4,239,713 297,848 4,537,561 1,778,045 2,843,156 (83,640) 381,488 1,396,557 1,778,045 1,396,557 381,488 1,778,045 2,204,782 (1) (426,736) 4,537,561 1,778,045 Consolidated 2017 $ 2016 $ 849,695 - 4 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 8. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Cash at bank and on hand NOTE 9. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES Trade receivables Less: Provision for impairment of receivables Other receivables Impairment of receivables The ageing of the impaired receivables provided for above are as follows: Over 60 days overdue Movements in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Closing balance Consolidated 2017 $ 2016 $ 6,177,418 812,831 Consolidated 2017 $ 2016 $ 1,442,669 (60,551) 1,382,118 239,043 1,621,161 1,420,379 (33,909) 1,386,470 208,171 1,594,641 Consolidated 2017 $ 2016 $ 60,551 33,909 Consolidated 2017 $ 2016 $ 33,909 26,642 3,909 30,000 60,551 33,909 Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $99,186 as at 30 June 2017 ($183,132 as at 30 June 2016). The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices. The ageing of the past due but not impaired receivables are as follows: 31 to 60 days overdue Over 60 days overdue Consolidated 2017 $ 2016 $ 25,662 73,524 99,186 29,614 153,518 183,132 5 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS Current assets Derivatives - fair value hedges Non-current assets Derivatives - fair value hedges Current liabilities Derivatives - fair value hedges Non-current liabilities Derivatives - fair value hedges Consolidated 2017 $ 2016 $ 5,976,249 883,111 19,335,325 5,278,666 (5,976,249) (883,111) (19,335,325) (19,335,325) - - Refer to note 30 for further information on financial instruments. Refer to note 31 for further information on fair value measurement. The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in the value of its investment products issued to the Group’s investors in accordance with the Group’s financial risk management policies (refer to Note 30). The Group enters into hedging instruments with financial institutions to hedge its exposure to fluctuations in the value of its investment and loan products. The hedging instruments are fair valued by financial institutions to reflect the market value of the hedged instruments. The hedge assets are selected so that the fair value of the hedged liabilities equates to the fair value of the hedged assets and loans. In this way the liabilities and assets are hedged and the risk associated with changes in market conditions has been neutralised. Information about the Group’s exposure to market risk, liquidity risk, and credit risk is disclosed in Note 30. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of derivative financial assets outlined above. NOTE 11. CURRENT ASSETS - DEFERRED COSTS Deferred costs Consolidated 2017 $ 2016 $ 7,500,455 2,865,995 Deferred costs consists of the appropriate recognition of option premium expenses incurred by Sequoia Specialist Investments. 5 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 12. CURRENT ASSETS - OTHER Prepayments Other deposits NOTE 13. NON-CURRENT ASSETS - FINANCIAL ASSETS Investment in listed entities - at cost Investment in other non-listed entities - at cost Consolidated 2017 $ 2016 $ 132,244 1,300,000 1,432,244 161,038 - 161,038 Consolidated 2017 $ 2016 $ 26,460 1,399,115 1,425,575 437,460 1,399,115 1,836,575 On 8 June 2017, the Group sold its entire holding of 435,334 ordinary shares in ASX-listed Goldfields Money Limited (ASX: GMY) for a total consideration of $465,807. NOTE 14. NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Consolidated 2017 $ 2016 $ 161,655 (120,678) 40,977 828,428 138,735 (70,403) 68,332 647,863 (601,355) (561,548) 227,073 268,050 86,315 154,647 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance at 1 July 2015 Additions Additions through business combinations (note 38) Depreciation expense Balance at 30 June 2016 Additions Depreciation expense Balance at 30 June 2017 Leasehold improvements $ Plant and equipment $ Total $ - 77,464 - (9,132) 68,332 22,920 (45,775) 30,349 43,410 33,111 (20,555) 86,315 206,100 (69,842) 30,349 120,874 33,111 (29,687) 154,647 229,020 (115,617) 45,477 222,573 268,050 5 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 15. NON-CURRENT ASSETS - INTANGIBLES Goodwill - at cost Less: Impairment Website - at cost Less: Accumulated amortisation Customer list - at cost Less: Accumulated amortisation Regulator memberships and licences - at cost Less: Accumulated amortisation Consolidated 2017 $ 2016 $ 25,560,156 25,560,156 (16,952,860) (16,952,860) 8,607,296 8,607,296 72,112 (54,822) 17,290 413,472 72,112 (44,815) 27,297 413,472 (354,492) (277,553) 58,980 102,500 (66,944) 35,556 135,919 102,500 (60,000) 42,500 8,719,122 8,813,012 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Goodwill $ Website $ Customer list $ Black hole $ Regulator member-ships and licences $ Software $ Total $ Balance at 1 July 2015 7,381,832 8,762 228,319 3,753 Additions - 23,556 Additions through business combinations (note 38) 1,225,464 Impairment of assets Amortisation expense - - - - - - - - - - (5,021) (92,400) (3,753) Balance at 30 June 2016 8,607,296 27,297 135,919 Additions Impairment of assets Amortisation expense - - - - - - - (10,007) (76,938) Balance at 30 June 2017 8,607,296 17,290 58,981 - - - - - 32,500 40,000 - (30,000) - 42,500 - - - - - - - 25,614 (6,945) - 7,655,166 63,556 1,225,464 (30,000) (101,174) 8,813,012 25,614 (6,945) - (25,614) (112,559) 35,555 - 8,719,122 5 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 15. NON-CURRENT ASSETS - INTANGIBLES (CONTINUED) Impairment testing Goodwill acquired through business combinations has been allocated to the following cash generating units: Cash generating units (‘CGUs’): Sequoia Specialist Investments Sequoia Superannuation Software Subscriptions Sequoia Wealth Group Finance TV Consolidated 2017 $ 2016 $ 5,162,392 1,688,608 530,832 674,686 550,778 5,162,392 1,688,608 530,832 674,686 550,778 8,607,296 8,607,296 The recoverable amount of the Group’s goodwill has been determined by a value-in-use calculation using a discounted cash flow model, based on a 12-month projection period approved by management and extrapolated for a further 4 years by using key assumptions. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model in relation to the goodwill associated to various cash generating units: Key assumptions Sequoia Specialist Investments Sequoia Superannuation Software Subscriptions Sequoia Wealth Group Finance TV Revenue growth rate % Increase in direct and overhead costs per annum % Discount rate % 1.0% 5.0% 2.0% 5.0% 5.0% 1 - 2.5% 2.5% 2.5% 2.5% 2.5% 15.0% 15.0% 15.0% 15.0% 15.0% The goodwill is considered to be sensitive to these assumptions and is carried in the statement of financial position at a written-down value. Any impairment is recognised in respect of goodwill at the end of the relevant reporting period. Sensitivity As disclosed in note 3, the directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. The sensitivities are as follows: (a) Revenue growth would need to decrease by more than 1% before goodwill would need to be impaired, with all other assumptions remaining constant. (b) The discount rate would be required to increase by 1% before goodwill would need to be impaired, with all other assumptions remaining constant. 5 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 15. NON-CURRENT ASSETS - INTANGIBLES (CONTINUED) Management believes that other reasonable changes in the key assumptions on which the recoverable amount of goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. If there are any negative changes in the key assumptions on which the recoverable amount of goodwill is based, this would result in a further impairment charge for goodwill. NOTE 16. NON-CURRENT ASSETS - DEFERRED COSTS Deferred costs Consolidated 2017 $ 2016 $ 6,715,907 2,334,591 Deferred costs consists of the appropriate recognition of option premium expenses incurred by Sequoia Specialist Investments. NOTE 17. NON-CURRENT ASSETS - OTHER Other deposits Other non-current assets NOTE 18. CURRENT LIABILITIES - TRADE AND OTHER PAYABLES Trade payables Accrued expenses Other payables Refer to note 30 for further information on financial instruments. Consolidated 2017 $ 2016 $ 202,490 14,402 216,892 1,201,250 14,402 1,215,652 Consolidated 2017 $ 2016 $ 1,343,454 2,813,751 266,652 4,423,857 1,662,557 193,721 418,437 2,274,715 5 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 19. CURRENT LIABILITIES - BORROWINGS Bank loans Capital finance Convertible notes payable Consolidated 2017 $ 2016 $ 158,820 14,487 100,000 273,307 - - 2,060,000 2,060,000 Refer to note 22 for further information on assets pledged as security and financing arrangements. Refer to note 30 for further information on financial instruments. Convertible notes payable comprised of a number of convertible loans to the value of $700,000 (2016: $2,060,000). Interest is payable at a rate of 7 (2016: 10 to 12) percent per annum. The comparative convertible notes were repaid during the year and new convertible notes were issued. NOTE 20. CURRENT LIABILITIES - EMPLOYEE BENEFITS Annual leave Long service leave NOTE 21. CURRENT LIABILITIES - DEFERRED REVENUE Deferred revenue Consolidated 2017 $ 2016 $ 232,571 224,752 457,323 205,394 165,057 370,451 Consolidated 2017 $ 2016 $ 8,935,131 3,416,262 Deferred revenue consists of fees paid in advance for customer subscriptions and investment solutions. 5 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 22. NON-CURRENT LIABILITIES - BORROWINGS Bank loans Convertible notes payable Refer to note 30 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bank loans Capital finance Consolidated 2017 $ 2016 $ 827,868 600,000 1,427,868 Consolidated 2017 $ 2016 $ 986,688 14,487 1,001,175 - - - - - - Assets pledged as security The bank loans are secured by a limited guarantee and indemnity over the existing and future assets of Sequoia Superannuation Pty Ltd and partially the assets of Sequoia Asset Management Pty Ltd. The carrying amounts of assets pledged as security for current and non-current borrowings are: Sequoia Asset Management Pty Ltd Sequoia Superannuation Pty Ltd Consolidated 2017 $ 2016 $ 218,000 1,160,000 1,378,000 Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank loans Used at the reporting date Bank loans Unused at the reporting date Bank loans Consolidated 2017 $ 2016 $ 1,097,766 986,688 111,078 - - - - - - 5 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 23. NON-CURRENT LIABILITIES - EMPLOYEE BENEFITS Long service leave NOTE 24. NON-CURRENT LIABILITIES - DEFERRED REVENUE Deferred revenue Consolidated 2017 $ 2016 $ 30,643 32,517 Consolidated 2017 $ 2016 $ 8,658,240 3,043,758 Deferred revenue consists of fees paid in advance for customer subscriptions and investment solutions. The deferred revenue can be recognised over 5 years however in most cases it is between 1 and 3 years. NOTE 25. EQUITY - ISSUED CAPITAL Ordinary shares - fully paid Transaction costs Consolidated 2017 Shares 2016 Shares 2017 $ 2016 $ 48,798,706 4,879,870,632 26,851,001 26,851,001 - - (126,889) (126,889) 48,798,706 4,879,870,632 26,724,112 26,724,112 At the Annual General Meeting held on 1 November 2016, the shareholders of Sequoia Financial Group Limited agreed to a 1:100 share consolidation. The movement above reflects the shares on issue after consolidation. Movements in ordinary share capital Details Date Shares Issue price $ 1 July 2015 3,881,112,532 24,853,485 Balance Payment in shares Shares placement/script Script issue Placement Placement Balance August 2015 September 2015 October 2015 December 2015 February 2016 59,408,100 76,000,000 375,000,000 305,850,000 182,500,000 30 June 2016 4,879,870,632 $0.200 $0.200 $0.200 $0.200 $0.200 1:100 share consolidation split 11 November 2016 (4,831,071,926) Balance 30 June 2017 48,798,706 118,816 152,000 750,000 611,700 365,000 26,851,001 - 26,851,001 5 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 25. EQUITY - ISSUED CAPITAL (CONTINUED) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company’s share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 2016 Annual Report. NOTE 26. EQUITY - RESERVES Available-for-sale reserve Options reserve Consolidated 2017 $ 2016 $ 297,951 110,384 408,335 177,098 - 177,098 Available-for-sale reserve The reserve is used to recognise increments and decrements in the fair value of available-for-sale financial assets. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. 5 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 26. EQUITY - RESERVES (CONTINUED) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Available-for- sale $ Share-based payments $ Total $ Balance at 1 July 2015 Available-for-sale reserve Transfer to accumulated losses Balance at 30 June 2016 Available-for-sale reserve Share-based payments (482,765) 297,645 362,218 177,098 120,853 - - - - - - 110,384 (482,765) 297,645 362,218 177,098 120,853 110,384 Balance at 30 June 2017 297,951 110,384 408,335 NOTE 27. EQUITY - ACCUMULATED LOSSES Consolidated 2017 $ 2016 $ Accumulated losses at the beginning of the financial year (17,670,141) (17,628,320) Profit after income tax expense for the year Transfer from revaluation surplus reserve Transaction with non-controlling interest 709,799 - (45,534) 320,397 (362,218) - Accumulated losses at the end of the financial year (17,005,876) (17,670,141) NOTE 28. EQUITY - NON-CONTROLLING INTEREST Retained profits Consolidated 2017 $ 2016 $ 75,509 64,201 6 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 29. EQUITY - DIVIDENDS Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Franking credits Consolidated 2017 $ 2016 $ Franking credits available for subsequent financial years based on a tax rate of 30% 2,985,683 3,139,720 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date • franking debits that will arise from the payment of dividends recognised as a liability at the reporting date • franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date NOTE 30. FINANCIAL INSTRUMENTS Financial risk management objectives The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable, derivative assets and liabilities, convertible notes and loans receivable and payable. This note provides details of the Group’s financial risk management objectives and policies and describes the methods used by management to control risk. In addition, this note includes a discussion of the extent to which financial instruments are used, the associated risks and the business purpose served. One of the Group’s main activities is to issue investments to its product holders which provide returns based on the performance of an underlying reference asset, typically a single index or a single listed equity. Different underlying reference assets, with varying features are issued in separate series. The series are exposed to securities listed on global or local exchanges. The products issued to the product holders have a maturity of 3 years from the date of issue. On maturity, if the investment has performed sufficiently, the product holder has the option to contribute in cash the notional value of the investment on issue date to receive a delivery asset (a liquid security on the ASX) equal to the value of the underlying reference asset or the value in cash of the financial liability. The Group enters into a financial instrument with an investment bank, which hedges each series that is offered to its product holders. The Group ensures that the notional exposure across all its products are covered via the arrangement, and as such mitigates its risk in this fashion. The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk), credit risk and liquidity risk. The Board of Directors are monitoring and managing financial risk exposures of the Group. The Board of Directors monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to financing risk and interest rate risk. 6 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) Financial assets Cash and cash equivalents Trade and other receivables Derivative assets Available-for-sale financial assets Total financial assets Financial liabilities Trade and other payables Derivative liabilities Bank loans and capital finance Convertible notes Total financial liabilities Market risk Consolidated 2017 $ 2016 $ 6,177,418 1,528,682 25,311,574 1,425,575 812,831 1,594,641 6,161,777 1,836,575 34,443,249 10,405,824 4,423,857 25,311,574 1,001,175 700,000 2,274,715 6,161,777 - 2,060,000 31,436,606 10,496,492 Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates will affect the Group’s income or value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group issues a structured product to the product holder that is hedged with the financial instrument that it purchases from an investment bank. The details of the financial instruments are such that the future cash flows from the financial assets offset the cash flows needed to settle the financial liabilities. The Group uses this arrangement to mitigate the market risks below, except for credit risk. Price risk Price risk arises from changes in underlying investments designated in the financial instruments held by the Group for which values in the future are uncertain. The Group mitigates the above price risk by ensuring that price risk in the financial instruments is offset with one another. The difference in fair value between the financial asset and liability held through profit and loss is as a result of the premium associated with the financial liability arising from being issued in the retail market. The Group does not monitor the price risk associated with the premium, as price risk would only result if the Group were to transfer the liability, and since the Group has no intention of transferring the financial liability, no disclosures regarding the sensitivity to price risk have been made. The Group is, therefore, not exposed to any significant price risk. Interest rate risk Interest rate risk is the risk that the value of the Group’s financial instruments will fluctuate due to changes in market interest rates. The Group’s cash and cash equivalents are exposed to interest rate risk, however the Directors of the Group manage financial instruments to ensure that interest rate risk remains hedged and is therefore offsetting. 6 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) The Group is also exposed to interest rate risk arising from long-term borrowings. Borrowings obtained at variable rates expose the Group to interest rate risk. Borrowings obtained at fixed rates expose the Group to fair value interest rate risk. As at the reporting date, the Group had the following borrowings and cash and cash equivalents: 2017 2016 Weighted average interest rate % Balance $ Weighted average interest rate % Balance $ Cash and cash equivalents Bank loans Capital finance Convertible notes payable Net exposure to cash flow interest rate risk 0.07% 5.51% 7.00% 7.00% 6,177,418 (986,688) (14,487) (700,000) 4,476,243 0.07% 812,831 - - 12.00% - - (2,060,000) (1,247,169) An analysis by remaining contractual maturities is shown in ‘liquidity and interest rate risk management’ below. The Group is not exposed to interest rate risk on the financial assets and liabilities held through the profit and loss as the financial asset offsets and hedges the risk of changes in interest rate for the financial liability. The tables below illustrate the sensitivity attributable to profit or loss for the year for reasonably possible changes in interest rates: Consolidated - 2017 Cash and cash equivalents Bank loans Capital finance Convertible notes payable Basis points increase Basis points decrease Basis points change Effect on profit before tax Effect on equity Basis points change 100 100 100 100 61,774 61,774 9,867 145 7,000 9,867 145 7,000 (100) (100) (100) (100) Effect on profit before tax Effect on equity (61,774) (61,774) (9,867) (145) (7,000) (9,867) (145) (7,000) 78,786 78,786 (78,786) (78,786) Basis points increase Basis points increase Consolidated - 2016 Basis points change Effect on profit before tax Effect on equity Basis points change Effect on profit before tax Effect on equity Cash and cash equivalents Convertible notes payable 100 100 8,128 20,600 28,728 8,128 20,600 28,728 (100) (100) (8,128) 20,600 12,472 (8,128) 20,600 12,472 Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance 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. 6 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) Credit risk is managed through the maintenance of procedures (such procedures include the utilisation of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring of the financial stability of significant customers and counterparties), ensuring to the extent possible, that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Risk is also minimised through investing surplus funds in financial institutions that maintain a high credit rating, or in entities that the Board of Directors has otherwise cleared as being financially sound. Where the Group is unable to ascertain a satisfactory credit risk profile in relation to a customer or counterparty, the risk may be further managed by obtaining security by way of personal or commercial guarantees over assets of sufficient value which can be claimed against in the event of any default. The financial products issued by Sequoia Specialist Investments Pty Ltd (‘Issuer’) are secured obligations of the Issuer. Investors are granted a charge which is held on trust by the Security Trustee (Australian Equity Trustee). If the Issuer fails to (i) make a payment or delivery on its due date; or (ii) meet any other obligation and in the Security Trustee’s opinion, the failure is materially adverse to the investors and cannot be remedied (or has not been remedied within 5 business days of written notice), the Security Trustee may enforce the charge. In this case the investors are unsecured creditors of the provider of the hedge assets. Investors’ rights of recourse against the Issuer on a default are limited to the assets subject to the charge. This structure has the effect of passing through the credit rating of the provider of the hedge asset and protecting different financial product series from cross-liability issues (other than on an insolvency of either the Issuer or the provider of the hedge asset). The Issuer will only deal with investment-grade (or better, bank) or a subsidiary of an investment-grade (or better, bank). The following tables detail the Group’s potential exposure, should the counterparties be unable to meet their obligations: 2017 Derivative liabilities 2016 Derivative liabilities Fair value $ Notional value $ 25,424,320 130,443,319 Fair value $ Notional value $ 6,161,777 113,351,387 Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Bank loans Consolidated 2017 $ 2016 $ 111,078 - Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time and have an average maturity of 3 years. 6 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 30. FINANCIAL INSTRUMENTS (CONTINUED) The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time and have an average maturity of 3 years. Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Consolidated - 2017 Weighted average interest rate % 1 year or less $ Between 1 and 5 years $ Over 5 years $ Remaining contractual maturities $ Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Bank loans Interest-bearing - fixed rate Capital finance Convertible notes payable Total non-derivatives Derivatives Value hedges, net settled Total derivatives - - 1,343,454 266,652 - - 5.51% 158,820 827,868 7.00% 7.00% 14,487 100,000 - 600,000 1,883,413 1,427,868 - 5,976,249 5,976,249 19,448,071 19,448,071 - - - - - - - - Consolidated - 2016 Weighted average interest rate % 1 year or less $ Between 1 and 5 years $ Over 5 years $ 1,343,454 266,652 986,688 14,487 700,000 3,311,281 25,424,320 25,424,320 Remaining contractual maturities $ Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - fixed rate Convertible notes payable Total non-derivatives Derivatives Value hedges, net settled Total derivatives - - 1,662,557 418,437 12.00% 2,060,000 4,140,994 - - - - - 883,111 883,111 5,278,666 5,278,666 - - - - - - 1,662,557 418,437 2,060,000 4,140,994 6,161,777 6,161,777 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. 6 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 31. FAIR VALUE MEASUREMENT Fair value hierarchy The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated - 2017 Level 1 $ Level 2 $ Level 3 $ Level 4 $ Assets Listed ordinary shares Unlisted ordinary shares Derivative financial instruments Total assets Liabilities Derivative financial instruments Convertible notes Total liabilities 26,460 - - 26,460 - - 25,424,320 25,424,320 - 1,399,115 - 1,399,115 26,460 1,399,115 25,424,320 26,849,895 - - - 25,424,320 - 25,424,320 - 25,424,320 700,000 700,000 700,000 26,124,320 Consolidated - 2016 Level 1 $ Level 2 $ Level 3 $ Level 4 $ Assets Listed ordinary shares Unlisted ordinary shares Derivative financial instruments Total assets Liabilities Derivative financial instruments Convertible notes Total liabilities 437,460 - - 437,460 - - - - - 6,161,777 6,161,777 6,161,777 - 6,161,777 - 1,399,115 - 1,399,115 - 2,060,000 2,060,000 437,460 1,399,115 6,161,777 7,998,352 6,161,777 2,060,000 8,221,777 There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. 6 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 31. FAIR VALUE MEASUREMENT (CONTINUED) Valuation techniques for fair value measurements categorised within level 2 and level 3 Financial instruments that are not traded in an active market are determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and relies as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Unquoted investments have been valued using prices evident in recent third party transactions. The valuation process is managed by the Chief Operating Decision Makers (‘CODM’) of the Group who perform and validate valuations of non-property assets required for financial reporting purposes (including level 3 fair values). Discussion on valuation processes and outcomes are held between the CODM, CFO and audit committee every six months. Level 3 assets and liabilities Movements in level 3 assets and liabilities during the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Gains recognised in other comprehensive income Additions Balance at 30 June 2016 Disposals Unlisted ordinary shares - available- for-sale $ Convertible notes $ Total $ 752,000 297,645 349,470 1,860,000 2,612,000 - 200,000 297,645 549,470 1,399,115 2,060,000 3,459,115 - (1,360,000) (1,360,000) Balance at 30 June 2017 1,399,115 700,000 2,099,115 NOTE 32. KEY MANAGEMENT PERSONNEL DISCLOSURES Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Consolidated 2017 $ 2016 $ 949,887 66,225 1,016,112 1,036,311 57,750 1,094,061 6 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 33. REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by Hall Chadwick (NSW), the auditor of the Company: Audit services - Hall Chadwick (NSW) Audit or review of the financial statements Other services - Hall Chadwick (NSW) Tax services Other services Consolidated 2017 $ 2016 $ 106,500 134,000 39,591 1,750 41,341 147,841 23,000 - 23,000 157,000 NOTE 34. CONTINGENT LIABILITIES The Group has given a credit card facility bank guarantee as at 30 June 2017 of $100,000 (2016: $100,000). NOTE 35. COMMITMENTS Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2017 $ 2016 $ 78,133 2,070 80,203 531,069 417,409 948,478 Operating lease commitments includes contracted amounts for the Group’s Melbourne and Sydney premises, insurance commitments and leased technology equipment under non-cancellable operating leases. The property leases are payable monthly in advance and have contingent rental provisions within the lease agreement which require that minimum lease payments shall be increased by 4% per annum. The Group has two five-year operational leases for printers, leased at a flat-rate and expiring in January 2018 and August 2019. The Company entered into a heads of agreement for new premises in Sydney, the terms of which are still being negotiated. 6 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 36. RELATED PARTY TRANSACTIONS Parent entity Sequoia Financial Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 39. Key management personnel Disclosures relating to key management personnel are set out in note 32 and the remuneration report included in the directors’ report. Transactions with related parties The following transactions occurred with related parties: Sale of goods and services: Sale of services to Interprac, an entity which Garry Crole is a Director Sales collection and rebate of services to Interprac, an entity which Garry Crole is a Director Parent 2017 $ 2016 $ 7,500 209,927 - - Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 6 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 37. PARENT ENTITY INFORMATION Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Accumulated losses Total equity Parent 2017 $ (1,154,643) (1,154,643) 2016 $ (846,739) (846,739) Parent 2017 $ 2016 $ 330,542 11,892 14,478,292 12,472,721 2,129,594 3,097,755 6,257,969 3,097,755 62,351,171 62,351,171 (54,130,848) (52,976,205) 8,220,323 9,374,966 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity has guaranteed the bank loan by a general security arrangement over existing and future assets and undertakings in the case of default by Sequoia Superannuation Pty Ltd and Sequoia Asset Management Pty Ltd at 30 June 2017. The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2016. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2017 of 30 June 2016. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2017 of 30 June 2016. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. • Investments in associates are accounted for at cost, less any impairment, in the parent entity. • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. 7 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 38. BUSINESS COMBINATIONS 2016 Sequoia Wealth Group Pty Ltd (‘SWG’) On 14 October 2015, the Group acquired 100% of the issued capital of Sequoia Wealth Group Pty Ltd (‘SWG’), a financial services and wealth management company, for a purchase consideration of $750,000. As contracted, the financial performance of SWG was taken into the results of the Group from 1 October 2015. The acquisition is part of the Group’s overall strategy to expand its diversified financial service offerings. Through acquiring 100% of the issued capital of SWG, the Group has obtained control of the Company. The purchase was satisfied by the issue of 375,000,000 ordinary shares at an issue price of $0.002 each. The issue price was based on the market price on date of purchase. Net profit and revenue resulting from the acquisition of Sequoia Wealth Group Pty Ltd amounting to $2,145,171 and $830,473 respectively are included in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2016. At the time the financial statements were authorised for issue, the Group had not yet completed the accounting for acquisition of SWG. In particular, the fair values of the net assets and liabilities disclosed above have only been determined provisionally as the independent valuations have not been finalised. Finance TV Pty Ltd (‘FNN’ of ‘Finance News Network’) In 2013, the Group acquired 11.56% of the share capital of Finance TV Pty Ltd (‘FNN’ or ‘Finance News Network’). On 12 February 2016, the Group acquired a further 38.53% of the share capital and obtained control of FNN, an independent news organisation that specialises in both the production and distribution of financial news content, digital communications and productions services to ASX-listed companies and managed funds. As a result of the acquisition, the Group is expected to increase its presence in these markets. The goodwill of $554,789 arising from the acquisition is attributable to the acquired economies of scale expected from combining the operations of FNN and the Group. None of the goodwill recognised is expected to be deductible for income tax purposes. The acquired business contributed revenues of $523,209 and net loss of $69,454 to the Group for the period from 12 February 2016 to 30 June 2016. 7 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 38. BUSINESS COMBINATIONS (CONTINUED) Details of the acquisitions are as follows: Cash and cash equivalents Trade and other receivables Plant and equipment Other assets Trade and other payables Employee benefits Net assets acquired Goodwill Sequoia Wealth Group Pty Ltd (SWG) Fair value $ Finance TV Pty Ltd (FNN) Fair value $ 7,089 381,228 4,589 8,963 (326,555) - 75,314 674,686 71,671 270,401 28,522 - (115,314) (57,193) 198,087 550,778 Acquisition-date fair value of the total consideration transferred 750,000 748,865 Representing: Sequoia Financial Group Limited shares issued to vendor Non-controlling interest Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: shares issued by Company as part of consideration Less: non-controlling interest Net cash received 2017 750,000 - 650,000 98,865 750,000 748,865 750,000 (7,089) (750,000) - 748,865 (71,671) (650,000) (98,865) (7,089) (71,671) On 1 September 2016, the Group acquired an additional 3.86% of the issued shares of Finance TV Pty Ltd for a purchase consideration of $50,000. The Group now holds 53.95% of the share capital of FNN. The carrying amount of the non-controlling interests in Finance TV Pty Ltd on the date of acquisition was $77,399. The Group recognised a decrease in non-controlling interests of $4,466 and a decrease in equity attributable to the owners of the parent of $45,534. The effect of changes in the ownership interest of FNN on the equity attributable to owners of the Group during the year is summarised as follows: $ 4,466 Consideration paid to non-controlling interests (50,000) Excess of consideration paid recognised in the transactions with non-controlling interests reserve within equity (45,534) Carrying amount of non-controlling interest acquired Consideration paid to non-controlling interests Excess of consideration paid recognised in the transactions with non-controlling interests reserve within equity $ 4,466 (50,000) (45,534) 7 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 39. INTERESTS IN SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries with non-controlling interests in accordance with the accounting policy described in note 2: Name Parent Non-controlling interest Principal place of business / Country of incorporation Ownership interest 2017 Ownership interest 2016 Ownership interest 2017 Ownership interest 2016 Sequoia Financial Group Limited (formerly MDS Financial Group Limited) Australia 100.00% 100.00% Sequoia Group Holdings Pty Ltd Australia 100.00% 100.00% Subsidiaries of Sequoia Financial Group Limited Bourse Data Pty Ltd The Cube Financial Group Ltd D2MX Pty Ltd Market Data Services Pty Ltd MDSnews.com Pty Ltd Subsidiaries of MDSnews.com Pty Ltd Sequoia Direct Pty Ltd (formerly Trader Dealer Online Pty Ltd) 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% Australia 100.00% 100.00% - - - - - - - - - - - - - - - - Finance TV Pty Ltd Australia 53.95% 50.09% 46.05% 49.91% Subsidiaries of Sequoia Group Holdings Pty Ltd Sequoia Superannuation Pty Ltd Sequoia Specialist Investments Pty Ltd Sequoia Asset Management Pty Ltd Sequoia Lending Pty Ltd Sequoia Funds Management Pty Ltd Sequoia Wealth Group Pty Ltd Subsidiaries of Sequoia Superannuation Pty Ltd 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% Sequoia Brisbane Pty Ltd Australia 100.00% 100.00% Subsidiaries of Sequoia Specialist Investments Pty Ltd Sequoia Nominees No 1, Pty Ltd Australia 100.00% 100.00% Subsidiaries of Sequoia Asset Management Pty Ltd Acacia Administrative Services Pty Ltd * Australia 100.00% 100.00% Subsidiaries of Sequoia Wealth Group Pty Ltd Sequoia Wealth Management Pty Ltd Sequoia Corporate Finance Pty Ltd Australia Australia 100.00% 100.00% 100.00% 100.00% - - - - - - - - - - - * Acacia Administrative Services Pty Ltd acts as a service entity for the Group with all employees engaged under this entity. - - - - - - - - - - - 7 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 39. INTERESTS IN SUBSIDIARIES (CONTINUED) Summarised financial information Summarised financial information of subsidiaries with non-controlling interests that are material to the Group are set out below: Summarised statement of financial position Current assets Non-current assets Total assets Current liabilities Total liabilities Net assets Summarised statement of profit or loss and other comprehensive income Revenue Expenses Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense Other comprehensive income Total comprehensive income Statement of cash flows Net cash from operating activities Net cash used in investing activities Net cash from/(used in) financing activities Net increase in cash and cash equivalents Other financial information Profit/(loss) attributable to non-controlling interests Accumulated non-controlling interests at the end of reporting period Finance TV Pty Ltd 2017 $ 2016 $ 286,931 12,273 299,204 143,879 143,879 155,325 1,348,345 (1,314,092) 34,253 - 34,253 - 234,799 28,522 263,321 142,249 142,249 121,072 523,209 (590,276) (67,067) - (67,067) - 34,253 (67,067) 49,537 (2,830) 14,487 61,194 15,774 75,509 38,327 - (16,000) 22,327 (34,664) 64,201 7 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 40. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM/(USED IN) OPERATING ACTIVITIES Profit after income tax expense for the year 725,573 285,733 Consolidated 2017 $ 2016 $ Adjustments for: Depreciation and amortisation Impairment of non-current assets Impairment of intangibles Net loss on disposal of non-current assets Share-based payments Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in deferred tax assets Decrease/(increase) in other operating assets 228,176 6,945 - 79,757 110,384 (26,520) (3,276,170) (8,986,982) 130,861 30,000 30,000 8,402 118,816 1,609,278 839,750 1,737,129 Increase/(decrease) in trade and other payables 2,149,142 (2,348,726) Increase in provision for income tax Increase/(decrease) in deferred tax liabilities Increase in employee benefits 849,695 2,759,516 84,998 10,529 (802,327) 64,947 Increase/(decrease) in other operating liabilities 11,133,351 (1,963,190) Net cash from/(used in) operating activities 5,837,865 (248,798) NOTE 41. EARNINGS PER SHARE Profit after income tax Non-controlling interest Profit after income tax attributable to the owners of Sequoia Financial Group Limited Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options over ordinary shares Performance rights Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Diluted earnings per share Consolidated 2017 $ 2016 $ 725,573 (15,774) 709,799 285,733 34,664 320,397 Number Number 48,798,706 4,479,817,035 1,166,668 1,300,000 360,000,000 - 51,265,374 4,839,817,035 Cents Cents 1.455 1.385 0.007 0.007 7 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 42. SHARE-BASED PAYMENTS Performance rights On 1 February 2017, the Company established an employee equity scheme, called the Sequoia Employee Incentive Plan (‘SEIP’) to offer performance rights to certain employees employed in the Company. All performance rights offered under the February 2017 grant were granted for nil consideration and had a nil exercise price. Performance rights vest in three tranches: Tranche Tranche 1 Tranche 2 Tranche 3 Vesting date 31 January 2018 31 January 2019 31 January 2020 The vesting conditions of the performance rights granted under the February 2017 grant are: • 50% of each tranche where the employee meets the service condition; and • 50% of each tranche where the employee meets the service condition and the Company meets the performance conditions. All performance rights tranches expire on 31 January 2022. The service conditions are that Tranche 1, Tranche 2 and Tranche 3 will vest if continuous employment is maintained with the Company from the date the performance rights are granted until their respective vesting dates. The performance conditions are related to share price hurdles as follows: • Tranche 1 will vest if the Company’s 90 Day VWAP up to and including 31 January 2018 is at least $0.25. • Tranche 2 will vest if the Company’s 90 Day VWAP up to and including 31 January 2019 is at least $0.30. • Tranche 3 will vest if the Company’s 90 Day VWAP up to and including 31 January 2020 is at least $0.35. Any performance rights which meet the vesting conditions above will be available for exercise up until the expiry date. On exercise of vested performance rights Company shares may be acquired and held by an Employee Share Trust (‘EST’) to be established for the purpose of settlement. Shares may be held subject to the EST and the Company’s Securities Trading Policy. If the Company provide an EST, the employee can apply to the Trustee to have their shares transferred or sold from the EST, subject to compliance with the Company’s Securities Trading Policy. 7 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Notes to the consolidated financial statements NOTE 42. SHARE-BASED PAYMENTS (CONTINUED) Set out below are summaries of performance rights granted under the plan: 2017 Grant date Expiry date Balance at the start of the year Granted Exercised Expired/forfeited/ other Balance at the end of the year 01/02/2017 31/01/2022 - - 1,300,000 1,300,000 - - - - 1,300,000 1,300,000 The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 4.58 years. For the performance rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Expected volatility Dividend year Risk-free interest rate Fair value at grant date 01/02/2017 31/01/2022 $0.350 - - - $0.320 NOTE 43. EVENTS AFTER THE REPORTING PERIOD On 27 July 2017, Marika White resigned as Company Secretary. Tharun Kuppanda is now the Company Secretary. On 18 August 2017, Computershare Investor Services Pty Limited ceased as the Company’s registry provider and Registry Direct was appointed service provider and commenced on 21 August 2017. No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 7 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Directors’ Declaration In the directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; • the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; • the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and • there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Michael Carter Chairman 31 August 2017 Sydney 7 8 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Independent auditor’s report to the members of Sequoia Financial Group Limited 7 9 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Independent auditor’s report to the members of Sequoia Financial Group Limited 8 0 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Independent auditor’s report to the members of Sequoia Financial Group Limited 8 1 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Independent auditor’s report to the members of Sequoia Financial Group Limited 8 2 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Independent auditor’s report to the members of Sequoia Financial Group Limited 8 3 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Independent auditor’s report to the members of Sequoia Financial Group Limited 8 4 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Shareholder Information The shareholder information set out below was applicable as at 31 July 2017. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Number of holders of ordinary shares 155 55 23 94 69 396 - Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: BEETON ENTERPRISES PTY LTD (THE SCOTT & SALLY BEETON A/C) 10,065,934 20.63 Ordinary shares Number held % of total shares issued VISTA INVESTMENTS (NSW) PTY LTD PAMELA BEETON INVESTMENT PTY LTD MR PETER STIRLING + MRS ROS STIRLING HENRY MORGAN LIMITED AUST EXECUTOR TRUSTEES LTD (KENTGROVE CAPITAL FUND) KALI GANDAKI INVESTMENTS PTY LTD (KALI GANDAKI INVESTMENTS A/C) COJONES PTY LTD (JONES FAMILY NO 2 A/C) SOPHAT PTY LTD (MATOPHIE SUPER FUND A/C) BEETON ENTERPRISES PTY LTD (THE SCOTT & SALLY BEETON A/C) BURATU PTY LTD (CONNOLLY SUPER FUND A/C) MANLY LANE PTY LTD (SCOTT & SALLY BEETON SUP A/C) VALUEAD PTY LTD TOTAL LEGEND SUPER P/L (TOTAL LEGEND SUPER A/C) MR GARRY CROLE KABILA INVESTMENTS PTY LIMITED MR ANDREW PHILLIPS MR MICHAEL CARTER MR MAKRAM HANNA + MRS RITA HANNA (HANNA & CO P/L SUPER A/C) METAFUTURES PTY LTD (METAFUTURES INVESTMENT A/C) 4,079,824 3,586,063 2,237,500 1,804,534 1,500,000 1,491,908 1,047,066 1,000,100 830,250 780,000 740,155 734,450 600,000 600,000 535,000 530,715 525,000 523,910 508,912 8.36 7.35 4.59 3.70 3.07 3.06 2.15 2.05 1.70 1.60 1.52 1.51 1.23 1.23 1.10 1.09 1.08 1.07 1.04 33,721,321 69.13 8 5 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Shareholder Information Unquoted equity securities Performance rights Substantial holders Substantial holders in the Company are set out below: BEETON ENTERPRISES PTY LTD (THE SCOTT & SALLY BEETON A/C) VISTA INVESTMENTS (NSW) PTY LTD PAMELA BEETON INVESTMENT PTY LTD Voting rights The voting rights attached to ordinary shares are set out below: Number on issue Number of holders 1,300,000 - Ordinary shares Number held % of total shares issued 10,065,934 4,079,824 3,586,063 20.63 8.36 7.35 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Restricted securities There are no restricted securities on issue. 8 6 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017 Stock exchange listing Sequoia Financial Group Limited shares are listed on the Australian Securities Exchange (ASX code: SEQ) Website www.sequoia.com.au Corporate Governance Statement The Board of Directors of Sequoia Financial Group Limited is committed to maintaining high standards of Corporate Governance. This Corporate Governance Statement discloses the extent to which the Company has followed the 3rd Edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (‘ASX Principles and Recommendations’). The Corporate Governance Statement adopted by the Board can be found in the Company’s Corporate Governance section www.sequoia.com.au/about-sequoia/ corporate-governance Corporate Directory Directors Scott Lionel Beeton Michael Kenneth Carter Marcel John Collignon Garry Peter Crole Company secretary Tharun Kuppanda Registered office Level 36 50 Bridge Street Sydney NSW 2000 Telephone: + 61 2 8114 2222 Facsimile: + 61 2 8114 2200 Share register Registry Direct Level 6 2 Russell Street Melbourne VIC 2000 Telephone: 1300 556 635 Facsimile: +61 3 9111 5652 Auditor Hall Chadwick Level 40 2 Park Street Sydney NSW 2000 Bankers National Australia Bank 330 Collins Street Melbourne VIC 3000 Westpac Australia Bank Royal Exchange, Cnr Pitt & Bridge Streets Sydney NSW 2000 8 7 SEQUOIA FINANCIAL GROUP LIMITED ANNUAL REPORT — 30 JUNE 2017
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