More annual reports from Sequoia Financial Group:
2023 ReportAppendix 4E Preliminary final report 1. Company details Name of entity: Sequoia Financial Group Limited ABN: 90 091 744 884 Reporting period: For the year ended 30 June 2021 Previous period: For the year ended 30 June 2020 2. Results foR announCement to the maRket Revenues from ordinary activities up 37.8% to 116,462,659 $ Profit from ordinary activities after tax attributable to the owners of Sequoia Financial Group Limited Profit for the year attributable to the owners of Sequoia Financial Group Limited Dividends Final dividend declared for the year ended 30 June 2021 Interim dividend paid for the year ended 30 June 2021 *The record date for determining entitlement to the 2021 Final dividend is 13 September 2021 and is to be paid on 11 October 2021 up 187.1% to 5,548,262 up 187.1% to 5,548,262 amount per security Cents franked amount per security Cents 0.60 0.40 0.60 0.40 3. net tangible assets Net tangible assets per ordinary security Calculated as follows: Net assets Less: Right-of-use assets Less: Intangibles Add: Lease liabilities Total tangible assets Total shares issued Reporting period Cents previous period Cents 10.44 8.08 Consolidated 2021 $ 2020 $ 41,117,459 33,238,582 (2,130,577) (2,764,559) (28,241,840) (24,317,249) 2,979,338 13,724,380 3,632,287 9,789,061 131,507,805 121,216,770 i Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Appendix 4E Preliminary final report 4. ContRol gained oveR entities Name of entities (or group of entities) PantherCorp CST Pty Ltd Date control gained 1 February 2021 Contribution of such entities to the reporting entity’s profit/(loss) from ordinary activities before income tax during the period (where material) Profit/(loss) from ordinary activities before income tax of the controlled entity (or group of entities) for the whole of the previous period (where material) 5. loss of ContRol oveR entities $ 332,982 412,340 Name of entities (or group of entities) Interprac Finance Service Pty Ltd and Interprac Mortgage Management Pty Ltd Date control lost January 2021 Contribution of such entities to the reporting entity’s profit/(loss) from ordinary activities before income tax during the period (where material) Profit/(loss) from ordinary activities before income tax of the controlled entity (or group of entities) whilst controlled during the whole of the previous period (where material) 6. dividends Current period Final dividend declared for the year ended 30 June 2021 Interim dividend paid for the year ended 30 June 2021 Previous period $ 30,829 97,628 amount per security Cents franked amount per security Cents 0.60 0.40 0.60 0.40 amount per security Cents franked amount per security Cents Final dividend declared for the year ended 30 June 2020 0.40 0.40 i i Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Appendix 4E Preliminary final report 7. dividend Reinvestment plans The Company has resolved to implement a Dividend Reinvestment Plan (‘DRP’), which will be active for the 2021 Final Dividend. The Directors have determined that a 2.5% discount will apply to the 2021 Final Dividend. Shares allocated to shareholders under the DRP for the 2021 Final Dividend will be allocated at an amount equal to 97.5% of the average of the daily volume weighted average market price of ordinary shares of the Company trades on the ASX over the period of 5 trading days prior to Friday, 1 October 2021. The last date for receipt of election notices for the dividend or distribution plan is Friday, 1 October 2021. 8. details of assoCiates and joint ventuRe entities Reporting entity’s percentage holding Contribution to profit/(loss) (where material) Reporting period previous period Reporting period previous period name of associate / joint venture % % $ $ Taking Control Pty Ltd (joint venture) 50.00% - 26,246 Group’s aggregate share of associates and joint venture entities’ profit/(loss) (where material) Profit/(loss) from ordinary activities before income tax Income tax on operating activities 9. foReign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. audit qualifiCation oR Review 26,246 7,874 Details of audit/review dispute or qualification (if any): The financial statements have been audited by the Company’s independent auditor 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 2021 is attached. - - - i i i Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Appendix 4E Preliminary final report 12. signed Signed ___________________________ Date: 19 August 2021 John Larsen Chairman Sydney i v Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Sequoia Financial Group Limited abn 90 091 744 884 Annual Report 3 0 JuN E 2021 Contents Chief Executive Officer and Chairman’s report .............................................................................................3 Directors’ report ..................................................................................................................................................6 Auditor’s independence declaration ............................................................................................................21 Consolidated statement of profit or loss and other comprehensive income ...........................................22 Consolidated statement of financial position ...............................................................................................23 Consolidated statement of changes in equity .............................................................................................25 Consolidated statement of cash flows ..........................................................................................................26 Notes to the consolidated financial statements ...........................................................................................28 Directors’ declaration .......................................................................................................................................76 Independent auditor’s report to the members of Sequoia Financial Group Limited ...............................77 Shareholder information ................................................................................................................................. 83 Corporate directory ..........................................................................................................................................87 2 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Chief Executive Officer and Chairman’s report 30 June 2021 Dear Shareholders, We continue to live in challenging times, with Australians forced to adapt to the unexpected impacts of the COVID19 pandemic. This uncertainty has seen many reconsider their strategy for spending, savings and investing. supporting our market The investment universe for retail investors is becoming more complex. We have witnessed a big jump in the number of self-directed investors looking to trade shares and more exotic types of commodities like cryptocurrencies and other shorter term, highly volatile investments, without the appropriate training or knowledge of such instruments. I hasten to add that these exotic and volatile investments are typically not recommendations from our advisers, hence it is concerning that many new investors are behaving this way without any guidance or knowledge of investment markets. Coupled with increased complexity, the ability of advisers to provide services to all client demographics is being hampered by ever increasing costs they are being asked to bear in relation to matters such as compliance, professional education, and professional indemnity insurance post the Hayne Royal Commission. This is putting pressure on the cost of their services hence reducing the cost of professional advice has become paramount in an adviser’s thinking. Within our Wealth Division, our core purpose is to assist financial planners, risk insurance advisers, accountants and third-party licensees reduce their ‘cost of servicing’ through our synergies of scale. We are doing this at a time where the number of groups like ours has reduced. Our business is one of a small number of emerging businesses that has increased adviser numbers and our business-to-business service offering is rather unique within the industry. Some of the value-add services being provided by our Group include: • Licensing and regulatory assistance • Education • Media • Product Research • Compliance and other administrative services • Business coaching • Technical support • Technology • Marketing • Equity and ETO clearing and execution • Insurance • Finance With the large banks and insurers recently exiting the wealth management industry there is a growing demand of Australians who are seeking out advice for longer term solutions for their families. This includes the intergenerational transfer of wealth taking place off the back of very strong property prices and the increased disposable income within the baby boomer demographic. The baby boomers are very keen to receive advice on how to better build and protect wealth for the so-called ‘rainy-day events’ such as retirement, estate planning, moving 3 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Chief Executive Officer and Chairman’s report 30 June 2021 parents to aged care and how to manage direct equity investments in place of passive investments like bonds and term deposits that have historically been accessed without advice when returns for this asset class were higher. As mentioned however, despite this increased demand for service provision, the number of those who provide advisory services is falling at an alarming rate. This has been particularly noticeable in the adviser group nearing retirement age. In the last two years, the numbers of advisers registered on the government financial advice registry has fallen sharply, and this is expected to continue to fall to as low as 13,000 by the 2024/25 financial year. seq’s financial performance When reviewing our results, longer term shareholders would recall the Sequoia vision shared in the back half of 2018 was a vision to increase the scale of all our core businesses, so each generated a minimum return on non-cash equity of at least 15% without needing to increase pricing to our adviser networks. The results for the full year 2021 show all four Operating Divisions surpassed this objective, and even more pleasingly outperformed cash generation budgets for the year by a significant margin. Whilst revenue growth of 37% was solid, Operating Profit or EBITDA of $11.5m was well above the $6.4m budget (without budgeting any acquisitions) we set at the start of the period. From a consolidated viewpoint this resulted in a 28% Return on Shareholder Equity, giving us confidence, the business model of a diversified service offering enhances profitability and has growing demand. Our focus is to continue building scale in each of the Operating Divisions, both organically and through strategic bolt on acquisitions, using a mix of cash and equity to fund such acquisitions. Throughout FY21 we paid cash of more than $2.5M for acquisitions, dividends of $0.7M and reduced debt by more than $0.5M, whilst shareholder cash and liquid investments increased to approximately $17M. Despite the debt/equity ratio improving, we are determined to maintain a relatively conservative dividend payout ratio in FY21, although we are increasing the dividend from 0.4 cents per share in FY20 to 1.0 cent per share in FY21. The main reason behind this strategy is our intention to continue using cash as the key funding mechanism in future acquisition opportunities, thus minimising the dilution of shareholder equity, particularly at our current share price. the future One future growth focus area remains our Wealth Division, where our mission remains increasing the numbers of advisers, we service from a current market share of around 3% towards 8% of the reduced pool of 13,000 advisers we expect in 2025. Our Equity Markets Division aims to continue winning market share organically at the current rate of growth, so benefiting from the significant investment we made in 2019/20 to build a business where our scale can drive consistent ‘toll road’ type margins once turnover exceeds our ‘break-even volume’ each month. Another important step for our Group is to grow the size of our Professional Services Division over the coming years. We expect to achieve this via a mix of organic growth, cross marketing, and bolt on acquisitions such as the recent Panthercorp acquisition in WA and some general insurance portfolios we are targeting. 4 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Chief Executive Officer and Chairman’s report 30 June 2021 In summary, the Group is expecting to continue the last 2 years’ revenue growth rate over the coming 12 months. Given the advice environment is seeing an increase in demand yet a reduction in supply, we believe we are well placed to achieve this. In addition, the trend of product and strategy further separating is very positive for the advice industry. This improvement in the sector’s professional ethics is seeing the community have a greater level of confidence in seeking advice, because the clear legal obligation of each adviser is to put the client’s interest first and ensure the services provided have measurable value. The road to get to this point has not been an easy one for an industry that has previously been dominated by product sales, and the move to value added professional advice is one that Sequoia is very much supporting. I would particularly like to thank my fellow Directors, the staff, customers, and the shareholders that have entrusted us with their capital, to develop a robust and relevant business offering that is making a meaningful and positive contribution to the Australian financial services community. Garry Crole Managing Director/CEO John Larsen Chairman of the board 5 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 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 2021. 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: Garry Crole John Larsen Kevin Pattison Charles Sweeney Managing Director and Chief Executive Officer Non-Executive Director and Chairman Non-Executive Director Non-Executive Director pRinCipal aCtivities The Group’s principal activity is to offer financial planners, stockbrokers, self-directed investors, superannuation funds and accountants a range of services that include but is not limited to licensing services, business support and advice, coaching, compliance, education, wholesale clearing and execution, legal document establishments, investments, media and administration services. There was no change in the principal activities during the financial year. dividends Details of Dividends Dividends paid during the financial year were as follows: Consolidated 2021 $ 2020 $ Final dividend for the year ended 30 June 2020 of 0.40 cents per ordinary share* 506,901 Interim dividend for the year ended 30 June 2021 of 0.40 cents per ordinary share** 520,097 1,026,998 * The dividend comprised of a cash dividend paid of $316,579 and dividend reinvestment allotment of $190,322 ** The dividend comprised of a cash dividend paid of $403,137 and dividend reinvestment allotment of $116,960. All dividends are fully franked. Dividends declared On 19 August 2021, the Company declared a final dividend for the year ended 30 June 2021 of 0.60 cents per share, fully franked. The record date for determining entitlements to the dividend is 13 September 2021 and is to be paid on 11 October 2021. The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2021 and will be recognised in subsequent financial periods. - - - 6 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 Review of opeRations The profit for the Group after providing for income tax amounted to $5,548,262 (30 June 2020: $1,932,474). Operating revenue from ordinary operating activities of the Group increased to $116,462,659, up from $84,498,650 in the previous year, an increase of 37.8%. Underlying Profitability The Directors are of the view that the best guide to the Group’s performance is the underlying normalised EBITDA or Profit which is defined as earnings before interest, tax, depreciation and amortisation (‘EBITDA’) excluding the impact of: • Non-operational items (i.e. acquisition-related costs, redundancy costs, impairment charges, fair value adjustments and gains/losses on the sale of investments); and • Non-cash amortisation charges relating to separately identifiable intangible assets acquired under business combinations and other intangible assets. The underlying profit over the financial year ended 30 June 2021 increased by 138.7% from $4,825,701 to $11,516,560. This was in line with the commentary provided by the Group at the 2020 annual general meeting of shareholders where the directors outlined the 5 key focuses for the Group over a 3-year period to 2022. These 5 initiatives remain the core focus of your board and management teams: (1) To generate strong cash flow from all 4 operating divisions; (2) To provide a ROE* on non-cash equity of 15% or above; (3) To rebuild investor confidence in the Company’s ability to generate ROE of 15%; (4) To have the share price trading at or above equity per share; and (5) To distribute shareholder dividend payments at 20-50% of Net Profit After Tax (‘NPAT’). * Return on Equity (‘ROE’) is underlying profit over Total equity. 7 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 The Company has made significant progress on each of the 5 key focuses. Operating revenue and underlying Profit compared to the prior year are presented in the following table: Financial Performance 2021 $ 2020 $ Change $ Change % Operating revenue from ordinary activities 116,462,659 84,498,650 31,964,009 Statutory NPAT Underlying Profit* 5,548,262 1,932,474 3,615,788 11,516,560 4,825,701 6,690,859 37.8% 187.1% 138.7% * underlying Profit or EBITDA is the measure that the Group uses to assess performance as it excludes certain non-cash and one-off or non-operational items. Refer to the table in the next section for a reconciliation of underlying profit to Statutory NPAT. Normalised adjustments have been applied as set out in the following reconciliation between the Group’s underlying Profit and the Statutory NPAT for the current and prior periods: Normalised EBITDA for the year Add/(deduct) normalised adjustments: Acquisition costs Restructure costs Share of profits of joint venture Non-operating other income Statutory EBITDA for the year Adjusted for: Consolidated 2021 $ 2020 $ 11,516,560 4,825,701 (316,339) (67,738) 26,246 63,626 (74,648) - - - 11,222,355 4,751,053 Interest revenue calculated using the effective interest method 15,631 109,837 Depreciation and amortisation Finance costs (2,879,359) (1,812,709) (230,836) (166,944) Statutory net profit before income tax for the year 8,127,791 2,881,237 Income tax expense Statutory NPAT for the year (2,579,529) (948,763) 5,548,262 1,932,474 signifiCant Changes in the state of affaiRs During the period, the Group finalised the asset acquisitions from Phillip Capital Ltd and Total Cover Australia. On 1 February 2021, Sequoia Financial Group successfully completed the acquisition of all shares in PantherCorp CST Pty Ltd, a corporate legal document company based in Western Australia, for $1.7 million, and the purchase of the customer list of First Option Financial Management Pty Ltd for approximately $900,000. The considerations for both transactions are payable in cash and share issues over a period of twelve months. There were no other significant changes in the state of affairs of the Group during the financial year. 8 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 matteRs subsequent to the end of the finanCial yeaR On 1 July 2021, the Group announced the launch of Sequoia Family Office within the Sequoia Wealth Group. The new business will target high net worth investors with investable funds of $5.0 million to $100.0 million who are looking for specialist services in managing their financial affairs. On 1 July 2021, the Group acquired the client books of Macro Investment Advisory Pty Ltd for up to $600,000. This is the initial investment in the family office space with the aim to grow the funds under advice to $2.0 billion over the next 5 years. Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 30 June 2021 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 or variation to results if the Group continues to operate as normal. However major variations would occur if the Group undertook a key strategic initiative such as a material acquisition. Currently nothing of this nature is expected to take place in the foreseeable future but the Group remains open to look at opportunities in this space whenever they are presented. enviRonmental Regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. infoRmation on diReCtoRs Name: garry peter Crole Title: Managing Director and Chief Executive Officer Experience and expertise: Garry is a highly experienced and well-regarded Financial Services Executive. 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: None Former directorships (last 3 years): Non-Executive Director of Diversa Ltd (ASX: DVA) and Non-Executive Director of Glennon Small Companies Limited (ASX: GC1) Special responsibilities: Member of Risk and Compliance Committee, Audit Committee and Remuneration and Nomination Committee Interests in shares: 11,026,733 ordinary shares (directly held) and 965,240 ordinary shares (indirectly held) Interests in options: 1,000,000 options Interests in rights: None 9 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 Name: john larsen Title: Non-Executive Director and Chairman Experience and expertise: John brings in excess of 30 years’ experience in financial services to the Company, including senior management positions and directorships across various businesses licensed to provide financial services including funds management and stock broking. John has significant experience in the management of private portfolios and individually managed accounts. He was also the Chairman of Odyssey Funds Management between 2002 and 2009, part of the investment committee responsible for ASX listed, Huntley Investment Company Limited, between 2006 and 2008 and previously held the position of Group Investment Manager at ING (then Mercantile Mutual Group) retaining responsibility for the entire Australian investments portfolio with over $500 million of funds under management. Other current directorships: Non-Executive Director of Glennon Small Companies Limited (ASX: GC1) Former directorships (last 3 years): None Special responsibilities: Chair of Audit Committee and member of Remuneration and Nomination Committee Interests in shares: 103,693 ordinary shares (directly held) and 1,480,627 ordinary shares (indirectly held) Interests in options: 1,000,000 options Interests in rights: None Name: kevin pattison Title: Non-Executive Director Experience and expertise: Kevin has over 40 years’ experience in financial services, specialising in distribution, strategic planning and business remediation. He has been a Non-Executive Director for the past 4 years on private companies and prior to that he was the CEO of various large national businesses in the financial services sector. He is currently the Chairman of Master Builders Insurance Brokers. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chair of Remuneration and Nomination Committee and member of Risk and Compliance Committee Interests in shares: 542,166 ordinary shares (indirectly held) Interests in options: 500,000 options Interests in rights: None 1 0 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 Name: Charles sweeney Title: Non-Executive Director Qualifications: B.Comm, LL.B (Melb), Partner of Cooper Grace Ward Lawyers Experience and expertise: Charles is a partner in Cooper Grace Ward’s corporate and commercial group. Charles provides wide-ranging general commercial advice to clients, with particular areas of focus including corporate advisory and intellectual property / information technology. Acting for listed and unlisted public and private clients, Charles advises across a broad range of industries, including agribusiness, financial services, technology and mining. Charles has served as a non-executive director of an ASX listed company (including during its ASX listing) and has practical experience of the issues faced by boards in relation to corporate governance, dealings with regulators (especially ASX and ASIC), major transactions and capital raisings. Charles is also a regular presenter on such topics. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chair of Risk and Compliance Committee and member of Audit Committee Interests in shares: 306,336 ordinary shares (indirectly held) Interests in options: 500,000 options 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. Company seCRetaRy Rebecca Weir was appointed as Secretary of the Company on 9 October 2020. Rebecca is an employee of Boardroom Pty Ltd, the Company’s Corporate Secretarial Services provider. Rebecca is an associate member of the Governance Institute of Australia and an affiliate member of the Chartered Governance Institute. Rebecca holds a Bachelor of Laws (LLB) with Forensic Science and has recently completed the Graduate Diploma in Applied Corporate Governance and Risk Management. 1 1 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 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 2021, and the number of meetings attended by each director were: G Crole J Larsen K Pattison C Sweeney G Crole J Larsen K Pattison C Sweeney full board audit Committee attended held attended held 8 8 8 8 Risk and Compliance Committee attended held 3 - 3 3 8 8 8 8 3 - 3 3 3 3 - 3 Remuneration and nomination Committee attended held 4 4 4 - 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. The remuneration report contains the following sections: (a) Key management personnel covered in this report (b) Executive reward framework (c) Remuneration and nomination committee (d) Non-executive directors’ arrangement (e) Elements of remuneration (f) use of remuneration consultants (g) Voting and comments made at the Company’s 2020 Annual General Meeting (AGM) (h) Details of key management personnel remuneration (i) Service agreements (j) Share-based compensation (k) Other disclosures relating to key management personnel (a) Key management personnel covered in this report The key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all directors. 3 3 - 3 4 4 4 - 1 2 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 The key management personnel of the Group during the financial year are as follows: • Garry Crole - Managing Director and Chief Executive Officer • John Larsen - Chairman and Non-Executive Director • Kevin Pattison - Non-Executive Director • Charles Sweeney - Non-Executive Director Other key management personnel: • Lizzie Tan - Chief Financial Officer (b) Executive reward framework 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 ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness; • acceptability to shareholders; • performance linkage / alignment of executive compensation; and • transparency. (c) Remuneration and Nomination Committee 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. In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. (d) Non-executive directors’ arrangement 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 19 November 2020 where the shareholders approved an aggregate remuneration of $300,000. 1 3 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 (e) Elements of remuneration Executive remuneration comprises: • Fixed remuneration component; • Variable remuneration component including short-term incentive (‘STI’) • Variable remuneration including long-term incentive (‘LTI’); and • An Employee Share Option Plan that 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 well as the structure of those arrangements. 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. Sequoia Employee Incentive Plan (‘SEIP’) On 1 February 2017, the Company established an employee equity scheme, called the Sequoia Employee Incentive Plan to offer options and performance rights to certain employees employed in the Company. (f) Use of remuneration consultants During the financial year ended 30 June 2021, the Group did not engage remuneration consultants, to review its existing remuneration policies and provide recommendations. (g) Voting and comments made at the Company’s 2020 Annual General Meeting (‘AGM’) At the 19 November 2020 AGM, 100% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2020. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. 1 4 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 (h) Details of key management personnel remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. short-term benefits post- employment benefits share-based payments Cash salary and fees $ Cash bonus $ directors’ fees $ movement in leave entitlements $ super- annuation $ options $ total $ 89,709 - - - - - - 63,967 64,167 - - - 8,522 - - 47,769 23,884 23,884 146,000 87,851 88,051 2021 Non-Executive Directors: J Larsen K Pattison C Sweeney Managing Director: G Crole* 378,247 60,000 Other Key Management Personnel: L Tan 219,178 40,000 - - 687,134 100,000 128,134 * Cash salary and fees include expense payment of $4,547. 25,014 21,694 47,769 532,724 14,910 39,924 20,822 51,038 35,885 330,795 179,191 1,185,421 short-term benefits post- employment benefits share-based payments Cash salary and fees $ Cash bonus $ directors’ fees $ movement in leave entitlements $ super- annuation $ options $ total $ 73,059 - - - - - - 55,000 55,000 - - - 6,941 - - 2020 Non-Executive Directors: J Larsen K Pattison C Sweeney Managing Director: G Crole* 340,558 50,000 Other Key Management Personnel: L Tan** 30,942 5,769 - - 444,559 55,769 110,000 31,726 21,003 3,952 35,678 2,939 30,883 * Cash salary and fees include expense payment of $792. ** Remuneration from date of appointment 23 April 2020 to 30 June 2020. - - - - - - 80,000 55,000 55,000 443,287 43,602 676,889 1 5 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 The proportion of remuneration linked to performance and the fixed proportion are as follows: name 2021 2020 2021 2020 2021 2020 fixed remuneration at risk - sti at risk - lti Non-Executive Directors: J Larsen K Pattison C Sweeney Managing Director: G Crole Other Key Management Personnel: 67% 73% 73% 100% 100% 100% - - - - - - 33% 27% 27% 80% 89% 11% 11% 9% L Tan 77% 87% 12% 13% 11% - - - - - (i) 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. (j) Share-based compensation Issue of shares, options and performance rights During the year, options were granted to the directors and other key management personnel of the Company as part of their compensation. The number of options over ordinary shares in the Company held during the financial year by each director and the other member of the key management personnel of the Group, including their personally related parties, is set out below: balance at the start of the year granted exercised expired/ forfeited/ other balance at the end of the year Options over ordinary shares G Crole J Larsen K Pattison C Sweeney L Tan - - - - - - 1,000,000 1,000,000 500,000 500,000 500,000 3,500,000 - - - - - - - - - - - - 1,000,000 1,000,000 500,000 500,000 500,000 3,500,000 1 6 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 (k) Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and the other member of the key management personnel of the Group, including their personally related parties, is set out below: Ordinary shares G Crole* J Larsen* K Pattison C Sweeney* L Tan* balance at the start of the year Received as part of remuneration additions disposals/ other balance at the end of the year 11,747,286 1,551,549 542,166 300,000 52,500 14,193,501 - - - - - - 244,687 32,771 - 6,336 469 284,263 - - - - - - 11,991,973 1,584,320 542,166 306,336 52,969 14,477,764 * Shares acquired via on-market trade or dividend re-investment plan. Transactions with key management personnel and their related parties During the financial year, $71,726 was paid or payable for services provided by Cooper Grace Ward, a related party entity of director, Charles Sweeney. This concludes the remuneration report, which has been audited. 1 7 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 shares under option unissued ordinary shares of Sequoia Financial Group Limited under option at the date of this report are as follows: grant date 19 November 2020 Type 1 19 November 2020 Type 2 18 January 2021 Type 1 18 January 2021 Type 2 expiry date 30 June 2022 30 June 2024 30 June 2022 30 June 2024 exercise price number under option $0.360 $0.450 $0.360 $0.450 1,500,000 1,500,000 650,000 500,000 4,150,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. shaRes undeR peRfoRmanCe Rights There were no unissued ordinary shares of Sequoia Financial Group Limited under performance rights outstanding at the date of this report. shaRes issued on the exeRCise of options The following ordinary shares of Sequoia Financial Group Limited were issued during the year ended 30 June 2021 and up to the date of this report on the exercise of options granted: date options granted 16 March 2021 exercise price number of shares issued $0.300 1,000,000 shaRes issued on the exeRCise of peRfoRmanCe Rights The following ordinary shares of Sequoia Financial Group Limited were issued during the year ended 30 June 2021 and up to the date of this report on the exercise of performance rights granted: date performance rights granted share price as at date of exercise number of shares issued 9 July 2020 19 July 2021 $0.270 $0.620 97,500 97,500 195,000 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. 1 8 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 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 26 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 26 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. 1 9 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors’ report 30 June 2021 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. 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 ___________________________ John Larsen Chairman 19 August 2021 Melbourne 2 0 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Auditor’s independence declaration AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF SEQUOIA FINANCIAL GROUP LIMITED I declare that, to the best of my knowledge and belief during the year ended 30 June 2021 there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and — no contraventions of any applicable code of professional conduct in relation to the audit. William Buck Audit (Vic) Pty Ltd ABN 59 116 151 136 N. S. Benbow Director Melbourne, 19 August 2021 2 1 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Consolidated statement of profit or loss and other comprehensive income Revenue expenses Data fees Dealing and settlement Commission and hedging Employee benefits Occupancy Telecommunications Marketing General and administrative Operating profit Interest revenue calculated using the effective interest method Share of profits of joint venture accounted for using the equity method Restructure costs Non-operating other income Depreciation and amortisation Acquisition costs Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of sequoia financial group limited other comprehensive income Items that will not be reclassified subsequently to profit or loss Gain/(loss) on the revaluation of financial assets at fair value through other comprehensive income, net of tax Other comprehensive income for the year, net of tax total comprehensive income for the year attributable to the owners of sequoia financial group limited Basic earnings per share Diluted earnings per share Consolidated note 2021 $ 2020 $ 5 116,462,659 84,498,650 (1,648,306) (1,643,769) (17,848,953) (10,834,498) (63,076,085) (50,151,379) 6 (14,973,184) (11,573,780) (289,670) (316,390) (1,665,917) (1,408,483) (304,714) (331,463) (5,139,272) (3,408,769) 11,516,558 4,830,119 15,631 26,246 (67,738) 63,626 109,837 - - - (2,879,357) (1,817,127) (316,339) (74,648) (230,836) (166,944) 8,127,791 2,881,237 (2,579,529) (948,763) 5,548,262 1,932,474 6 6 6 7 93,889 93,889 (35,801) (35,801) 5,642,151 1,896,673 Cents Cents 33 33 4.324 4.188 1.607 1.591 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 2 2 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Consolidated statement of financial position assets Current assets Cash and cash equivalents Trade and other receivables Contract assets and deferred costs Inventories Other current financial assets Derivative financial instruments Deposits Prepayments Total current assets non-current assets Contract assets and deferred costs Investments accounted for using the equity method Derivative financial instruments Other non-current financial assets Plant and equipment Right-of-use assets Intangibles Deferred tax Deposits Total non-current assets total assets Consolidated note 2021 $ 2020 $ 8 9 10 11 9 11 12 13 14 7 34,643,167 32,858,840 7,797,637 37,259 1,797,447 9,202,491 - 881,331 22,961,750 12,250,064 8,989,093 6,875 443,759 2,928,246 455,854 877,740 87,218,172 48,913,381 3,316,919 51,246 13,074,689 62,322 1,534,735 2,130,577 5,820,757 - 9,695,887 110,546 1,712,799 2,764,559 28,241,840 24,317,249 6,056,870 723,738 7,267,653 678,448 55,192,936 52,367,898 142,411,108 101,281,279 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 2 3 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Consolidated statement of financial position liabilities Current liabilities Trade and other payables Contract liabilities and deferred revenue Borrowings Lease liabilities Derivative financial instruments Income tax payable Employee benefits Contingent consideration Total current liabilities non-current liabilities Contract liabilities and deferred revenue Lease liabilities Derivative financial instruments Deferred tax Employee benefits Contingent consideration Client trading and security bond Total non-current liabilities total liabilities net assets equity Issued capital Reserves Accumulated losses total equity Consolidated note 2021 $ 2020 $ 15 16 17 18 11 19 16 18 11 7 19 20 21 51,028,728 10,602,740 317,253 785,499 9,202,491 1,349,648 1,453,637 1,400,000 22,380,247 12,637,235 662,414 682,415 2,928,246 961,932 727,467 957,701 76,139,996 41,937,657 4,205,041 2,193,839 13,074,689 3,967,939 288,687 479,350 944,108 7,977,273 2,949,872 9,695,887 4,903,818 98,840 479,350 - 25,153,653 26,105,040 101,293,649 41,117,459 68,042,697 33,238,582 51,524,175 48,497,215 765,224 434,571 (11,171,940) (15,693,204) 41,117,459 33,238,582 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 2 4 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Consolidated statement of changes in equity Consolidated issued capital $ financial assets at fair value reserve $ share- based payments reserve $ accumulated losses $ total equity $ Balance at 1 July 2019 48,025,034 430,308 149,400 (17,625,678) 30,979,064 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: Contributions of equity, net of transaction costs (note 20) Vesting of share-based payments Share-based payments forfeited - - - - (35,801) (35,801) 472,181 - - - - - - - - - (38,025) (71,311) 1,932,474 1,932,474 - (35,801) 1,932,474 1,896,673 - - - 472,181 (38,025) (71,311) Balance at 30 June 2020 48,497,215 394,507 40,064 (15,693,204) 33,238,582 Consolidated issued capital $ financial assets at fair value reserve $ share- based payments reserve $ accumulated losses $ total equity $ Balance at 1 July 2020 48,497,215 394,507 40,064 (15,693,204) 33,238,582 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: Contributions of equity, net of transaction costs (note 20) Vesting of share-based payments Dividends paid (note 22) - - - 3,000,635 26,325 - - 93,889 93,889 - - - - - - - 236,764 5,548,262 5,548,262 - 93,889 5,548,262 5,642,151 - - 3,000,635 263,089 - (1,026,998) (1,026,998) Balance at 30 June 2021 51,524,175 488,396 276,828 (11,171,940) 41,117,459 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 2 5 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Consolidated statement of cash flows Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Net cash from client related operations Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payment for purchase of business, net of cash acquired Payments for investments Payments for plant and equipment Payments for asset acquisitions Proceeds from disposal of investments Proceeds of distribution from investment Net cash used in investing activities Cash flows from financing activities Proceeds from exercise of options Repayment of borrowings Repayment of lease liabilities Dividends paid Consolidated note 2021 $ 2020 $ 118,961,645 83,180,817 (108,043,943) (80,852,728) 7,986,328 7,234,413 18,904,030 15,631 (104,276) 9,562,502 109,837 (166,944) (2,088,199) (1,509,427) 16,727,186 7,995,968 (366,963) (983,447) (347,939) (2,351,060) 621,787 15,000 (1,031,350) (70,546) (546,893) (855,950) 89,649 - (3,412,622) (2,415,090) 300,000 (345,161) (863,837) (724,149) - (860,469) (610,688) - 32 30 12 22 Net cash used in financing activities (1,633,147) (1,471,157) Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 11,681,417 22,961,750 4,109,721 18,852,029 Cash and cash equivalents at the end of the financial year 34,643,167 22,961,750 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 2 6 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Consolidated statement of cash flows Cash and cash equivalents Cash at bank* Client funds** Consolidated 2021 $ 2020 $ 13,692,472 20,950,695 12,490,845 10,470,905 34,643,167 22,961,750 * The Group holds cash reserves which are required to meet its broker licensing conditions. The conditions of the license, amongst other requirements, mandate that its wholly owned subsidiary, Morrison Securities, must maintain at all times core capital greater than $7,500,000 (30 June 2020: $7,500,000), where at least 90% of this core capital is cash at bank. ** Client funds are not available for general use by the Group. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 2 7 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 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 are: Registered office principal place of business Level 7 Level 8 7 Macquarie Place 525 Flinders Street Sydney NSW 2000 Melbourne VIC 3000 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 19 August 2021. 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. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. 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 financial assets at fair value through other comprehensive income, financial assets and liabilities at fair value through profit or loss and derivative financial instruments. 2 8 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 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 29. principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Sequoia Financial Group Limited as at 30 June 2021 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. 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 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Timing of revenue recognition Sequoia Equity Markets Group: A business in this Group offers structured products to investors seeking exposure to investment opportunities. Management determined after lengthy evaluation that there are different types of structured product revenue. Each revenue type has numerous and distinct performance obligations, which allows for a different treatment to each of these revenue streams. The different revenue streams include: • application fee revenue is recognised up-front (upon execution of delivery of product to the customer) and is non-refundable; • structured product revenue is released over the duration of the contract as it is earned over a period of time (duration of the contract); and • coupon premium revenue is earned upon completion of the contract, as it is earned upon concluding the contract (conclusion of contract). The costs of entering into the contract with wholesale counter parties are matched to the revenue streams. 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. 3 0 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) Other revenue from client services Revenues from other services, including brokerage, financial planning, superannuation and corporate advisory services are performed as they are rendered to the customer, net of any commissions. For brokerage, this occurs upon the date of settlement of clearing the underlying transaction on behalf of the client. For corporate advisory income relating to a transaction, this occurs upon the execution of the transaction. Where corporate advisory services relate to fees earned under a retainer agreement, revenue is accrued pro-rata according to the servicing of that retainer. Government grants Government grants claimed during the COVID pandemic were reported as received and deducted from employee benefit expenses. Refer to note 6 for further information. Contract assets and contract liabilities Contract assets relate to contract costs and contract liabilities relate primarily to structured product revenues. The contract assets represent costs deferred and contract liabilities represent revenue deferred due to recognition requirements where the revenue and cost are spread over the product life. 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. 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. 3 1 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) 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 include 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 allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. 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, based upon the maturity date set in the underlying derivative agreement. 3 2 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) joint ventures A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in joint ventures are accounted for using the equity method. under the equity method, the share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in joint ventures are carried in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Distributions received from joint venture entities reduce the carrying amount of the investment. investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Financial assets at amortised cost A financial asset is measured at amortised cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. 3 3 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets mandatorily measured at fair value through other comprehensive income, the loss allowance is recognised in other comprehensive income with a corresponding expense through profit or loss. In all other cases, the loss allowance reduces the asset’s carrying value with a corresponding expense through profit or loss. 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 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 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. 3 4 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short- term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. 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. Customer list Customer lists are amortised on a straight-line basis over their finite life. The finite life is the period of expected benefit, which ranges from 5 to 20 years depending on factors such as, their significance to the Group, acquisition consideration and estimated customer turnover. Regulatory memberships and licences Costs in relation to regulatory memberships and licences are capitalised as an asset. These costs are not subsequently amortised but reviewed annually for impairment. Management considers regulatory memberships and licences to have indefinite useful lives because the potential to generate cash flows is unlimited. 3 5 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) Impairment of non-financial assets Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature, they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. 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. 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. lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. 3 6 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high-quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 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. 3 7 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 2. signifiCant aCCounting poliCies (Continued) 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. dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. 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. 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 2021. The Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. 3 8 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 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. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. Business combination versus asset acquisition During the financial year, the Directors evaluated each purchase and determined that the purchase of PantherCorp CST Pty Ltd met the criteria of a business combination (refer to note 30), while the purchases of the Yellow Brick Road Wealth Division, Phillip Capital and Total Cover Australia did not. Goodwill The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has 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. 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. 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. 3 9 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 3. CRitiCal aCCounting judgements, estimates and assumptions (Continued) Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the Group’s operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The Group reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the Group estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. Other significant estimates Other significant estimates include fair value assessment of derivatives and investments. Refer to note 2, Fair value measurement section, and note 24. 4 0 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 4. opeRating segments Identification of reportable operating segments The Group is organised into five 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. The information reported to the CODM is on a monthly basis. The CODM reviews operating profit, which is earnings before interest, taxation, depreciation and amortisation adjusted for impairment (adjusted ‘EBITDA’). Types of products and services The principal products and services of each of these operating segments are as follows: sequoia wealth group The Wealth division is the core driver of the company business thematic. The Wealth Group is the area of the business where we provide licensee services to Financial Planners, Wealth Managers, Equity advisers and a Corporate advisory business unit. We specialise in providing the adviser market a full service licensing and support service so they need can operate as an adviser in a market that is heavily legislated. Our role is to charge a fee for service and assist with a range of value propositions including compliance, marketing, coaching, education, research, and technical support. The advisers are primarily accountants, financial planners, mortgage brokers, insurance advisers, equity market advisers and investment professionals with their AFS licensing, merger and acquisitions corporate advice. The Professional Services Group provides services to our own licensed advisers as well as other licensee holders and the industry. This includes the provision of SMSF solutions, general insurance broking and legal document establishment services to Financial Planners, Stock Brokers, Mortgage Brokers and Accountants Australia wide. This division currently has relationships and provides one of its services to in excess of 3,000 accountants and financial planners across Australia. Sequoia Equity Markets Group provides services to our own licensed advisers as well as other licensee holders their advisers, self directed investors, superannuation funds. The companies fully owned subsidiary Morrison Securities delivers white label Australian Stockbroking and Specialised Investment solutions to third party institutional and adviser networks that operate their own AFSL. Sequoia Direct Investment Group provides general advice to self directed investors who elect not to have a personal adviser and wish to undertake their own portfolio management, SMSF management share trading, superannuation, and select their own products and insurance. In addition this division provides market data, robo advice and trading tools via various mediums including an independent news organisation specialising in finance and business news updates, events and investor communication for ASX listed companies. sequoia professional services group sequoia equity markets group sequoia direct investment group head office Head Office relates to the corporate running costs of the Group. All products and services are provided predominantly to customers in Australia. 4 1 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 4. opeRating segments (Continued) 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. Consolidated - 2021 Revenue Revenue sequoia wealth group $ sequoia professional services group $ sequoia equity markets group $ sequoia direct investment group $ head office $ total $ 54,493,541 7,060,988 52,279,912 1,856,073 (48,595) 115,641,920 Gains on portfolio investments 804,501 - 16,239 - - 820,739 total revenue 55,298,042 7,060,988 52,296,151 1,856,073 (48,595) 116,462,659 adjusted ebitda 6,123,786 2,106,165 5,898,463 594,460 (3,206,314) 11,516,560 Depreciation and amortisation Acquisition costs Interest revenue Finance costs Restructure costs Share of profits of joint venture accounted for using the equity method Non-operating other income Profit before income tax expense Income tax expense Profit after income tax expense (2,879,359) (316,339) 15,631 (230,836) (67,738) 26,246 63,626 8,127,791 (2,579,529) 5,548,262 4 2 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 4. opeRating segments (Continued) Consolidated - 2020 Revenue Revenue sequoia wealth group $ sequoia professional services group $ sequoia equity markets group $ sequoia direct investment group $ head office $ total $ 40,661,203 4,668,453 36,994,395 2,224,429 56,575 84,605,055 Losses on portfolio investments (96,586) - (9,819) - - (106,405) total revenue 40,564,617 4,668,453 36,984,576 2,224,429 56,575 84,498,650 adjusted ebitda 2,927,624 1,540,968 3,618,514 314,727 (3,576,132) 4,825,701 Depreciation and amortisation Acquisition costs Interest revenue Finance costs Profit before income tax expense Income tax expense Profit after income tax expense note 5. Revenue Sales revenue Data subscriptions fees Brokerage and commissions revenue Superannuation product revenue Structured product revenue Corporate advisory fees Media revenue Leasing Other income Other revenue (1,812,709) (74,648) 109,837 (166,944) 2,881,237 (948,763) 1,932,474 Consolidated 2021 $ 2020 $ 529,247 712,453 73,803,588 52,914,957 2,306,465 2,414,279 27,902,934 22,944,283 8,087,523 830,834 - 2,980,337 1,086,477 620 2,181,329 1,551,649 115,641,920 84,605,055 Gains/(losses) on portfolio investments 820,739 (106,405) Revenue 116,462,659 84,498,650 Other income includes revenue from settlement and general services. 4 3 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 5. Revenue (Continued) Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Consolidated - 2021 Timing of revenue recognition Services transferred at a point in time sequoia wealth group $ sequoia professional services group $ sequoia equity markets group $ sequoia direct investment group $ head office $ total $ 55,298,042 7,060,988 24,393,217 623,334 (48,595) 87,326,986 Services transferred over time - - 27,902,934 1,232,739 - 29,135,673 55,298,042 7,060,988 52,296,151 1,856,073 (48,595) 116,462,659 Consolidated - 2020 Timing of revenue recognition Services transferred at a point in time sequoia wealth group $ sequoia professional services group $ sequoia equity markets group $ sequoia direct investment group $ head office $ total $ 40,564,617 4,668,453 13,991,179 588,295 56,575 59,869,119 Services transferred over time - - 22,993,397 1,636,134 - 24,629,531 40,564,617 4,668,453 36,984,576 2,224,429 56,575 84,498,650 4 4 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 6. expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Land and buildings - right-of-use assets Total depreciation Amortisation Customer list Regulatory memberships and licences Other intangibles Total amortisation Consolidated 2021 $ 2020 $ 108,257 450,675 712,720 109,963 378,191 660,229 1,271,652 1,148,383 1,441,875 4,418 161,412 1,607,705 473,960 4,418 190,366 668,744 Total depreciation and amortisation 2,879,357 1,817,127 Finance costs Interest and finance charges paid/payable on borrowings Interest and finance charges paid/payable on lease liabilities Finance costs expensed Leases Short-term lease payments Employee benefits Wages and salaries Government COVID grants Redundancies and terminations Share-based payments Commissions and discretionary bonus Defined contribution superannuation expense Other employment costs Total employee benefits 104,276 126,560 230,836 15,887 151,057 166,944 - 268,472 9,162,489 (319,500) 87,715 290,764 2,415,598 992,253 2,411,603 7,574,999 (93,030) 296,646 (71,311) 1,060,434 771,598 2,034,444 15,040,922 11,573,780 4 5 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 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: Decrease in deferred tax assets Decrease in deferred tax liabilities Consolidated 2021 $ 2020 $ 2,497,508 103,111 (21,090) 961,429 236,470 (249,136) 2,579,529 948,763 1,292,553 507,361 (1,189,442) (270,891) Deferred tax - origination and reversal of temporary differences 103,111 236,470 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: Amortisation of intangibles Net research and development credit Sundry items Adjustment recognised for prior periods Income tax expense 8,127,791 2,881,237 2,438,337 864,371 318,591 143,513 (140,194) (177,200) (16,115) 367,215 2,600,619 1,197,899 (21,090) (249,136) 2,579,529 948,763 4 6 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 7. inCome tax (Continued) Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Allowance for expected credit losses Employee benefits Accrued expenses Deferred income Net fair value loss on investment Deferred tax assets attributable to business combinations Lease incentives Deferred tax asset Movements: Opening balance Charged to profit or loss Additions through business combinations (note 30) Reclass Closing balance Deferred tax liability Deferred tax liability comprises temporary differences attributable to: Financial assets at fair value through other comprehensive income Deferred expenses Intangibles Deferred tax liability Movements: Opening balance Credited to profit or loss Additions through business combinations (note 30) Reclass Closing balance Consolidated 2021 $ 2020 $ 6,075 565,526 673,449 17,100 267,620 238,404 4,442,334 6,183,158 41,037 - 328,449 166,646 151,687 243,038 6,056,870 7,267,653 7,267,653 7,775,014 (1,292,553) (507,361) 79,239 2,531 - - 6,056,870 7,267,653 Consolidated 2021 $ 2020 $ 224,731 214,552 3,361,666 4,442,955 381,542 246,311 3,967,939 4,903,818 4,903,818 4,928,398 (1,189,442) (270,891) 250,528 3,035 246,311 - 3,967,939 4,903,818 4 7 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 8. tRade and otheR ReCeivables Current assets Trade receivables Less: Allowance for expected credit losses Other receivables* Consolidated 2021 $ 2020 $ 1,169,486 (20,250) 1,149,236 808,305 (57,000) 751,305 31,709,604 11,498,759 32,858,840 12,250,064 * Includes trade settlement receivable for Morrison Securities Pty Ltd of $29,800,778 in 2021 (30 June 2020: $9,428,581). The remaining balance relates to commissions receivable. Allowance for expected credit losses The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated Not overdue 1 to 30 days overdue 31 to 60 days overdue expected credit loss rate Carrying amount allowance for expected credit losses 2021 % 2020 % 2021 $ 2020 $ 2021 $ 2020 $ - - - - - - 32,615,802 11,498,759 66,753 106,013 90,522 450,687 75,139 282,479 32,879,090 12,307,064 - - - - - - 20,250 20,250 57,000 57,000 Over 60 days overdue 22.37% 20.18% Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Receivables written off during the year unused amounts reversed Closing balance Consolidated 2021 $ 2020 $ 57,000 30,191 (28,366) (38,575) 210,510 57,000 (199,810) (10,700) 20,250 57,000 4 8 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 9. ContRaCt assets and defeRRed Costs Current assets Contract assets - deferred costs Non-current assets Contract assets - deferred costs Consolidated 2021 $ 2020 $ 7,797,637 8,989,093 3,316,919 5,820,757 Contract assets – deferred costs relate to the costs of revenue contracts for structured products. These costs (and associated revenues) are amortised over the life of the contract. Changes in contract assets and liabilities reflect both: (a) the release of deferred revenues and costs to the profit and loss through the performance of a contract; and (b) new receipts and prepayments for contracts that are yet to be performed. note 10. otheR CuRRent finanCial assets Current assets Investment in shares Reconciliation Reconciliation of the fair values at the beginning and end of the current and previous financial year are set out below: Opening fair value Net additions Net disposals Revaluation taken to profit or loss Revaluation recognised in other comprehensive income Reclassified from non-current financial assets Consolidated 2021 $ 2020 $ 1,797,447 443,759 443,759 390,816 - 820,739 93,889 48,244 675,614 - (21,267) (106,405) (104,183) - Closing fair value 1,797,447 443,759 Refer to note 24 for further information on fair value measurement. Ordinary shares are held in ASX listed companies and are actively traded. 4 9 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 11. deRivative finanCial instRuments Current assets Derivatives - financial assets Current assets Derivatives - financial assets Current liabilities Derivatives - financial liabilities Non-current liabilities Derivatives - financial liabilities Consolidated 2021 $ 2020 $ 9,202,491 2,928,246 13,074,689 9,695,887 (9,202,491) (2,928,246) (13,074,689) (9,695,887) Refer to note 23 for further information on financial instruments. Refer to note 24 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 23). The Group offers its clients investment products structured legally as loans, which provide clients a derivative exposure to underlying market movements to those products. These exact market risks are in- turn hedged with exact like-for-like products offered by commercial institutions, leaving the Group with no exposure to the underlying market risks. Information about the Group’s exposure to market risk, liquidity risk, and credit risk is disclosed in note 23. 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. Sequoia has an obligation to its clients to pay the value of the investment at expiry. The current asset amount and the non-current asset amount equals that of the investment obligation described as a current liability and a non-current liability. The carrying amount equals the amount of the investment obligation. The rise or fall offset each other. note 12. plant and equipment Non-current assets Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Consolidated 2021 $ 2020 $ 921,060 921,060 (555,135) (449,250) 365,925 471,810 5,561,044 5,264,550 (4,392,234) (4,023,561) 1,168,810 1,240,989 1,534,735 1,712,799 5 0 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 12. plant and equipment (Continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2019 Additions Depreciation expense Balance at 30 June 2020 Additions Additions through business combinations (note 30) Depreciation expense Balance at 30 June 2021 note 13. Right-of-use assets Non-current assets Buildings - right-of-use Less: Accumulated depreciation leasehold improvements $ plant and equipment $ total $ 581,773 1,072,287 1,654,060 - 546,893 546,893 (109,963) (378,191) (488,154) 471,810 1,240,989 1,712,799 2,372 - 356,565 21,931 358,937 21,931 (108,257) (450,675) (558,932) 365,925 1,168,810 1,534,735 Consolidated 2021 $ 2020 $ 4,478,783 3,424,788 (2,348,206) 2,130,577 (660,229) 2,764,559 The Group leases buildings for its offices under agreements of between three to seven years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. 5 1 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 13. Right-of-use assets (Continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2019 Recognised on adoption of AASB 16 (note 2) Depreciation expense Balance at 30 June 2020 Additions through business combinations (note 30) Depreciation expense Balance at 30 June 2021 buildings - right- of-use $ - 3,424,788 (660,229) 2,764,559 78,738 (712,720) 2,130,577 For other lease related disclosures refer to the following: • note 6 for details of depreciation on right-of-use assets, interest on lease liabilities and other lease payments; • note 18 for lease liabilities and maturities of lease liabilities; and • consolidated statement of cash flow for repayment of lease liabilities. note 14. intangibles Non-current assets Goodwill Less: Impairment Customer list - at cost Less: Accumulated amortisation Consolidated 2021 $ 2020 $ 12,192,932 11,842,072 (1,019,547) (1,019,547) 11,173,385 10,822,525 13,425,614 8,896,030 (2,306,857) (896,433) 11,118,757 7,999,597 Regulatory memberships and licences - at cost 3,836,285 3,840,703 Brand name - at cost Other intangibles - at cost Less: Accumulated amortisation 1,821,233 1,200,832 779,059 779,059 (486,879) (325,467) 292,180 453,592 28,241,840 24,317,249 5 2 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 14. intangibles (Continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial years are set out below: Consolidated goodwill $ Customer list $ Regulatory memberships and licences $ Balance at 1 July 2019 10,773,876 5,364,398 3,845,121 Additions - 2,288,120 Additions through business combinations Impairment from adjustment to deferred consideration 841,255 821,039 (488,715) - - Impairment of assets (303,891) Amortisation expense - (473,960) (4,418) brand name $ other intangibles $ total $ - - 638,077 20,621,472 5,881 2,294,001 1,200,832 - - - - - - 2,863,126 (488,715) (303,891) (190,366) (668,744) Balance at 30 June 2020 10,822,525 7,999,597 3,840,703 1,200,832 453,592 24,317,249 Additions - 3,731,491 Additions through business combinations (note 30) Disposals Amortisation expense 350,860 835,093 (5,549) - - (1,441,875) (4,418) - 620,401 - - - - - 3,731,491 1,806,354 (5,549) (161,412) (1,607,705) - - - - - - - Balance at 30 June 2021 11,173,385 11,118,757 3,836,285 1,821,233 292,180 28,241,840 Impairment testing Goodwill acquired through business combinations has been allocated to the following cash generating units: Cash generating units (‘CGus’): Sequoia Wealth Group Sequoia Professional Services Group Sequoia Equity Markets Group Sequoia Direct Investment Group Consolidated 2021 $ 2020 $ 1,023,335 1,023,335 4,736,880 4,386,020 4,862,392 4,862,392 550,778 550,778 11,173,385 10,822,525 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. 5 3 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 14. intangibles (Continued) 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 Wealth Group Sequoia Professional Services Group Sequoia Equity Markets Group Sequoia Direct Investment Group Revenue growth rate % Cost of sales growth rate % pre-tax discount rate % 3.0% 3.0% 3.0% 1.0% 2.5% 2.5% 2.5% 2.5% 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. Sensitivity 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 1.0% before goodwill would need to be impaired, with all other assumptions remaining constant. (b) The discount rate would be required to increase by 15.0% before goodwill would need to be impaired, with all other assumptions remaining constant. 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 15. tRade and otheR payables Current liabilities Trade payables* Deferred consideration** Accrued expenses Client trading and security bond Other payables * Includes Trade settlement payables for Morrison Securities Pty Ltd of $44,074,390 in 2021 (30 June 2020: $15,715,866). ** The Deferred consideration relates to the acquisition of Libertas Financial Planning Pty Ltd. Refer to note 23 for further information on financial instruments. Consolidated 2021 $ 2020 $ 44,962,720 16,406,623 - 800,100 4,999,217 4,247,240 - 1,066,791 819,108 107,176 51,028,728 22,380,247 5 4 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 16. ContRaCt liabilities and defeRRed Revenue Current liabilities Contract liabilities - deferred revenue Non-current liabilities Contract liabilities - deferred revenue Consolidated 2021 $ 2020 $ 10,602,740 12,637,235 4,205,041 7,977,273 Contract liabilities - deferred revenue relate primarily to structured product revenues. The revenue is deferred due to recognition requirements where the revenue and cost are spread over the product life. Changes in contract assets and liabilities reflect both: (a) the release of deferred revenues and costs to the profit and loss through the performance of a contract; and (b) new receipts and prepayments for contracts that are yet to be performed. Unsatisfied performance obligations The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period was $14,807,780 as at 30 June 2021 ($20,614,509 as at 30 June 2020) and is expected to be recognised as revenue in future periods as follows: 1 year or less Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Consolidated 2021 $ 2020 $ 10,602,740 12,637,235 3,929,131 6,635,191 275,909 1,154,242 - 187,841 14,807,780 20,614,509 Revenue recognition is calculated on the product term remaining up to the maturity date. note 17. boRRowings Current liabilities Other unsecured loans Convertible notes payable Refer to note 23 for further information on financial instruments. Consolidated 2021 $ 2020 $ 317,253 - 462,414 200,000 317,253 662,414 5 5 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 17. boRRowings (Continued) Other unsecured loans Other unsecured loans relates to funding for Professional Indemnity Insurance Premium. Convertible notes payable As at 30 June 2021, there were no convertible notes payable (30 June 2020: $200,000). note 18. lease liabilities Current liabilities Lease liability Non-current liabilities Lease liability Consolidated 2021 $ 2020 $ 785,499 682,415 2,193,839 2,949,872 The following table details the Group’s remaining contractual maturity for its lease liabilities: 1 year or less $ between 1 and 2 years $ between 2 and 3 years $ between 3 and 4 years $ between 4 and 5 years $ over 5 years $ Remaining contractual maturities $ 2021 Lease liability 785,499 846,914 835,332 511,593 - 2020 Lease liability 682,415 756,033 846,914 835,332 511,593 - - 2,979,338 3,632,287 The cash flow in the maturity analysis above are present values of future payments and are not expected to occur significantly earlier than contractually disclosed. note 19. Contingent ConsideRation Current liabilities Contingent consideration Non-current liabilities Contingent consideration Consolidated 2021 $ 2020 $ 1,400,000 957,701 479,350 479,350 Contingent considerations relate to future instalment payments for the acquisition of the Yellow Brick Road Wealth Division and various client books acquired during the year. 5 6 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 20. issued Capital Consolidated 2021 shares 2020 shares 2021 $ 2020 $ Ordinary shares - fully paid 131,507,805 121,216,770 51,524,175 48,497,215 Movements in ordinary share capital details date shares issue price $ Balance 1 July 2019 119,009,824 48,025,034 Issue of shares on exercise of performance rights 24 July 2019 185,000 $0.165 30,525 Issue of shares on acquisition of Libertas Financial Planning Pty Ltd 9 December 2019 1,500,000 $0.220 330,000 Issue of shares as a deposit for an asset acquisition 27 December 2019 Issue of shares on exercise of performance rights 5 February 2020 484,446 37,500 $0.215 $0.200 104,156 7,500 Balance 30 June 2020 121,216,770 48,497,215 Issue of shares on exercise of performance rights 9 July 2020 97,500 $0.270 26,325 Issue of fully paid shares to executives as part of remuneration Issue of shares on acquisition of Libertas Financial Planning Issue of shares on acquisition of Total Cover Australia's customer base 9 July 2020 102,500 $0.270 27,675 9 July 2020 3,810,000 $0.210 800,100 6 August 2020 1,500,001 $0.220 330,000 Issue of shares on acquisition of YieldReport's assets 6 October 2020 Issue of shares for dividend reinvestment plan FY20 13 October 2020 100,000 574,799 Issue of shares on acquisition of Panthercorp CST Pty Ltd 1 February 2021 2,000,000 $0.300 $0.331 $0.400 30,000 190,322 800,000 Issue of shares as consideration under purchase of assets agreement with First Option Management Pty Ltd 1 February 2021 625,000 $0.480 300,000 Issue of shares for dividend reinvestment plan HY21 15 March 2021 Issue of shares on exercise of options 23 April 2021 261,235 1,000,000 $0.448 $0.300 116,960 300,000 Issue of shares as part consideration for purchase of assets agreement with InterPrac Securities Pty Ltd and SFG Financial Services Pty Ltd Issue of shares on acquisition of FF Planning Solutions customer base Share issue transaction costs 21 May 2021 20,000 $0.500 10,000 9 June 2021 200,000 $0.500 100,000 (4,422) Balance 30 June 2021 131,507,805 51,524,175 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. 5 7 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 20. issued Capital (Continued) Share buy-back The Company conducted an on-market buy-back. It was announced on the market on 15 June 2020 and covered the period 1 July 2020 to 30 June 2021. No shares have been brought back under the 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 does not have any financing arrangement with covenants during the financial year. Dividend Reinvestment Plan The Company has an active Dividend Reinvestment Plan (‘DRP’), which forms part of its capital management policy. Shareholders need to complete an Election Notice in order to participate. The Company has issued both an interim dividend and declared a final dividend, which are based on 97.5% of the arithmetic average of the daily volume weighted average market price of Sequoia’s ordinary shares over a selected period. A variation notice is required to terminate the shareholders participation in the plan. Refer to note 22 for further information. note 21. ReseRves Financial assets at fair value through other comprehensive income reserve Share-based payments reserve Consolidated 2021 $ 2020 $ 488,396 276,828 394,507 40,064 765,224 434,571 Financial assets at fair value through other comprehensive income reserve The reserve is used to recognise increments and decrements in the fair value of financial assets at fair value through other comprehensive income. 5 8 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 21. ReseRves (Continued) 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. note 22. dividends Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2020 of 0.40 cents per ordinary share* Interim dividend for the year ended 30 June 2021 of 0.40 cents per ordinary share** Consolidated 2021 $ 2020 $ 506,901 520,097 1,026,998 - - - * The dividend comprised of a cash dividend paid of $316,579 and dividend reinvestment allotment of $190,322. ** The interim dividend comprised of a cash dividend paid of $403,137 and dividend reinvestment allotment of $116,960. All dividends are fully franked. Dividends declared On 19 August 2021, the Company declared a final dividend for the year ended 30 June 2021 of 0.60 cents per share, fully franked. The record date for determining entitlements to the dividend is 13 September 2021 and is to be paid on 11 October 2021. The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2021 and will be recognised in subsequent financial periods. Franking credits Consolidated 2021 $ 2020 $ Franking credits available for subsequent financial years based on a tax rate of 30% 10,648,715 7,660,474 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 5 9 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 23. 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 between 18 months and 48 months 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 monitor and manage 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. financial assets Cash and cash equivalents Trade and other receivables Derivative assets Other financial assets Total financial assets financial liabilities Trade and other payables Derivative liabilities Lease liabilities Contingent consideration Convertible notes Other unsecured loans Total financial liabilities Consolidated 2021 $ 2020 $ 34,643,167 22,961,750 32,879,090 12,327,654 22,277,180 12,624,133 1,859,769 554,305 91,659,206 48,467,842 51,028,728 22,380,247 22,277,180 12,624,133 2,979,338 3,632,287 1,879,350 1,437,051 - 317,253 200,000 462,414 78,481,849 40,736,132 6 0 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 23. finanCial instRuments (Continued) Market risk 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 or 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 in relation to issued structured products. The Group has an exposure to price risk on its listed and unlisted equity investments and, as at year end, a 20% increase or decrease in price would affect the shareholding value by approximately $368,000. 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. 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. The Group is not exposed to any significant interest rate risk. 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. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. 6 1 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 23. 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. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. 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. 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 an investment-grade (or better) bank or a subsidiary of an investment-grade (or better) bank. Investments grades are a rating or indicator of particular debt obligations which have a low risk of default. Various rating agencies rate an investment bank’s creditworthiness. Different rating firms use different designations. Sequoia Specialist Investments Pty Ltd hedge providers are considered “investment grade” and the credit worthiness of our investment bank hedge contracts providers are between high credit quality (‘AAA’ and ‘AA’ ) and medium credit quality (‘A’ and ‘BBB’). Therefore, the risk of default of the selected hedge providers are considered low. In addition, if the investment bank were to unexpectedly default the resulting financial risk would be ultimately borne by the end investor, due to the pass through of the credit risk of the hedge provider to the end investor. The following tables detail the Group’s potential exposure, should the counterparties be unable to meet their obligations: 2021 Derivative assets 2020 Derivative assets fair value $ notional value $ 22,277,180 325,617,928 fair value $ notional value $ 12,624,133 333,502,357 6 2 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 23. finanCial instRuments (Continued) 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. Remaining contractual maturities The following tables detail the Group’s 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. Consolidated - 2021 non-derivatives Non-interest bearing Trade payables Other payables Client trading and security bond Contingent consideration Interest-bearing - variable Other unsecured loans Total non-derivatives derivatives Value hedges, net settled Total derivatives 1 year or less $ between 1 and 5 years $ Remaining contractual maturities $ 44,962,720 1,066,791 - - 44,962,720 1,066,791 - 944,108 944,108 1,400,000 479,350 1,879,350 317,253 - 317,253 47,746,764 1,423,458 49,170,222 9,202,491 13,074,689 22,277,180 9,202,491 13,074,689 22,277,180 6 3 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 23. finanCial instRuments (Continued) Consolidated - 2020 non-derivatives Non-interest bearing Trade payables Other payables Client trading and security bond Contingent consideration Interest-bearing - variable Other unsecured loans Interest-bearing - fixed rate Convertible notes payable Total non-derivatives derivatives Value hedges, net settled Total derivatives 1 year or less $ between 1 and 5 years $ Remaining contractual maturities $ 16,406,623 107,176 819,108 957,701 462,414 200,000 - - - 16,406,623 107,176 819,108 479,350 1,437,051 - - 462,414 200,000 18,953,022 479,350 19,432,372 2,928,246 9,695,887 12,624,133 2,928,246 9,695,887 12,624,133 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. 6 4 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 24. 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 - 2021 Assets Listed ordinary shares unlisted ordinary shares Derivative financial instruments Total assets Liabilities Derivative financial instruments Contingent consideration Total liabilities Consolidated - 2020 Assets Listed ordinary shares unlisted ordinary shares Derivative financial instruments Total assets Liabilities Derivative financial instruments Contingent consideration Total liabilities level 1 $ level 2 $ level 3 $ total $ 1,797,447 - - - - - 1,797,447 62,322 62,322 22,277,180 - 22,277,180 1,797,447 22,277,180 62,322 24,136,949 - - - 22,277,180 1,879,350 24,156,530 level 1 $ level 2 $ level 3 $ - - - - 22,277,180 1,879,350 24,156,530 total $ 443,759 110,546 443,759 - - - - 110,546 12,624,133 - 12,624,133 443,759 12,624,133 110,546 13,178,438 - - - 12,624,133 1,437,051 14,061,184 - - - 12,624,133 1,437,051 14,061,184 Convertible notes are held at amortised cost so are excluded from the fair value tables above. The carrying amounts of trade and other receivables, trade and other payables and other financial liabilities 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 5 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 24. 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 2019 Additions Balance at 30 June 2020 Transfers out level 3 Additions Balance at 30 June 2021 unlisted ordinary shares $ 40,000 70,546 110,546 (48,244) 20 62,322 note 25. 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 Share-based payments Refer to the ‘Remuneration report (audited)’ section of the Directors’ report. Consolidated 2021 $ 2020 $ 955,192 51,038 179,191 646,006 30,883 - 1,185,421 676,889 6 6 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 26. RemuneRation of auditoRs During the financial year the following fees were paid or payable for services provided by William Buck, the auditor of the Company: Audit services - William Buck Audit (Vic) Pty Limited Audit or review of the financial statements Other services - William Buck (Vic) Pty Limited Tax services Other services Consolidated 2021 $ 2020 $ 158,500 165,959 18,515 19,153 37,668 26,755 14,994 41,749 196,168 207,708 note 27. Contingent liabilities The Group has given a bank guarantee as at 30 June 2021 of $677,238 (30 June 2020: $677,238) in relation to rental bonds. These are held in term deposit accounts with Westpac Banking Corporation. The Group’s legal counsel is currently acting on several matters referred to the Australian Financial Complaints Authority (‘AFCA’) relating to the provision of financial services to its retail clients. The Group has assessed any potential obligations relating to these complaints after pursuing a recourse from the advisers in the following manner: • Those complaints for which there is a probable likelihood of restitution being paid, have been accrued in these financial statements, together with any associated legal costs and net of any available insurance cover; and • The Directors have assessed complaints for which there is less than a probable likelihood of restitution (including the impact of legal costs and insurance), and have chosen not to disclose the likely amount as they are still subject to proceedings with AFCA and potential recourse from the advisers, and the disclosure of such amounts is likely to prejudice those proceedings. note 28. Related paRty tRansaCtions Parent entity Sequoia Financial Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 31. Key management personnel Disclosures relating to key management personnel are set out in note 25 and the remuneration report included in the directors’ report. 6 7 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 28. Related paRty tRansaCtions (Continued) Transactions with related parties During the financial year, $71,726 (30 June 2020: $142,866) was paid or payable for services provided by Cooper Grace Ward, a related party entity of director, Charles Sweeney. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. note 29. paRent entity infoRmation Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive (loss)/income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Financial assets at fair value through other comprehensive income reserve Share-based payments reserve Accumulated losses Total equity parent 2021 $ 2020 $ (1,236,360) 378,203 (1,236,360) 378,203 parent 2021 $ 2020 $ 715,334 115,366 75,740,720 63,154,128 2,991,480 3,201,009 44,662,579 34,613,806 87,457,293 84,430,344 46,070 276,828 46,070 40,064 (56,702,050) (55,976,156) 31,078,141 28,540,322 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries. Contingent liabilities The parent entity has considerations payable relating to the acquisition of the Yellow Brick Road Wealth Division and various client books acquired during the year. 6 8 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 29. paRent entity infoRmation (Continued) Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021 and 30 June 2020. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, in addition to the following: • Investments in subsidiaries 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 are eliminated at the Group level. note 30. business Combinations PantherCorp CST Pty Ltd On 10 November 2020, the Company announced the 100% equity acquisition of PantherCorp CST Pty Ltd (‘Panthercorp’) from Easton Investments Ltd. Panthercorp provides services for the formation of companies, trusts and SMSFs, in addition to company registry services and maintenance of company records. The acquisition provides Sequoia with synergies by utilising existing processes and systems used by Docscentre and providing the opportunity to offer existing services to approximately 750 accountants, predominantly based in Western Australia. As part payment of the consideration, on 1 February 2021, the Company issued 2,000,000 fully paid ordinary shares at 40 cents per share to the seller and paid cash of $450,000. A final payment of $450,000 is due on 1 February 2022. Since acquisition, Panthercorp contributed revenue of $2,111,533 and operating profit of $332,982. If the acquisition had happened at the beginning of the financial year, the contribution would have been revenue of $4,360,849 and operating profit of $600,586. 6 9 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 30. business Combinations (Continued) Details of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Inventories Prepayments Other assets Plant and equipment Right-of-use assets Customer list Other intangibles Deferred tax asset Trade and other payables Deferred tax liability Lease liability Other liabilities Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Sequoia Financial Group Limited shares issued to vendor Deferred consideration Acquisition costs expensed to profit or loss Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: deferred consideration Less: shares issued by Company as part of consideration Net cash used fair value $ 83,037 324,864 13,941 4,350 4,036 21,931 78,738 835,093 620,401 79,239 (28,350) (250,528) (84,328) (353,284) 1,349,140 350,860 1,700,000 450,000 800,000 450,000 1,700,000 40,175 1,700,000 (83,037) (450,000) (800,000) 366,963 7 0 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 31. 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: parent principal place of business / Country of incorporation ownership interest 2021 % ownership interest 2020 % name Sequoia Financial Group Limited Sequoia Group Holdings Pty Ltd Sequoia Financial Australia Ltd Sequoia Wealth Group Pty Ltd My Own Super Fund Pty Ltd Bourse Data Pty Ltd The Cube Financial Group Pty Ltd Trader Dealer Online Pty Ltd MDSnews.com Pty Ltd Docscentre Pty Ltd (formerly InterPrac Pty Ltd) Libertas Financial Planning Pty Ltd Sequoia Direct Pty Ltd Finance TV Pty Ltd Morrison Securities Pty Ltd Sequoia Superannuation Pty Ltd Sequoia Specialist Investments Pty Ltd Sequoia Asset Management Pty Ltd Sequoia Lending Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia (a) (a) (a) (a) (a) (a) (a) (a) (a) (b) (b) (b) (b) (b) (b) (b) Acacia Administrative Services Pty Ltd (b) (1) Australia Sequoia Nominees No.1 Pty Ltd Sequoia Wealth Management Pty Ltd Sequoia Corporate Finance Pty Ltd Centreboard Super Pty Ltd Australian Practical Superannuation Fund Pty Ltd (formerly Property Engine Pty Ltd) Sequoia Family Office Pty Ltd (formerly Investor1st Pty Ltd) (c) (d) (d) Australia Australia Australia (b) (e) (2) Australia (e) (e) Australia Australia InterPrac Financial Planning Pty Ltd (e) (3) Australia Sage Capital Group Pty Ltd InterPrac Securities Pty Ltd InterPrac General Insurance Pty Ltd InterPrac Corporate Insurance Pty Ltd InterPrac Mortgage Management Pty Ltd InterPrac Finance Services Pty Ltd SMSF Engine Pty Ltd (e) (e) (e) (e) (e) (4) (e) (4) (e) Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% 100% 100% 7 1 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 31. inteRests in subsidiaRies (Continued) Tax Engine Pty Ltd Yieldreport Pty Ltd (formerly Sequoia Private Clients Pty Ltd) PantherCorp CST Pty Ltd Morsec Nominees Pty Ltd Taking Control Pty Ltd (a) Subsidiary of Sequoia Financial Group Limited (b) Subsidiary of Sequoia Group Holdings Pty Ltd (c) Subsidiary of Sequoia Specialist Investments Pty Ltd (d) Subsidiary of Sequoia Wealth Group Pty Ltd (e) Subsidiary of Docscentre Pty Ltd (formerly InterPrac Pty Ltd) (f) Subsidiary of Morrison Securities Pty Ltd (e) (e) (e) (f) (5) Australia Australia Australia Australia Australia 100% 100% 100% 100% 50% 100% 100% - 100% - (1) Acacia Administrative Services Pty Ltd acts as a service entity for the Group with all employees engaged under this entity. (2) 50% owned by Sequoia Group Holdings Pty Ltd and 50% owned by Docscentre Pty Ltd. Deregistered in July 2021. (3) 50% owned by Docscentre Pty Ltd and 50% owned by Sage Capital Group Pty Ltd. (4) Entities sold to Taking Control Pty Ltd in January 2021. (5) Docscentre Pty Ltd owns 50% of Taking Control Pty Ltd. 7 2 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 32. Cash flow infoRmation Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Net fair value gain on investments Share-based payments Impairment of assets Net loss on disposal of non-current assets Forfeit of options Interest for lease accounting Change in operating assets and liabilities: Consolidated 2021 $ 2020 $ 5,548,262 1,932,474 3,009,359 1,812,709 (846,985) 290,764 - (23,626) - 126,560 - - 308,309 106,405 (71,311) 151,057 Decrease/(increase) in trade and other receivables 165,876 (898,436) Decrease/(increase) in client related receivables Decrease in contract assets and deferred costs Increase in inventories Decrease in deferred tax assets Increase in prepayments Decrease/(increase) in other operating assets Increase/(decrease) in trade and other payables Increase in client related payables Decrease in contract liabilities and deferred revenue Increase/(decrease) in provision for income tax Decrease in deferred tax liabilities Increase in employee benefits Increase in other operating liabilities (20,372,197) 3,695,294 (30,384) 1,210,783 (76,831) 388,462 789,200 (489) 507,361 (66,691) 21,460 (498,744) 139,060 (1,076,605) 28,358,524 6,895,951 (5,802,747) (1,365,002) 351,658 (1,071,110) 1,309,787 723,679 (797,134) (270,891) 146,732 2,611 Net cash from operating activities 16,727,186 7,995,968 7 3 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 32. Cash flow infoRmation (Continued) Changes in liabilities arising from financing activities Consolidated bank loans and lease chattel mortgage $ Capital finance and other loans $ Convertible notes $ lease liability $ total $ Balance at 1 July 2019 831,558 400,100 200,000 - 1,431,658 Net cash used in financing activities (831,558) (28,911) Leases recognised on the adoption of AASB 16 Make good provision Adjustment to treatment lease incentive Changes through business combinations (note 30) Other changes Balance at 30 June 2020 Net cash used in financing activities Changes through business combinations (note 30) Interest on lease liability Balance at 30 June 2021 note 33. eaRnings peR shaRe - - - - - - - - - - - - - 91,225 - - - - - - - (610,688) (1,471,157) 4,057,139 4,057,139 200,000 200,000 (638,727) (638,727) - 91,225 624,563 624,563 462,414 200,000 3,632,287 4,294,701 (145,161) (200,000) (862,297) (1,207,458) - - 317,253 - - - 84,328 84,328 125,020 125,020 2,979,338 3,296,591 Consolidated 2021 $ 2020 $ Profit after income tax attributable to the owners of Sequoia Financial Group Limited 5,548,262 1,932,474 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 number number 128,315,340 120,282,464 4,150,000 1,000,000 - 195,000 Weighted average number of ordinary shares used in calculating diluted earnings per share 132,465,340 121,477,464 Basic earnings per share Diluted earnings per share Cents Cents 4.324 4.188 1.607 1.591 7 4 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 note 34. events afteR the RepoRting peRiod On 1 July 2021, the Group announced the launch of Sequoia Family Office within the Sequoia Wealth Group. The new business will target high net worth investors with investable funds of $5.0 million to $100.0 million who are looking for specialist services in managing their financial affairs. On 1 July 2021, the Group has acquired the client books of Macro Investment Advisory Pty Ltd for up to $600,000. This is the initial investment in the family office space with the aim to grow the funds under advice to $2.0 billion over the next 5 years. Apart from the dividend declared as disclosed in note 22, no other matter or circumstance has arisen since 30 June 2021 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 5 Notes to the consolidated financial statementsSequoia Financial Group limited ANNuAl RepoRt — 30 JuNe 2021 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 2021 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 ___________________________ John Larsen Chairman 19 August 2021 Melbourne 7 6 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Independent auditor’s report to the members of Sequoia Financial Group Limited Sequoia Financial Group Limited Independent auditor’s report to members Report on the Audit of the Financial Report Opinion We have audited the financial report of Sequoia Financial Group Limited (the Company) and its controlled entities (together, the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 7 7 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Independent auditor’s report to the members of Sequoia Financial Group Limited BUSINESS COMINATIONS – PANTHERCORP CST PTY LTD Area of focus How our audit addressed it The Group acquired Panthercorp CST Pty Ltd on 1 February 2021. The business combination was considered a significant purchase for the group. Areas of complexity for this transaction were around the following: — Accounting and appropriately fair valuing deferred consideration and consideration paid for the transaction, including amounts paid through cash and scrip; — Identifying and allocating the intangible assets acquired to the appropriate cash- generating unit (CGU) for subsequent impairment testing; — Appropriately measuring and classifying in the profit or loss transaction costs relating to the acquisition; — Determination of deferred tax assets arising from the purchase price allocation; and — Setting an appropriate accounting policy for the amortisation of identifiable intangible assets arising from the purchase. We note that at reporting date the fair value attribution accounting is complete (which under Accounting Standards they are afforded 12 months from the date of acquisition), including: a) the attribution of provisional goodwill calculations to identifiable intangible assets; b) the setting of tax cost bases for calculating deferred tax assets and liabilities; and c) identifying any vendor guarantees or contingent liabilities that may be separately fair valued as part of the business purchase. Our audit procedures included: — Reviewing the acquisition agreements to understand the key terms and conditions of the acquisition; — Reviewed the accounting treatment adopted by the Group to ensure the transaction met the requirements of AASB 3 Business Combinations; — Comparing the completion accounting to independent purchase price allocation reports; — Obtained a list of transaction costs related to the purchase and on a sample ensured appropriate treatment in being expensed when incurred; — Discussed with management their program for ensuring that they complete their analysis of fair values of assets and liabilities acquired by the anniversary of the acquisition date; — Obtained the intangible asset allocation journals processed and reviewed for appropriateness of recognition and valuation and assessed the independent specialist; — Verified and reviewed deferred tax bases to tax calculations; and — Assessed the appropriateness of the allocation of intangible assets to their CGU, as included in the Group’s impairment calculations. We also considered the adequacy of the Group’s disclosures in relation to the business combination. 7 8 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Independent auditor’s report to the members of Sequoia Financial Group Limited REVENUE RECOGNITION FOR SEQUOIA SPECIALIST INVESTMENTS PRODUCTS Area of focus How our audit addressed it The Sequoia Specialist Investments business segment (SSI) represents a significant portion of the revenues and profitability of the Group. SSI earns revenue by providing a counter-party solution for its clients in their trading of market risks (principally foreign exchange and equities) in medium to long-term derivative products. Sequoia effectively on-sells the derivative exposure it has with its clients to Tier 1 investment banks with contracts that completely match that derivative exposure. The margin it earns from this arrangement is priced separately and is deferred (together with direct costs) on a straight-line over the course of each contract on a gross basis in the financial statements (deferred costs and deferred revenue). The derivative positions, which are held at fair value with changes in fair value through the profit or loss, are also reflected at their unhedged values on the statement of financial position. From our perspective, the key risks for this arrangement include the following matters: — For a sample of structured products, we agreed the terms and conditions, including but not limited to, interest rates, notional hedged units, product maturity, trade dates and hedge premiums paid to supporting documents, including Product Disclosure Statements, Market-to-Market (MTM) valuations, Market registry allotment reports and bank statements. — We confirmed the valuations of the derivative financial instruments at year end through to supporting valuations obtained from various investment banks. — We re-calculated the model for deferral and subsequent release of revenue and costs relating to the structured products and reconciled closing positions to the statement of financial position and statement of financial performance; — An assessment of the credit worthiness of the investment banks; — We examined application fees and coupon fees and ensured that they were accrued to the appropriate accounting period; and — We reviewed the accuracy of the current and non-current classification of deferred revenue and deferred costs. - The risk that client-driven derivative exposures are not matched 1-for-1 with wholesale contracts; - The risk of default by the investment banks providing wholesale derivative hedge positions; and - The potential for revenue to be recognised in-advance of the services provided to the client, including other revenues related with SSI including non-refundable application fees, which are earned up-front and at-risk coupon fees, which are earned at the close of each contract. We also considered the adequacy of the Group’s disclosures in relation to revenue recognition. We also reviewed the Group’s accounting policies for its revenue and cost streams attached to the SSI segment, to ensure compliance with AASB 15. 7 9 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Independent auditor’s report to the members of Sequoia Financial Group Limited ASSESSMENT OF CARRYING VALUE OF INTANGIBLE ASSETS Area of focus How our audit addressed it The Group’s net assets include a significant amount of intangible assets, the majority of which have originated from acquisitions in prior years. There is a risk that the entities in the Group may not trade in line with initial expectations and forecasts, resulting in the carrying amount of intangible assets exceeding the recoverable amount and therefore requiring impairment. The recoverable amounts of the four cash generating units (CGUs) have been calculated based upon on their value-in-use. These recoverable amounts use discounted cash flow forecasts in which the Directors make judgements over certain key inputs, for example but not limited to revenue growth, discount rates applied, long term growth rates and inflation rates. Overall due to the high level of judgement involved, and the significant carrying amounts involved, we have determined that this is a key judgemental area that our audit concentrated on. Our audit procedures included: — Evaluation of the Group’s determination of CGUs. This includes reviewing internal management reporting, comparison to our knowledge and understanding of Group’s operations and ensuring CGUs are no larger than operating segments; — A detailed evaluation of the Group’s budgeting procedures upon which the forecasts are based and testing the principles and integrity of the discounted future cash flow models; — Testing the accuracy of the calculation derived from each forecast model and we assessed key inputs in the calculations such as revenue growth, discount rates and working capital assumptions, by reference to the Board approved forecasts, data external to the Group and our own views. — We reviewed the historical accuracy by comparing actual results with the original forecasts. We also considered the adequacy of the Group’s disclosures in relation to the impairment testing. Other Information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 8 0 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Independent auditor’s report to the members of Sequoia Financial Group Limited Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of these financial statements is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our independent auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Sequoia Financial Group Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. 8 1 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Independent auditor’s report to the members of Sequoia Financial Group Limited Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. William Buck Audit (Vic) Pty Ltd ABN 59 116 151 136 N. S. Benbow Director Melbourne, 19 August 2021 8 2 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Shareholder information In accordance with ASX Listing Rule 4.10, the Company provides the following additional information to shareholders not shown elsewhere in this Annual Report. The information is current as at 4 August 2021. 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 4th Edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (‘ASX Principles and Recommendations’). The Corporate Governance Statement has been adopted by the Board and is current as at 30 June 2021. The Statement can be found in the Company’s Corporate Governance section: www.sequoia.com.au/about-sequoia/corporate-governance/ numbeR of holdings of equity seCuRities The number of holders in each class of equity securities on issue in the Company is as follows: security type Fully Paid Ordinary Shares Options expiring 30 June 2022 with an exercise date of $0.36 Options expiring 30 June 2024 with an exercise date of $0.45 no of securities no of shareholders 131,905,374 2,150,000 2,000,000 695 8 7 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 ordinary shares number of holders no of securities % of total shares issued 191 134 62 186 122 695 74,603 367,357 504,951 7,271,986 123,686,477 131,905,374 0.06 0.28 0.38 5.51 93.77 100.00 8 3 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Shareholder information options expiring 30 june 2022 with an exercise date of $0.36 number of holders no of securities % of total shares issued - - - 1 7 8 - - - 1 6 7 - - - 100,000 2,050,000 - - - 4.65 95.35 2,150,000 100.00 options expiring 30 june 2024 with an exercise date of $0.45 no of securities % of total shares issued - - - 100,000 1,900,000 - - - 5.00 95.00 2,000,000 100.00 number of holders 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over voting Rights The only class of equity securities on issue in the Company that carries voting rights is ordinary shares. unmaRketable paRCels The number of holders of less than a marketable parcel of ordinary shares is as follows: unmarketable parcels as at 4 august 2021 Minimum $500.00 parcel at $0.660 per unit minimum parcel size holders units 757 146 33,253 8 4 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Shareholder information equity seCuRity holdeRs Twenty largest quoted equity security holders The Company only has one class of quoted securities, being ordinary shares. The names of the twenty largest security holders of quoted equity securities are listed below: ordinary shares number held % of total shares issued MR GARRY CROLE uNRANDOM PTY LTD (uNRANDOM A/C) BNP PARIBAS NOMS PTY LTD (DRP) EXLDATA PTY LTD COJONES PTY LTD (JONES FAMILY NO 2 A/C) STRATEGIC VALuE PTY LTD (TAL SuPER A/C) HuNTLEY GROuP INVESTMENTS PTY LTD (HuNTLEY GRP INVESTMENT A/C) J P MORGAN NOMINEES AuSTRALIA PTY LIMITED TOCLO INVESTMENTS PTY LTD (THE TLC INVESTMENT TRuST) LIBERTAS SOLuTIONS PTY LTD (MARK EuVRARD FAMILY A/C) MR NEIL CLIFFORD DuNCAN MR PETER STIRLING + MRS ROS STIRLING TIBARRuM PTY LTD (PAuL ROBINSON FAM S/F A/C) VONETTA PTY LTD (TRBC S/F A/C) NATIONAL NOMINEES LIMITED RuFFY STEEDEN LEGACY PTY LTD (RuFFY STEEDEN LEGACY SF A/C) MR ANTHONY CHRISTOPHER JONES LEOPARD ASSET MANAGEMENT PTY LTD TRIFERN PTY LTD (SuPER FuND A/C) DMX CAPITAL PARTNERS LIMITED substantial holdeRs 11,026,733 10,886,746 7,957,068 7,129,800 6,529,110 5,898,894 4,210,000 4,020,588 3,505,902 3,310,000 2,960,000 2,237,500 1,885,000 1,678,101 1,643,347 1,560,000 1,524,303 1,495,697 1,480,627 1,400,000 8.36 8.25 6.03 5.41 4.95 4.47 3.19 3.05 2.66 2.51 2.24 1.70 1.43 1.27 1.25 1.18 1.16 1.13 1.12 1.06 82,339,416 62.42 The names of the substantial holders in the Company and the number of equity securities in which those substantial holders and their associates have a relevant interest, as disclosed in substantial holding notices given to the Company, are as follows: ordinary shares date of last notice lodged number held % of total shares issued ANTHONY & RYAN YOuNG COJONES PTY LTD MR GARRY CROLE uNRANDOM PTY LTD ACORN CAPITAL LTD 21 June 2021 26 July 2018 26 July 2018 26 July 2018 2 September 2020 14,485,897 13,817,804 11,401,500 11,974,738 6,525,181 11.00 11.71 9.66 10.15 5.15 8 5 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Shareholder information RestRiCted seCuRities There are no restricted securities on issue. seCuRities subjeCt to voluntaRy esCRow There are no securities subject to voluntary escrow. otheR infoRmation The Company conducted on-market share buy-back starting from 1 July 2020 and ended on 30 June 2021. No shares were bought as part of the buy back. There are no issues of securities approved for the purpose of Item 7 of Section 611 of the Corporations Act which have not yet been completed. No securities were purchased on-market during the reporting period under or for the purposes of an employee incentive scheme or to satisfy the entitlements of the holders of options or other rights to acquire securities granted under an employee incentive scheme. 8 6 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Directors Corporate directory Garry Crole John Larsen Kevin Pattison Charles Sweeney Company secretary Rebecca Weir Notice of annual general meeting The Company advises that its Annual General Meeting proposed date is 18 November 2021. The time and other details relating to the meeting will be advised in the Notice of Meeting. In accordance with the ASX Listing Rules and the constitution, valid nominations for the position of Director are required to be lodged at the registered office of the Company, 35 Business days before the meeting - being 5:00pm (Melbourne) on 30 September 2021. Registered office Level 7 7 Macquarie Place Sydney NSW 2000 Telephone: + 61 2 8114 2222 Facsimile: + 61 2 8114 2200 Principal place of business Level 8 525 Flinders Street Melbourne VIC 3000 Share register Registry Direct Limited Auditor PO Box 18366 Collins Street East VIC 8003 Telephone: 1300 556 635 Facsimile: +61 3 9111 5652 William Buck Level 20 181 William Street Melbourne VIC 3000 8 7 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021 Corporate directory Bankers National Australia Bank 330 Collins Street Melbourne VIC 3000 Westpac Australia Bank Royal Exchange, Cnr Pitt & Bridge Streets Sydney NSW 2000 Maldon & District Community Bank® Branch of Bendigo Bank 81 High Street Maldon VIC 3463 Commonwealth Bank of Australia Level 20, Tower 1 Collins Square 727 Collins Street Melbourne VIC 3008 Australia and New Zealand Banking Group Limited 388 Collins Street Melbourne VIC 3000 Stock exchange listing Sequoia Financial Group Limited shares are listed on the Australian Securities Exchange (ASX code: SEQ) Website www.sequoia.com.au 8 8 Sequoia Financial Group limited AnnuAl RepoRt — 30 June 2021
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