Annual Report
2015
Foundations for growth
Contents
Highlights
Chair’s Report
Group Managing Director’s Report
Slater and Gordon Group Overview
Group Activities
Corporate Social Responsibility
Board of Directors and Company Secretary
Operating and Financial Review
Financial Statements
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or
Loss and Other Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Notes to the Financial Statements
Slater and Gordon Limited
Directors’ Declaration
Independent Auditor’s Report
Additional ASX Information
Corporate Directory
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Images in this report feature Slater and Gordon
Manchester (UK) office staff.
Slater and Gordon Limited
Annual Report 2015
Slater and Gordon is the leading provider of consumer legal
services in Australia and, more recently, the UK where we’ve
now established a strong platform for future growth.
Highlights
Revenue
(up by 43.2%)
FY14
$438.2m
FY13
$298.0m
FY15
$627.3m
FY11
$182.3m
FY12
$217.7m
Normalised EBITDA
(up by 20.6%)
FY14
$100.8m
FY13
$72.9m
FY15
$121.6m
FY11
$49.9m
FY12
$57.6m
Normalised NPAT
(up by 12.1%)
Normalised Basic EPS
(up by 12.4%)
FY15
$70.7m
FY14
$63.0m
FY13
$41.8m
FY11
$28.9m
FY12
$33.4m
FY14
30.3¢
FY13
24.1¢
FY15
34.0¢
FY11
19.1¢
FY12
21.7¢
Normalised data is adjusted for:
FY15 – Acquisition costs, discount on acquisition, early termination of lease and AASB3 policy change. Also excludes one month of SGS.
FY14 – WIP adjustment relating to the Fenton’s acquisition, an onerous lease provision, acquisition costs and AASB3 policy change.
FY13 – Acquisition costs.
FY12 – Write-down of the VIOXX class action.
Annual Report 2015
Slater and Gordon Limited
1
Chair’s Report
“We believe we are
progressing well
ahead of our long-
term strategic goal.”
Dear Shareholder,
I am pleased to present the Slater and
Gordon Limited (Slater and Gordon
Group) Annual Report for the 2015
financial year.
The past year has been a year of
opportunity and challenges, both
of which have made us a stronger
and better company.
Slater and Gordon Group continued
its track record of delivering strong
financial results for shareholders. In
Australia, our Personal Injury Law
(PIL) practice remained resilient and
our General Law (GL) practice made
solid progress. The acquisition, in
November 2014, of Nowicki Carbone
and Schultz Toomey O’Brien added
strength and capability to our
Australian operations.
In the UK, we successfully integrated
the businesses acquired during the
2014 financial year, transitioning
our Manchester operations from
three locations into one, and
implementing a new case and
practice management system.
In May we completed what was by
far our largest acquisition, with the
A$1.3 billion purchase of Quindell
Plc’s Professional Services Division
(PSD), a leading PIL service provider
operating across the claims value
chain providing legal, health and
motor services. The PSD operations
have been rebranded as Slater Gordon
Solutions.
2
In the UK we have now established
a compelling service offering across
the full range of personal legal
services and employ approximately
3,950 people across 28 locations.
We believe we are progressing well
ahead of our long-term strategic goal
of building a platform from which
we can deliver significant value
for shareholders.
Clearly such a large transaction is
not undertaken without extensive due
diligence. We had more than 70 of
our lawyers review over 8,000 case
files and the benefit of independent
advice from our external advisers to
ensure that our bottom-up evaluation
of the PSD opportunity was sound.
We are very fortunate that Ken Fowlie
has relocated to the UK to lead these
operations. Ken has over 20 years
experience with the Group and most
recently headed Slater and Gordon
Lawyers in Australia. The Board is
confident Ken is the best person to run
and grow this business. As well as the
existing UK management, Ken is being
well supported by a dedicated team
including Kirsten Morrison, who has
also relocated to the UK to take up
the role of General Counsel UK.
Unfortunately, the medium and
long-term opportunities created
by the acquisition have been clouded
by some short-term challenges.
Our approach to managing these
has been robust and transparent.
Some shareholders have voiced
concerns about our decision to
support the transaction by raising
equity using a pro rata renounceable
rights offer, a decision made in
consultation with our advisers
Greenhill Caliburn and Citi. Given
the circumstances, the pressing timing
constraints of the acquisition, and in
particular the transaction’s demand
for funding certainty and immediacy,
the Board and senior management
team still believe that the process
we undertook and the structure
we adopted were appropriate.
In June, the Company was notified
that the Australian Securities and
Investments Commission (ASIC)
intended to raise some queries
regarding the Group’s accounting
procedures.
In the course of preparing the responses
consolidation errors in the reporting
of historical UK cash flows were
identified. Whilst these errors were
unfortunate they have now been
rectified and had no impact on the
net cash from operating activities,
which remains as reported. The ASIC
review process has been extensive and
Slater and Gordon Group continues to
cooperate fully with ASIC to allow it
to conclude its review process, which
the Company expects to be completed
shortly.
During the year we implemented
several initiatives to ensure that
a sound corporate governance
framework remains in place as the
Company grows. These initiatives
include a search for the appointment
of an additional two Non-Executive
Directors to the Board, strengthening
our Governance, Risk and Internal
Audit function and enhancing our
financial disclosures. A process also
commenced to request expressions of
interest from global firms to conduct
our Group audit, and we expect a
global audit firm to be appointed in
time for first half FY16 results. I look
forward to updating you on these
activities throughout the year.
It is true to say that Slater and Gordon
is one of the world’s leading providers
of consumer legal services, with a
strong track record and a strong
platform for ongoing growth. This
year has been a pivotal one in our
development. We know there is still
a great deal of growth potential ahead
as our team continues its relentless
focus on delivering great outcomes
for clients.
On behalf of the Board of Directors,
I would like to thank you for your
ongoing support and reassure you of
our unwavering commitment to long-
term value creation for shareholders.
Yours sincerely,
John Skippen
Chair
Annual Report 2015Slater and Gordon Limited
We believe
in making things
clear and simple
for our clients.
3
Annual Report 2015Slater and Gordon Limited Group Managing Director’s Report
traffic accident where they are not
at fault, whether it’s arranging car
repairs, replacement car hire or
resolving a personal injury claim,
including arranging medical or
ancillary care.
Continued Investment
in Slater and Gordon
Lawyers Brand
We also continued to invest heavily
in the Slater and Gordon Lawyers
brand throughout the year, including
the successful launch of a refreshed
brand across the Group. In Australia
brand awareness remains strong at
72%, and in the UK the brand has
now achieved 24% awareness – a
significant lift on the 11% awareness
achieved in the UK in 2014.
Initiatives to Improve
Client Satisfaction
Client-focused initiatives aimed at
increasing client satisfaction also
delivered results. Independent
research for the Australian business
showed good improvements across
the board, particularly in the client
triage function, which has been a
particular focus of activity. This
focus is being matched by similar
activity within our UK business.
Integration of Acquired
Businesses
We acquired a number of practices
during FY15 that added further
strength to our Australian and UK
operations. These practices, along
with those acquired during FY14, were
substantially integrated during the
year and are performing according
to expectations. In FY16 our focus will
shift to completing the integration
process and taking the opportunity
to enhance operational effectiveness,
rather than looking for further
acquisition opportunities.
UK Single IT System
The implementation of a single
integrated finance and practice
management IT system across Slater
and Gordon Lawyers (UK) is almost
complete, with the full integration of
all staff onto the platform expected
in FY16. This has been a successful
project and represents a genuine
opportunity for us to design into
our UK operations the operating
conditions needed to deliver
ongoing productivity gains.
Management Team
Restructure
With the Group now entering its next
phase of maturity, we are building the
management structures needed in the
fee earning community, our shared
services groups and at the corporate
level to take the organisation forward
successfully. In terms of the leadership
team, along with Ken Fowlie heading
Slater Gordon Solutions, we are
fortunate to have Cath Evans and
Hayden Stephens commencing in their
new roles as CEO’s of Personal Injury
Law and General Law respectively.
I look forward to updating you on
their progress during the year.
Overall, there has been a lot of
productive activity with plenty
of the initiatives continuing in
to this financial year.
FY16 Priorities
In FY16 our key areas of focus will
be improving cash performance
across the Group, enhancing
operational effectiveness and
successfully delivering the Slater
Gordon Solutions (SGS) operational
and financial targets.
We believe the legislative environment
will remain relatively stable in both
Australia and the UK.
I would like to thank our clients for
trusting Slater and Gordon with their
legal matters during 2015 and our
staff for their professionalism and
tireless endeavours. And I would like
to thank you, our shareholders, for
your support.
Yours sincerely,
Andrew Grech
Group Managing Director
“We acquired a number
of practices during
FY15 that added
further strength to
our Australian and
UK operations.”
Dear Shareholder,
I am very pleased to deliver another
set of operating and financial results
demonstrating resilience and ongoing
improvement in key areas of the Slater
and Gordon Group. Overall, Slater
and Gordon Lawyers has performed
well and the outlook for this financial
year is strong. Pleasingly, as well as
delivering our financial performance
targets we also achieved a great deal
of progress with initiatives aimed
at setting up our operations for
ongoing success.
UK Growth Platform
Established
Clearly the acquisition of a number
of business assets from Quindell Plc,
which we described at the time of
the transaction as the Professional
Services Division (PSD), was the
most significant activity of the year,
establishing the Slater and Gordon
Group as the clear leader in PIL in the
UK and providing us with what we
believe is a platform for continued
growth. The PSD operations provide
the scale and access to channels of
new business generation required
to continue to grow our UK business
organically. The business, now
rebranded as Slater Gordon Solutions,
is uniquely placed to solve the
problems experienced by clients
when they are involved in a road
4
Annual Report 2015Slater and Gordon Limited We inspire people
to find the best
way forward.
5
Annual Report 2015Slater and Gordon Limited Slater and Gordon Group Overview
Employees
Brands
5,350
Shareholders
Locations
19,000+
95
FY15 Revenue A$627.3 million
Slater and Gordon Lawyers Australia 50%
Slater and Gordon Lawyers UK 44%
Slater Gordon Solutions 6%
(Note: one-month contribution)
Who We Are
Slater and Gordon Group is a leading
provider of consumer legal services
in Australia and the United Kingdom
(UK). We employ 1,400 people in 67
locations across Australia and 3,950
people in 28 locations in the UK.
Our Mission
To give everyday people easier access
to world-class legal services.
Our Values
• Do it right.
• Work well with others.
• Take the lead.
Our Services
• Personal Injury Law (PIL)
Provides expert legal services in
a range of personal injury areas
including motor vehicle accidents,
workers’ compensation and
civil liability law.
• General Law (GL)
GL is made up of Personal Legal
Services (PLS) and Business and
Specialised Litigation Services
(B&SLS). PLS comprises family law,
conveyancing, wills, estate planning
and probate practices. B&SLS
comprises business law, property
law, estate, employment and
professional negligence litigation,
class or group actions and criminal
defence work.
• Claims
Our Slater Gordon Solutions
claims business in the UK focuses
on the assessment and resolution
of road traffic accident claims.
• Motor and Health services
Slater Gordon Solutions also
provides motor vehicle accident
management support and
rehabilitation and medical
reporting management solutions.
6
Annual Report 2015Slater and Gordon Limited Our Strategy
Outcome
Growth Strategy
Satisfied clients, engaged staff, sustainable shareholder returns
Leading consolidation
of the UK PIL market
Building an efficient, integrated
operating platform in the UK
Delivering strong earnings growth from
the Australian PIL practices
Building on our platform in GL consumer legal services
Key Drivers
Client
Experience
Brand and
Marketing
People and
Culture
Striving to put
clients at the centre
of everything
we do
Leveraging the
power of the
Slater and Gordon
Lawyers and
in-house brands
Building an aligned,
skilled and engaged
labour force
Operations
Building an
efficient and
robust operating
platform
Innovation in our
service offering,
delivery modes and
the management of
the organisation
Annual Report 2015
Slater and Gordon Limited
7
Our mission is to
give people easier
access to world-
class legal services.
8
Annual Report 2015Slater and Gordon Limited Group Activities
We continue to invest in the key
drivers of our business: the client
experience, brand and marketing,
people and culture, and operations.
In September 2014, we evolved the
Slater and Gordon Lawyers brand.
This was positively received by
our clients in both the PIL and
GL practices.
developed an extensive range
of learning and development
curriculums to address the unique
requirements of each of our UK
legal practice areas.
Client Experience
The firm is focused on continuously
improving the experience of its clients
with the goal of improving client
satisfaction, lifting conversion and
building client advocacy. Several
initiatives were undertaken during
FY15 that improved the way we intake
clients to the firm and assist them in
navigating the legal process.
In Australia, this resulted in an increase
in client satisfaction. Independent
research measured total client
satisfaction for Slater and Gordon
Lawyers increasing from a score of 70
in 2014 to 76 in 2015. In the UK, client
satisfaction was measured for the
first time with a score of 68.
Brand and Marketing
Slater and Gordon Lawyers is one
of the best-known law firm brands
in Australia and the UK. Currently,
the Group consists of the following
brands: Slater and Gordon Lawyers
(Australia and UK); Nowicki Carbone,
part of the Slater and Gordon Group
(Victoria); Shultz Toomey O’Brien
Lawyers, part of the Slater and
Gordon Group (Queensland);
Fentons Solicitors, part of the Slater
and Gordon Group (UK), Claims
Direct (UK); Slater Gordon Solutions
(UK); Accident Advice Helpline
(UK); Mobile Doctors (UK); and
Compass Costs (UK). Our house of
brands reduced during FY15, with
Trilby Misso Lawyers (Queensland),
Conveyancing Works (Queensland),
and Pannone (UK) all successfully
transitioning to the Slater and
Gordon Lawyers brand. During FY16
we will carefully consolidate the
Nowicki Carbone, Schultz Toomey
O’Brien and Fentons brands into the
Slater and Gordon Lawyers brand.
In Australia, prompted brand
awareness is strong at 72%.
Significant increases in brand
awareness have been achieved in
Queensland and New South Wales,
strengthening our position as a
national brand.
In the UK, Slater and Gordon Lawyers
is now the third best-known law firm
in the nation, dominating the market
across a number of key channels. The
Slater and Gordon Lawyers brand
has 24% prompted brand awareness
nationally in only its second full
financial year of operation in the
UK. This is a more than doubling of
awareness year on year. High visibility
media coverage has seen Slater and
Gordon become recognised as a
leading consumer law commentator
with our lawyers making regular
speaking appearances across a broad
spectrum of media channels regularly.
We also opened our first UK retail
space in the new Manchester office.
This custom-built space is designed
to encourage ‘walk-ins’ from clients
seeking legal advice. Visitors to the
Slater and Gordon retail space can
find information on our full range of
services. Web access is also provided
to visitors, enabling them to go online
and learn more about the services we
offer. Visitors can also have an initial
meeting with one of our legal advisers.
People and Culture
At Slater and Gordon we believe
that our people are the heart of our
success as an organisation. During
the year we continued to implement
initiatives focused on creating
an aligned, skilled and engaged
labour force.
In Australia, we continued to build
on ‘Rewarding You Fairly’ – our
remuneration framework – to include
a mid-year check-in and integration
of the firm’s values into development
and performance conversations.
Our learning programs have been
expanded, with additional people
leader, technical and coaching
programs.
This year we introduced ‘Rewarding
You Fairly’ to our UK business. It
provides a consistent, clear and solid
platform for professional growth
and development. We have also
In the UK, we take part in the BSN
Diversity League Tables every year,
a survey that provides a benchmark
for performance on diversity strands
of gender, ethnicity, disability and
sexual orientation. In FY15, Slater and
Gordon Lawyers UK was in the top
10 of the Diversity League Tables on
our overall score, and featured in
the top five in two individual tables
–our ranking for female partners
and female associates.
Operations
Our highly developed work process
design and technology expertise
provides us with a unique competitive
advantage. Business improvement
initiatives are being implemented to
make sure we are working effectively
across the firm after a period of rapid
growth. In FY15 we have been focused
on effectively integrating our acquired
businesses.
In the UK, the Slater and Gordon
Lawyers practice management and
client management system has been
implemented with the final phase
due for completion in FY16. We
are establishing the standard core
platform on which Slater and
Gordon Lawyers UK will operate.
We continue to invest in project
management, change management
and digital capabilities to enhance
our ability to deliver whole-of-firm
improvements in both Australia
and the UK.
9
Annual Report 2015Slater and Gordon Limited
We’re always
on our clients’
side, championing
their cause.
10
Annual Report 2015Slater and Gordon Limited Corporate Social Responsibility
One of the defining features of
Slater and Gordon Group is our
relationship with the local people
and communities we serve. In addition
to our pro bono legal work, we
encourage and support community
engagement through philanthropic
giving, sponsorship activities and staff
fundraising and volunteering efforts.
We focus our social responsibility
efforts into three key areas:
1. Assisting people with disease
and disability.
2. Addressing inequality and
disadvantage.
3. Encouraging young people to
engage in healthy activity and
lifestyles.
During FY15 we increased our support
of community organisations working
in these areas and we significantly
increased our investment in community
partnerships.
FY15 Highlights
• Our international Health Projects
and Research Fund distributed its
first round of grants, distributing
£103,500 to eight applicants in the
UK and A$77,500 to three recipients
in Australia;
• we increased the membership of our
Staff Giving Program in Australia by
11%, contributing to the distribution
of almost A$100,000 to community
groups;
• our UK staff supported numerous
charities that aid our injured and
bereaved clients through fundraising
activities such as sponsored cycle
rides, runs, climbs, hikes and events,
while also assisting on steering
committees and with sponsored
events;
• we achieved a 10% increase in the
number of lawyers performing
pro bono work in Australia;
• we became the official supplier
of legal services to the Australian
Olympic Team;
• increased our staff participation in
the Mother’s Day Classic by 20%,
with 520 staff participating and
our Melbourne team achieving the
largest corporate team in the state;
• signed up as a corporate supporter
of the Australian Marriage Equality
campaign and contributed to other
key events and campaigns to address
inequality;
• partnered with the Newcastle
Jets to support their Jet Well
community program in local
hospitals; and
• we were the official AFL match day
partner for the Robert Rose Cup,
which promotes disability inclusion
through sporting and community
participation.
FY16 Priorities
• Continue to build on our
commitment to strategic pro bono
partnerships that align with clients;
• continue to invest in community
giving and grants to health and
medical research organisations; and
• increase our investment in
community partnerships and
engagement.
Environmental Responsibility
Slater and Gordon Group recognises
that it has an obligation to reduce
the Company’s impact on the
environment and to imbed sustainable
work practices. In line with the legal
services industry, Slater and Gordon
Group has assessed its major impact
areas and areas for reduction as:
paper usage, energy usage, waste
and travel.
Work on reducing our environmental
impacts has progressed in Australia
in FY15 through the Company’s
membership of the Australian Legal
Sector Alliance, an industry-led
association working to promote
sustainable practices across the legal
sector. For example, we used the
AusLSA’s carbon consumption
calculator to measure our annual
performance and the progress
we are making in reducing our carbon
emissions. Further, Australian staff
contributed ideas and solutions
to reduce environmental impacts
through the Company’s Environmental
Committee.
FY15 Highlights
• Despite our continued growth in
Australia, we recorded a decrease
in our per capita carbon emissions.
This achievement is mainly due to
a commitment to energy saving
initiatives, which has cut our
electricity usage;
• the completion of an environment
management system to inform
and drive the process of reducing
emissions in Australia; and
• the implementation of a
consolidated data collection and
reporting framework to understand
the breadth of environmental
impacts in the UK.
FY16 Priorities
In FY16, our priority is to improve the
internal and external reporting on our
key impact areas.
11
Annual Report 2015Slater and Gordon Limited Board of Directors and Company Secretary
Experience
John has been on the Board since 2010 and
has been Chair of the Board since 2012.
John has over 30 years’ experience as a
chartered accountant and was the former
Executive Finance Director of Harvey
Norman Holdings Ltd. John brings to the
Board extensive financial, public company
and retail experience and skills in financial
management, general management,
mergers and acquisitions and strategy.
Other Current Directorships
Non-Executive Director of Flexigroup
Limited (appointed November 2006).
Non-Executive Director of Super Retail
Group Ltd (appointed September 2008).
Former Directorships
Previous Non-Executive Director of
Emerging Leaders Investment Ltd
(2010–2014).
Special Responsibilities
Chair – Board (current).
Member – Audit, Compliance and Risk
Management Committee (current).
Chair – Nomination Committee
(appointed 1 July 2015).
Member – Nomination and Remuneration
Committee (ceased 30 June 2015).
Experience
Andrew joined Slater and Gordon in
1994 and was appointed as Managing
Director in 2000 and Group Managing
Director on 1 July 2014. Before being
appointed Managing Director in 2000,
Andrew worked in most of Slater and
Gordon’s litigation practice areas, working
across both high profile class actions and
individual compensation claims. Andrew
brings to the Board extensive experience as
a legal practitioner and law firm manager.
Other Current Directorships
None.
Former Directorships
None.
Other Positions
Previous founding chair of the Youth
Junction Incorporated, a not for profit
youth charity operating in Sunshine,
Victoria (2005–2010).
Member of the Board of the Youth
Junction Incorporated (appointed
2005 – current).
Member of the Advisory Council of the
Melbourne Law School (2014 – current).
Special Responsibilities
Group Managing Director.
John Skippen
Chair, Non-Executive Director
ACA
Andrew Grech
Group Managing Director
LLB MAICD
12
Annual Report 2015Slater and Gordon Limited Experience
Ken was appointed a Director of the
Company in 2003.
Ken has extensive litigation experience
particularly in claims for sufferers of
asbestos related illness (including acting
for the Australian Council of Trade
Unions (ACTU) and asbestos support
groups in negotiations with James
Hardie) and large, multi-party group and
representative actions. Ken brings to the
Board a unique operational perspective
in a number of the Group’s key strategic
areas. As an Australian legal practitioner
with close to 20 years’ experience and
qualifications and a strong interest in
economics and business management, Ken
contributes skills in legal practice, legal
practice management, risk management,
financial analysis, financial reporting
and mergers and acquisitions. Ken was
appointed Head of Australia in July 2013
and until May 2015 was responsible for
the overall management of the Slater and
Gordon Australian operation. In May
2015 Ken became the Managing Director,
UK and Europe for Slater and Gordon
incorporating Slater and Gordon Solutions.
Other Current Directorships
None.
Former Directorships
None.
Special Responsibilities
Managing Director – UK and Europe.
equity and the property sector. Ian was
inaugural president of the Australian
Institute of Superannuation Trustees
(AIST). Prior executive positions include
CEO of Development Australia Funds
Management Ltd (1998–2004) and
Executive Chair of Cbus (1992–1998).
Earlier in his career he was a senior
industrial officer with the ACTU (1982–
1992). Ian brings to the Board expertise
and skills in finance, financial markets,
business strategy, human resources, risk
management and corporate governance.
Other Current Directorships
Non-Executive Director of AssetCo
Management Pty Ltd as management
company for SSSR Holdings Pty Ltd
(Southern Cross Station)(Appointed
November 2007), Praeco Pty Ltd (HQ
Joint Operations Command)(Appointed
November 2009), Western Liberty Group
Holdings Pty Ltd (Perth District Court
Complex)(Appointed March 2011).
He also holds pro-bono positions as:
Chair of ACTU Member Connect Pty
Ltd (Appointed July 2004) and Chair of
Renewable Energy Development Trust
(Appointed in 2007).
Former Directorships
Non-Executive Director of Victorian Funds
Management Corporation (2006–2012).
Epic Energy Holdings Pty Ltd (2007–2011).
Pacific Hydro Ltd (2004–2007).
Federal Airports Corporation (1986–1994).
Utilities of Australia Pty Ltd (2000–2006).
Bennelong Funds Management Pty Ltd
(2006–2008).
Ecogen Holdings Pty Ltd (2003–2004).
Australian Venture Capital Association Ltd
(2003–2005) and ISPT Pty Ltd (1994–1998).
Other Current Positions
Chair of the IFM Investors Investor
Advisory Board (appointed May 2004).
Special Responsibilities
Chair – Audit, Compliance and Risk
Management Committee (current).
Member – Remuneration Committee
(appointed 1 July 2015).
Member – Nomination and Remuneration
Committee (ceased 30 June 2015).
Ken Fowlie
Executive Director
LLB BCom (NSW)
MSc (with distinction) (LBS)
MAICD
Ian Court
Non-Executive Director
FAICD
Experience
Ian was appointed a Director of the
Company in 2007.
Ian has extensive experience as a senior
executive and Non-Executive Director
in a diverse range of companies and
industry sectors, including financial
services, unlisted infrastructure,
listed energy, superannuation, private
13
Annual Report 2015Slater and Gordon Limited Board of Directors and Company Secretary (continued)
listed and non-listed environments and
public and private sectors. She is an
experienced member of audit committees
and has chaired Nomination and
Remuneration and IT Committees.
In addition to Board appointments, Erica
consults extensively in the public and
private sectors at CEO and Board level on
a range of business issues. In an executive
capacity, Erica held senior positions in
finance, funds management and insurance
at the ANZ bank and worked with
international consultancy firms.
Other Current Directorships
None.
Former Directorships
Wilsons Investment Management
HTM (ASX: WIG) – Member, Audit/
Risk and Nomination and Remuneration
Committees (2013–2014).
Victorian Funds Management Corporation
(2002–2009) – Chair, Nomination and
Remuneration Committee and Member,
Audit/Risk and Investment Committees.
Eastern Health (2000–2004) – Chair,
IT Committee and Member, Audit/Risk
Committee.
Ilhan Food Allergy Foundation
(2007–2010).
Other Positions
Founder of AnaphylaxiStop, a social
enterprise supporting medical research
into food allergies (appointed 2006).
Director, Erica Lane & Associates Pty Ltd
(appointed January 2004).
Special Responsibilities
Chair – Remuneration Committee
(appointed 1 July 2015).
Member – Audit, Compliance and Risk
Management Committee (current).
Chair – Nomination and Remuneration
Committee (ceased 30 June 2015).
received several industry achievements
including the award for the Victorian
Telstra Business Woman of the Year
in 1999.
Other Current Directorships
Non-Executive Director, Catapult Group
International Ltd (appointed September
2014).
Non-Executive Director, MTAA
Superannuation Fund Pty Limited
(appointed May 2015).
Other Current Positions
Current Member, RMIT Council
(appointed in September 2008).
Strategy Consultant – DB Results
(current).
Other Former Positions
Previous Chairman and President, Novell
Asia Pacific (2001–2007).
Previous Chairman, Victorian Government
Purchasing Board (2005–2011).
Executive Director, O’Donnell Global
Solutions Pty Ltd (appointed August 2009).
Previous Chairman, Advisory Board Insync
(2011–2015).
Former Directorships
Non-Executive Director, RMIT Vietnam
(2011–2015).
Non-Executive Director, RMIT Training
(2010–2015).
Managing Director, Cambridge
Technology Partners (2000–2003).
Managing Director, Global Customer
Solutions (GCS)(a subsidiary of TXU
(now TRU Energy)(1998–2000).
Special Responsibilities
Member – Audit, Compliance and Risk
Management Committee (current).
Member – Remuneration Committee
(appointed 1 July 2015).
Member – Nomination Committee
(appointed 1 July 2015).
Member – Nomination and Remuneration
Committee (ceased 30 June 2015).
Erica Lane
Non-Executive Director
B App Sc, Grad Dip Comp, MBA
(Melbourne), MBA (Chicago), MAICD
Experience
Erica joined the Board of the Company in
2008. Since 2000, she has held various
appointments in funds management,
investment management, professional
services and healthcare spanning both
Rhonda O’Donnell
Non-Executive Director
M App Sc, MBA (Melbourne)
Experience
Rhonda joined the Board of the Company
in 2013.
Rhonda has extensive experience in
international and local industries including
telecommunications, information
technology, education, government and
utilities. Rhonda has been a successful
executive and board member in both the
private and public sectors. Rhonda has
14
Annual Report 2015Slater and Gordon Limited
Experience
Wayne commenced as Chief Financial
Officer and Company Secretary of Slater
and Gordon in 2004. Prior to joining Slater
and Gordon, Wayne was the Financial
Controller of Grand Hotel Group (an ASX
listed property trust) and prior to that,
Wayne worked at Arthur Andersen for
10 years where he specialised in corporate
recovery, insolvency and restructuring.
Wayne contributes skills in corporate
governance, financial management,
analysis and reporting.
Experience
Kirsten commenced as a commercial
litigator with Slater and Gordon in
2006 and then as General Counsel and
Company Secretary in 2008. In August
2015, Kristen has taken up the role as
General Counsel for Slater and Gordon
Group UK. Prior to joining Slater and
Gordon, Kirsten was a lawyer at Allens
Arthur Robinson and completed an
Associateship to the Hon. Justice Hargrave
in the Victorian Supreme Court. Kirsten
contributes skills in commercial law and
corporate governance.
Wayne Brown
Group Chief Financial Officer and
Joint Company Secretary
BCom (Hons), M Int Bus (Melbourne),
CA MAICD
Kirsten Morrison
General Counsel and Joint
Company Secretary
BA/LLB (Hons)
Grad. Dip. Applied Corporate Governance
Corporate Governance
The Board of the Company recognises that a genuine commitment to sound principles of corporate governance is
fundamental to the sustainability of the Company and its performance. The Corporate Governance Statement for the
reporting period ending 30 June 2015 can be found on the Company’s website at www.slatergordon.com.au/the-firm/
governance, together with the Company’s Corporate Governance Policies. The Company complies with the ASX Corporate
Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition), which is reflected in its
Corporate Governance Statement.
15
Annual Report 2015Slater and Gordon Limited Operating and Financial Review
1. Operations
Overview
The Slater and Gordon Group is a
leading provider of consumer legal
services in Australia and the United
Kingdom (UK). The firm provides
specialist legal services in two main
segments of consumer law – Personal
Injury Law (motor vehicle accidents,
workers compensation and civil
liability) and General Law (family
law, conveyancing, wills, estate
planning, business and specialised
litigation, class actions). Slater and
Gordon Group became the world’s
first listed law firm in 2007 and after
successfully pursuing a strategy
of geographic and practice area
diversification in Australia expanded
into the UK in 2012. In FY15 the
firm completed the A$1.3 billion
acquisition of Quindell’s Professional
Service Division, a leading PIL service
provider in the UK, which it has
rebranded as Slater Gordon Solutions.
Business Model
Our mission is to give people easier
access to world class legal services.
We do this by using our competence
in brand building and process
engineering to build operations of
scale and capability that provide
highly specialised services with a great
deal of price certainty for clients.
Revenue
Revenue is generated from providing
legal services to tens of thousands
of clients across Australia and the
UK and is not reliant on any one
key customer or case outcome. On
the contrary, as at 30 June 2015,
the Group was acting on behalf of
approximately 200,000 individual
clients. In FY15 approximately
80% of revenue was derived from
Personal Injury Law. Most of this
work is performed on a conditional
fee basis (No Win – No Fee™) where
legal fees are paid on the successful
conclusion of a client’s matter. In line
with Australian accounting standards
(AASB 118), PIL revenue is recognised
using the stage of completion method.
Recognising revenue on this basis
gives rise to a corresponding asset in
the balance sheet – work in progress
(WIP) that represents the value of
work completed but unbilled at the
end of the period or deferred income.
The majority of General Law work is
conducted on a fee for service basis.
Costs
The largest component of operating
costs are salaries and employee
benefits. There are also material
marketing and advertising expenses to
support the Slater and Gordon Group
suite of brands, with brand awareness
being the key driver of client enquiries.
Assets and Liabilities
The significant items in our balance
sheet are: WIP – representing
the value of work completed but
unbilled, Receivables – including
trade receivables and disbursements
to support a client matter that are
reimbursed at settlement, Intangible
assets – generated by acquisitions,
Payables – including trade payables
and legal creditors where Slater
and Gordon has arranged deferred
conditional payment terms on
behalf of the client in relation to
the disbursements incurred on
a client matter.
Financial Performance
Slater and Gordon Group delivered
a strong financial performance in the
twelve months ending June 2015 with
our core practice areas performing
well and delivering revenue, EBITDA
and cash flow in line with previous
management guidance. Net Profit
after income tax increased 22.8%
to A$83.8 million.
There are three metrics that are key
to understanding the Group’s results.
These are provided in the table below.
The consolidated statement of
comprehensive income contains a
number of transactions which we have
normalised to provide greater clarity
to the underlying operational results.
The normalisation items for FY15 and
the FY14 comparative period are:
i. Gain from bargain purchase of
$58.9 million (2014 restated:
$19.8 million) resulting from
the change in accounting policy
in relation to the treatment of
deferred consideration under
AASB 3 Business Combinations and
the re-classification of the Leo Abse
and Cohen discount on acquisition;
ii. Discount on acquisition relating
to Nowicki Carbone, Bannister
Law and Walker Smith Way and
recognised as WIP movement of
$9.3 million;
iii. The corresponding payments
to former owners $25.4 million
reclassified as remuneration under
the new accounting treatment
for deferred consideration under
AASB3 Business Combinations;
iv. Costs relating to acquisitions
of $25.0 million, including an
amount recognised in Salaries and
Employee Expense of $1.3 million
for internal due diligence work
performed on the acquisition
of SGS; and
v. The early termination of a lease
of $1.6 million.
Total Revenue
EBITDA
Net Profit After Tax (NPAT)
FY15
$m
627.3
132.4
83.8
FY14
Restated
$m
438.2
108.7
68.2
Movements
$m
189.1
23.7
15.6
16
Annual Report 2015Slater and Gordon Limited This results in normalised revenue and normalised EBITDA of:
Total revenue per financial statements
Normalisation adjustments:
– Discount on acquisition
– Gain from bargain purchase
Total revenue – normalised
Less interest income (for EBITDA calculation)
Total revenue-normalised less interest income
Total expenses per financial statements, excluding finance
costs and depreciation and amortisation expense
Normalisation adjustments
– Payments to former owners
– Acquisition costs
– Onerous lease provision
Normalised expenses
Normalised EBITDA
Normalised EBITDA margin
Note: Data includes one month of SGS.
FY15
$m
627.3
(9.3)
(58.9)
559.1
(3.3)
555.8
FY14
Restated
$m
438.2
(7.4)
(19.8)
411.0
(1.8)
409.2
(491.6)
(327.7)
25.4
25.0
1.6
(439.6)
116.2
20.9%
9.0
4.1
6.1
(308.5)
100.7
24.6%
Movement
%
43.2
36.0
15.4
Total Normalised Revenue increased
by 36.0% in FY15 due to strong
growth in fee revenue across the
Group with particularly strong results
in the UK PIL practice driven by the
acquisitions of Fentons and Pannone
in FY14, and Flint Bishop, Leo Abse
and Cohen and Walker Smith Way
in FY15. The Australian PIL and GL
practice groups also benefited from
the acquisitions of Nowicki Carbone
and Shultz Toomey O’Brien in the
first half of FY15.
Normalised EBITDA growth of 15.4%
is driven by improved contribution
from PIL in Australia and the UK and
GL in Australia. EBITDA growth is
below revenue growth due to the
expansion into the UK which has lower
margins than the Australian business
partly due to case mix and partly due
to an increased level of marketing and
business development expenditure
building the Slater and Gordan
UK brand.
Segment Performance
Personal Injury Law – Australia
Overview
The Australian Personal Injury Law
(PIL) practice provides expert legal
services to people in a range of areas
including motor vehicle accidents,
workers compensation and civil
liability law. Most of this work is
performed on a No Win – No Fee™
basis where legal fees are paid on the
successful conclusion of a client’s
matter. Slater and Gordon Lawyers
is the market leader in personal injury
litigation in Australia with 25%
market share.
FY15 Highlights
• The PIL practice performed well,
demonstrating its resilience with
strong underlying growth in fee
revenue (excluding the impact
of the Queensland practice);
• the acquisition of Nowicki Carbone
(Victoria) and Schultz Toomey
O’Brien (Queensland) in November
2014 added strength to the
Australian PIL practice;
• continued improvement in the client
intake process and client satisfaction
scores; and
• move to a single business in
Queensland with the migration
of the Trilby Misso brand across
to Slater and Gordon Lawyers
and the co-location of staff.
FY16 Priorities
• Business improvement initiatives;
and
• integration of FY15 acquisitions.
Personal Injury Law – UK
Overview
The UK Personal Injury Law (PIL)
practice provides expert legal services
to claimants in a range of areas
including motor vehicle accidents,
employers liability, industrial disease,
clinical negligence and serious injury
claims. Most of this work is performed
on a No Win – No Fee™ basis where
legal fees are paid on the successful
conclusion of a client’s matter.
We also conduct a substantial Court
of Protection practice which ensures
that people without the personal
capacity to make decisions for
themselves are protected. This trustee
service is an important adjunct to our
PIL practice and is complemented
by a small Financial Planning service
known as Adroit Financial Services.
Slater and Gordon Lawyers (UK)
is now a leading personal injury
litigation firm with work sourced
primarily from the Slater and Gordon
Lawyers brand.
17
Annual Report 2015Slater and Gordon Limited Operating and Financial Review continued
1. Operations continued
FY15 Highlights
• The UK PIL practice performed very
well with emerging brand awareness
driving strong increases in enquiries,
file openings and fee income
nationally;
• 85% of staff now working on
a common practice and case
management system with the final
roll out scheduled for H2 FY16;
• a sophisticated PIL workflow was
developed and delivered to fee
earners;
• transition of Manchester based staff
into a single location; and
• the acquisition of Walker Smith Way
and Leo Abse Cohen added strength
to the UK operations and helped
build upon our service provision
to membership organisations.
FY16 Priorities
• Continue to build awareness of the
Slater and Gordon Lawyers brand;
• further business improvement
initiatives to deliver operational
efficiencies; and
• completion of the IT systems
roll out.
General Law – Australia
Overview
The General Law (GL) practice is
made up of Personal Legal Services
(PLS) and Business and Specialised
Litigation Services (B&SLS).
PLS comprises Family and
Relationship Law, Conveyancing,
Wills, Estate Planning and Probate
practices. Work is predominantly
performed on a fixed fee basis. B&SLS
comprises Commercial, Estate,
Employment and Professional
Negligence Litigation, Class or Group
Actions and Criminal Defence work.
Class actions are largely funded by
third parties.
18
FY15 Highlights
• The Australian GL practice
continued to make good progress
with strong revenue growth across
the practice groups and improved
contribution to earnings;
• B&SLS revenues increased by over
20% with strong growth in litigation
work across the practice and the re-
establishment of a pipeline of third
party funded class action work;
• successful resolution of the
Fairbridge Farm class action with
A$24 million settlement scheme for
the former residents approved by
the Supreme Court of NSW;
• emerging practices (estate,
professional negligence and criminal
law) accelerating their growth,
albeit from a small base; and
• conveyancing performance stable
with strong growth outside of
Queensland.
FY16 Priorities
• Broadening the brand to attract
new clients;
• continuing to build the third party
funded class action project pipeline;
and
• further investment into the growth
of the Family Law and emerging
practice areas.
General Law – UK
Overview
The UK General Law (GL) practice
comprises Business and Specialised
Litigation Services, Real Estate,
Crime and Regulation, Personal Legal
Services, Employment, Reputation
and Professional Discipline. Slater
and Gordon Lawyers has the largest
Family and claimant Employment
Law practices in the UK.
FY15 Highlights
• Continuing to invest and build
scale in key areas such as Criminal,
Employment, Estate Planning,
Family and Property Law;
• increased GL presence with FY15
acquisitions of Walker Smith Way
and Leo Abse & Cohen; and
• marketing campaigns in Employment
and Family Law were well received.
FY16 Priorities
• Build on depth of expertise in key
practice areas to strengthen our
client offering;
• expand geographic footprint
of practice groups; and
• continue to scale up smaller
practice groups and optimise
profitability levels.
Slater Gordon Solutions
Overview
Slater and Gordon Group acquired
a number of business assets from
Quindell plc in May 2015 which
were described at the time as the
Professional Services Division (PSD)
and have now been rebranded as
Slater Gordon Solutions (SGS).
SGS is the leading fast track personal
injury law service provider in the
UK, uniquely operating across the
personal injury claims management
value chain to provide legal, motor
and health services.
It is a client focused business with
systems and processes that have been
designed to fully service the needs of
the not at fault party who suffers loss
or damage from an accident from one
initial phone call.
The operations can be broken into two
segments – Claims and Motor and
Health Services.
The Claims business operates
across 12 locations employing
approximately 1,600 staff. It deals
with the origination, assessment and
resolution of claims with a focus on
road traffic accidents.
The Motor Services business provides
accident management services to
affinity groups for the benefit of
road users. The services include
co-ordination of the provision of
temporary replacement vehicles
and automotive repairs.
The Health Services business provides
rehabilitation and medical reporting
solutions that may be required as part
of a personal injury claim.
SGS is also currently progressing a
portfolio of Noise Induced Hearing
Loss (NIHL) claims acquired as part
of the transaction in May.
Annual Report 2015Slater and Gordon Limited FY16 Priorities
• Accelerating and optimising mix
of RTA resolutions;
• resolution of hearing loss claims;
and
• engaging with key partners.
2. Financial Position
and Cash Flow
Cash Flow
Operating Cash Flow of
A$40.8 million for FY15 was
below FY14 due mainly to the
implementation of a new Practice
Management System in the UK
causing a delay in billings and the
inclusion of a component of the
SGS acquisition relating to WIP in
operating cash flows ($7.7 million).
When growing a PIL practice cash
will trail profit due to the investment
in WIP that does not convert to
cash until future periods. As we
move forward we will be focusing
on EBITDAW (EBITDA less the
movement in WIP) as a proxy for
cash and target Gross Operating
cash flow to be 100% of EBITDAW.
Net Assets
The Group’s net assets increased
significantly in FY15 due to the
acquisition of SGS in May 2015.
The acquisition was funded through
a mix of equity and debt.
The Group raised A$890.9 million
through a two for three pro rata
accelerated entitlement offer
(‘Entitlement Offer’) in April
2015. Approximately 94.3 million
new shares were issued under the
Institutional Offer, 18.8 million shares
under the Retail Entitlement Offer,
and 26.7 million shares under the
Retail Shortfall Bookbuild. Debt was
drawn down from a new Syndicated
Debt Facility with the Group’s
financiers which replaced previous
funding agreements and a new GBP
denominated debt facility with the
Group’s financiers which replaced
previous funding agreements (see
further details below).
Debt
At 30 June 2015 gross debt
was A$720.4 million, net debt
$623.4 million and gearing (net bank
debt/equity) 43.4%, slightly above
our preferred 30–40% band due
to the SGS transaction. Gearing is
forecast to be 34% by 30 June 2016.
During the year the Group entered
into a new multicurrency (AUD/GBP)
syndicated bank facility with NAB and
Westpac. The facility included loan
facility, bank guarantees and/or letter
of credit with an overall limit of GBP
£375 million and AUD $90 million
with expiry dates between June 2018
to June 2020. The facility is used to
settle the previous facility and funding
the new acquisitions.
In the balance sheet, foreign currency
balances are translated at the spot
rate at the 2014 and 2015 reporting
dates.
This subsequently has a foreign
exchange translation impact upon the
reported debt balances in a number
of ways;
i. Movement in the foreign exchange
rate from one period to another
where the exchange rate (or spot
rate) has changed (i.e. the impact
the foreign exchange movement
has on the opening balance);
ii. A differential in the exchange rate
from the cash flow from operations
for proceeds or repayment of
borrowings as a result of using an
average exchange rate. Where
the proceeds or repayments
of borrowings is individually
immaterial, an average foreign
exchange rate is used, and as such
there is a translation difference
between the average rate and the
year-end exchange rate; and
iii. Where a significant transaction has
occurred, such as the drawdown of
borrowings for the Slater Gordon
Solutions transaction, the cash
flow translates at the exchange rate
at the transaction date. As such,
there is a translation difference for
the impact of the foreign exchange
movement between the transaction
date and the year end exchange rate.
Net operating cash flow
Net assets
Net debt
Gearing %
Loan and overdraft facilities – £ denominated facility
Loan and overdraft facilities – A$ denominated facility
FY15
$m
40.8
1435.0
623.4
43.4
£376
A$95
FY14
$m
Restated
54.4
418.8
101.1
24.1
-
$A246
Movements
$m
(13.6)
1016.2
522.3
-
-
-
19
Annual Report 2015Slater and Gordon Limited Operating and Financial Review continued
2. Financial Position and Cash Flow continued
To highlight these movements, based upon the 2015 financial accounts, the reconciliation of the opening debt to closing
debt is as follows:
Gross debt at 30 June 2014
Proceeds from borrowings
Repayment of borrowings
Implied gross debt at 30 June 2015
Reported gross debt at 30 June 2015
Difference due to foreign exchange difference
The difference due to foreign exchange made up from the following:
Movement in the foreign exchange rate from period
Differential in exchange rate from using an average foreign exchange rate for the year compared
to the rate at 30 June 2015
Movement in exchange rate from 29 May 2015 to 30 June 2015 on proceeds of borrowings for
Slater Gordon Solutions acquisition
$AUD M
$126.3
$594.1
($44.0)
$676.4
(720.4)
($44.0)
$AUD M
$11.0
$21.0
$12.0
Dividends
Directors declared a final dividend
of 5.5 cents per share, franked to
40% and a 10% increase on FY14
in line with our stated policy of
increasing dividends 10% annually.
As a result, 31.8% of FY15 NPAT will
be distributed to shareholders as an
interim and final dividend.
Off Balance Sheet Items
The opening FY16 balance sheet for
SGS does not include a value for WIP
associated with the portfolio of NIHL
cases acquired as part of the SGS
acquisition. Once we have stronger
evidence in relation to the trajectory
of the NIHL cases we expect to
revisit the balance sheet and book
an appropriate value for the WIP.
3. Business Strategy,
Outlook and Risks
Business Strategy
The Group’s core strategy is to lead
the consolidation of the consumer
legal services market in Australia and
the United Kingdom and to participate
in adjacent markets where to do
so complements its core legal
services offering.
Having acquired significant business
assets in both Australia and the UK,
the Group seeks to enable its strategy
through a focus on client satisfaction,
staff engagement and operational
effectiveness. Having established
critical mass in both markets in which
it operates, the Group is levering
its available assets and delivering
sustainable shareholder returns
through a business strategy built
on organic growth and operational
improvement. From an operational
perspective, this involves the
continued strengthening of the
Group’s current market leading
position in the consumer law market
as well as optimising the business
performance of its assets including
the recently acquired businesses
operating under the Slater Gordon
Solutions brand.
Outlook
We have confidence in the future
of both Slater and Gordon Lawyers
and Slater Gordon Solutions. With
a commanding market share lead
in both Australia and the UK and
free from the demands of near term
acquisition activity, we will be able
to focus our efforts on continuing to
improve operating effectiveness.
The Directors remain convinced of
the strategic merit of taking a leading
position in both the Australian and UK
consumer legal services markets. The
momentum for further consolidation
in both markets remains strong and
the Group is well placed to take
advantage of that trajectory given
its position, brand strength and
the breadth of offering.
Undoubtedly, the Group will face
headwinds at various times connected
with the ongoing integration
activities that it will undertake to
fully leverage the assets available to
it and associated with the inevitable
maturing of the Group, but the Group
is actively taking steps to mitigate
these risks.
20
Annual Report 2015Slater and Gordon Limited • Client service and professional
standards compliance: Delivery of
consistent and quality legal services
is the cornerstone of our business
and our reputation is based upon
this. High professional standards
and compliance with legal services
regulatory regimes is central to
our risk management strategy. The
Company establishes its professional
standards in its Values and National
Practice Standards in Australia and
the United Kingdom(NPS), which
are implemented through training
and workflow management. NPS
tracking and audits, centralised
claims and complaints handling
and practice improvement plans
ensure professional standards are
monitored and maintained.
• People and Culture: People are
the most critical asset of any
professional services business.
Initiatives to ensure employees
are engaged and productive
include Values, policies, diversity
and flexibility, learning and
development, the Group’s
remuneration strategy (Rewarding
You Fairly) effective work,
health and safety policies, M&A
integration strategy, and regular
engagement monitoring.
Risks
During FY16, the Group will
undertake a materiality assessment
process which specifically understands
and assesses material sustainability
risks. With the above context, we
make the following disclosure of
material economic, social and
environmental sustainability risks
which the Company has under
active management:
• Competition and market share:
The Company operates in a
competitive and innovative
environment. Changes in the
competitor landscape, including
disruptive innovation could drive
changes to market share. Strategic
planning, investment in R&D, KPIs
to promote leadership of innovation,
M&A strategy and acquisition
integration planning are activities
we undertake to protect and grow
our market share.
• Regulatory change: Legislative
reform could have an adverse
material impact on the Group,
particularly in relation to personal
injury litigation services. Effective
government relations, management
KPIs, modelling the potential
impact and diversification into new
services and markets are initiatives
we use to monitor, manage and
protect against potential regulatory
changes.
• Financial Management: Financial
and cost management, particularly
labour costs, is critical to managing
and improving gross margin in a
legal business. The Company has
established a mature remuneration
and reward strategy, manages its
labour mix and incorporates labour
budgeting in the strategic planning
process. The Company also has
budgeting and forecasting systems
in place to ensure sound financial
management and regularly reviews
overhead expenditure.
21
Annual Report 2015Slater and Gordon Limited Financial Statements
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or
Loss and Other Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Notes to the Financial Statements
Slater and Gordon Limited
Directors’ Declaration
Independent Auditor’s Report
Additional ASX Information
Corporate Directory
23
65
66
67
68
69
70
136
137
139
140
22
Slater and Gordon Limited
Annual Report 2015
Directors’ Report
The directors present their report, together with the financial report of the consolidated entity consisting of Slater and
Gordon Limited (“the Company”) and its controlled entities (jointly referred to as “the Group”), for the financial year ended
30 June 2015 and the auditor’s report thereon. This financial report has been prepared in accordance with Australian
Accounting Standards. Compliance with Australian Accounting Standards ensures compliance with International
Financial Reporting Standards (“IFRS”).
Directors
The directors in office at any time during the financial year and up to the date of this report are:
Ian Court
• John Skippen – Chair
• Andrew Grech – Group Managing Director
•
• Ken Fowlie – Managing Director (UK & Europe)
• Erica Lane
• Rhonda O’Donnell
Details of the skills, experience, expertise and special responsibilities of each director are set out in a subsequent section
of this report.
Principal Activities
The principal activity of the Group during the financial year was the operation of legal practices in Australia and the
United Kingdom (“UK”). Following the acquisition of various business assets from Quindell Plc on 29 May 2015 which
have now been rebranded as Slater Gordon Solutions (“SGS”), activities have expanded to include other services
complementary to the processing and resolution of personal injury claims in the UK. Full details of the activities of SGS
are separately disclosed in the Directors’ Report.
Results
The profit after income tax of the Group was $83.8 million (2014 restated: $68.2 million).
Review of Operations
The Group continued to deliver strong financial results during the year ended 30 June 2015, at the same time making
solid progress against key strategic priorities, in particular the expansion of its UK operations.
The Group ended the year with total revenue of $627.3 million (2014 restated: $438.2 million) and net profit after tax of
$83.8 million (2014 restated: $68.2 million). The full year dividend was up 12.5% over the prior year to 9.0 cents per
share partially franked at 40% (2014: 8.0 cents per share fully franked).
The Australian business completed the acquisitions of Nowicki Carbone, a personal injury law practice based in Victoria,
and Schultz Toomey O’Brien, a consumer law practice in Queensland, on 31 October 2014, which continue to reinforce
the growth of the Group as the leader in consumer law in Australia.
Legislation in South Australia changed with effect from 1 July 2014 to allow for incorporated legal practices to operate in
South Australia. As a consequence, the Adelaide practice was transferred from Andrew Grech trading as Slater and
Gordon Lawyers to the Company for the value of the practice’s net assets on 30 September 2014. The net asset value
was fully offset by amounts owed to the Company pursuant to the service and license agreement between the Company
and Andrew Grech.
During the financial year, the UK business devoted significant focus to consolidate the acquisitions completed during the
course of FY14 into the existing operations, an exercise that involved both a relocation of the practices formerly known
as Russell Jones and Walker and Pannone to one office in Manchester with the staff from the firm, formerly known as
Fentons, to relocate shortly. The transition of the entities acquired prior to FY15 onto one Practice Management System
and Case Management System, was substantially completed during the year. In addition to the acquisition of Walker
Smith Way and Leo Abse Cohen in April and May 2015 respectively, the Group also completed the acquisition of SGS.
The principal activities of SGS are:
I.
II.
First notification of loss (“FNOL”) services for various partner organisations, including insurance brokers, insurers,
motoring organisations and vehicle manufacturers. These services include the facilitation of vehicle retrieval,
repair and replacement vehicle hire for not at fault drivers;
Conducting claims on behalf of not at fault parties to road traffic accidents (“RTA”), including credit hire, repair and
personal injury claims.
Slater and Gordon Limited
Page 2
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
Review of Operations (continued)
III.
Conducting claims on behalf of individuals injured in the course of employment or in a public place (“EL/PL”).
One species of employers’ liability claim that SGS is currently conducting are personal injury claims for a large
group of people who allege noise induced hearing loss (“NIHL”) as a consequence of employment and who may
be entitled to compensation as a result. It is expected that these NIHL claims will be concluded in the next 1 to 3
years; and
Services complementary to these claims processes, including:
A medical reporting service for claimant lawyers;
a.
The assessment, triage and facilitation of rehabilitation services for not at fault parties injured in accidents;
b.
and
A costing service for lawyers and law firms.
c.
IV.
On 5 August 2015, Quindell Plc, the vendor of SGS, published qualified financial statements in which the current
directors and auditors of Quindell Plc explained, inter alia, that relevant information relating to transactions entered into
by the former directors that could impact on the accounting, intention, commercial purpose or value of certain
transactions was not available to them.
On 5 August 2015 the Serious Fraud Office in the United Kingdom advised that it has opened a criminal investigation into
the business and accounting practices of Quindell Plc.
The acquisition of SGS was structured as an acquisition of the various entities rather than an acquisition of the common
stock of Quindell Plc. Moreover, Quindell Plc provided detailed warranties to the Company in relation to the operations
of the assets comprising SGS. Those warranties are secured by a Warranty Escrow account holding £50m.
The Directors are confident that the Company has no liability as a result of the matters described above.
In the course of preparing these financial statements, the Directors have sought to identify, understand and properly
account for all relevant prior transactions undertaken by entities within SGS. Despite reasonable inquiries, including of
current directors of Quindell Plc, the Directors are unable to identify or rationalise every historic transaction undertaken
by the former directors of the various entities and have made fair value adjustments as appropriate. The Directors
believe that none of the known transactions relate to the fundamental business activities or economics of SGS and none
of the known transactions are material in value or effect.
Significant Changes in the State of Affairs
In April 2015 the Group raised additional funds through a 2 for 3 pro rata accelerated entitlement offer (“Entitlement
Offer”). Approximately 94.3 million new shares were issued under the Institutional Offer, 18.8 million shares under the
Retail Entitlement Offer, and 26.7 million shares under the Retail Shortfall Bookbuild. The total sum raised of $890.9
million funded the acquisition of SGS, along with drawdowns from a new Syndicated Debt Facility with the Group’s
financiers which replaced previous funding agreements and a new GBP denominated debt facility with the Group’s
financiers which replaced previous funding agreements.
The new Syndicated Debt Facility included loan facilities with three and five year terms with overall limits of £375.0
million and $90.0 million. At 30 June 2015 the net bank debt was $623.4 million with a gearing ratio (net bank debt to
/equity) of 43.0%.
The Group introduced in the financial period a broad-based ‘share saver’ offer to all employees and a new Employee
Equity Incentive Plan (“EIP”) which was approved by shareholders at the 2014 Annual General Meeting (“AGM”).
Subsequent to the AGM, offers were made to all employees in Australia and the United Kingdom to take up $500 or £375
of equity respectively, with the Company matching the allocation on a 1 for 1 basis. Offers were taken up by around 800
employees across the organisation, representing approximately 40% of eligible employees.
Under the terms of the EIP, performance rights offers were extended to executives in October 2014 and December 2014.
All executives across the Group have accepted the offers. Overall, 496,000 performance rights have been issued to
executives throughout the Group, including a shareholder approved allocation of 56,000 performance rights (combined)
to executive directors. Performance rights vest based on a three year service condition and the financial performance of
the Australian PIL, Australian GL, UK PIL, UK GL or Group operations (depending on the executive role) over the three
financial years FY15 to FY17. Performance measures include total shareholder return and earnings measures.
The EIP replaces the existing Employee Ownership Plan (“EOP”), without prejudice to the rights of current participants in
the EOP. Vesting of equity interests under the EOP continues based on performance in FY15 and the repayment of
loans associated with the EOP will continue throughout FY16 to FY18.
24
Slater and Gordon Limited
Page 3
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Significant Changes in the State of Affairs (continued)
Other than the acquisitions during FY15 otherwise referred to in this report, and the above mentioned changes in capital
structure and the introduction of the EIP, there have been no significant changes in the affairs of the Group that require
disclosure in this report.
Events Subsequent to Reporting Date
Subsequent to the end of the financial year, all unvested Vesting Convertible Redeemable (“VCR”) ordinary shares at 30
June 2015 have either vested and converted into ordinary shares (subject to disposal restrictions) or have been
approved for redemption. Other than the aforementioned, there have not been any matters or circumstances that have
significantly affected, or may significantly affect, the results reported in the financial statements.
Likely Developments
With a commanding market share lead in both Australia and the UK, the group is free from the demands of near term
future acquisition activity and will focus its efforts on improvement of operating effectiveness.
Having acquired significant businesses in both Australia and the UK, and established critical mass in the personal injury
law market, the Group will focus its resources to deliver sustainable shareholder returns through a business strategy built
on organic growth.
From an operational perspective, this involves the continued strengthening of the Group’s current market leading position
in the consumer law market. This will include further investment in its finance and IT infrastructure and the progressive
integration of the newly acquired operations of Slater Gordon Solutions.
The Directors remain convinced of the strategic merit of taking a leading position in both the Australian and UK consumer
legal services markets. The momentum for further consolidation in both markets remains strong and the Group is
extremely well placed to take advantage of that trajectory given its position, brand strength and the breadth of its offering.
Environmental Regulation
The Group’s operations are not subject to any significant environmental regulations or laws in Australia and the UK.
Dividend Paid, Recommended and Declared
The dividends paid and declared since the start of the financial year are as follows:
2015
$’000
2014
$’000
Dividends on ordinary shares
Interim dividend partially franked (40%) at the tax rate of 30% for 2015: 3.50 cents
per share (2014: 3.00 cents per share, fully franked)
7,341
6,115
Final fully franked dividend at the tax rate of 30% for 2014: 5.00 cents per share
(2013: 3.85 cents per share, fully franked)
10,279
17,620
7,655
13,770
In addition to the above dividends, since the end of the financial year the directors have recommended the payment of a
final ordinary dividend of $19,289,594 franked to 40% (5.50 cents per share) to be paid on 29 October 2015 out of
retained profits at 30 June 2015.
Dividend Reinvestment Plan
Since 27 February 2013, the Company has had in place a Dividend Reinvestment Plan (“DRP”) to allow eligible
shareholders to reinvest their dividends in further Company shares. The DRP was active for the final dividend declared
for the financial year ended 30 June 2014 and the interim and final dividends declared for the financial year ended 30
June 2015. Under the DRP, 160,676 shares were issued for the 2014 final dividend at $6.01 per share and 97,043
shares were issued for the 2015 interim dividend at $7.50 per share.
Share Options
No options over unissued shares or interests in the Company were granted during or since the end of the financial year
and there were no options outstanding at the end of the financial year.
Slater and Gordon Limited
Page 4
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
An equity incentive plan (“EIP”) was established in November 2014 to provide annual equity incentives to selected senior
executives. Pursuant to the EIP 496,000 performance rights were granted which are subject to vesting performance
hurdles and continuing service (refer to page 57 for further discussion)
Indemnification and Insurance of Directors and Officers and Auditors
During the financial year, the Group has given indemnity or entered an agreement to indemnify, and paid insurance
premiums as follows:
A premium of $64,500 (2014: $55,000) for a twelve month period was incurred in respect of directors, officers and the
company secretary of the Company against a liability brought upon such an officer.
Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the
contract.
Slater and Gordon has not, during or since the financial year, indemnified or agreed to indemnify the auditor of Slater and
Gordon against a liability incurred as auditor.
26
Slater and Gordon Limited
Page 5
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Information on Directors and Company Secretaries
The skills, experience, expertise and special responsibilities of each person who has been a director of the Company at
any time during or since the end of the financial year is provided below, together with details of the company secretaries
as at the year end.
John Skippen
ACA
Chair
Non-Executive Director
Experience
John has been on the Board since 2010 and has been Chair of the Board since 2012.
John has over 30 years’ experience as a chartered accountant and was the former
Executive Finance Director of Harvey Norman Holdings Ltd. John brings to the Board
extensive financial, public company and retail experience and skills in financial
management, general management, mergers and acquisitions and strategy.
Other current directorships
Non-Executive Director of Flexigroup Limited (appointed November 2006)
Non-Executive Director of Super Retail Group Ltd (appointed September 2008)
Former directorships
Previous Non-Executive Director of Emerging Leaders Investment Ltd (2010-2014)
Special responsibilities
Chair – Board (current)
Member – Audit, Compliance and Risk Management Committee (current)
Chair – Nomination Committee (appointed 1 July 2015)
Member – Nomination and Remuneration Committee (ceased 30 June 2015)
Slater and Gordon Limited
Page 6
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Directors’ Report
Information on Directors and Company Secretaries (continued)
Andrew Grech
LLB MAICD
Group Managing Director
Experience
Andrew joined Slater and Gordon in 1994 and was appointed as Managing Director in
2000 and Group Managing Director on 1 July 2014. Before being appointed Managing
Director in 2000, Andrew worked in most of Slater and Gordon’s litigation practice areas,
working across both high profile class actions and individual compensation claims. Andrew
brings to the Board extensive experience as a legal practitioner and law firm manager.
Other current directorships
None
Former directorships
None
Other positions
Previous founding chair of the Youth Junction Incorporated, a not for profit youth charity
operating in Sunshine, Victoria (2005-2010)
Member of the Board of the Youth Junction Incorporated (appointed 2005 – current)
Member of the Advisory Council of the Melbourne Law School (2014 – current)
Special responsibilities
Group Managing Director
28
Slater and Gordon Limited
Page 7
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Information on Directors and Company Secretaries (continued)
Ken Fowlie
LLB BCom (NSW)
MSc (with distinction) (LBS)
MAICD
Executive Director
Experience
Ken was appointed a Director of the Company in 2003.
Ken has extensive litigation experience particularly in claims for sufferers of asbestos
related illness (including acting for the Australian Council of Trade Unions (“ACTU”) and
asbestos support groups in negotiations with James Hardie) and large, multi-party group
and representative actions. Ken brings to the Board a unique operational perspective in a
number of the Group’s key strategic areas. As an Australian legal practitioner with close to
20 years’ experience and qualifications and a strong interest in economics and business
management, Ken contributes skills in legal practice, legal practice management, risk
management, financial analysis, financial reporting and mergers and acquisitions. Ken
was appointed Head of Australia in July 2013 and until May 2015 was responsible for the
overall management of the Slater and Gordon Australian operation. In May 2015 Ken
became the Managing Director, UK and Europe for Slater and Gordon incorporating
Slater and Gordon Solutions.
Other current directorships
None
Former directorships
None
Special responsibilities
Managing Director – UK and Europe
Slater and Gordon Limited
Page 8
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
Information on Directors and Company Secretaries (continued)
Ian Court
FAICD
Non-Executive Director
Experience
Ian was appointed a Director of the Company in 2007.
Ian has extensive experience as a senior executive and non-executive director in a
diverse range of companies and industry sectors, including financial services, unlisted
infrastructure, listed energy, superannuation, private equity and the property sector. Ian
was inaugural president of the Australian Institute of Superannuation Trustees (“AIST”).
Prior executive positions include CEO of Development Australia Funds Management Ltd
(1998-2004) and Executive Chair of Cbus (1992-1998). Earlier in his career he was a
senior industrial officer with the ACTU (1982-1992). Ian brings to the Board expertise and
skills in finance, financial markets, business strategy, human resources, risk management
and corporate governance.
Other current directorships
Non-Executive Director of AssetCo Management Pty Ltd as management company for
SSSR Holdings Pty Ltd (Southern Cross Station) (Appointed November 2007),
Praeco Pty Ltd (HQ Joint Operations Command) (Appointed November 2009),
Western Liberty Group Holdings Pty Ltd (Perth District Court Complex) (Appointed March
2011).
He also holds pro-bono positions as:
Chair of ACTU Member Connect Pty Ltd (Appointed July 2004) and
Chair of Renewable Energy Development Trust (Appointed in 2007).
Former directorships
Non-Executive Director of Victorian Funds Management Corporation (2006-2012)
Epic Energy Holdings Pty Ltd (2007-2011)
Pacific Hydro Ltd (2004-2007)
Federal Airports Corporation (1986-1994)
Utilities of Australia Pty Ltd (2000-2006)
Bennelong Funds Management Pty Ltd (2006-2008)
Ecogen Holdings Pty Ltd (2003-2004)
Australian Venture Capital Association Ltd (2003-2005) and ISPT Pty Ltd (1994-1998)
Other current positions
Chair of the IFM Investors Investor Advisory Board (appointed May 2004)
Special responsibilities
Chair – Audit, Compliance and Risk Management Committee (current)
Member – Remuneration Committee (appointed 1 July 2015)
Member – Nomination and Remuneration Committee (ceased 30 June 2015)
30
Slater and Gordon Limited
Page 9
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Information on Directors and Company Secretaries (continued)
Erica Lane
B App Sc, Grad Dip Comp,
MBA (Melbourne),
MBA (Chicago),
MAICD
Non-Executive Director
Experience
Erica joined the Board of the Company in 2008. Since 2000, she has held various
appointments in funds management, investment management, professional services and
healthcare spanning both listed and non-listed environments and public and private
sectors. She is an experienced member of audit committees and has chaired Nomination
and Remuneration and IT Committees.
In addition to Board appointments, Erica consults extensively in the public and private
sectors at CEO and Board level on a range of business issues. In an executive capacity,
Erica held senior positions in finance, funds management and insurance at the ANZ bank
and worked with international consultancy firms.
Other current directorships
Nil
Former directorships
Wilsons Investment Management HTM (ASX: WIG) – Member, Audit/Risk and Nomination
and Remuneration Committees (2013-2014)
Victorian Funds Management Corporation (2002-2009) – Chair, Nomination and
Remuneration Committee and Member, Audit/Risk and Investment Committees
Eastern Health (2000-2004) – Chair, IT Committee and Member, Audit/Risk Committee
Ilhan Food Allergy Foundation (2007-2010)
Other positions
Founder of AnaphylaxiStop, a social enterprise supporting medical research into food
allergies (appointed 2006)
Director, Erica Lane & Associates Pty Ltd (appointed January 2004)
Special responsibilities
Chair – Remuneration Committee (appointed 1 July 2015)
Member – Audit, Compliance and Risk Management Committee (current)
Chair – Nomination and Remuneration Committee (ceased 30 June 2015)
Slater and Gordon Limited
Page 10
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Information on Directors and Company Secretaries (continued)
Rhonda O’Donnell
M App Sc, MBA (Melbourne)
Non-Executive Director
Experience
Rhonda joined the Board of the Company in 2013.
including
Rhonda has extensive experience
telecommunications, information technology, education, government and utilities. Rhonda
has been a successful executive and board member in both the private and public sectors.
Rhonda has received several industry achievements including the award for the Victorian
Telstra Business Woman of the Year in 1999.
international and
industries
local
in
Other current directorships
Non-executive director, Catapult Group International Ltd (appointed September 2014)
Non-executive director, MTAA Superannuation Fund Pty Limited (appointed May 2015)
Executive director, O’Donnell Global Solutions Pty Ltd (appointed August 2009)
Former directorships
Non-executive director, RMIT Vietnam (2011-2015)
Non-executive director, RMIT Training (2010-2015)
Managing Director, Cambridge Technology Partners (2000-2003)
Managing Director, Global Customer Solutions (GCS) (a subsidiary of TXU (now TRU
Energy) (1998-2000)
Other current positions
Current Member, RMIT Council (appointed in September 2008)
Strategy Consultant – DB Results (current)
Other former positions
Previous Chairman and President, Novell Asia Pacific (2001-2007)
Previous Chairman, Victorian Government Purchasing Board (2005-2011)
Previous Chairman, Advisory Board Insync (2011-2015)
Special responsibilities
Member – Audit, Compliance and Risk Management Committee (current)
Member – Remuneration Committee (appointed 1 July 2015)
Member – Nomination Committee (appointed 1 July 2015)
Member – Nomination and Remuneration Committee (ceased 30 June 2015)
Wayne Brown
BCom (Hons),
M Int Bus (Melbourne),
CA MAICD
Group Chief Financial
Officer and
Joint Company Secretary
Experience
Wayne commenced as Chief Financial Officer and Company Secretary of Slater and
Gordon in 2004. Prior to joining Slater and Gordon, Wayne was the Financial Controller of
Grand Hotel Group (an ASX listed property trust) and prior to that, Wayne worked at Arthur
Andersen for ten years where he specialised in corporate recovery, insolvency and
restructuring. Wayne contributes skills in corporate governance, financial management,
analysis and reporting.
Kirsten Morrison
BA/LLB (Hons)
Grad. Dip. Applied
Corporate Governance
General Counsel and Joint
Company Secretary
Experience
Kirsten commenced as a commercial litigator with Slater and Gordon in 2006 and then as
General Counsel and Company Secretary in 2008. In August 2015, Kristen has taken up
the role as General Counsel for Slater and Gordon Group UK. Prior to joining Slater and
Gordon, Kirsten was a lawyer at Allens Arthur Robinson and completed an Associateship
to the Hon. Justice Hargrave in the Victorian Supreme Court. Kirsten contributes skills in
commercial law and corporate governance.
32
Slater and Gordon Limited
Page 11
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Directors’ Meetings
The number of meetings of the Board of Directors and of each Board committee held during the financial year and the
number of meetings attended by each director were:
Board of Directors
Audit, Compliance and Risk
Management Committee
Nomination and Remuneration
Committee
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
12
12
12
12
12
12
12
11
12
12
12
12
-
6
-
6
6
6
-
6
-
6
6
6
-
4
-
4
4
4
-
4
-
4
4
4
A Grech
I Court
K Fowlie
E Lane
J Skippen
R O’Donnell
Directors’ Interests in Shares
Directors’ relevant interests in shares of the Company as at the date of this report are detailed below.
Ordinary shares of the
Company
Performance rights
A Grech
I Court
K Fowlie
E Lane
J Skippen
R O’Donnell
6,750,656
59,804
5,646,221
170,000
25,000
25,000
40,000
-
16,000
-
-
-
Directors’ Interest in Contracts
Directors’ interests in contracts are disclosed in Note 29 to the financial statements.
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 in relation
to the audit for the financial year is provided with this report.
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.
Slater and Gordon Limited
Page 12
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
Non-audit Services
Written approval for non-audit services is provided by resolution of the Audit, Compliance and Risk Management
Committee and approval is notified to the Board of Directors. Non-audit services provided by the auditors of the Group
during the year are detailed below. The directors are satisfied that the provision of the non-audit services during the year
by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act
2001.
During the year, the following fees were paid or payable for non-audit services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
Due diligence investigations
- Pitcher Partners
- Ernst & Young LLP
Total remuneration for due diligence investigations
Other Advisory
- Pitcher Partners
- Baker Tilly
Total remuneration for other advisory
Total remuneration for non-audit services
2015
$
2014
$
177,860
1,475,791
1,653,651
39,227
4,245
43,472
1,697,123
15,900
-
15,900
17,557
-
17,557
33,457
34
Slater and Gordon Limited
Page 13
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Audited Remuneration Report
Dear Shareholder,
I am pleased to present our Remuneration Report for the year ended 30 June 2015. In striving to provide for continuous
improvement, the Remuneration Report format has been modified so as to provide a framework for clearer disclosure of
the relevant information to shareholders.
The 2015 financial year has been a year of great change for the Slater and Gordon Group. The strong underlying
business performance has continued and in May 2015, we successfully completed the purchase of Slater Gordon
Solutions (“SGS”), creating a leading consumer law firm in the UK. The Board is confident that this acquisition will deliver
significant long term value to the Company’s shareholders. Full details of the acquisition are dealt with comprehensively
elsewhere in the Directors’ Report.
I wish to highlight the changes in Board and executive key management personnel (“KMP”) remuneration, as follows:
• Chair, Non-Executive Directors (“NED”) and committee fees increased in FY15 by approximately 5%. This was the
first increase since FY12.
• The Board undertook a review of all executive KMP and Board remuneration during the year, including independent
remuneration consultant input, and will be recommending to shareholders at the upcoming AGM that the Director fee
pool limit be increased to accommodate additional Board appointment(s) and to better reflect market expectations of
NED fees. Despite these proposed changes our Board remuneration settings will remain conservative, ie. at the lower
end of the range for companies of comparable size and complexity.
• As of 30 June 2015, all Board and executive KMP held shares in the Company. Minimum shareholding guidelines for
Board members and executive KMP are presently under consideration and any policy changes will be announced in
due course, as required.
• The Board intends to revise the remuneration opportunity for executive KMP in FY16. It is intended that increases in
fixed remuneration will be held to less than 3% unless there has been a material change in the responsibility
encompassed by the relevant position.
• Although executive KMP remuneration will remain conservative in FY16, the Board intends to increase ‘at risk’ short
and long term remuneration opportunities for all executive KMP. These increased remuneration opportunities will be
conditional upon performance to ensure appropriate alignment to shareholder interests. Bonuses to be paid to
executive KMP in respect of FY15 have been provisionally determined and will not exceed $570,000. All executive
KMP scored well against their KPIs, however, the total amount awarded will be less than the total paid in FY14. This
reflects the Board’s view that whilst the performance was strong, there are areas where further improvement is
required. Final amounts will be determined following completion of the Company’s performance and development
review cycle in October 2015.
• Under consideration for FY16 are: the implementation of a clawback policy in relation to executive KMP; a policy of
STI deferral for executive KMP; and minimum shareholding guidelines for the Board and executive KMP. A policy of
STI deferral is currently in place with key leaders outside of the Group Executive. Any policy changes will be
announced in due course, as required.
• No equity incentives for executive KMP vested in FY15 and no previously granted equity incentives will vest in FY16.
Effective from 1 July 2015, the Nomination and Remuneration Committee has been reconfigured into two (2) separate
committees. The Nomination Committee will be focused on Board and Committee composition, appointment and
induction of new Board members, succession planning and performance evaluation for the Board as a whole. The
Remuneration Committee will continue to focus its efforts on ensuring that Board remuneration remains competitive but
conservative and that executive KMP remuneration has an appropriate balance between fixed and variable components
with a clear relationship between Group performance and risk management, including the successful integration of any
acquisitions.
For a more fulsome analysis of these matters, please see the enclosed Remuneration Report.
Erica Lane
Chair Remuneration Committee
29 September 2015
Slater and Gordon Limited
Page 14
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Audited Remuneration Report (continued)
Contents
Section Title
1.0
Introduction
2.0
3.0
Remuneration
governance
Non-executive Director
remuneration
4.0
Executive remuneration
Description
Describes the scope of the Remuneration Report and the individual Board and
executive key management personnel whose remuneration details are
disclosed.
Describes the role of the Board and the Nomination and Remuneration
Committee (“NRC”), and the use of remuneration consultants when making
Board and executive KMP remuneration decisions.
Provides details regarding the fees paid to Non-executive Directors.
Outlines the principles applied to executive KMP remuneration decisions and
the framework used to deliver the various components of remuneration,
including explanation of the performance and remuneration linkages.
5.0
6.0
Employee share scheme
and other share
information
Provides details regarding the Group’s employee equity plans including the
information required by the Corporations Act 2001 and applicable accounting
standards.
Service contracts and
employment agreements
Provides details regarding the contractual arrangements between the Group
and the executive KMP whose remuneration details are disclosed.
36
Slater and Gordon Limited
Page 15
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Audited Remuneration Report (continued)
1.0 Introduction
The Group is a leading international consumer law firm employing approximately 5,350 people across 95 locations in
Australia and the United Kingdom. Our mission is to provide people with easier access to world class legal services. The
Board has adopted contemporary executive remuneration strategies to reward executives fairly in a competitive
environment. Policies are also flexible enough to enable the Group to attract, motivate and retain competent executives
in a number of locations.
The Board’s philosophy and approach to executive remuneration has been to balance fair remuneration for skills and
expertise with a risk and reward framework that supports sustainable growth.
The remuneration policies in respect of the Group’s executive KMP are reviewed annually. The most notable
achievement in FY15 was the acquisition of the professional services division from Quindell Plc (now rebranded as Slater
Gordon Solutions (“SGS”)) in the UK (announced on 30 March 2015) and supporting capital raising. A comprehensive
analysis of this transaction is covered elsewhere in the Directors’ Report. The full impact of this acquisition will be shown
in the FY16 financial statements. In FY15 the Group grew net profit after tax (“NPAT”) from $68.2m to $83.8m and
revenue grew by 43% representing strong year on year performance and over achievement against our business targets
in revenue terms. The lower growth in NPAT was largely as a result of changes to the accounting treatment of
acquisition consideration and as such did not impact on cash performance. The results of the changes in application of
the relevant accounting standards to acquisitions will normalise over time. Overall, the Board believes the Group’s
approach to remuneration is balanced, fair and equitable, designed to reward and motivate a successful and experienced
executive team to deliver business growth and success as well as to meet the expectations of shareholders.
The Board’s composition has remained unchanged over the year. Given the recent SGS acquisition and increase in the
scale and footprint of the Group, the Board has determined to recruit two additional non-executive directors over the next
several months.
1.1 Scope
This Remuneration Report sets out the remuneration arrangements in place for the Board and executive KMP of the
Group during FY15, in accordance with the relevant provisions of the Corporations Act 2001 and the applicable
accounting standard requirements.
Slater and Gordon Limited
Page 16
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Audited Remuneration Report (continued)
1.2 Key Management Personnel
KMP have authority and responsibility for planning, directing and controlling the activities of the Group and comprise the
NED and executive KMP (being the two (2) executive directors and other senior executives named in this report). Details
of the KMP as at year end are set out in the table below:
Name
Title
Non-executive Directors
John Skippen
Ian Court
Erica Lane
Chair, Non-executive Director
Member, Audit, Compliance and
Risk Committee,
Chair, Nomination Committee
Chair, Audit, Compliance and Risk
Committee, Non-executive Director
Chair, Remuneration Committee,
Non-executive Director
Change in FY15
Country of
Residence
Appointed Chair, Nomination Committee,
1 July 2015
Australia
No change. Full year
Australia
Changed from Chair, Nomination and
Remuneration Committee to Chair,
Remuneration Committee, 1 July 2015
Australia
Australia
Rhonda O’Donnell
Non-executive Director
No change. Full year
Executive Directors
Andrew Grech
Group Managing Director
Ken Fowlie
Managing Director (UK and Europe)
Other Executive KMP
Wayne Brown
Group Chief Financial Officer
Neil Kinsella
Head of General Law, UK
Hayden Stephens
Chief Executive Officer, General
Law
Cath Evans
Chief Executive Officer, Personal
Injury Law
Felicity Pantelidis
Group Chief Operating Officer
Title changed from Managing Director to
Group Managing Director, 1 July 2014
Australia
Chief Executive Officer Australia to
Managing Director (UK and Europe), 1
May 2015
United
Kingdom
Title changed from Chief Financial Officer
to Group Chief Financial Officer, 1 July
2014
Australia
Changed from Head of UK to Head of
M&A (UK), October 2014 to Interim Head
of General Law UK in August 2015
United
Kingdom
Changed from Head of Personal Injury
Australia to Chief Executive Officer of
General Law, 1 July 2015
Changed from Chief Executive Officer
(UK) to Chief Executive Officer, Personal
Injury Law, 1 July 2015
Changed from Chief Operating Officer, to
Group Chief Operating Officer, 1 July
2015
Australia
Australia
Australia
38
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Directors’ Report
Audited Remuneration Report (continued)
2.0 Remuneration Governance
This section of the Remuneration Report describes the role of the Board and the Nomination and Remuneration
Committee (“NRC”), and the use of remuneration consultants when making Board and executive KMP remuneration
decisions.
2.1 Role of the Board and the NRC
The Board has overall responsibility for the Group’s remuneration strategy and policy. Consistent with this responsibility,
the Board has established the NRC, comprised solely of independent NEDs.
The role of the NRC is set out in its Charter, which is reviewed annually and was last revised and approved by the Board
in FY15. The NRC will be reconfigured into two (2) separate committees effective from 1 July 2015.
During the reporting year, the NRC’s role included:
• ensuring that appropriate procedures exist to assess the remuneration levels of the Chairman, other NEDs, executive
directors, direct reports to the Group Managing Director, Board committees and the Board as a whole;
• ensuring that the Group meets the requirements of the ASX Corporate Governance Council’s Guidelines, including
gender diversity principles and recommendations;
• ensuring that the Group adopts, monitors and applies appropriate remuneration policies and procedures;
• ensuring that reporting disclosures related to remuneration meet the Board’s disclosure objectives and all relevant
legal requirements;
• developing, maintaining and monitoring appropriate talent management programs including succession planning,
recruitment, development; and retention and termination policies and procedures for senior management; and
• developing, maintaining and monitoring appropriate post-employment and other benefit arrangements for the Group.
The NRC’s role and interaction with Board, internal and external advisors for FY15, is illustrated below:
The Board
Reviews, applies
judgement and, as
appropriate,
approves the NRC’s
recommendations.
The Nomination
and
Remuneration
Committee
The NRC operates under
the delegated authority of
the Board.
The NRC is empowered
to source any internal
resources and obtain
external independent
professional advice it
considers necessary to
enable it to make
recommendations to the
Board:
External consultants
Remuneration policy, composition and
quantum of remuneration components for
executive KMP, and performance targets
Remuneration policy in respect of NEDs
Internal resources
Talent management policies and practices
including post-employment benefits
Design features of employee and
executive STI and LTI plan awards,
including setting of performance and other
vesting criteria
Slater and Gordon Limited
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Audited Remuneration Report (continued)
2.1 Role of the Board and the NRC (continued)
Further information on the NRC’s role, responsibilities and membership will be contained in the Corporate Governance
Statement in the Company’s Annual Report. The NRC terms of reference can also be viewed in the Governance section
of the Company’s website, www.slatergordon.com.au.
2.2 Use of Remuneration Consultants
During FY15, remuneration consultancy contracts were entered into by the Company and accordingly the disclosures
required under section 300A(1)(h) of the Corporations Act 2001 are set out as follows:
Advisor/consultant – FY15
Ian Crichton, Independent Remuneration
Consultant, Crichton & Associates Pty Limited
Services provided
1. Benchmark Remuneration
Assessment and Report in respect
of the Board and executive KMP
2. Drafting and review of FY15
Remuneration Report
3. Review of FY15 equity allocations
Remuneration consultant
for the purpose of the
Corporations Act
Yes
the
Key questions regarding use of remuneration consultants
Did
remuneration consultant provide
remuneration recommendations in relation to
any of the KMP for FY15?
Yes. Recommendations were in a written report to the Board.
How much was the remuneration consultant
paid by the Company for remuneration related
and other services?
Remuneration Services - $28,965
Other Services - $32,352
What arrangements did the Company make to
ensure that the making of the remuneration
recommendations would be free from undue
influence by the executive KMP?
The Company adopted a protocol for procuring advice relating to
KMP remuneration. The protocol requires that the Board provides
written instructions to the consultant with a specified scope of
works and requiring that the consultant report all findings to the
Board in writing free of any interference from executive KMP.
Is the Board satisfied that the remuneration
information provided was free from any such
undue influence? What are the reasons for the
Board being so satisfied?
Yes, the Board is satisfied. The reasons are as follows: the Chair
of the Company and the NRC had oversight of all requests for
remuneration information and the protocol with respect to the
procurement of remuneration related advice was appropriate.
40
Slater and Gordon Limited
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
Audited Remuneration Report (continued)
3.0 Non-executive Director Remuneration
3.1 NED Remuneration
Principle
Fees are set by reference
to key considerations
Comment
Fees for NEDs are based on the nature of the NEDs’ work, their responsibilities and
anticipated time commitment. The remuneration paid is intended to reflect the complexity of
the business and its geographic spread. In determining the level of fees, independent survey
data on comparable companies (ASX listed companies of similar size) is considered. NEDs’
fees are recommended by the NRC and determined by the Board. Shareholders approve the
aggregate amount available for the remuneration of NEDs.
Remuneration is structured
to preserve independence
whilst creating alignment
To preserve independence and impartiality, NEDs are not entitled to any form of incentive
payments including options and the level of their fees is not set with reference to measures of
the Group’s performance.
(see also section 3.4)
The Company currently does not have any minimum shareholding guidelines for NEDs.
However, all NEDs acquired shares in the Company during FY15 and all have current
holdings.
Aggregate Board and
committee fees are
approved by shareholders
The total amount of fees paid to NEDs in FY15 was $471,873 in total which is 73% of the
aggregate annual amount approved by shareholders at the 2012 AGM.
3.2 NED Fees and Other Benefits
Elements
Details
Board/Committee
Board Chair fee¹
Fees per annum – FY15
Board NED base fee¹
$158,055
$89,565
Committee fees
Committee Chair Committee Member
Audit, Compliance and Risk Management
Nomination and Remuneration
Committee
$10,000
$10,000
$5,000
$5,000
¹ Chair and NED fees were increased by CPI during FY15. Committee fees are not paid to the Chair of the Board. The amounts referred
to in this table reflect fees determined by the Board in respect of FY15 only.
Post-employment benefits
Superannuation
Superannuation contributions have been made in accordance with the Company’s
statutory obligations.
Other benefits
Equity instruments
Other fees/benefits
NEDs do not receive any performance related remuneration, options or performance
rights.
NEDs receive reimbursement for costs directly related to Slater and Gordon business.
Slater and Gordon Limited
Page 20
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Annual Report 2015Slater and Gordon Limited
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Audited Remuneration Report (continued)
3.3 NED Total Remuneration – Actual Paid
Amounts $
John Skippen (Chair)
Ian Court
Erica Lane
Rhonda O’Donnell
Total
Short-term benefits Post-employment benefits
Year
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
Fees
137,835
137,324
79,258
72,442
97,516
91,549
88,384
82,465
402,993
383,780
Superannuation benefits
24,131
12,702
27,099
23,976
9,259
8,468
8,391
7,628
68,880
52,774
Total*
161,966
150,026
106,357
96,418
106,775
100,017
96,775
90,093
471,873
436,554
* NED base fees were increased by CPI during FY15. The FY15 remuneration includes back pay of the FY14 CPI increase on NED
fees.
The aggregate annual amount available for payment to NEDs was last approved by shareholders at the 2012 AGM in the amount of
$650,000.
3.4 Minimum Shareholding Guidelines
Although all NEDs hold shares in the Company, at the end of FY15 there were no minimum shareholding guidelines in
place that apply to NEDs. The implementation of minimum shareholding guidelines for NEDs will be considered during
FY16.
42
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Audited Remuneration Report (continued)
4.0 Executive Remuneration
4.1 Executive KMP Remuneration
The Group’s executive remuneration policies are intended to fairly remunerate executives for their contribution to the
Group. They are also designed to attract, motivate and retain qualified and experienced executives employed across
diverse businesses and geographic locations. Fixed remuneration components are determined having regard to the
specific skills and competencies of the executive KMP with reference to both internal and external relativities, including
local market conditions. The ‘at risk’ components of remuneration consisting of both short and long term incentives are
intended to reward (risk balanced) performance on the achievement of clearly defined targets.
Executive KMP remuneration objectives can be illustrated as follows:
Attract, motivate and
retain competent
executives across
diverse businesses
and geographies
An appropriate
balance of ‘fixed’ and
‘at risk’ components
Executive KMP
remuneration
objectives
Create reward
differentiation to drive
performance, values
and behaviors
Shareholder value
creation through
equity components
linked to performance
Slater and Gordon Limited
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Audited Remuneration Report (continued)
4.1 Executive KMP Remuneration (continued)
Remuneration
will be
delivered as:
Strategic
intent and
market
positioning
d
e
x
F
i
Total fixed remuneration
(“TFR”)
TFR is set based on job
role, market relativities,
reflecting responsibilities,
performance,
qualifications, experience
and geographic location
Base salary plus any fixed
elements related to local
markets, including
superannuation or
equivalents
TFR will generally be
positioned at the
median compared to
relevant market based
data considering
expertise and
performance in the role
Total target
remuneration
(TTR) is set by
reference to the
relevant
geographic
market.
TTR is intended
to be positioned
in the third
quartile
compared to
relevant market
benchmark
comparisons.
Higher quartile
TTR will only
result if
outperformance
is achieved.
k
s
i
r
t
A
Short-term incentives
(“STI”)
STI performance criteria
are set by reference to a
Balanced Scorecard
methodology, with KPI
including financial and
operational, people and
culture and clients and
development
Executive KMP receive
the short term incentive in
cash (after tax) at the end
of the performance
period. No STI deferral
applies to executive KMP
Performance incentive
is directed to achieving
Board approved
targets, reflective of
changing
circumstances. Ideally,
TFR + STI is intended
to be positioned in the
third quartile of the
relevant benchmark
comparisons
Long-term incentives
(“LTI”)
LTI targets are linked to
both the Group’s internal
EPS growth and external
relative TSR
outperformance measures
In FY15, equity was
offered as performance
rights, subject to
performance and service
for three years from grant
date. The equity is at risk
until vesting. Performance
is tested once at the
vesting date
LTI is intended to
reward executive KMP
for sustainable long-
term performance
aligned to
shareholders’ interests.
LTI allocation values
are conservatively
positioned
44
Slater and Gordon Limited
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Directors’ Report
Audited Remuneration Report (continued)
4.2 Remuneration Composition Mix and Timing of Receipt
4.2.1 Current Remuneration Mix
The Group endeavours to provide an appropriate and competitive mix of remuneration components balanced between
fixed and at risk and paid in both cash and deferred equity. The broad remuneration composition mix for executive KMP
can be illustrated as follows:
Remuneration Mix for FY15
The remuneration mix for FY15 is illustrated below:
Position
TFR as a % of TTR
STI (at target) as a
% of TTR
LTI (at target) as a
% of TTR
Group Managing Director
70%
22%
8%
Other Executive KMP
64% to 76%
21% to 33%
3% to 5%
Remuneration Mix for FY16
A detailed review of executive KMP remuneration was undertaken during FY15. All executive KMP were found to be very
conservatively positioned relative to comparable executives in comparable companies. The Board has determined that
the remuneration opportunity for all executive KMP should be increased, however, this increase will be mostly in ‘at risk’
performance-based remuneration, except where the individual role and responsibilities have fundamentally changed.
The individual remuneration opportunity for executive KMP for FY16 has been provisionally determined and will be
finalised by the Board in October 2015. The proposed remuneration mix for FY16 is as follows:
Position
Executive KMP
TFR as a % of TTR
STI (at target) as a
% of TTR
LTI (at target) as a
% of TTR
48% to 60%
16% to 24%
20% to 33%
The Board intends to focus executive KMP remuneration opportunity on the achievement of both short and long term
performance to ensure the best alignment between executive remuneration outcomes and shareholder interests.
Total Fixed Remuneration (“TFR”)
The Group’s approach to TFR settings is to aim to position all executives at about the median of comparable positions as
conservatively as possible to control fixed costs, exchange rate movements notwithstanding. Only modest increases in
TFR were approved in FY15 to maintain this conservative approach. TFR settings in FY16 have been adjusted to
account for changes in job roles, accountability or additional responsibilities.
Short-Term Incentives (“STI”)
The Group have focused STI on achieving selected KPI adopting a modified Balanced Scorecard methodology, but with
a minimum financial performance as a primary gateway. To support the balanced approach to TFR, the Group has set
STI opportunity aimed at achieving a market competitive TFR + STI above the median which is only paid if performance
is delivered.
Long-Term Incentives (“LTI”)
The LTI opportunity is determined based on the dollar value of the number of rights (or other selected equity interest) to
be granted to each individual executive KMP and based on the gross contract value. That is, before applying any
discount.
Slater and Gordon Limited
Page 24
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Annual Report 2015Slater and Gordon Limited
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Audited Remuneration Report (continued)
4.2.1 Current Remuneration Mix (continued)
Total target remuneration (“TTR”)
TTR under the remuneration mix adopted will, in the opinion of the Board, deliver an overall risk adjusted reward
opportunity which is fair and market competitive and aligned to Group and Business Unit performance.
Shareholders should note that the Group has performance hurdles that are demanding, particularly for LTI. Further, any
LTI award will only have value to the executive if the performance hurdles are met to enable vesting to occur.
4.2.2 Remuneration – Timing of Receipt of Remuneration
The three complementary components of executive KMP remuneration are ‘earned’ over multiple time ranges. This is
illustrated in the following chart:
Note: The LTI component is awarded at the beginning of Year 1 and earned at the end of Year 3, but expensed over the
three year service period.
As illustrated, executive KMP remuneration is delivered on a cascading basis. This remuneration mix is designed to
ensure executive KMP are focused on delivering results over both the short term and the long term if they are to
maximise their remuneration opportunity. The Board believes this approach aligns executive KMP remuneration to
shareholder interests and market expectations.
4.3 Total Fixed Remuneration Explained
Total fixed remuneration (“TFR”) includes all remuneration and benefits paid to an executive KMP calculated on a total
employment cost basis. In addition to base salary, selected overseas executives receive benefits that may include health
insurance, car allowances and relocation allowances. In Australia, retirement benefits are generally paid in line with the
prevailing Statutory Superannuation Guarantee. Elsewhere, retirement benefits are generally paid in line with local
legislation and practice.
46
Slater and Gordon Limited
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
Audited Remuneration Report (continued)
4.3 Total Fixed Remuneration Explained (continued)
Executive KMP TFR is tested regularly for market competiveness by reference to appropriate independent and externally
sourced comparable benchmark information. This includes comparable ASX listed companies based on a range of size
criteria including market capitalisation, as well as taking into account an executive’s responsibilities, performance,
qualifications, experience and geographic location.
TFR adjustments, if any, are made with reference to individual performance, an increase in job role or responsibility and
changing market circumstances; as reflected through independent benchmark assessments or promotion.
Any adjustments to executive KMP remuneration are approved by the Board, based on Remuneration Committee and
Group Managing Director input and recommendations.
4.4 Variable (at Risk) Remuneration Explained
The purpose of variable remuneration is to direct executives’ behaviours towards maximising the Group’s short, medium
and long-term performance. The key aspects of each component are summarised below:
4.4.1 Short-Term Incentives (“STI”)
Purpose
The STI arrangements are designed to reward executives for achieving the Group’s strategic
and operational objectives under a Balanced Scorecard methodology with annual performance
targets set by the Board at the beginning of the performance period. The STI program is
reviewed annually by the Remuneration Committee and approved by the Board.
All STI awarded to the Group Managing Director and other executive KMP are approved by the
Remuneration Committee and Board.
Performance
targets
The key performance criteria of the Group’s FY15 STI were as follows:
Financial and Operational performance (not
than 55% of weighting). Financial
performance for KMP is based on Group financial performance (Group EBITDA, EBITDA margin,
Group cash flow). Operational performance is based on the delivery of key elements of Group
strategy;
less
People and Culture (not less than 35% of weighting). These objectives typically relate to
organisational planning and development for the Group; and
Client and Development. These objectives typically relate to business improvement initiatives
within the Group.
The mix of performance criteria and the individual key performance indicators may vary from
year to year depending on the assessed annual performance priorities at the start of the year. An
overall financial performance gate is applied to all executive KMP awards.
Any anomalies or discretionary elements are validated and approved by the Board.
Rewarding
performance
The achievement against the performance criteria set is calculated under a predetermined
matrix.
Validation of performance against the measures set for the Group Managing Director is
endorsed by the Group Chief Financial Officer, and then reviewed and approved by the
Remuneration Committee and the Board.
Validation of performance against the measures set for the executive KMP are endorsed by the
Group Managing Director, and then reviewed and approved by the Remuneration Committee
and the Board.
Any anomalies or discretionary elements are validated and approved by the Board.
Deferral of a
portion of STI
Mandatory deferral of STI only applies to selected key leader executives who do not participate
in the LTI. There is no mandatory STI deferral policy in place for executive KMP, however, this
policy is under review in FY16.
Slater and Gordon Limited
Page 26
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Audited Remuneration Report (continued)
4.4.1 Short-Term Incentives (“STI”) (continued)
Actual STI awarded compared to STI opportunity
Executive KMP
Andrew Grech
Ken Fowlie
Wayne Brown
Position
Group Managing Director
Managing Director (UK and Europe)
Group Chief Financial Officer
Neil Kinsella
Hayden Stephens Chief Executive Officer, General Law
Head of General Law, UK
Cath Evans
Chief Executive Officer, Personal Injury
Law
Felicity Pantelidis Group Chief Operating Officer
*Non-discretionary element as an overseas living allowance
Target STI
as a % of
FY15 TTR
STI
awarded as
a % of
Target STI
STI
forfeited in
FY15 as a
% of Target
STI
Anticipated
STI to be
awarded in
FY15 ($)
21.83%
24.01%
23.87%
22.21%
25.10%
32.90%
20.62%
20.00%
20.00%
20.00%
28.27%
20.00%
44.44%*
80.00%
80.00%
80.00%
80.00%
71.73%
80.00%
55.56%
20.00%
35,000
30,000
25,000
40,000
30,000
100,000
80,000
The amount of STI awarded has been provisionally determined based on the Company’s assessment of results achieved
by executive KMP against robust performance criteria set out in individual Balanced Scorecards. Ratings are based on
meeting or exceeding expectations across all areas of responsibility. Recommendations are subject to rigorous
moderation by the Remuneration Committee and the Board. The moderation process for STI to be awarded to executive
KMP in respect of FY15 will be finalised by the Board in the first half of FY16.
The KMP substantially met their performance criteria across the balance of their performance targets given the stretching
nature of the Financial and Operational objectives.
As previously noted, the Company takes a balanced but conservative approach to payment of STI to drive
outperformance.
4.4.2 Long-Term Incentives (“LTI”)
The LTI provides an annual opportunity for executive KMP and other selected executives (based on their ability to
influence and execute strategy) to receive an equity award, that is intended to align a portion of executives’ overall
remuneration to shareholder value over the longer term. All LTI awards are deferred for three years and remain at risk
and subject to forfeiture or lapse until vesting. Company performance must meet or exceed earnings (EPS) growth rates
and/or relative TSR performance hurdles over the vesting period.
Purpose
Types of
equity
awarded
To align executive KMP remuneration opportunity with shareholder value and provide retention
stimulus.
LTI up to FY13 was provided under the Employee Ownership Plan (“EOP”). See section 5.1 for further
details.
The Executive Equity Incentive Scheme (“EIP”) was introduced in November 2014. See section 5.1 for
further details.
Under the EIP, selected senior executives are currently offered performance rights (being a nil
exercise price right to fully paid ordinary shares of Slater and Gordon Limited).
Time of
grant
All equity grants will be made after the AGM each year, but based on values determined prior to the
AGM.
Time
restrictions
The FY15 equity grants awarded to the Group Managing Director and other executive KMP are tested
against the performance hurdles set, at the end of three financial years. If the performance hurdles are
not met at the vesting date the performance rights lapse.
48
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Directors’ Report
Audited Remuneration Report (continued)
4.4.2 Long-term Incentives (“LTI”) (continued)
Performance
hurdles and
vesting
schedule
The FY15 equity grants to the Group Managing Director and other executive KMP are in two equal
tranches assigned 50% to compound annual growth rate (“CAGR”) in EPS and 50% subject to
ranking of TSR against the S&P/ASX 300 (excluding resources). The performance conditions
applying to the latest grant (FY15) were as follows:
Executive Directors Only
Compound annual growth in EPS (3 years)
Performance¹
% of equity to vest
All other Executive KMP
Compound annual growth in EPS (3 years)
% of equity to vest
Performance
< 10%
0%
< 7%
0%
10% to 15%
50% to 100% pro-rata
7% to 10%
50% to 100% pro-rata
> 15%
100%
> 10%
100%
¹ FY14 Basic EPS is the base. The Board imposed higher performance expectations on the two (2) executive
Directors. A slightly lower hurdle was determined for other executive KMP to, in part, acknowledge the relatively
small dollar value of the opportunity in this initial grant. In future, hurdles for all executive KMP will be the same.
Ranking of SGH TSR against S&P/ASX 300 (excluding resources) (3 years)
Performance
% of equity to vest
< 50th percentile
0%
50th to 75th percentile
50% to 100% pro-rata
> 75th percentile
100%
Performance rights vest if the time restrictions and relevant performance hurdles are met. The Board
must approve any special provisions, in accordance with Company policies, in the event of
termination of employment or a change of control. After the three year vesting schedule, any
unvested performance rights lapse.
Dividends
No dividends are attached to performance rights.
Voting rights
There are no voting rights attached to performance rights (prior to vesting).
Retesting
There is no retesting of performance hurdles under LTI.
LTI allocation
In FY15, LTI grants were based on a fixed number of performance rights. For FY16, the size of
individual LTI grants for the Group Managing Director and other executive KMP is determined in
accordance with the Board approved remuneration strategy mix. See section 4.2 for further details.
The target LTI dollar value for each executive is converted to performance rights according to LTI
allocation values independently determined based on the gross contract value of the relevant equity
instrument and based on a Black-Scholes-Merton pricing model without discounting for service or
EPS and TSR performance hurdles:
Performance right allocation = LTI dollar value/Black-Scholes-Merton value before service or EPS
and TSR performance discounts.
The first allocation of Performance Rights under the LTI was made in FY15 and testing of the vesting conditions will not
apply until September 2017.
Slater and Gordon Limited
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Audited Remuneration Report (continued)
4.5 Other Remuneration Elements and Disclosures relevant to Executive KMP
4.5.1 Clawback
The Group has not implemented a clawback policy to date. This position is under review in FY16.
4.5.2 Hedging and Margin Lending Prohibition
Directors and executive KMP must not engage in dealings based on short term fluctuations in Slater and Gordon
securities. If a Director or executive KMP acquires Slater and Gordon securities, they should not sell or agree to sell any
Slater and Gordon securities of that class for at least 30 days.
Directors are prohibited from entering into margin loans under the Group’s Share Trading Policy. Other executive KMP
require prior approval to enter into a margin loan arrangements where the amount of shares mortgaged, provided as
security, lent or charged to a financier amounts to 1% or more of the issued capital in Slater and Gordon at the relevant
time. KMP must notify the Company Secretary immediately if they are given notice by their financier of an intention to
make a margin call and sell Slater and Gordon securities during a prohibited trading period.
Directors and executive KMP must not enter into hedging arrangements in relation to Slater and Gordon securities that
are unvested or subject to disposal restrictions or minimum shareholding requirements.
In limited circumstances, the Board may, in its discretion, allow holders of securities issued under the Employee
Ownership Plan who have a loan repayment obligation to the company to enter into a hedging arrangement with prior
approval.
Equity granted under the Executive Equity Incentive Scheme remains at risk until vested and exercised. It is a specific
condition of grant that no schemes are entered into, by an individual or their associates that specifically protect the
unvested value of performance rights allocated.
The Group, in line with good corporate governance, has a Share Trading Policy setting down how and when employees
may deal in Slater and Gordon securities.
The Group’s Share Trading Policy is available on the Slater and Gordon website www.slatergordon.com.au under the
Firm, Governance.
4.5.3 Cessation of Employment Provisions
The provisions that apply for STI and LTI awards in the case of cessation of employment are detailed in section 6.0.
4.5.4 Conditions of LTI Grants
The conditions under which LTI performance rights are granted, and are approved by the Board in accordance with the
relevant scheme rules, are as summarised in section 5.0.
4.5.5 Minimum Shareholding Guidelines
The majority of executive KMP are subject to minimum shareholding requirements under either:
a)
b)
c)
the agreement between the seven shareholders of the Company prior to listing in 2007;
the Employee Ownership Plan; or
agreements relating to business acquisitions by the Company since 2007.
KMPs subject to these agreements are required to maintain a minimum number of shares that is equivalent to the lesser
of 20% of the value or 15% of the number of shares issued to them, while they remain a member or employee of the
Group.
50
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4.6 Relationship between
Remuneration
the Group’s Performance and Executive KMP
4.6.1 The Group’s Financial Performance (FY11 to FY15)
2011
2012
2013
Restated
2014
2015
5 year
CAGR1
Company Performance
Revenue ($'000)
Profit before tax ($'000)
Profit after tax ($'000)
182,309
217,704
297,963
438,228
627,309
38.13%
41,543
36,494
61,341
95,747
114,531
31.75%
27,908
24,992
41,521
68,236
83,803
33.45%
Basic earnings per share (cents)
19.10
16.20
23.90
33.80
35.60
14.74%
Diluted earnings per share (cents)
Dividends per share - paid during financial
year (cents)
Total dividends paid during financial year
($'000)
18.30
15.70
23.30
5.20
5.80
6.30
33.20
6.85
35.30
16.15%
8.50
10.12%
7,697
8,786
10,647
13,770
17,620
24.98%
2.78
1 Compound Annual Growth Rate (“CAGR”) based on cumulative results 2011-2015 inclusive.
1.85
2.30
Share price at 30 June ($)
5.16
3.56
18.40%
Slater and Gordon has achieved stellar compound growth on every relevant metric over the last 5 years. Executive KMP
remuneration has materially lagged these achievements because of the Group’s conservative remuneration settings.
The proposed changes to executive KMP ‘at risk’ remuneration is intended to ensure executives are only rewarded if
overall short, medium and long-term Company performance is achieved.
An explanation of recent changes to the Company’s accounting policies is provided in Note 1(w) to the financial
statements. For further explanation of details on the Group’s performance, see the Principal Activities, Review of
Operations and Results sections of the Directors’ Report. Refer to section 4.6.3 in relation to impact on KMP LTI FY15
base setting.
4.6.2 Group Current Year Performance and relationship to Executive KMP
Remuneration
The total of executive KMP remuneration for those executives that remained employed for the full year was lower in
FY15 than in FY14. This reflects the low STI payout in FY15. The accrual of LTI Awards in 2015 was small and no LTI
award will vest earlier than 2017 and then only if the EPS and TSR hurdles are met.
4.6.3 Group EPS and TSR Performance (FY11 to FY15) and relationship to Executive
KMP Remuneration
As explained in section 4.1, the Group’s remuneration framework aims to incentivise executive KMP towards long-term
sustainable growth and the creation of shareholder value in the short, medium and long term. This is developed in two
ways:
• cash STI, which is linked to achievement of performance objectives, including financial measures for the completed
performance year (as explained in section 4.4.1); and
• LTI, in the form of performance rights, are linked to compound annual growth in EPS and relative TSR performance
(as explained in section 4.4.2).
EPS (internal) and relative TSR (external) are generally accepted proxies for creation of shareholder value. It is the
Board’s intention to review the suitability of these performance criteria and settings on a regular basis to ensure they best
serve shareholders’ interests.
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4.6.3 Group EPS and TSR Performance and relationship to Executive KMP
Remuneration (continued)
Earnings per share (“EPS”)
The Group’s basic EPS targets to achieve full vesting of the 2015 LTI performance rights grant is shown in the graph
below:
SGH Earnings Per Share (EPS)
Actual and Targets
60
50
40
30
20
10
0
2015
2016
2017
EPS Actual
EPS Target: Other KMP (10% p.a.)
EPS Target: Directors (15% p.a.)
50% of the LTI performance rights issued to executive KMP in FY15 are subject to the Group achieving various
compound annual growth rates in EPS, as set out Section 4.4.2. These growth rates are assessed against the FY14
reported basic EPS of 30.3 cents (“Base Year EPS”).
Due to recent changes in the Company’s accounting policies (see Note 1(w) to the financial statements), FY14 earnings
have been restated. As a consequence of the restatement, the basic EPS for FY14 has increased from 30.3 cents to
33.8 cents.
So as to ensure that executive KMP do not receive an unintended benefit from the change to the Company’s accounting
policies, the Company intends to amend the Base Year EPS to reflect the revised basic EPS of 33.8 cents, thereby
increasing the EPS hurdle requirements of the FY15 LTI performance rights award. The Board believes that this
approach is both fair and equitable to the executive KMP and will ensure shareholders are not disadvantaged as a result.
Notwithstanding the proposed increase in the Base Year EPS, the amended EPS targets are still budgeted to be
achieved.
For more details on the Company’s performance, refer the Principal Activities, Review of Operations and Results
sections of the Directors’ Report.
Total Shareholder Return (“TSR”)
The Group’s relative TSR performance over the relevant performance periods up to 30 June 2015 in respect of vested
equity grants is set out below. This information is unaudited.
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4.6.3 Group EPS and TSR Performance (FY11 to FY15) and relationship to Executive
KMP Remuneration (continued)
SGH TSR vs S&P/ASX 300 (excluding Resources) Accumulation
Index
1 September 2014 to 25 September 2015
140
130
120
110
100
90
80
70
60
50
40
XKOAI less Resources
SGH TSR
TSR is a function of share price growth and dividends reinvested. However, the Group’s performance over time is
affected by a range of variables, including currency volatility, global economic and geopolitical conditions, market growth
for its products and other competitive pressures.
Based on the SGH TSR performance since the date of grant of the FY15 LTI it is unlikely that performance hurdles set
will be met, unless there is a material rerating of SGH securities between the date of this report and the vesting date. The
Board remains optimistic that this will be the case.
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4.7 Executive Remuneration Table – Statutory Disclosure
Amounts $
Short-term
Post-Employment
Name
Andrew Grech
Ken Fowlie
Wayne Brown
Neil Kinsella
Hayden
Stephens
Cath Evans
Felicity
Pantelidis
Total
Total
Year
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
Non-
monetary
benefits
Superannuation
benefits
Long
service
leave
Salary
Other
542,937
10,163
38,684
15,325
502,586
9,574
22,744
38,606
428,052
659
27,688
2,361
431,772
-
24,359
13,396
-
-
-
-
351,187
29,808
18,783
9,280
20,783
337,494
20,526
17,775
18,554
40,666
471,625
442,850
-
-
-
-
-
-
381,260
17,240
18,783
11,486
348,016
13,867
382,681
401,402
-
-
17,775
18,783
6,936
6,501
25,351
8,141
200,000
327,054
10,163
18,783
10,001
-
-
2,884,796
2,464,120
-
68,033
43,967
-
141,504
108,004
-
54,954
85,633
-
20,783
240,666
-
-
-
-
-
54
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4.7 Executive Remuneration Table – Statutory Disclosure (continued)
Total
Short-term
Long-term
Total
Total
607,109
573,510
458,760
469,527
429,841
435,015
471,625
442,850
428,769
386,594
407,965
634,894
366,001
-
3,170,070
2,942,390
Bonus
35,000
125,000
30,000
50,000
25,000
60,000
40,000
88,570
30,000
50,000
100,000
225,000
80,000
-
340,000
598,570
Value of
options
Value of
performance
shares/rights
-
-
-
-
3,965
11,745
-
-
-
-
-
-
-
-
14,451
-
5,780
-
5,549
-
4,814
-
5,549
-
4,814
-
4,162
-
3,965
11,745
45,119
-
49,451
125,000
35,780
50,000
34,514
71,745
44,814
88,570
35,549
50,000
104,814
225,000
84,162
-
389,084
610,315
656,560
698,510
494,540
519,527
464,355
506,760
516,439
531,420
464,318
436,594
512,779
859,894
450,163
-
3,559,154
3,552,705
Proportion of total
remuneration
Performance
related
Delivered
as equity
7.5%
17.9%
7.2%
9.6%
7.4%
14.2%
8.7%
16.7%
7.7%
11.5%
20.4%
26.2%
18.7%
-
10.9%
17.2%
2.2%
0.0%
1.2%
0.0%
2.0%
2.3%
0.9%
0.0%
1.2%
0.0%
0.9%
0.0%
0.9%
-
1.4%
0.3%
There have been no material increases in fixed remuneration or ‘at risk’ variable remuneration opportunity during the
year under review. Cath Evans received an overseas living allowance in FY14 and FY15.
Slater and Gordon Limited
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4.8 Executive Remuneration Table
This table represents the value to the executives of cash paid and vested equity awards (intrinsic value) received during
the year and unvested equity awards (AASB-2 value) granted during the financial year, at risk. The LTI equity granted is
a value determined under AASB-2 discounted for vesting probabilities of performance criteria which may or may not vest
depending on future outcomes that are uncertain. Accordingly, this table incorporates data that represents the
accumulation of outcomes arising from multiple years.
Fixed
Remuneration
591,784
Incentives
35,000
Total
Cash
626,784
Past at risk
remuneration
received
during the
year
-
Actual
remuneration
received
626,784
Future at risk
remuneration
received
during the
year (LTI)
61,608
534,904
125,000
659,904
456,399
30,000
486,399
456,131
50,000
506,131
420,561
25,000
445,561
416,461
60,000
476,461
471,625
40,000
511,625
442,850
88,570
531,420
417,284
30,000
447,284
379,658
50,000
429,658
401,465
100,000
501,465
626,753
225,000
851,753
356,000
80,000
436,000
-
-
-
3,115,118
2,856,757
340,000 3,455,118
598,570 3,455,327
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
659,904
486,399
506,131
-
24,643
-
445,561
23,657
476,461
511,625
531,420
447,284
429,658
501,465
851,753
436,000
-
-
23,807
-
23,657
-
23,807
-
17,743
-
3,455,118
3,455,327
198,922
-
Name
Andrew
Grech
Ken
Fowlie
Wayne
Brown
Neil
Kinsella
Hayden
Stephens
Cath
Evans
Felicity
Pantelidis
Total
Total
Year
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
FY15
FY14
There have been no material increases in the remuneration paid to executive KMP during the current year. Cath Evans
received an overseas allowance in FY14 and FY15.
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5.0 Employee Share Scheme and Other Share Information
This section provides:
1.
2.
3.
4.
5.
6.
a description of the employee share schemes (“ESS”) the Group uses to provide equity rewards to employees;
disclosures required in relation to ESS grants provided to executive KMP;
disclosures required about ESS instruments issued;
disclosures required in relation to Slater and Gordon Limited shares and other ESS instruments held by executive
KMP;
the Group’s share ownership guidelines; and
the Group’s Securities Trading Policy.
5.1 Employee Share Schemes operated by the Group
Plan details
Employee
Ownership Plan
(“EOP”)
Date established:
2006
Type of
instruments Details
Vesting
Convertible
Redeemable
Ordinary
Shares (“VCR
shares”)
Issue of VCR shares with a loan (full
recourse but interest free) equal to the
subscription amount to eligible and invited
executives. Vesting was dependent on
meeting designated performance criteria
(Balanced Scorecard), remaining employed
and repaying the loan.
Equity Incentive
Plan (“EIP”)
Date established:
Nov 2014
Performance
rights under
Executive
Equity
Incentive
Scheme
(“EEIS”)
A performance incentive scheme designed
to reward participants with achieving market
competitive business outcomes. Participants
receive an award based on a predetermined
formula, as approved by the Board from time
to time based on market standards and
trends.
Equity Incentive
Plan (“EIP”)
Date established:
Nov 2014
Service rights
under
Deferred
Short Term
Incentive
Scheme
(“DSTIS”)
A deferred short term incentive scheme
designed to reward participants in equity for
a portion of their STI earned (up to 33%)
and defer vesting for two (2) years.
to
these
(value
shares
shares
incentives
the EOP was
Purpose
to
The purpose of
encourage key participating employees
to take on a significant stake in the
Group over the course of their careers.
As at 30 June 2015, there was a total of
–
833,334 VCR
$2,966,669) and a total of 3,071,740
ordinary shares subject
to disposal
restrictions (value – $10,935,394) under
the EOP. The loans outstanding in
totalled
relation
$8,690,109 which are only repayable if
the VCR shares vest.
The purpose of the EIP is to provide
to selected
annual equity
invited executives in line with current
market standards and expectations. The
offer terms for EIP awards are flexible,
but meet contemporary LTI design
standards. The first grant of performance
rights under this plan was made on 18
November 2014.
As at 30 June 2015, 54 employees held
-
496,000 performance rights
is subject
$1,597,820). Vesting
to
continuing
and meeting
service
performance hurdles.
Also refer section 4.4.2.
The purpose of the EIP is to provide
annual equity
invited
to
executives in line with current market
standards and expectations.
No grants have been made in respect of
the STI deferred scheme at the date of
this report.
Also refer section 4.4.2.
selected
(Value
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5.1 Employee Share Schemes operated by the Group (continued)
Equity Incentive
Plan (“EIP”)
Date established:
Nov 2014
Exempt shares
under Share Save
Scheme
participating
The exempt share save scheme (“SSS”)
allows
Australian
employees to acquire up to $1,000 of
Slater and Gordon shares each year tax
free (subject to qualifying conditions) on
a co-contribution basis (The November
2014 offer under the SSS was $500
company and $500 individual).
The purpose of the exempt SSS is to
encourage broad based employee equity
participation in Australia on an affordable
and sustainable basis in line with current
market standards and expectations.
As at 30 June 2015, 407 employees held
65,527 exempt shares in SSS (Value -
$233,276).
Share Incentive
Plan (“SIP”)
Ordinary shares
under SIP
Date established:
Dec 2014
The SIP allows participating United
Kingdom employees to acquire Slater
and Gordon shares each year on a tax
concessional basis (subject to qualifying
conditions) and on a co-contribution
basis (The December offer under the
SIP was £375 company and £375
individual).
based
The purpose of the SIP is to encourage
broad
equity
participation in the UK on an affordable
and sustainable basis in line with current
market standards and expectations.
employee
As at 30 June 2015, 438 employees held
84,576 shares in SIP (Value - $301,091).
5.2 Employee Share Scheme Grants to Executive KMP
5.2.1 Analysis of Share Based Payments Granted as Remuneration
Details of vesting profile of the performance rights granted as remuneration to each executive KMP are set out below:
Andrew Grech
Ken Fowlie
Wayne Brown
Neil Kinsella
Hayden Stephens
Cath Evans
Felicity Pantelidis
Grant Date
Nov 2014
Nov 2014
Nov 2014
Dec 2014
Nov 2014
Dec 2014
Nov 2014
Number
granted
40,000
16,000
16,000
16,000
16,000
16,000
12,000
132,000
Number
vested
-
-
-
-
-
-
-
-
Number
forfeited /
lapsed
-
-
-
-
-
-
-
-
Intrinsic Value
of vested
performance
rights ($)
-
-
-
-
-
-
-
-
The performance rights granted in FY15 have an exercise price of $0.00 and an expiration date of 30 September 2017.
The performance rights granted to KMP during the year have a fair value (AASB 2) in the range of $2.4643 to $2.4799 at
grant date.
5.2.2 Vesting and Exercise of Performance Rights Granted as Remuneration
During FY15, no performance rights vested or were exercised.
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5.2.3 Analysis of Movement in Performance Rights
The movement in number and value during the financial year of performance rights over ordinary shares of Slater and
Gordon Limited acquired under EIP LTI held by executive KMP is detailed below:
Andrew Grech
Ken Fowlie
Wayne Brown
Neil Kinsella
Hayden Stephens
Cath Evans
Felicity Pantelidis
Number
held at 1
July 2014
Number
granted
in year
Grant
Value
($)
Number
exercised
in year
Intrinsic
Value ($)
Number
forfeited
during
year
Number
held at 30
June 2015
Intrinsic
Value at
30 June
2015 ($)
-
-
-
-
-
-
-
-
40,000
61,608
16,000
24,643
16,000
23,657
16,000
23,807
16,000
23,657
16,000
23,807
12,000
17,743
132,000
198,922
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40,000
142,400
16,000
56,960
16,000
56,960
16,000
56,960
16,000
56,960
16,000
56,960
12,000
42,720
132,000
469,920
5.3 Potential Dilution if Performance Rights Vest and Ordinary Shares Issued
At the date of this report, the number of ordinary shares that would be issued if all performance rights were vested is
132,000, as set out above. If fully vested this represents less than 0.04% of issued capital. Vesting of performance rights
is conditional on service and performance conditions being met.
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5.4 KMP Equity Interests
In accordance with the Corporations Act 2001 (section 205G(1)), the Company is required to notify the interests (shares
and rights to shares) of directors to the ASX.
In the interests of transparency and completeness of disclosure, this information is provided for each NED (as required
under the Corporations Act 2001) and all executive KMP.
Please refer section 4.5.2 Hedging and margin lending prohibition for more information.
The table below indicates Slater and Gordon Limited shareholding:
John Skippen
Ian Court
Erica Lane
Rhonda O’Donnell
Andrew Grech
Ken Fowlie
Wayne Brown
Neil Kinsella
Hayden Stephens
Cath Evans
Felicity Pantelidis
Number held at
1 July 2014
Acquisitions
Disposals
Number held at
30 June 2015
Intrinsic Value at
30 June 2015 ($)
-
29,882
150,000
-
25,000
29,922
20,000
25,000
-
-
-
-
25,000
89,000
59,804
212,902
170,000
605,200
25,000
89,000
5,295,495
1,850,161
395,000
6,750,656
24,032,335
5,096,221
550,000
305,103
40,000
-
-
5,646,221
20,100,547
345,103
1,228,567
640,668
-
213,541
427,127
1,520,572
4,255,115
549,000
-
4,804,115
17,102,649
4,110,476
470,957
500,000
4,081,433
14,529,901
-
16,161
-
16,161
57,533
19,882,960
3,576,201
1,108,541
22,350,620
79,568,206
The table below indicates any unvested performance rights issued to executive KMP, but still subject to performance
hurdles and service conditions:
Andrew Grech
Ken Fowlie
Wayne Brown
Neil Kinsella
Hayden Stephens
Cath Evans
Felicity Pantelidis
Unvested EOP
Shares
-
-
-
-
-
-
-
-
Unvested
Performance Rights
40,000
16,000
16,000
16,000
16,000
16,000
12,000
132,000
Total Number held at
30 June 2015
40,000
16,000
16,000
16,000
16,000
16,000
12,000
132,000
Intrinsic Value at 30
June 2015 ($)
142,400
56,960
56,960
56,960
56,960
56,960
42,720
469,920
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6.0 Service Contracts and Employment Agreements
6.1 Employment Agreements: Executive Directors
The following sets out details of the employment agreements relating to the executive directors Andrew Grech and Ken
Fowlie.
Length of contract
Both executive directors are on rolling contracts, which is an ongoing employment contract until
notice is given by either party.
Contract Values
Andrew Grech
TFR: $565,000 per annum (inclusive of superannuation);
STI: Up to $175,000 (2014: $150,000) for the year ended 30 June 2015, inclusive of
superannuation, at the discretion of the Board, based on the achievement of certain key
performance indicators. The key performance indicators (“KPI”) are consistent with the
Company’s approved business plan and are aligned to delivering sustainable value to
shareholders. The indicators are based on the Balanced Scorecard methodology and cover
Group operational and financial results and the successful implementation of Group strategic
and people development initiatives. A cash bonus of $125,000 was paid during the year ended
30 June 2015 in respect to the year ended 30 June 2014. For the year ended 30 June 2015 a
cash bonus of $35,000 has been provisionally determined.
Ken Fowlie
TFR: $450,000 per annum (inclusive of superannuation);
STI: up to $150,000 (2014: $125,000) for the year ended 30 June 2015, inclusive of
superannuation, at the discretion of the Board, based on the achievement of certain key
performance indicators. The key performance indicators are consistent with the Company’s
approved business plan and are aligned to delivering sustainable value to shareholders. The
indicators are based on the Balanced Scorecard methodology and cover Group operational and
financial results and the successful implementation of Group strategic and people development
initiatives. A cash bonus of $50,000 was paid during the year ended 30 June 2015 in respect to
the year ended 30 June 2014. For the year ended 30 June 2015 a cash bonus of $30,000 has
been provisionally determined.
Performance
Review
The performance of the director is reviewed annually by the Nomination and Remuneration
Committee and/or the Board. The director is assessed on achievement of the Group’s goals and
budgets applicable to the year in review.
The Committee also reviews the remuneration of the director on an annual basis. The findings
are reported to, and approved by, the Board.
Notice periods
In order to terminate the employment arrangements, executive directors are required to provide
the Company with three (3) months’ written notice.
Resignation
On resignation, unless the Board determines otherwise, all unvested STI or LTI benefits are
forfeited.
Termination on
notice by the
Company
The Company may terminate employment by providing three (3) months’ written notice or
payment in lieu of the notice period based on TFR. On termination, unless the Board determines
otherwise, unvested STI or LTI benefits may be exercised or paid within 30 days of notice being
given.
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Annual Report 2015Slater and Gordon Limited
Directors’ Report
Audited Remuneration Report (continued)
6.1 Employment Agreements: Executive Directors (continued)
Redundancy
If the Company terminates employment for reasons of redundancy, under Company policy a
severance payment will be made of up to 12 months’ TFR.
All STI and LTI benefits are either:
•
•
released in full or on a pro-rata basis; or
remain subject to performance criteria and vesting date,
at the discretion of the Board with regard to the circumstances.
Death or total and
permanent disability
On death or total and permanent disability, the Board has discretion to allow all unvested STI
and LTI benefits to vest.
Termination for
serious misconduct
The Company may immediately terminate employment at any time in the case of serious
misconduct, and executive directors will only be entitled to payment of TFR up to the date of
termination.
On termination without notice by the Company in the event of serious misconduct:
• all unvested STI or LTI benefits will be forfeited; and
• any ESS instruments provided to the employee on vesting of STI or LTI awards that are held
in trust, will be forfeited.
Payment of statutory entitlements of long service leave and annual leave applies in all events of
separation.
Any executive who was one of the seven Vendor Shareholders is a party to the Vendor
Shareholder Agreement released to the ASX on 21 May 2007, and is subject to minimum
shareholding requirements and the consequences which flow from the cessation of their
employment as a term of that agreement.
Statutory
entitlements
Vendor
Shareholders
Post-employment
restraints
The employment agreement contains a restraint of trade provision which applies for a period of
12 months (or, in the case of a direct competitor of the Company, 24 months).
62
Slater and Gordon Limited
Page 41
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Audited Remuneration Report (continued)
6.2 Employment Agreements: Other Executive KMP
The following sets out details of the employment agreements relating to other executive KMP. The terms for all other
executive KMP are similar but do, on occasion, vary to suit the requirements of different countries.
Length of contract
All other executive KMP are on rolling contracts, which is an ongoing employment contract until
notice is given by either party.
Notice periods
In order to terminate the employment arrangements, other executive KMP are required to provide
the Company with at least three (3) months’ written notice.
Resignation
On resignation, unless the Board determines otherwise, all unvested STI or LTI benefits are
forfeited.
Termination on
notice by the
Company
The Company may terminate employment by providing between one and three months’ written
notice or payment in lieu of the notice period based on TFR. On termination, unless the Board
determines otherwise, unvested STI or LTI benefits may be exercised or paid within 30 days of
notice being given.
Redundancy
If the Company terminates employment for reasons of redundancy, under policy a severance
payment will be made of up to 12 months’ TFR.
All STI and LTI benefits are either:
•
•
released in full or on a pro-rata basis; or
remain subject to performance criteria and vesting date,
at the discretion of the Board with regard to the circumstances.
Death or total and
permanent
disability
On death or total and permanent disability, the Board has discretion to allow all unvested STI and
LTI benefits to vest.
Termination for
serious
misconduct
The Company may immediately terminate employment at any time in the case of serious
misconduct, and other executive KMP will only be entitled to payment of TFR up to the date of
termination.
On termination without notice by the Company in the event of serious misconduct:
• all unvested STI or LTI benefits will be forfeited; and
• any ESS instruments provided to the employee on vesting of STI or LTI awards that are held
in trust, will be forfeited.
Payment of statutory entitlements of long service leave and annual leave applies in all events of
separation.
Any executive who was one of the seven Vendor Shareholder is a party to the Vendor
Shareholder Agreement released to the ASX on 21 May 2007, and is subject to minimum
shareholding requirements and the consequences which flow from the cessation of their
employment as a term of that agreement.
Statutory
entitlements
Vendor
Shareholders
Post-employment
restraints
The employment agreement contains a restraint of trade provision which applies for a period of
12 months (or, in the case of a direct competitor of the Company, 24 months).
End of Remuneration Report.
Slater and Gordon Limited
Page 42
63
Annual Report 2015Slater and Gordon Limited
Directors’ Report
Rounding of Amounts
The amounts contained in the Directors’ Report and financial report have been rounded to the nearest thousand dollars
(where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The
Company is an entity to which the Class Order applies.
Signed in accordance with a resolution of the directors.
John Skippen
Chair
Melbourne
29 September 2015
Andrew Grech
Group Managing Director
64
Slater and Gordon Limited
Page 43
Annual Report 2015Slater and Gordon Limited
SLATER & GORDON LIMITED AND CONTROLLED ENTITIES
AUDITOR’S INDEPENDENCE DECLARATION
TO THE DIRECTORS OF SLATER & GORDON LIMITED
In relation to the independent audit for the year ended 30 June 2015, to the best of my knowledge and
belief there have been:
(i)
(ii)
No contraventions of the auditor independence requirements of the Corporations Act 2001; and
No contraventions of any applicable code of professional conduct.
This declaration is in respect of Slater & Gordon Limited and the entities it controlled during the year.
A R FITZPATRICK
Partner
29 September 2015
PITCHER PARTNERS
Melbourne
An independent Victorian Partnership ABN 27 975 255 196
Level 19, 15 William Street, Melbourne VIC 3000
Liability limited by a scheme approved under Professional Standards Legislation
Pitcher Partners is an association of independent firms
Melbourne | Sydney | Perth | Adelaide | Brisbane | Newcastle
An independent member of Baker Tilly International
44
65
Annual Report 2015Slater and Gordon Limited
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
For the Year Ended 30 June 2015
Note
2015
$’000
2014
$’000
Restated
Revenue and other income
Fee revenue – rendering of services
Net movement in work in progress
Services revenue
Gain from bargain purchase
Other income
Total revenue and other income
Less expenses
Salaries and employee benefit expense
Payments to former owners
Share based payment expense to former owners
Cost of sales
Rental expense
Advertising and marketing expense
Administration and office expense
Consultant fees
Finance costs
Bad and doubtful debts
Depreciation and amortisation expense
Costs associated with acquisitions
Other expenses
Profit before income tax expense
Income tax expense
Profit for the year after income tax expense
Other comprehensive income, net of tax
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations
Changes in fair value of cash flow hedges
Total items that may be reclassified subsequently to profit or
loss
Other comprehensive income for the year, net of tax
Total comprehensive income for the year, net of tax
Profit for the year attributed to:
Owners of the Company
Non-controlling interests
Total comprehensive income for the year attributed to:
Owners of the Company
Non-controlling interests
Basic earnings per share (cents)
Diluted earnings per share (cents)
The accompanying notes form an integral part of these financial statements.
4
4
4
5
5
5
5
6
20(b)
20(a)
21(a)
22(a)
25
25
486,267
53,399
20,472
58,939
8,232
627,309
(263,348)
(13,933)
(11,506)
(16,662)
(27,807)
(56,289)
(44,195)
(6,595)
(11,210)
(11,585)
(9,945)
(23,769)
(15,934)
114,531
(30,728)
83,803
63,542
(409)
63,133
63,133
146,936
83,554
249
83,803
146,583
353
146,936
35.6 cents
35.3 cents
366,415
45,398
-
19,762
6,653
438,228
(200,270)
(3,651)
(5,379)
-
(22,005)
(32,786)
(36,391)
(4,928)
(7,846)
(6,904)
(6,955)
(4,054)
(11,312)
95,747
(27,511)
68,236
5,833
(307)
5,526
5,526
73,762
68,020
216
68,236
73,539
223
73,762
33.8 cents
33.2 cents
66
Slater and Gordon Limited
Page 45
Annual Report 2015Slater and Gordon Limited
Consolidated Statement of Financial Position
As at 30 June 2015
Note
2015
$’000
Current assets
Cash and cash equivalents
Receivables
Work in progress
Current tax assets
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Receivables
Work in progress
Intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Payables
Short term borrowings
Current tax liabilities
Other current liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Long term borrowings
Deferred tax liabilities
Derivative financial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity attributable to equity holders in the Company
Non-controlling interest
Total equity
The accompanying notes form an integral part of these financial statements.
8
9
10
6
11
12
9
10
13
6
14
15
16
6
17
18
15
16
6
18
19
20
21
22
96,985
619,855
553,177
29,041
30,022
1,329,080
31,959
79,762
272,721
1,244,964
83,356
15,179
1,727,941
3,057,021
636,522
3,753
22,556
10,985
34,487
708,303
3,121
716,600
180,508
1,621
11,875
913,725
1,622,028
1,434,993
1,098,345
82,877
253,147
1,434,369
624
1,434,993
2014
$’000
Restated
25,270
183,684
278,072
-
12,403
499,429
12,964
45,684
189,262
123,655
22,264
11,844
405,673
905,102
190,527
9,077
2,481
10,103
20,124
232,312
7,385
117,254
123,621
1,020
4,760
254,040
486,352
418,750
217,049
14,217
187,213
418,479
271
418,750
Slater and Gordon Limited
Page 46
67
Annual Report 2015Slater and Gordon Limited
Consolidated Statement of Changes in Equity
For the Year Ended 30 June 2015
2015
Note
Contributed
Retained
Cash Flow
Foreign
Share-based
Total
Non-
Total
Equity
Profits
Hedging
Currency
Payment
controlling
Equity
Balance as at 1 July 2014 (restated)
Net Profit after tax for the year
Total other comprehensive income for the year 20,22(a)
Total comprehensive income for the year
Transactions with owners in their capacity
as owners
Ordinary and VCR shares issued (net)
Dividends paid
Transfer from share based payments reserve
Recognition of share based payments expense
to former owners
Costs of equity raising
Performance Rights
Total transactions with owners in their
capacity as owners
Balance as at 30 June 2015
19
7
19
20
19
20
Reserve
Translation
Reserve
$’000
(780)
-
$’000
10,009
-
-
(409)
63,438
83,554
(409)
63,438
$’000
$’000
217,049
187,213
83,554
-
-
-
Reserve
interest
$’000
$’000
$’000
$’000
4,988
418,479
83,554
63,029
271
249
104
418,750
83,803
63,133
146,583
353
146,936
896,352
-
-
(17,620)
6,199
-
(21,255)
-
-
-
-
-
881,296
(17,620)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
896,352
(17,620)
(6,199)
-
11,506
11,506
-
(21,255)
324
324
5,631
869,307
-
-
-
-
-
-
-
896,352
(17,620)
-
11,506
(21,255)
324
869,307
1,098,345
253,147
(1,189)
73,447
10,619 1,434,369
624 1,434,993
2014
Restated
Balance as at 1 July 2013
Net Profit after tax for the year (previously
reported)
Total other comprehensive income for the year
(previously reported)
Contributed
Retained
Note
Equity
Profits
Reserve
$’000
$’000
212,373
132,963
$’000
(473)
Translation
Reserve
$’000
4,183
60,946
-
-
20,22(a)
- -
(307)
5,687
Adjustments
1(w)
Total comprehensive income for the year
(restated)
Transactions with owners in their capacity as
owners
-
-
7,074
-
139
68,020
(307)
5,826
Ordinary and VCR shares issued (net) (restated)
1(w),19
4,405
-
Dividends paid
Transfer from share based payments reserve
(restated)
Recognition of share based payments expense
(restated)
Costs of equity raising
Equity contribution by non-controlling interest
Total transactions with owners in their
capacity as owners
Balance as at 30 June 2014 (restated)
7
1(w),19
1(w),20
19
22(a)
-
(13,770)
391
-
(120)
-
-
-
-
-
4,676
(13,770)
Cash Flow
Foreign
Share-based
Total
Non-
Hedging
Currency
Payment
Reserve
Total
Equity
controlling
interest
$’000
$’000
$’000
$’000
349,046
161
349,207
60,946
159
61,105
5,380
7
5,387
7,213
57
7,270
73,539
223
73,762
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,405
(13,770)
(391)
-
5,379
5,379
-
-
(120)
-
4,988
(4,106)
-
-
-
-
(113)
(113)
4,405
(13,770)
-
5,379
(120)
(113)
(4,219)
217,049
187,213
(780)
10,009
4,988
418,479
271
418,750
The accompanying notes form an integral part of these financial statements.
68
Slater and Gordon Limited
Page 47
-
-
-
-
-
-
-
-
-
-
-
-
Annual Report 2015Slater and Gordon Limited
Consolidated Statement of Cash Flows
For the Year Ended 30 June 2015
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Payments to former owners
Interest received
Borrowing costs
Income tax paid
Net cash provided by operating activities
Cash flow from investing activities
Payment for software development
Payment for plant and equipment
Costs associated with acquisition of businesses
Costs associated with originating loans
Payment for acquisition of businesses, net of cash in subsidiaries
Payment for acquisition of businesses – deferred consideration
Note
2015
$’000
4(a)
6
23(b)
520,954
(464,980)
(2,592)
2,294
(8,865)
(6,049)
40,762
(9,166)
(13,142)
(23,662)
(9,464)
(1,333,973)
(14,720)
2014
$’000
Restated
410,142
(342,758)
-
401
(5,344)
(8,006)
54,435
(1,485)
(3,284)
(4,054)
-
(98,464)
(18,309)
Net cash used in investing activities
(1,404,127)
(125,596)
Cash flow from financing activities
Proceeds from share issue
Repayment to related parties
Costs of raising equity
Proceeds from related parties and employees
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash provided by financing activities
Net increase in cash held
Effect of exchange rate fluctuations on cash held
Cash at beginning of financial year
Cash at end of financial year
The accompanying notes form an integral part of these financial statements.
19
23(a)
890,939
(469)
(18,438)
3,825
594,068
(43,966)
(15,924)
1,410,035
46,670
25,045
25,270
96,985
-
-
(120)
5,247
154,770
(73,695)
(9,907)
76,295
5,134
80
20,056
25,270
Slater and Gordon Limited
Page 48
69
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies
The following is a summary of significant accounting policies adopted by the consolidated entity in the preparation and
presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.
(a)
Basis of preparation of the financial report
Slater and Gordon Limited is a company limited by shares, incorporated and domiciled in Australia. The consolidated
financial statements comprise the Company and its controlled entities referred to in Note 30, together referred to as the
Group and individually as Group Entities.
This financial report is a general purpose financial report that has been prepared in accordance with Australian
Accounting Standards, Interpretations and other applicable authoritative pronouncements of the Australian Accounting
Standards Board and the Corporations Act 2001.
Slater and Gordon Limited is a for-profit entity for the purpose of preparing the financial statements.
The financial report was authorised for issue by the directors as at the date of the Directors’ Report.
Compliance with IFRS
The consolidated financial statements of Slater and Gordon Limited also comply with the International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
Historical cost convention
The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for
certain classes of assets as described in the accounting policies.
Significant accounting estimates
The preparation of the financial report requires the use of certain estimates and judgements in applying the entity’s
accounting policies. Those estimates and judgements significant to the financial report are disclosed in Note 2.
Going concern
The financial report has been prepared on a going concern basis.
(b)
Principles of consolidation
The consolidated financial statements are those of the consolidated entity, comprising the financial statements of the
parent entity and of all entities which the parent entity controls. The Group controls an entity when it is exposed, or has
rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity.
The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent
accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist.
All inter-company balances and transactions, including any unrealised profits or losses, have been eliminated on
consolidation. Subsidiaries are consolidated from the date on which control is established and are de-recognised from
the date that control ceases.
Non-controlling interests in the results of subsidiaries are shown separately in the consolidated statement of
comprehensive income and consolidated statement of financial position.
Any changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the
subsidiaries are accounted for as equity transactions.
70
Slater and Gordon Limited
Page 49
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(c)
Revenue
Rendering of services
It is the Group’s policy to recognise revenue in accordance with the revenue recognition criteria described in AASB 118
Revenue.
Revenue from rendering of services to customers is recognised upon delivery of the service to the customer. The
majority of revenue from services is comprised of fees billed, with the remaining amount representing movement in work
in progress and services revenue. Revenue is recognised to the extent that it is probable that the economic benefit will
flow to the entity and that revenue can be reliably measured. The Group measures revenue at the fair value of the
consideration received or receivable.
The Group has implemented practice standards within each region to monitor the progression of individual cases, and
thereby to determine the likely outcome of the transaction. The practice standards are based on the Group’s significant
depth of experience in progressing the various types of legal work undertaken to conclusion.
The Group renders the following key services to customers:
• provision of legal services for personal injury claims;
• provision of services for general law incorporating project litigation; and
• provision of legal and complementary services from SGS, acquired from Quindell Plc on 29 May 2015. Refer to
Business Combinations Note 31.
Revenue resulting from work in progress movement
Revenue includes the difference in Work In Progress value between reporting periods. The revenue recognised excludes
the net movement in Work In Progress contributed by the acquisition of client matters arising from a business
combination or file specific acquisition.
In relation to Personal Injury legal matters, the Group identifies individual contracts at a similar stage of completion. This
means that the rights and obligations contained in each contract do not vary materially from one contract to another in
each category of work that the Group typically performs for clients.
The measurement of this component of revenue is based upon:
•
•
•
the estimate of fees upon completion of the matter;
the probability of the success of the matter; and
the percentage of completion of the matter.
On an individual client matter basis this means that as Work in Progress increases on a client matter, the increase in
Work in Progress is recorded as a revenue item. When a matter is finalised, the full amount of the actual fees for
services is invoiced or billed to the client and recorded as revenue. This is then offset by the work in progress matter
being written back to nil (recognised as a negative revenue amount) neutralising the previously recorded revenue.
Provision of legal and other services resulting from Slater Gordon Solutions
Legal Services
These services relate to road traffic accident (“RTA”), employee liability/public liability (“ELPL”) and noise induced
hearing loss (“NIHL”) cases. Revenue is recognised by stage of completion, consistent with the treatment outlined above
for provision of services from personal injury claims.
Other services include replacement vehicle hire, vehicle repair, provision of medical reports and rehabilitation.
Vehicle hire and repair
Revenue relating to car hire, repair and claims management services is measured at the fair value of the consideration
receivable, net of Value Added Tax (“VAT”) and other sales taxes. Revenue is recognised when services are provided,
including an appropriate proportion of any services that are in progress at the reporting date. It is recognised only when it
can be estimated reliably.
Slater and Gordon Limited
Page 50
71
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(c)
Revenue (continued)
Hire revenue is recognised on a stage of completion basis as it is accrued on a daily basis for each day that the vehicle
is on the road with the client. Revenue and costs are accrued on each specific vehicle at the GTA (the Association of
British Insurers General Terms of Agreement for credit hire arrangements) or contracted rates.
The benefit of the service to the customer is generated over time and the ability to estimate the stage of completion is
high given it is based on actual days and known rates.
Vehicle repair revenue is recognised on a ‘significant act’ basis whereby the significant act is the completion of a repair.
At this point the obligation is fulfilled. The corresponding cost of repair is also recognised at this point.
Administration fee revenue on car hire/repair as set under the GTA is recognised at the start of the respective service.
Medical Reports and Services
Revenue is earned from the procurement of medical reports and other services.
The instructing party will request SGS to procure a service. An appointment is arranged with a third party medical
practitioner. The significant event for revenue recognition is considered to be the attendance at the appointment of the
instructing party’s client. At this point there is certainty over the outcome. Therefore, medical reports revenue is
recognised once an appointment has been attended as this is considered to be the significant act in accordance with
AASB 118.
Rehabilitation Services
Revenue is recognised when the initial assessment appointment has been attended as this is considered to be the
‘significant act’. The medical practitioner will confirm the course of treatment required in the initial assessment. For
rehabilitation, the instructing party is liable for the costs as they have instructed the services on behalf of an individual.
Interest Revenue
Interest revenue is recognised when it becomes receivable on a proportional basis taking into account the interest rates
applicable to the financial assets.
Other revenue
Other revenue is recognised when the right to receive the revenue has been established.
All revenue is stated net of the amount of goods and services tax (“GST”) or UK equivalent value added tax (“VAT”).
(d)
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and short-term deposits with an
original maturity of three months or less. Bank overdrafts are shown within short-term borrowings in current liabilities on
the consolidated statement of financial position. For the purposes of the consolidated statement of cash flows, cash and
cash equivalents consist of cash and cash equivalents as defined above, net of outstanding banking overdrafts.
(e)
Disbursements
Disbursements are only recognised when it is assessed that a reimbursement will be received from the client or on his or
her behalf. The disbursements are treated as a separate asset. The amount recognised for the expected reimbursement
does not exceed the relevant costs incurred.
The amount of any expected reimbursement is reduced by an allowance for non-recovery based on past experience.
(f)
Property, plant and equipment
Property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment
losses.
The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not in excess of
the recoverable amount from those assets. Recoverable amount is the higher of fair value less costs of disposal and
value in use. Value in use is based on estimated future cash flows, discounted to their present value using a post-tax
discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
72
Slater and Gordon Limited
Page 51
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(f)
Property, plant and equipment (continued)
Depreciation
Land is not depreciated.
The depreciable amounts of all other property, plant and equipment are depreciated over their estimated useful lives,
commencing from the time the asset is held ready for use. Leased assets are depreciated over the shorter of the lease
term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease
term.
The depreciation rates used for each class of assets are:
Class of fixed asset
Plant and equipment
Low value asset pool
Depreciation rates
Depreciation method
5.00 – 66.67%
Straight Line and Diminishing Value
18.75 – 37.50%
Diminishing value
An asset’s residual value and useful life is reviewed, and adjusted if appropriate, at the end of each reporting period. An
asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount. Any impairment losses are recognised in the profit or loss.
Gains and losses on disposal are determined by comparing proceeds with the carrying amount. These gains and losses
are included in the profit or loss.
(g)
Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the
agreement so as to reflect the risks and benefits incidental to ownership.
Finance leases
Leases of fixed assets, where substantially all of the risks and benefits incidental to ownership of the asset, but not the
legal ownership, are transferred to the consolidated entity are classified as finance leases. Finance leases are
capitalised, recording an asset and liability equal to the fair value or, if lower, the present value of the minimum lease
payments, including any guaranteed residual values. The interest expense is calculated using the interest rate implicit in
the lease and is included in finance costs in the statement of comprehensive income. Leased assets are depreciated on
a straight line basis over their estimated useful lives where it is likely the consolidated entity will obtain ownership of the
asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the
lease interest expense for the period.
Operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating leases. Operating lease payments are recognised as an expense in the consolidated statement of
comprehensive income on a straight-line basis over the lease term. Lease incentives under operating leases are
recognised as a liability and amortised on a straight-line basis over the life of the lease.
(h) Work in progress (“WIP”)
Work in progress represents client cases which have not yet reached a conclusion and comprises personal injury cases,
services performed ancillary to personal injury cases, non-personal injury cases and project litigation cases.
The Group allocates work in progress between current and non-current classifications based on a historical analysis of
the Group’s work in progress balances and velocity rates to determine expected timing of settlements. Refer Note 1(w)
regarding changes to account classification during the financial year ended 30 June 2015.
Work in progress arising from legal services performed by Slater and Gordon Lawyers
Work in progress is carried at either cost or it may include profit recognised to date based on the value of work
completed. The following are the methodologies adopted for each division in determining the value of work in progress:
Personal Injury Law work in progress
Slater and Gordon Limited
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73
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(h) Work in progress (“WIP”) (continued)
Personal injury law work in progress is measured using the regional practice standards applicable to each region
established by the Group to determine the stage of completion using a methodology:
a)
b)
to examine the nature and extent of work performed for individual cases; and
to identify services performed to date as a percentage of total services to be performed.
The regional practice standards incorporate value pricing and fixed fee valuations, applying a probability of success
factor, making allowance for the “No Win No Fee” conditional fee arrangements, under which the Personal Injury practice
operates.
The Group conducts a detailed review of the stage of completion calculations for all cases on a half-yearly basis. When
necessary, the Group revises the estimates of revenue for the services performed. The need for such revisions does not
necessarily indicate that the outcome of the transaction cannot be estimated reliably, rather it implicitly includes some
estimation uncertainty. (Refer Note 2(b) Critical Accounting Estimates and Judgments – Work in progress.)
General Law work in progress
For estate, probate, industrial law, commercial law and funded project litigation matters, time records and historical levels
of fees billed are used in determining the value of work completed.
Project litigation work in progress
Project litigation matters are defined as any matters where total professional fees and/or disbursements are likely to
exceed $1.0 million over the course of the conduct of the matter(s).
Work in progress in project litigation matters is recognised on self-funded project litigation matters for which a favourable
outcome is considered probable. For such projects, work in progress is initially valued at costs incurred less a discount
for the likely recovery of those costs. Cost includes both variable and fixed costs directly related to cases and those that
can be attributed to case activity and that can be allocated to specific projects on a reasonable basis. Where a project
litigation matter has reached partial or full settlement and an enforceable agreement to recover the professional fees
exists, work in progress is valued at the settled fee amount and discounted for percentage file completion, and the
probability of the full fee being collected. Project litigation matters that are not expected to be realised within twelve
months are classified as non-current.
Work in progress arising from services provided by Slater Gordon Solutions
Legal Services
Revenue from work in progress from non-hearing loss files (RTA, ELPL) is recognised based on the following key
milestones on a matter.
i)
ii)
Validation – this is the initial stage of the case;
Collation pre-med – matters with claim notification form (“CNF”) submitted, but pre-receipt of medical report;
iii)
Collation post-med – medical report received, but prior to submission of settlement pack;
iv)
Valuation – settlement pack submitted, but prior to issue of proceedings; and
v)
Issue – post issue of proceedings.
The measurement of this component of revenue is consistent with the Group approach for valuing WIP based on
average fees, probability of success and percentage completion.
No value of work in progress has been recognised for Noise Induced Hearing Loss (“NIHL”) files as the amount of
revenue cannot at this stage (30 June 2015) be measured reliably.
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Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(h) Work in progress (“WIP”) (continued)
Vehicle hire and repair
Work in progress is recognised for the following transactions:
i)
ii)
Incomplete WIP – where a car hire is still in use; and
Billing not completed – this occurs where the car hire has been returned or repairs completed where the invoice is
still outstanding (due to the time period required for all documentation to be in place before it is issued).
Work in progress is recognised based on the probable inflow of economic benefits flowing to the entity which occurs
before settlement by the insurer. Settlement could take considerable time to recover. A dilution rate is applied on the
invoice to recognise the fact that there may be a settlement adjustment with the insurer if the insurer disputes any costs.
This also takes into account the fact that some cases may not be ‘no fault’.
Medical reports and rehabilitation services
Work in progress is recognised when an appointment has been attended. The amount will remain in work in progress
until the discharge form has been received at which point the rehabilitation service is invoiced. This value remains in
work in progress until the number of sessions required is known at which point the invoice is raised.
Work in progress is calculated based on the average amount charged out, based on historic cases less a historic dilution
factor applied to reflect the fact that not all amounts will be billed.
For medical reports, the work in progress balance is calculated when the appointment is attended.
(i)
Business combinations
A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses
and results in the consolidation of the assets and liabilities acquired. Business combinations are accounted for by
applying the acquisition method.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments
issued or liabilities incurred by the acquirer to former owners of the acquired. Deferred consideration payable is
measured at fair value. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date
fair value.
Goodwill is recognised initially at the excess over the aggregate of the consideration transferred, the fair value of the
non-controlling interest, and the acquisition date fair value of the acquirer’s previously held equity interest (in case of step
acquisition), less the fair value of the identifiable assets acquired and liabilities assumed.
If the fair value of the acquirer's interest is greater than the aggregate of the consideration transferred, the fair value of
the non-controlling interest, and the acquisition date fair value of the acquirer’s previously held equity interest (in case of
step acquisition), the gain is immediately recognised in the profit or loss as gain from bargain purchases.
In conjunction with the business combination transaction there may be a transfer of assets between controlled entities as
part of restructuring the acquired business. The parent accounts for such transfers through reallocation of the cost of the
investments in its statement of financial position. Acquisition related costs are expensed as incurred.
Refer to Note 1(w) for the accounting policy change in respect of accounting for business combinations.
(j)
Intangibles and goodwill
Software development costs
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Development costs are capitalised when it is probable that the project will be a success considering its commercial and
technical feasibility; the entity is able to use or sell the asset; the entity has sufficient resources and intent to complete
the development and its costs can be measured reliably. Capitalised development expenditure is stated at cost less
accumulated amortisation. Amortisation is calculated using a straight-line method to allocate the cost of the intangible
assets over their estimated useful lives. Amortisation commences when the intangible asset is available for use.
Slater and Gordon Limited
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75
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(j)
Intangibles and goodwill (continued)
Software development costs are carried at cost less accumulated amortisation and any accumulated impairment losses.
These assets have been assessed as having a finite useful life and once operating in the Group are amortised over the
useful life of 5-8 years.
Trademarks and Brand names
Trademarks acquired in a business combination and recognised separately from goodwill are initially recognised at their
fair value at the acquisition date (which is regarded as their cost). The fair value of trademarks is based on the
discounted estimated royalty payments that have been avoided as a result of the trademark being owned.
Trademarks are carried at cost less accumulated amortisation and any accumulated impairment losses. Trademarks that
have been assessed as having a finite useful life are amortised over their finite life.
Brand names acquired as part of the acquisition of Slater Gordon Solutions have been carried at cost. These brand
names have been assessed as having an indefinite useful life, therefore no amortisation is applicable.
Customer relationships
The fair value of customer relationships acquired in a business combination is determined using the multi-period excess
earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of
creating the related cash flows. They are assessed as having a finite useful life and are amortised over their useful life.
Goodwill
Goodwill is initially measured as the excess over the aggregate of the consideration transferred, the fair value (or
proportionate share of net assets value) of the non-controlling interest, and the acquisition date fair value of the
acquirer’s previously held equity interest (in case of step acquisition), less the fair value of the identifiable assets
acquired and liabilities assumed.
Goodwill is not amortised, but is tested annually for impairment or more frequently if events or changes in circumstances
indicate that it might be impaired. Goodwill is carried at cost less any accumulated impairment losses.
(k)
Impairment of non-financial assets
Goodwill, intangible assets not yet ready for use and intangible assets that have an indefinite useful life are not subject to
amortisation and are therefore tested annually for impairment or more frequently if events or changes in circumstances
indicate that they might be impaired. Assets subject to annual depreciation or amortisation are reviewed for impairment
whenever events or circumstances arise that indicates that the carrying amount of the asset may be impaired.
An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The
recoverable amount of an asset is defined as the higher of its fair value less costs of disposal and value in use.
For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units).
(l)
Taxation
Taxation consists of income tax, Goods and Services Tax (“GST”) and Value Added Tax (“VAT”).
Income tax
Income tax expense comprises current and deferred tax.
Current tax
Current income tax expense or benefit is the tax payable / receivable on the current period's taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable
to temporary differences and unused tax loses. The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the countries where the Group operates and
generates taxable income.
76
Slater and Gordon Limited
Page 55
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(l)
Taxation (continued)
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets
are expected to be recovered or liabilities are settled. Deferred tax liabilities are not recognised if they arise from the
initial recognition of goodwill. Deferred tax is also not accounted for if it arises from initial recognition of an asset or
liability in a transaction, other than a business combination, and at the time of the transaction affects neither accounting
nor taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will
be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred
tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future
taxable profits will be available against which they can be used.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at
the reporting date.
Current and deferred tax for the year are recognised in profit or loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also
recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises
from the initial accounting for a business combination, the tax effect is included in the accounting for the business
combination.
Tax consolidation (applicable to Australian entities only)
The Company and its wholly-owned Australian domiciled entities except for Slater & Gordon Lawyers listed in Note 30
have implemented the tax consolidation legislation and have formed a tax-consolidated group from 28 April 2011. As a
consequence, the Company and its controlled entities which comprise the tax consolidated group are taxed as a single
entity. New Australian domiciled entities acquired during the current year have joined the tax consolidation group from
the date of acquisition (refer to Note 31). The head entity within the tax consolidated group is Slater and Gordon Limited.
The parent entity and subsidiaries in the tax-consolidated group have entered into a tax funding arrangement such that
each entity in the tax-consolidated group recognises the assets, liabilities, expenses and revenue in relation to its own
transactions, events and balances only. This means that:
•
•
the parent entity recognises all current and deferred tax amounts relating to its own transactions, events and
balances only;
the subsidiaries recognise current or deferred tax amounts arising in respect of their own transactions, events and
balances;
• current tax liabilities and deferred tax assets arising in respect of tax losses are transferred from the subsidiary to the
head entity as inter-company payables or receivables.
The tax-consolidated group also has a tax sharing agreement in place to limit the liability of subsidiaries in the tax-
consolidated group arising under the joint and several liability requirements of the tax consolidation system. No amounts
have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default
is remote.
Goods and Services Tax (“GST”) and Value Added Tax (“VAT”)
Revenue, expenses and assets are recognised net of the amount of GST/VAT, except where the GST/VAT incurred is
not recoverable from the Australian Taxation Office (“ATO”), UK Her Majesty’s Revenue and Customs (“HMRC”) or Malta
Inland Revenue (“MIR”) and is therefore recognised as part of the asset’s cost or as part of the expense item.
Receivables and payables are stated inclusive of GST/VAT.
The net amount of GST/VAT recoverable from, or payable to, the ATO/HMRC/MIR is included as part of receivables or
payables in the consolidated statement of financial position.
Cash flows are presented in the statement of cash flows on a gross basis, except for the GST/VAT component of
investing and financing activities, which are disclosed as operating cash flows. Commitments and contingencies are
disclosed net of the amount of GST/VAT recoverable from, or payable to, the relevant taxation authority.
Slater and Gordon Limited
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77
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(m) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, for
which it is probable that an outflow of economic benefits will result in an amount that can be reliably measured.
A provision for solicitor liability claims is made for the potential future cost of claims brought against the Group by former
clients. The provision is determined by including the estimated maximum amount payable by the Group under its
Professional Indemnity Insurance Policy on all claims notified to its insurer.
(n)
Employee Benefits
Short-term employee benefit obligations
Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled
within twelve months of the reporting date are measured at the amounts based on remuneration rates which are
expected to be paid when the liability is settled. The expected cost of short-term employee benefits in the form of
compensated absences such as annual leave and accumulated sick leave is recognised in the provision for employee
benefits. All other short-term employee benefit obligations are presented as payables.
Long-term employee benefit obligations
The provision for employee benefits in respect of long service leave and annual leave payable later than one year have
been measured at the present value of the estimated future cash outflows to be made for those benefits. These
estimated future cash flows have been discounted using market yields, at the reporting date, on corporate bonds with
matching terms to maturity.
Employee benefit obligations are presented as current liabilities in the consolidated statement of financial position if the
entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date,
regardless of when the actual settlement is expected to occur.
Defined contribution superannuation plan
The Group makes contributions to defined contribution superannuation plans in respect of employee services rendered
during the year. These superannuation contributions are recognised as an expense in the same period when the
employee services are received.
Bonus plan
The Group recognises a provision when a bonus is payable in accordance with the employee’s contract of employment
and the amount can be reliably measured.
Termination benefits
Termination benefits are payable when employment of an employee or group of employees is terminated before the
normal retirement date, or when the entity provides termination benefits as a result of an offer made and accepted in
order to encourage voluntary redundancy.
The Group recognises a provision for termination benefits when the entity can no longer withdraw the offer of those
benefits, or if earlier, when the termination benefits are included in a formal restructuring plan that has been announced
to those affected by it. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they
are discounted and presented as non-current liabilities.
(o)
Share-based payment transactions
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value
of the equity instruments at the grant date.
The consolidated entity operates share-based payment employee share and option schemes. The fair value of the equity
to which employees become entitled is measured at grant date and recognised as an expense over the vesting period,
with a corresponding increase to an equity account. Details regarding the determination of the fair value of equity-settled
share-based transactions are set out in Note 27. In respect of share-based payments that are dependent on the
satisfaction of performance conditions, the number of shares and options expected to vest is reviewed and adjusted at
each reporting date. The amount recognised for services received as consideration for these equity instruments granted
is adjusted to reflect the best estimate of the number of equity instruments that eventually vest.
78
Slater and Gordon Limited
Page 57
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(o)
Share-based payment transactions (continued)
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the
goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured
at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty
renders the service.
The Group operates an Employee Ownership Plan (“EOP”). The EOP allows employees to purchase Vesting Convertible
Redeemable (“VCR”) shares in the Company by way of an interest-free loan. Per the policy, the loan has been recorded
as a financial instrument.
• The VCR shares vest over a specified period of time. At the time of vesting, VCR shares convert into ordinary shares
with disposal restrictions. The terms and conditions of these shares are further described at Note 27.
• The value of the benefit received by an employee from issue of the VCR shares is assessed as the difference
between the value of the VCR shares at the date of issue and the present value of the amount payable by the
employee for purchase of the VCR shares. In accordance with AASB 2 Share-based Payment, the benefit is
expensed on a proportional basis over the period from issue date to the date on which the employee becomes
unconditionally entitled to the full benefit of ownership of the shares.
In 2015 the Equity Incentive Plan (“EIP”) has been introduced to replace the EOP without prejudice to the rights of
current participants in the EOP. Refer to Note 27 for more details.
(p)
Borrowing costs
Borrowing costs can include interest expense, finance charges in respect of finance leases, amortisation of discounts or
premiums, ancillary costs relating to borrowings, and exchange differences arising from foreign currency borrowings to
the extent that they are regarded as an adjustment to interest costs.
Borrowing costs are expensed in the period which they are incurred, except for borrowing costs incurred as part of the
cost of the construction of a qualifying asset which are capitalised until the asset is ready for its intended use or sale.
(q)
Financial instruments
Classification
The Group has financial instruments in the following category: loans and receivables. The classification depends on the
purpose for which the instruments were acquired. Management determines the classification of its financial instruments
at initial recognition.
Non-derivative financial instruments
Non-derivative financial instruments consist of investments in equity and debt securities, trade and other receivables,
cash and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are initially recognised at fair value, plus directly attributable transaction costs (if
any), except for instruments recorded at fair value through profit or loss. After initial recognition, non-derivative financial
instruments are measured as described below.
Loans and receivables
Loans and receivables are non-interest bearing, non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. The loans are initially recognised based on fair value plus directly attributable
transactions costs and are subsequently stated at amortised cost using the effective interest rate method.
Impairment of financial assets
Financial assets are tested for impairment at each financial year end to establish whether there is any objective evidence
of impairment.
Slater and Gordon Limited
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79
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(q)
Financial instruments (continued)
For loans and receivables or held-to-maturity investments carried at amortised cost, impairment loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future
credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The amount
of the loss reduces the carrying amount of the asset and is recognised in profit or loss. The impairment loss is reversed
through profit or loss if the amount of the impairment loss decreases in a subsequent period and the decrease can be
related objectively to an event occurring after the impairment was recognised.
Financial liabilities
Financial liabilities include trade payables, other creditors and loans from third parties including loans from or other
amounts due to director-related entities.
Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and
amortisation.
Non-interest bearing financial liabilities for deferred cash consideration on the acquisition of acquired firms is measured
at amortised cost using the effective interest rate method. The implied interest expense is recognised in profit and loss.
Derivative financial instruments
The Group designates certain derivatives as either:
• hedges of fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
• hedges of highly probable forecast transactions (cash flow hedges).
The Group currently has cash flow hedges only, relating to interest rate risk management. At the inception of the
transaction the relationship between hedging instruments and hedged items, as well as the Group’s risk management
objective and strategy for undertaking various hedge transactions are documented. It is the Group’s policy to hedge a
portion of its exposure in order to minimise the impact of an adverse change in interest rates that the Group is subject to.
Assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flow hedged
items, are also documented.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the
consolidated statement of comprehensive income, together with any changes in the fair value of hedged assets or
liabilities that are attributable to the hedged risk.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in a hedge reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in
the consolidated statement of comprehensive income.
Amounts accumulated in the hedge reserve in equity are transferred to the consolidated statement of comprehensive
income in the periods when the hedged item will affect profit and loss.
(r)
Segment reporting
Determination and presentation of operating segments
The Group determines and presents operating segments based on the information that is internally provided to the
Group Managing Director, who is the Group’s chief operating decision maker.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other
80
Slater and Gordon Limited
Page 59
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(s)
Foreign currency translations and balances
components. All operating segment results are regularly reviewed by the Group’s Managing Director to make decisions
about resources to be allocated to the segment and to assess its performance. Refer to Note 3 for details on how
management determines the operating segments.
Segment results that are reported to the Group Managing Director include items directly attributable to a segment, as
well as those that can be allocated on a reasonable basis.
Functional and presentation currency
The financial statements of each entity within the consolidated entity are measured using the currency of the primary
economic environment in which that entity operates (the functional currency). The consolidated financial statements are
presented in Australian dollars which is the consolidated entity’s functional and presentation currency.
Transactions and balances
Transactions in foreign currencies of entities within the consolidated group are translated into functional currency at the
rate of exchange ruling at the date of the transaction except for the foreign operations disclosed below.
Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under
foreign currency contracts where the exchange rate for that monetary item is fixed in the contract) are translated using
the spot rate at the end of the financial year.
Except for certain foreign currency hedges, all resulting exchange differences arising on settlement or re-statement are
recognised as revenues and expenses for the financial year.
Foreign operations
Entities that have a functional currency different to the presentation currency are translated as follows:
• assets and liabilities are translated at the closing rate on reporting date;
•
income and expenses are translated at actual exchange rates or average exchange rates for the period, unless the
exchange rate fluctuated significantly during the period, in which case the exchange rates at the dates of the
transactions are used; and
• all resulting exchange differences are recognised in other comprehensive income, a separate component of equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of
the foreign operation and translated at the closing rate.
(t)
Earnings per share
Basic earnings per share (“EPS”) is calculated as net profit attributable to ordinary equity holders of the Company divided
by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated as net profit attributable to ordinary equity holders of the Company divided by the weighted
average number of ordinary shares and dilutive potential ordinary shares outstanding during the year.
(u)
Comparatives
Where necessary, comparative information has been reclassified and repositioned for consistency with current year
disclosures.
Comparatives have also been updated for changes in accounting policies as described in Note 1(w) below.
(v)
Rounding of amounts
The parent entity and the consolidated entity have applied the relief available under ASIC Class Order CO 98/0100 and
accordingly, amounts in the consolidated financial statements and Directors’ Report have been rounded off to the
nearest thousand dollars, or in certain cases, to the nearest dollar.
Slater and Gordon Limited
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81
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(w) Changes in accounting policies adopted by the Group
Change to accounting for business combinations
The Group has reassessed its accounting treatment of deferred consideration payable in the context of its acquisition of
legal service practices. This reassessment has taken into account an analysis of historical acquisitions in Australia and
the United Kingdom where cash and share-based consideration payable to the vendor principals of businesses acquired
by the Group is deferred.
Historically, all cash payments and share issues to vendors, whether restrained, deferred, contingent or otherwise, have
been treated as consideration for the relevant business acquisition.
The Group has now carefully considered the appropriate treatment of these payments in light of the evolving
interpretation of AASB 3 Business Combinations with regard to the treatment of specific components of deferred
consideration.
An assessment has been made in relation to those arrangements that include contingent consideration to vendors of the
business that are subject to so-called “bad leaver” provisions.
Included in the terms of a number of purchase agreements entered into by the Group is an arrangement whereby the
payment of cash consideration to and/or the retention of share-based consideration by the vendors of acquired entities is
contingent upon the relevant vendors remaining with the Group for a defined period. If a vendor ceases to remain with
the Group for the prescribed period, the vendor may forfeit its entitlement to payment of the cash consideration and/or its
ability to retain its share-based consideration, at the discretion of the Group.
In light of the evolving interpretation of AASB 3 within the accounting profession, we now take the view that such
arrangements will be deemed to be “separate transactions” for accounting purposes, the effect of which is that they are
treated as payments to former owners, to be expensed in accordance with other applicable Australian Accounting
Standards.
The effect of these changes to the financial statements for the year ended 30 June 2014 is outlined as follows:
Impact on consolidated comprehensive income of
the restatement of business acquisition accounting
(Previously reported)
$’000
Restatements $’000
30/06/2014
30/06/2014
(Restated)
$’000
Gain from bargain purchase
Payments to former owners
Share based payment expense to former owners
-
19,762
19,762
-
-
(3,651)
(3,651)
(5,379)
(5,379)
Finance cost – decrease
Income tax expense – increase
(8,412)
566
(7,846)
(23,344)
(4,167)
(27,511)
Profit for the year – increase
61,105
7,131
68,236
Profit for the year attributable to:
Owners of the Company – increase
Non-controlling interests – increase
Increase in other comprehensive income, net of tax
Increase in other comprehensive income for the year
attributable to:
Owners of the Company
Non-controlling interests
60,946
7,074
68,020
159
5,387
57
216
139
5,526
66,326
7,213
166
57
73,539
223
33.80
33.20
Page 61
Effect on basic earnings per share (cents)
30.30
3.50
Effect on diluted earnings per share (cents)
29.80
3.40
82
Slater and Gordon Limited
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(w) Changes in accounting policies adopted by the Group (continued)
Impact on assets, liabilities and equity as at
30 June 2014
(Previously reported)
$’000
Restatements $’000
30/06/2014
Work in progress - decrease
Intangible assets - decrease
Deferred tax assets - decrease
Payables – decrease
Current tax liability – increase
Current provisions – increase
Deferred tax liability – decrease
Share capital – decrease
Reserves – increase
Retained profits – increase
Non-controlling interest - increase
473,339
130,190
26,985
(6,005)*
(6,535)*
(4,721)
214,037
(16,125)
1,960
16,468
124,604
521
3,656
(983)
233,638
(16,589)
9,090
180,139
214
5,127
7,074
57
30/06/2014
(Restated)
$’000
467,334**
123,655
22,264
197,912
2,481
20,124
123,621
217,049
14,217
187,213
271
*Includes the impact of the finalisation of acquisition accounting for Pannone of $6,005,000 decrease in WIP and $1,110,000 increase in
intangible assets.
**Additional restatements to reclassify the WIP balance between current and non-current are discussed below.
Classification of Work In Progress and Disbursements
Historically, all of the Group’s work in progress and disbursement balances have been classified as current assets in the
consolidated statement of financial position, with the exception of the work in progress of the Group’s Project Litigation
practice which included a current and non-current component. The work in progress on the Group’s Personal Injury Law
(“PIL”) matters were historically assessed as being capable of being resolved at any stage of the matters process and
therefore all work in progress and disbursements on PIL matters were classified as current assets in the consolidated
statement of financial position.
The Group has reassessed the classification of its work in progress and disbursement balances in the consolidated
statement of financial position as at 30 June 2015. A historical analysis of the Group’s work in progress balances and
historical file velocity rates were used to form a view on the expected timing of settlements. The Group carefully
considered the appropriate accounting as to this analysis and the applicable Australian Accounting Standards.
As a result of this reassessment, the Group has made adjustments to the presentation of its work in progress and
disbursement balances to include a current and non-current classification in the consolidated statement of financial
position as at 30 June 2015. The Group has also reclassified comparative balances in the consolidated statement of
financial position as at 30 June 2014 to assist users in reviewing trends across the two reporting periods. It is not
practicable to restate earlier periods.
Slater and Gordon Limited
Page 62
83
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(w) Changes in accounting policies adopted by the Group (continued)
The effect of these changes to the financial statements for the year ended 30 June 2014 is outlined as follows:
Impact on Work in Progress balance as at
30 June 2014
(Previously reported)
$’000
Restatements $’000
30/06/2014
30/06/2014
(Restated)
$’000
Current assets
Non-personal injury
Personal injury
Project litigation
Non-current assets
Non-personal injury
Personal injury
Project litigation
16,412
453,091
1,106
470,609
-
-
2,730
2,730
(1,681)
(190,856)
-
(192,537)
-
186,532
-
186,532
14,731
262,235
1,106
278,072
-
186,532
2,730
189,262
Impact on Disbursement balance as at
30 June 2014
(Previously reported)
$’000
Restatements $’000
30/06/2014
30/06/2014
(Restated)
$’000
Current assets
Disbursements
Allowance for non-recovery
Non-current assets
Disbursements
Allowance for non-recovery
133,927
(7,717)
126,210
-
-
-
(51,857)
6,173
(45,684)
51,857
(6,173)
45,684
82,070
(1,544)
80,526
51,857
(6,173)
45,684
(x)
Adoption of new and amended accounting standards
The Group has adopted all the new mandatory standards and interpretations for the current reporting period. The
adoption of these standards and interpretations did not result in a material change on the reported results and position of
the Group, other than as identified in Note 1(w), as they did not result in any changes to the Group’s existing accounting
policies.
(y)
Accounting standards issued but not yet effective at 30 June 2015
AASB 15 Revenue from contracts with customers
AASB 15 is operative for annual reporting periods beginning on or after 1 January 2017. AASB 15 specifies the
accounting for an individual contract with a customer, also recognising that the requirements of the standard may be
applied to a portfolio of contracts for performance obligations with similar characteristics, if the entity reasonably expects
that the effects on the financial statements of applying the standard to the portfolio would not differ materially from
applying this standard to the individual contracts (or performance obligations) within that portfolio.
AASB 15 introduces a five step process for revenue recognition with the core principle being for entities to recognise
revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is,
payment) to which the entity expects to be entitled in exchange for those goods or services. The five step approach is as
follows:
• Step 1: Identify the contracts with the customer;
• Step 2: Identify the separate performance obligations;
• Step 3: Determine the transaction price;
84
Slater and Gordon Limited
Page 63
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 1: Statement of Significant Accounting Policies (continued)
(y)
Accounting standards issued but not yet effective at 30 June 2015 (continued)
• Step 4: Allocate the transaction price; and
• Step 5: Recognise revenue when a performance obligation is satisfied.
AASB 15 will also result in enhanced disclosures in relation to revenue, provide guidance for transactions that were not
previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance
for multiple-element arrangements.
The Group currently determines the stage of completion based on a methodology which identifies services performed to
date as a percentage of total services to be performed for an outcome to be rendered in the case.
A thorough reassessment of the valuation methodology within all practice areas in each region is being undertaken to
determine the full impact of the standard. The evaluation is in progress at the time of reporting and will be completed to
facilitate the Group’s intended early adoption of AASB 15 in the financial year ending 30 June 2016.
AASB 9 Financial instruments
Significant revisions to the classification and measurement of financial assets, reducing the number of categories and
simplifying the measurement choices, including the removal of impairment testing of assets measured at fair value. The
amortised cost model is available for debt assets meeting both business model and cash flow characteristics tests. All
investments in equity instruments using AASB 9 are to be measured at fair value.
Chapter 6 Hedge Accounting supersedes the general hedge accounting requirements in AASB 139 Financial
Instruments: Recognition and Measurement, which many consider to be too rules-based and arbitrary. Chapter 6
requirements include a new approach to hedge accounting that is intended to more closely align hedge accounting with
risk management activities undertaken by entities when hedging financial and non-financial risks. Some of the key
changes from AASB 139 are as follows:
•
to allow hedge accounting of risk components of non-financial items that are identifiable and measurable (many of
which were prohibited from being designated as hedged items under AASB 139);
• changes in the accounting for the time value of options, the forward element of a forward contract and foreign-
currency basis spreads designated as hedging instruments; and
• modification of the requirements for effectiveness testing (including removal of the ‘brightline’ effectiveness test that
offset for hedging must be in the range 80%-125%).
Revised disclosures about an entity’s hedge accounting have also been added to AASB 7 Financial Instruments:
Disclosures.
Impairment of assets is now based on expected losses in AASB 9 which requires entities to measure:
•
•
the 12-month expected credit losses (expected credit losses that result from those default events on the financial
instrument that are possible within 12 months after the reporting date); or
full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of
the financial instrument.
The effective date is annual reporting periods beginning on or after 1 January 2018.
AASB 9 is expected to be applied when it becomes effective.
Slater and Gordon Limited
Page 64
85
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 2: Critical Accounting Estimates and Judgements
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions
that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised
prospectively. The areas involving significant estimates or judgements are:
(a)
Impairment of goodwill
Goodwill is allocated to cash generating units (“CGU’s”) according to applicable business operations. CGUs for the
purposes of impairment testing are:
1.
2.
3.
4.
5.
Australia – Personal Injury Law (“AUS – PIL”)
Australia – General Law (“AUS – GL”)
UK – Personal Injury Law (“UK – PIL”)
UK – General Law (“UK – GL”)
Slater Gordon Solutions (“SGS”)
During the current financial year the Group acquired several new entities within Australia and the UK, as a result of the
significant geographical expansion of the Group and expansion of business activities; additional CGUs have been
identified and the Group now allocates the UK subsidiaries into two CGUs being UK - PIL and UK - GL. SGS has been
identified as its own CGU due to the different revenue streams and independent cash flows.
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which
goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows
expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where
the actual future cash flows are less than expected, a material impairment loss may arise. Refer to Note 13.
(b) Work in progress (“WIP”)
WIP is the balance of cases not yet billed at the end of the reporting period. The Group measures WIP based on the
estimated fees likely to be rendered to the client multiplied by the percentage stage of completion at the reporting date
adjusted for the probability of success. To determine the probability of success of a case the Group takes into account
past history of similar cases and a level of judgement is required based on experience and historical performance of
similar matters. Refer to Note 10.
The stage of completion valuation methodology incorporates best estimates of expected revenue and the percentage of
total services completed to date. The expected revenue is based on the expected fee for the nature of the legal service
provided with reference to internal and external (where available) historical and forecast fee levels. The percentage of
completion and probability of success is made with reference to internal and external (where available) information and
experience, and having regard to where a file is in its life cycle.
The Group conducts detailed reviews of all case files on a half-yearly basis and revises calculations based on estimates
of revenue and stage of completion as necessary. While the Group remains satisfied that the valuation methodology
applied to work in progress is robust and supported by historical trends, it acknowledges that the actual amount billed
may vary from the estimated amounts previously recognised. However, the Group does not anticipate any material
variation in the amounts recognised.
In addition, when new businesses are acquired, there is a transition period during which time the Group’s practices and
procedures are embedded into the operations of the new business. Therefore the valuation of work in progress acquired
in a business combination may be adjusted during the period of provisional accounting for the acquisition.
(c)
Provisional accounting
Provisional accounting is applied by the Group to account for business combinations when the initial accounting is
incomplete at the end of the reporting period. By its nature provisional accounting involves estimates and judgements
based on the information available to the Group at the end of the reporting period, while it continues to seek information
about facts and circumstances that existed as of the acquisition date.
(d)
Income tax
Deferred tax assets and liabilities are based on the assumption that no adverse change will occur in the income tax
legislation both in Australian and the UK and the anticipation that the Group will derive sufficient future assessable
income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
86
Slater and Gordon Limited
Page 65
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 2: Critical Accounting Estimates and Judgements (continued)
(d)
Income tax (continued)
Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable
that future taxable profits will be available to utilise those temporary differences. Refer to Note 6.
(e)
Fair value measurements
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial
and non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair
values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques
as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
• Level 2: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either
directly or indirectly; and
• Level 3: inputs for the asset or liability that are not based on observable market data.
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then
the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level
input that is significant to the entire measurement.
Further information about the assumptions made in measuring fair values is included in the following Notes:
• Note 27 – Share-based payment arrangements
• Note 31 – Business combinations
• Note 32 – Financial risk management
• Note 33 – Fair value measurements
(f)
Determination and fair value of intangibles in a business combination
The fair value of customer relationships acquired in a business combination is determined using the multi-period excess
earnings method (“MEEM”) whilst the fair value of trademarks acquired in a business combination is based on a relief
from royalties approach. These methods require estimates by management of future income streams, applicable royalty
rates and discount rates. Refer to Note 31.
(g)
Principal vs agent
SGS Motor Services provides car hire and repair services for not at fault clients, and the Group acts as a principal:
• Although the services are provided by third party suppliers, the Group has the primary responsibility to ensure that
the services have been delivered to the clients.
• The Group cannot vary the prices set by the supplier, as it is governed by an industry framework.
• The Group collects the revenue from the customer and bears all credit risk.
Revenue resulting from car hire and repair services within SGS Motor Services is recognised on a gross basis.
(h)
Provision for solicitor liability
Provision for Solicitor Liability claims relates to open claims and potential future claims as identified at end of the
reporting period. Estimates of the provision is determined based on historical data, taking into account the nature of the
existing claim and expected reimbursed expense will be included. The provision determined includes the estimated
maximum amount payable by the Group. Refer to Note 18.
Slater and Gordon Limited
Page 66
87
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 3: Segment Reporting
The Group has three operating segments, as described below, which are the Group’s strategic business units. Each
strategic business unit is managed separately. For each of the strategic business units, the Group Managing Director
reviews internal management reports on a monthly basis. The following summary describes each of the Group’s
reportable segments:
• Slater and Gordon Australia (“AUS”) – includes the parent company Slater and Gordon Limited and its subsidiaries
in Australia. This segment conducts a range of legal services within the geographical area of Australia. This segment
also includes investments in the Group’s other segments, and borrowings and capital raising activities to finance
investment and operations of the combined Group. There is a recharge of ongoing management support to the other
segments in the Group.
• Slater and Gordon UK (“UK”) – includes the Group’s operations, conducting a range of legal services in the United
Kingdom. The segment also includes the investment in SGS.
• Slater Gordon Solutions (“SGS”) – represents the newly acquired business assets/entities from Quindell Plc,
offering legal services relating to road traffic accidents, employee liability and noise induced hearing loss. This
segment also provides complementary services in health and motor services.
Segment assets are allocated to countries based on where the assets are located.
2015
Total segment revenue
Inter-segment revenue
Revenue from external customers
Earnings before interest, tax, depreciation and
amortisation
Interest revenue
Interest expense
Depreciation and amortisation
Income tax (expense) / benefit
Net profit/(loss) after income tax
Segment assets
Total segment assets*
Inter-segment assets
Total assets per the balance sheet
Segment liabilities
Total segment liabilities
Inter-segment liabilities
Total liabilities per the balance sheet
*Additions to non-current assets
AUS
$’000
321,632
(7,349)
314,283
73,996
2,997
(6,355)
(5,712)
(19,239)
45,687
760,669
(118,305)
642,364
340,922
-
340,922
UK
$’000
275,845
-
275,845
63,797
272
(4,851)
(4,024)
(12,452)
42,742
1,666,549
(27,055)
1,639,494
992,153
(118,305)
873,848
12,042
Property, plant and equipment
1,009,698
Intangibles, including goodwill
1,021,740
Total additions to non-current assets
**Net loss after tax represents the period from 29 May 2015 (date of acquisition) to 30 June 2015.
7,837
5,152
12,989
SGS
$’000
37,181
-
37,181
(5,376)
-
(4)
(209)
963
(4,626)**
Total
$’000
634,658
(7,349)
627,309
132,417
3,269
(11,210)
(9,945)
(30,728)
83,803
775,163
-
775,163
3,202,381
(145,360)
3,057,021
434,313
(27,055)
407,258
1,767,388
(145,360)
1,622,028
5,086
71,355
76,441
24,965
1,086,205
1,111,170
88
Slater and Gordon Limited
Page 67
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 3: Segment Reporting (continued)
2014
Restated
Total segment revenue
Inter-segment revenue
Revenue from external customers
Earnings before interest, tax, depreciation
and amortisation
Interest revenue
Interest expense
Depreciation and amortisation
Income tax expense
Net profit after income tax
Segment assets
Total segment assets*
Inter-segment assets
Total assets per the balance sheet
Segment liabilities
Total segment liabilities
Inter-segment liabilities
Total liabilities per the balance sheet
*Additions to non-current assets
Property, plant and equipment
Intangibles, including goodwill
Total additions to non-current assets
AUS
$’000
241,256
(5,467)
235,789
56,683
1,584
(5,142)
(3,450)
(16,253)
33,422
614,766
(114,240)
500,526
UK
$’000
202,439
-
202,439
52,036
245
(2,704)
(3,505)
(11,258)
34,814
404,576
-
404,576
235,961
-
235,961
364,631
(114,240)
250,391
949
2,558
3,507
4,238
11,687
15,925
SGS
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$’000
443,695
(5,467)
438,228
108,719
1,829
(7,846)
(6,955)
(27,511)
68,236
1,019,342
(114,240)
905,102
600,592
(114,240)
486,352
5,187
14,245
19,432
Slater and Gordon Limited
Page 68
89
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 4: Revenue
Services Revenue
Ancillary revenue
Commission revenue
Rendering of services – non-legal
Gain from bargain purchase
Other income
Interest
Other
(a)
Interest from
Other persons
VCR share loans to employees
Note 5: Profit from Continuing Activities
Finance costs expense
Interest on bank overdraft and loans
Interest on deferred consideration payable to vendor on acquisitions
Interest on obligations under hire purchases
Deferred costs of borrowing
Depreciation and amortisation of non-current assets
Property, plant and equipment
Software development
Trademarks
Customer relationships
Cost of sales
Ancillary revenue
Commission revenue
Rendering of services – non-legal
Share based payments expense
Share based payment expense to former owners
Post-employment benefits
Note
2015
$’000
2014
$’000
Restated
15,252
1,100
4,120
20,472
-
-
-
-
58,939
19,762
4(a)
3,269
4,963
8,232
2,294
975
3,269
8,551
1,942
500
217
11,210
4,442
1,807
3,696
-
9,945
14,490
3
2,169
16,662
2,031
11,506
11,839
1,829
4,824
6,653
401
1,428
1,829
4,807
2,502
537
-
7,846
4,352
1,141
1,404
58
6,955
-
-
-
-
1,180
5,379
9,237
90
Slater and Gordon Limited
Page 69
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 6: Income Tax
Income tax expense
Current tax
Deferred tax
Adjustment for current tax relating to prior periods
Income tax recognised in other comprehensive income
Deferred tax credit arising on cash flow hedges
Deferred tax charge arising on foreign exchange gain
Income tax recognised directly in equity
Current tax credit on share issue costs
Deferred income tax expense included in income tax expense
(Increase)/decrease in deferred tax assets
Deferred income tax relating to items charged to other comprehensive income
Deferred income tax relating to items charged directly to equity
Increase in deferred tax liabilities
Recoup prior year tax losses and over/under on prior year losses
Net deferred taxes arising from business combinations
Exchange differences
The prima facie tax payable on profit before tax differs from the income tax
expense as follows:
At the Australian statutory income tax rate of 30% (2014: 30%)
Tax effect of amounts which are not deductible/(assessable) in calculating
taxable income:
Non-deductible expenses
Non-assessable income
Adjustments in respect to prior periods
Difference in overseas tax rate
Deferred tax assets not recognised
Deferred tax assets now recognised
Other
Income tax expense
Current tax assets
Balance acquired per SGS acquisition
2015
$’000
2014
$’000
Restated
12,901
18,898
(1,071)
30,728
(150)
5,190
5,040
(7)
(7)
(61,092)
(5,040)
7
56,887
(995)
29,835
(704)
18,898
6,811
21,033
(333)
27,511
(48)
2,085
2,037
-
-
2,444
(2,037)
-
20,897
-
110
(381)
21,033
114,531
34,359
95,747
28,724
12,083
(16,139)
30,303
(1,071)
(3,204)
4,273
(54)
481
30,728
29,041
29,041
3,252
(996)
30,980
(48)
(3,046)
120
(110)
(385)
27,511
-
-
Slater and Gordon Limited
Page 70
91
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 6: Income Tax (continued)
Current tax liability
Balance at the beginning of the year
Balances arising from business acquisitions
Current income tax expense
Foreign withholding tax credit
Tax paid
Adjustments in respect of prior periods
Other
Exchange differences
Balance at the end of the year
Unrecognised deferred tax assets
2015
$’000
2014
$’000
Restated
(2,481)
(13,736)
(12,901)
-
6,049
620
-
(107)
(22,556)
(3,940)
-
(6,811)
282
8,006
179
(32)
(165)
(2,481)
Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future
taxable profit will be available against which the Group can use the benefits therefrom.
Deductible temporary differences
Tax losses
5,062
130
809
110
919
In 2015 costs were incurred for both Trademarks and Acquisition Costs relating to acquisition of subsidiaries. These
amounts total $16,873,000 (tax effect: $5,062,000) and have not been recognised as a deferred tax asset. These costs
form part of the cost base of the Group’s subsidiaries and as the Group does not plan to dispose of its subsidiaries in the
foreseeable future, no deferred tax has been recognised for these costs.
5,192
A capital loss representing the movement in foreign exchange of $368,000 (tax effect: $110,000) arose on the transfer of
shares held by Slater and Gordon in one of its subsidiary entities. It is uncertain whether future capital gains will arise
against which this loss can be offset.
Revenue losses of $66,000 (tax effect: $20,000) relating to one of the Group’s subsidiaries has not been recognised due
to the uncertainty of that entity having sufficient future profits available to utilise the loss.
Deferred tax assets
Provision for impairment
Employee benefits
Provision for legal costs
Accruals
Non-deducted business related costs
Fair value of cash flow hedges
Unbilled acquired WIP and disbursements
Unrendered WIP and disbursements not yet deducted
Property, plant and equipment
Other
Revenue losses carried forward
Advanced Company Income Tax (“ACIT”) refund in Malta
Deductible goodwill
92
Slater and Gordon Limited
2015
$’000
2014
$’000
Restated
8,808
6,602
378
3,122
251
378
14,010
4,967
516
2,007
23,138
12,490
6,689
83,356
1,276
5,755
275
2,609
451
228
985
-
171
173
3,329
-
7,012
22,264
Page 71
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 6: Income Tax (continued)
Deferred tax liabilities
Prepayments
Work in progress
Unrendered disbursements
Intangibles
Foreign currency translation reserve
Other
Note 7: Dividends
Dividends paid during the year
Dividends on ordinary shares
Partially franked (40%) interim dividend at the tax rate of 30% for 2015: 3.50 cents
per share (2014: 3.00 cents per share, fully franked)
Fully franked final dividend at the tax rate of 30% for 2014: 5.00 cents per share
(2013: 3.85 cents per share, fully franked)
Total dividends paid during the year
Dividends proposed and not recognised as a liability
2015
$’000
(917)
(142,830)
(15,337)
(13,946)
(7,276)
(202)
(180,508)
2014
$’000
Restated
(810)
(105,590)
(14,184)
(913)
(2,085)
(39)
(123,621)
2015
$’000
2014
$’000
7,341
10,279
17,620
6,115
7,655
13,770
Dividends on ordinary shares
Partially franked (40%) final dividend at the tax rate of 30% for the year ended
30 June 2015: 5.50 cents per share (2014: 5.00 cents per share, fully franked)
19,290
10,217
Franking credit balance
Balance of franking account at year end adjusted for franking credits arising from
payment of provision for income tax and after deducting franking credits to be
used in payment of proposed dividends:
Impact on franking account of dividend recommended by the directors since the
year end but not recognised as a liability at year end:
891
(3,082)
3,307
4,379
Slater and Gordon Limited
Page 72
93
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 8: Cash and Cash Equivalents
Cash at bank
Note 9: Receivables
Current
Trade debtors
Impairment of trade debtors
Disbursements
Allowance for non-recovery
Other receivables
Non-current
Disbursements
Allowance for non-recovery
Impairment of receivable
Balance at beginning of the year
Receivables written off as uncollectible
Provision for impairment recognised, including balances from business
acquisitions
Foreign exchange translation differences
Balance at end of the year
Note 10: Work in Progress
Current
Non-personal injury
Personal injury
Project litigation
Non-current
Personal injury
Project litigation
Note 11: Other Assets
Current
Prepayments
Other current assets
94
Slater and Gordon Limited
Note
2015
$’000
2014
$’000
23(a)
96,985
25,270
2015
$’000
373,061
(76,115)
296,946
361,590
(44,769)
316,821
6,088
619,855
2014
$’000
Restated
111,549
(8,690)
102,859
82,070
(1,544)
80,526
299
183,684
96,358
(16,596)
79,762
51,857
(6,173)
45,684
(8,690)
2,980
(68,005)
(2,400)
(76,115)
2015
$’000
16,065
533,793
3,319
553,177
270,578
2,143
272,721
2015
$’000
21,943
8,079
30,022
(5,951)
1,440
(3,991)
(188)
(8,690)
2014
$’000
14,731
262,235
1,106
278,072
186,532
2,730
189,262
2014
$’000
10,337
2,066
12,403
Page 73
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 12: Property, Plant and Equipment
Plant and equipment at cost
Less accumulated depreciation
Land and buildings at cost
Less accumulated depreciation
Low value asset pool at cost
Less accumulated depreciation
Total plant and equipment
Note
2015
$’000
2014
$’000
74,350 35,328
(43,514)
(22,878)
12(a)
30,836
12,450
12(b)
12(c)
302
-
302
2,442
(1,621)
821
-
-
-
1,825
(1,311)
514
31,959
12,964
Movements in carrying amounts
Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of
the current financial year:
(a) Plant and equipment
Balance at the beginning of the year
Additions
Additions through acquisition of entities
Reclassification of plant and equipment
Exchange differences
Depreciation expense
Disposals
Carrying amount at end of year
(b) Land and buildings
Balance at the beginning of the year
Additions through acquisition of entities
Reclassification from plant and equipment
Carrying amount at end of year
(c) Low value asset pool
Balance at the beginning of the year
Additions
Additions through acquisition of entities
Depreciation expense
Disposals
Carrying amount at end of year
12,450
16,823
7,389
(2,140)
581
(4,153)
(114)
30,836
-
157
145
302
514
515
81
(289)
-
821
11,679
3,131
1,839
-
221
(4,111)
(309)
12,450
-
-
-
-
540
199
18
(241)
(2)
514
The carrying amount of plant and equipment under finance lease included above amounted to $6,493,000 (2014:
$4,562,000).
Slater and Gordon Limited
Page 74
95
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 13: Intangible Assets
Goodwill – at cost
Accumulated impairment loss
Net carrying amount
Software development – at cost
Accumulated amortisation
Net carrying amount
Trademarks and brand names – at cost
Accumulated amortisation
Accumulated impairment loss
Net carrying amount
Customer relationships – at cost
Accumulated amortisation
Net carrying amount
Note
2015
$’000
2014
$’000
Restated
1,149,577
108,492
-
-
13(a)
1,149,577
108,492
44,072
9,661
(24,208)
(4,556)
13(b)
19,864
5,105
81,004
(5,481)
-
75,523
1,397
(1,397)
-
11,488
(1,430)
-
10,058
1,397
(1,397)
-
13(c)
13(d)
Total intangible assets
1,244,964
123,655
96
Slater and Gordon Limited
Page 75
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 13: Intangible Assets (continued)
Movements in carrying amount
Movement in the carrying amounts for each class of intangible assets between the beginning and the end of the current
financial year:
(a) Goodwill
Opening net book amount
Additions in respect of business combinations
Exchange differences
Closing net book value
(b) Software development
Opening net book amount
Additions
Additions in respect of business combinations
Reclassification from plant and equipment
Exchange differences
Amortisation expense
Disposals
Closing net book value
(c) Trademarks and brand names
Opening net book amount
Additions in respect of business combinations
Exchange differences
Amortisation expense
Closing net book value
(d) Customer relationships
Opening net book amount
Amortisation expense
Closing net book value
Note
2015
$’000
2014
$’000
Restated
31
31
31
108,492
1,004,880
36,205
1,149,577
93,504
11,615
3,373
108,492
5,105
9,970
4,512
1,995
149
(1,807)
(60)
19,864
10,058
66,843
2,318
(3,696)
75,523
-
-
-
4,714
1,495
25
-
12
(1,141)
-
5,105
10,020
1,110
332
(1,404)
10,058
58
(58)
-
Goodwill and indefinite life intangibles acquired through business combinations have been allocated to individual cash
generating units (“CGUs”) in both the Australian and UK business for the purposes of impairment testing being the
Personal Injury Law (“PIL”) division, General Law (“GL”) division and SGS.
The recoverable amount of goodwill and indefinite life intangibles allocated to each of the CGUs has been determined
based on a value in use calculation as required by AASB 136 Impairment of Assets. This uses financial budgets and
cash flow projections approved by senior management covering a five year period.
The value in use is compared to the net carrying amount of the CGU. If the calculated value in use exceeds the net
carrying amount, no impairment loss is recorded.
Slater and Gordon Limited
Page 76
97
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 13: Intangible Assets (continued)
2015
Goodwill recognised ($’000)
Indefinite life intangibles ($’000)
2014
Goodwill recognised ($’000)
Indefinite life intangibles ($’000)
AUS
PIL
AUS
GL
UK
PIL
UK
GL
SGS
47,499
-
13,939
-
50,843
1,956
9,574
-
1,027,722
68,656
AUS
PIL
AUS
GL
UK
PIL
UK
GL
SGS
44,766
5,659
11,575
-
43,737
1,719
8,414
-
-
-
Key assumptions used in value in use calculations and sensitivity to changes in assumptions
The Group performed its annual impairment test in June of 2015. The Group is sensitive to the recovery of fees in its
legal business, and the velocity of the resolution of those files. In performing the value-in-use calculations for each CGU,
the group has applied post-tax discount rates to discount the forecast future post-tax cash flows.
The key assumptions used in the estimation of the recoverable amount are set out below:
• Average fees recoverable for legal matters;
• Average file velocity for legal matters; and
• Cost of capital and discount rate used.
Average fees recoverable for legal matters
Average fees recoverable have been based upon an analysis of historical fee events in each of those practice areas, in
conjunction with estimated fees of existing matters.
Individually each of the practice group’s average fee levels is immaterial to the Group result, however should there be a
material negative impact upon the average fee recoverable of matters across a number of practice groups in each
jurisdiction, this could have a material impact upon the impairment analysis.
Sensitivity analysis has been conducted on the average fees recoverable for each of the CGUs, a reasonable level of
negative movement in the average fees recoverable is unlikely to give rise to impairment to any of the CGUs.
Average file velocity for legal matters
The settlement profile of legal matters has been based upon the average settlement period for matters for each
jurisdiction and practice area.
The velocity of settlement of legal matters has an impact upon the sensitivity analysis. Individually a slowing of file
velocity in a practice area is immaterial, however should there be a material negative impact on the settlement period of
matters across a number of practice groups and jurisdictions; this could have a negative impact upon the estimated
future value of the CGU on a net present value basis due to the negative impact upon cash flows.
Sensitivity analysis has been conducted on the average velocity of matters in each of the CGUs and a reasonable level
of negative movement in the settlement period for matters is unlikely to give rise to impairment to any of the CGUs.
Cost of capital and discount rate used
Cost of capital has been assessed per CGU. Discount rates represent the current market assessment of the risks
specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that
have been incorporated in the cash flow estimates.
The discount rate has been adjusted to be a post-tax rate because in performing the value in use calculations for each
CGU the Group has used forecast future attributable post-tax cash flows.
98
Slater and Gordon Limited
Page 77
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 13: Intangible Assets (continued)
Key assumptions used in value in use calculations and sensitivity to changes in assumptions (continued)
The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is
derived from its weighted average cost of capital (“WACC”). The WACC takes into account both debt and equity. The
cost of equity is derived from the expected return on investment to the Group’s investors. The cost of debt is based on
the interest-bearing borrowings the Group is obliged to service. CGU specific risk is incorporated by applying individual
beta factors and additional asset specific risk premia where appropriate. The factors that comprise the WACC are
evaluated annually based on publicly available market data. Adjustments to the discount rate are made having regard to
the specific amount and timing of the future tax flows in order to reflect an appropriate post-tax discount rate.
For the Australian PIL, Australian GL, UK PIL and UK GL CGUs a post-tax cost of capital of 9.25% has been applied.
This cost of capital has been assessed with reference to the Company’s weighted average cost of capital and
independent third party analysis of its cost of capital. This cost of capital was utilised as the Company has observable
market data to allow an appropriate assessment of its cost of capital as a listed company on the Australian Stock
Exchange.
The post-tax cost of capital for the SGS CGU was assessed at 10.45%. This cost of capital was assessed at a higher
rate than all other CGUs due to the recent acquisition of the CGU by Slater and Gordon and the inherent risk that new
acquisitions carry with them, as well as the specific risk characteristics of the forecast cash flows. This increased cost of
capital represents the increased inherent equity risk associated with the transaction, and reflects the transactions funding
structure within the calculation.
Australia – Personal Injury Law
The recoverable amount of the AUS – PIL CGU has been determined based on a value in use calculation using cash
flow projections from the financial forecasts approved by senior management covering a five year period. A 5.00% (2014:
7.70%) nominal growth rate has been applied to the FY16 forecast for the periods FY17 to FY20 with a long term
nominal growth rate adopted of 3.00%.
The growth rates beyond the 5 year period have been determined with reference to forecast inflation rates, population
and industry growth rates.
The projected cash flows have been updated to reflect impacts of legislative change in the NSW and Queensland
jurisdictions and growth achieved in the PIL practice groups over the past five years.
The post-tax discount rate applied to cash flow projections is 9.25% (2014: 9.10%).
Sensitivity analysis has been conducted on the key assumptions and a reasonable level of negative movement in each
assumption does not cause impairment to the CGU.
Australia – General Law
The recoverable amount of the AUS – GL CGU has been determined based on a value in use calculation using cash flow
projections from the financial forecasts approved by senior management covering a five year period. An 8.00% (2014:
9.12%) nominal growth rate has been applied to the FY16 forecast for the periods FY17 to FY20 with a long term
nominal growth rate adopted of 3.00%.
The growth rates beyond the 5 year period have been determined with reference to forecast inflation rates, population
and industry growth rates.
The projected cash flows have been updated to reflect growth achieved in the General Law practice groups over the past
five years and the increased marketing expenditure applied to the General Law practice groups over the past year.
The post-tax discount rate applied to cash flow projections is 9.25% (2014: 9.10%).
Sensitivity analysis has been conducted on the key assumptions and a reasonable level of negative movement in each
assumption does not cause impairment to the CGU.
United Kingdom- Personal Injury Law
The recoverable amount of the UK – PIL CGU has been determined based on a value in use calculation using cash flow
projections from the financial forecasts approved by senior management covering a five year period.
Slater and Gordon Limited
Page 78
99
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 13: Intangible Assets (continued)
United Kingdom – Personal Injury Law (continued)
A 5.00% (2014: 6.80%) nominal growth rate has been applied to the FY16 forecast for the periods FY17 to FY20 with a
long term nominal growth rate adopted of 3.00%.
The growth rates beyond the 5 year period have been determined with reference to forecast inflation rates, population
and industry growth rates.
The projected cash flows have been updated to reflect the acquisitions of Walker Smith Way, Leo Abse & Cohen and the
personal injuries practice of Flint Bishop in FY15, increased marketing in the United Kingdom for the Slater and Gordon
brand which has led to increased brand recognition and growth achieved in the Personal Injuries practice groups since
acquisition.
The post-tax discount rate applied to cash flow projections is 9.25% (2014: 9.10%).
Sensitivity analysis has been conducted on the key assumptions and a reasonable level of negative movement in each
assumption does not cause impairment to the CGU.
United Kingdom – General Law
The recoverable amount of the United Kingdom – GL CGU has been determined based on a value in use calculation
using cash flow projections from the financial forecasts approved by senior management covering a five year period.
An 8.00% (2014: 6.80%) nominal growth rate has been applied to the FY16 forecast for the periods FY17 to FY20 with a
long term nominal growth rate adopted of 3.00%.
The growth rates beyond the 5 year period have been determined with reference to forecast inflation rates, population
and industry growth rates.
The projected cash flows have been updated to reflect the acquisition of Walker Smith Way, increased marketing in the
United Kingdom for the Slater and Gordon brand which has led to increased brand recognition, in addition to growth
achieved in the General Law practice groups since acquisition.
The post-tax discount rate applied to cash flow projections is 9.25% (2014: 9.10%).
Sensitivity analysis has been conducted on the key assumptions and a reasonable level of negative movement in each
assumption does not cause impairment to the CGU.
Slater Gordon Solutions
The recoverable amount of Slater and Gordon Solutions (“SGS”) CGU, £756m as at 30 June 2015, has been determined
based on a value in use calculation using cash flow projections from the financial forecasts approved by senior
management covering a five year period.
Based on the provisional accounting the estimated recoverable amount of the SGS CGU exceeded its carrying amount
by approximately £123m at 30 June 2015.
The projected cash flows have been based on financial forecasts by senior management for the periods FY16 to FY18
with a 2.25% nominal growth rate applied to periods post FY18. This long term growth rate for the SGS CGU has been
based on the long term economic growth rate. This differs to the long term growth rate assumption applied to the other
UK CGU’s as SGS was only acquired on 29 May 2015.
A key driver of performance which may impact an impairment of the SGS CGU is the rate of resolution of personal injury
claims (“velocity of matters”). Personal injury claims represent a very large proportion of the SGS business and if the
velocity of matters slows, cash flow will be detrimentally impacted and this may impair goodwill.
A sensitivity analysis has been conducted to measure the extent to which velocity would need to be reduced before
goodwill was impaired. The sensitivity analysis conducted on the average velocity of personal injury claims within the
SGS CGU indicated a negative movement of up to 60% in the settlement period for matters would not cause an
impairment to the SGS CGU.
In addition, cash flows of the SGS CGU were discounted to allow for a 50% discount to the forecast recovery of NIHL
(Hearing Loss) with no impairment noted to the SGS CGU.
100
Slater and Gordon Limited
Page 79
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 13: Intangible Assets (continued)
Slater Gordon Solutions (continued)
The post-tax discount rate applied to cash flow projections for the SGS CGU is 10.45%.
This post-tax cost of capital was assessed at a higher rate than all other CGUs due to the recent acquisition of the CGU
by Slater and Gordon and the inherent risk that new acquisitions carry with them, as well as the specific risk
characteristics of the forecast cash flows. This increased cost of capital represents the increased inherent equity risk
associated with the transaction, and reflects the transactions funding structure within the calculation.
Sensitivity analysis has been conducted on the cost of capital for the SGS CGU and the Directors noted that an increase
of the post-tax discount rate to 12.0% was required before the carrying value of the CGU equalled its recoverable
amount. This represented an increase of over 14.8% on the post-tax discount rate adopted by the Company.
Note 14: Other Non-Current Assets
VCR share loans to employees
Other non-current assets
Note 15: Payables
Current
Unsecured liabilities
Trade creditors and accruals
Legal creditors
Vendor liabilities – acquisitions
Non-current
Unsecured liabilities
Vendor liabilities – acquisitions
Note 16: Borrowings
Current
Secured
Cash advances – bills of exchange
Finance lease liability
Non-current
Secured
Cash advances – bills of exchange
Finance lease liability
2015
$’000
8,325
6,854
15,179
2014
$’000
11,844
-
11,844
2015
$’000
2014
$’000
Restated
281,169
336,588
18,765
636,522
74,792
101,554
14,181
190,527
3,121
7,385
Note
2015
$’000
2014
$’000
447
3,306
3,753
7,215
1,862
9,077
710,477
6,123
716,600
112,698
4,556
117,254
32
32
Slater and Gordon Limited
Page 80
101
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 16: Borrowings (continued)
(a)
Terms and conditions relating to the above financial instruments:
The cash advance facility is a Syndicated Banking Facility provided by a syndicate of banks including Westpac Banking
Corporation (“Westpac”) and National Australia Bank (“NAB”). Refer to Note 32 (ii) for more details. They are secured by
a fixed and floating charge over the assets of the Company.
Interest on the bank overdraft is charged at BBSY plus an agreed margin.
(b)
(c)
A portion of the bills of exchange cash advance facility is the subject of an interest rate swap to hedge the risk of
an adverse interest rate movement. Refer to Note 32 (iv) for more details.
The Group leases certain of its fixed assets under finance leases. The lease terms range from 3 to 10 years
(2014: 3 to 10 years). The Group has options to purchase the equipment for a nominal amount at the end of the
lease terms. The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets.
Interest rates underlying all obligations under finance leases are fixed at respective contract, rates ranging from 3.2% to
9.25% (2014: 3.96% to 9.25%) per annum.
2015
$’000
2014
$’000
Restated
Future
minimum
lease
payment
3,784
6,778
-
10,562
Interest
(478)
(655)
-
(1,133)
Present
value of
minimum
lease
payment
3,306
6,123
-
9,429
Future
Minimum
lease
payment
2,270
4,985
357
7,612
Interest
(408)
(777)
(9)
(1,194)
Present
value of
minimum
lease
payment
1,862
4,208
348
6,418
Within one year
One year or later and not later than five years
Greater than five years
Note 17: Other Current Liabilities
Current
Unsecured
LLP member capital contributions
Note 18: Provisions
Current
Employee benefits
Solicitor liability claims
Provision for payments to former owners
Other current provisions
Non-current
Employee benefits
Other non-current provisions
102
Slater and Gordon Limited
2015
$’000
2014
$’000
10,985
10,985
10,103
10,103
2015
$’000
2014
$’000
Restated
18,638
4,708
9,969
1,172
34,487
3,367
8,508
11,875
15,550
918
3,656
-
20,124
3,164
1,596
4,760
Page 81
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 19: Contributed Equity
Ordinary shares fully paid
VCR Shares
Balance at end of the year
Note
19(a)
19(b)
2015
Shares
350,719,894
833,334
2015
$’000
1,097,928
417
351,553,228
1,098,345
2014
Shares
204,338,625
2,629,333
206,967,958
2014
$’000 Restated
214,514
2,535
217,049
(a) Movement in Ordinary Share Capital
204,338,625
Balance at the beginning of the year
214,514
196,809,265
206,506
Issued during the year
- Consideration for acquisitions
- Conversion of vested VCR shares
- Dividend Reinvestment Plan
- Equity Incentive Plan
- Shares issued through Entitlement Offer*
- Transfer from share-based payment reserve
Less capital raising costs, net of tax
Balance at end of the year
4,873,700
1,275,333
257,719
151,668
139,822,849
-
-
350,719,894
2,679
2,397
1,696
759
890,939
6,199
(21,255)
1,097,928
4,463,219
2,120,333
945,808
-
-
-
-
204,338,625
(134)
4,008
3,863
-
-
391
(120)
214,514
*The Group made two Entitlement Offers during the year to eligible shareholders to raise finance for the acquisition of SGS being the
Institutional Entitlement Offer and a Retail Entitlement offer. Under the Entitlement Offers, eligible shareholders were invited to
subscribe for two ordinary shares for every three existing ordinary shares held at the record date per the ASX announcement. Each new
share ranks equally with the existing shares.
(b) Movements in VCR Share Capital
Balance at the beginning of the year
- Conversion of vested VCR shares to ordinary shares
- Employee share scheme buy-back:
Share based payments expense
Equity adjustment for leavers and extension of repayment term
Balance at end of the year
Ordinary shares
Note
2015
Shares
2015
$’000
2014
Shares
2014
$’000
2,629,333
(1,275,333)
(520,666)
-
-
833,334
2,535
(2,397)
(161)
991
(551)
417
5,111,334
(2,120,333)
(361,668)
-
-
2,629,333
5,867
(4,008)
(438)
1,180
(66)
2,535
Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of
shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each
shareholder has one vote on a show of hands.
VCR shares
Please refer to Note 27 for detailed discussion on the rights attached to VCR shares.
Capital management
When managing capital, management’s objective is to ensure the Group continues to maintain optimal returns to
shareholders and benefits for other stakeholders. This is achieved through the monitoring of historical and forecast
performance and cash flows.
During 2015, management paid dividends of $17,620,000 (2014: $13,770,000)
Management manages capital through the gearing ratio i.e. net bank debt / total equity. Net bank debt is calculated as
total bank borrowings as shown in the statement of financial position less cash and cash equivalents. The target for the
Group’s gearing ratio is between 30% to 40%.
Slater and Gordon Limited
Page 82
103
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 20: Reserves
Cash flow hedging reserve
Foreign currency translation reserve
Share-based payment reserve
Note
20(a)
20(b)
20(c)
2015
$’000
(1,189)
73,447
10,619
82,877
2014
$’000
Restated
(780)
10,009
4,988
14,217
Movements in carrying amount
Movement in the carrying amounts for each class of reserve between the beginning and the end of the current financial
year.
(a) Cash flow hedging reserve
Balance at the beginning of the year
Loss recognised on interest rate hedges, net of tax
Balance at the end of the year
(b) Foreign currency translation reserve
Balance at the beginning of the year
Currency translation differences arising during the year
Non-controlling interest share in translation reserve
Balance at the end of the year
(c) Share-based payment reserve
Balance at the beginning of the year
Equity-settled share-based payment expense recognised
Transfer to share capital
Balance at the end of the year
Nature and purpose of reserves
Cash flow hedging reserve
(780)
(409)
(1,189)
10,009
63,542
(104)
73,447
4,988
11,830
(6,199)
10,619
(473)
(307)
(780)
4,183
5,833
(7)
10,009
-
5,379
(391)
4,988
The cash flow hedging reserve represents the cumulative net change in the fair value of cash flow hedging instruments
related to hedge transactions that have not yet occurred, net of tax.
Foreign currency translation reserve
Exchange differences arising on translation of foreign controlled entities are recognised in other comprehensive income
and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net
investment is disposed of.
Share-based payment reserve
The Group introduced the Equity Incentive Plan (“EIP”) in October 2014, which replaces the existing Employee
Ownership Plan (“EOP”) without prejudice to the rights of current participants in the EOP. Under the terms of the EIP,
performance rights offers were extended to executives in October and December 2014. All offers were accepted and
496,000 performance rights have been issued at the Group level, including a shareholder approved allocation of 56,000
performance rights (combined) to executive directors. The performance rights vest based on a three year service
condition and the financial performance of the Australian, UK or Group operations (depending on the executive role) over
the three financial years FY15 to FY17. Performance measures include total shareholder return and earnings measures.
Each performance right grants the holder one ordinary share if vested, hence they have been included in the calculation
of diluted earnings per share. Refer to Note 27 for more details.
104
Slater and Gordon Limited
Page 83
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 21: Retained Profits
Retained profits
(a) Retained profits
Balance at the beginning of year
Net profit attributable to ordinary equity holders
Total available for appropriation
Dividends paid
Balance at end of year
Note 22: Non-Controlling Interests
Interest in:
Share capital
Reserves
Retained profits
Balance at end of year
(a) Non-controlling interests
Balance at the beginning of the year
Capital contributions from non-controlling interests
Non-controlling interest share in net profit after tax
Non-controlling interest share in translation reserve
Balance at the end of the year
Note
2015
$’000
2014
$’000
Restated
21(a)
253,147
187,213
7
Note
22(a)
187,213
83,554
270,767
(17,620)
253,147
132,963
68,020
200,983
(13,770)
187,213
2015
$’000
2014
$’000
Restated
-
104
520
624
271
-
249
104
624
-
7
264
271
161
(113)
216
7
271
Slater and Gordon Limited
Page 84
105
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 23: Cash Flow Information
Note
2015
$’000
2014
$’000
Restated
(a) Reconciliation of cash
For the purposes of the consolidated statement of cash flows, cash includes cash on hand and at call deposits with
banks or financial institutions, investments in money market instruments maturing within less than three months and net
of bank overdrafts.
Cash at the end of the financial year as shown in the consolidated statement of cash flows is reconciled to the related
items in the statement of financial position as follows:
Cash on hand
(b) Reconciliation of cash flow from operations with profit after income
tax
Profit after income tax
Non-cash flows in profit from ordinary activities
Notional interest on VCR share loans
Depreciation and amortisation
Share based payments expenses
Accrual for payments to former owners
Costs associated with acquisition
Notional interest on deferred consideration
Bad and doubtful debts
Deferred costs of borrowing
Gain on bargain purchase
8
4
5
5
5
Changes in assets and liabilities
Increase in receivables
Increase in other assets
Increase in work in progress
Increase in payables
Decrease in income tax payable
Increase in net deferred tax liability
Increase in provisions
Cash flows from operations
96,985
96,985
25,270
25,270
83,803
68,236
(975)
9,945
13,537
13,933
23,662
1,942
11,585
217
(58,939)
(67,445)
(2,690)
(62,027)
44,171
(4,128)
29,298
4,873
40,762
(1,428)
6,955
6,559
3,651
4,054
2,502
6,904
-
(19,762)
(12,846)
(170)
(45,382)
13,806
(7,670)
24,683
4,343
54,435
106
Slater and Gordon Limited
Page 85
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 24: Commitments and Contingencies
Operating lease commitments
Non-cancellable operating leases (including rental of office space) contracted but not capitalised in the consolidated
financial statements:
Note
2015
$’000
2014
$’000
Within one year
One year or later and not later than five years
Greater than five years
31,223
76,894
65,007
173,124
20,815
43,920
6,911
71,646
Bank guarantees in respect of rental properties and acquisitions
28,621
9,255
Other commitments and contingencies
The Group has agreements with third party disbursement funders, ASK Funding Limited and Equal Access Funding
Proprietary Limited (“the existing Funders”), to provide financial guarantees to the funders with respect to disbursement
funding borrowings to the Group’s clients. The nature of these agreements are that the funders will fund disbursements
in respect of individual matters and will be reimbursed out of any settlement proceeds on the matter. The Group has
provided a financial guarantee for the repayment of the clients’ obligations to the funders. Nowicki Carbone also had in
place agreements with third party disbursement funders, Wingate Funding Limited and Quantum Funding Limited (“the
assumed Funders”) on similar terms to the existing Funders arrangements and these have been assumed by the Group
from the date of the acquisition, 31 October 2014.
Since 30 June 2014, the Group ended its arrangement with ASK Funding and settled all disbursements previously
funded by ASK Funding and recognised them as part of the receivables balance at 30 June 2015. The total amount
funded by the funders (existing and assumed) to the Group’s clients at 30 June 15 is $18,851,000 (30 June 2014:
$12,881,000). The maximum exposure of
$12,881,000) if the disbursements on client matters are not recovered from any other party.
the Group at 30 June 2015
is $18,851,000 (30 June 2014:
Refer to Note 31 Business Combinations for disclosures on contingencies arising from businesses acquired during the
year.
Note 25: Earnings per Share
The following reflects the income and share data used in the calculations of basic and diluted earnings per
share
Net profit after tax attributable to ordinary equity holders
Earnings used in calculating basic and diluted earnings per share
Weighted average number of ordinary shares used in calculating basic earnings
per share (‘000’s)
Effect of dilutive securities:
VCR shares (‘000’s)
Performance rights
Adjusted weighted average number of ordinary shares used in calculating diluted
earnings per share (‘000’s)
Note
2015
$’000
83,554
83,554
2014
$’000
Restated
68,020
68,020
234,842
201,306
1,377
303
3,437
-
236,522
204,743
VCR shares
VCR shares are considered to be potential ordinary shares and have been included in the determination of diluted
earnings per share. Refer to Note 27 for a detailed explanation of VCR shares.
Slater and Gordon Limited
Page 86
107
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 26: Key Management Personnel Compensations
Compensation by Category
Short-term employment benefits
Post-employment benefits
Other long term employment benefits
Share based payments
Other benefits
Note
2015
$
2014
$
3,695,822
210,384
54,954
49,084
20,783
3,490,437
160,778
86,633
11,745
240,666
4,031,027
3,990,259
Note 27: Share-Based Payment Arrangements
The Group introduced a broad based ‘share save’ offer to all employees and a new Employee Equity Incentive Plan
(“EIP”) which was approved by the shareholders at the 2014 Annual General Meeting (“AGM”).
Employee equity incentive plan (“EIP”)
During the year ended 30 June 2015 the Group introduced an offer for Exempt Shares in the Equity Incentive Plan. The
Plan gives the Group’s employees the opportunity to acquire shares in the Company. Each year, participating employees
can make contributions from their pre-tax salary to acquire $500 worth of shares. Such employee contributions are
matched by the Group with an additional $500 worth of shares being acquired for each participating employee. All
employees who are Australian tax residents with at least 6 months service as at 21 October 2014 are entitled to
participate in this Plan. Shares acquired under this Plan are subject to a holding period of 3 years.
The plan also incorporates a tax-approved scheme to employees in the UK. The Plan gives the Group’s employees the
opportunity to acquire shares in the Company. Employees can make contributions from their pre-tax salary to acquire
£375 (max) worth of shares. Such employee contributions are matched by the Group with a free share for every share
purchased by the employee. All employees of the Group in the UK with at least 6 months service as at 14 November
2014 are entitled to participate in this Plan. Shares acquired under this plan will be held in trust by MM&K Share Plan
Trustee Ltd for a period of 5 years from the date of acquisition.
Executive equity incentive plan
The plan introduces an ownership-based compensation scheme for executives and senior employees. In October 2014,
the Company’s shareholders approved the S+G Executive Equity Incentive Scheme under which grants of performance
rights have been made. The EIP replaces the existing Employee Ownership Plan (“EOP”), without prejudice to the rights
of current participants in the EOP.
Performance rights are granted for no consideration. Under the scheme each performance right carries an entitlement to
one fully paid ordinary share in the Company subject to satisfaction of performance hurdles and/or continued
employment at an exercise price of nil. These executives and senior employees are not entitled to vote or receive any
dividends or attend the meeting of the shareholders during the vesting period. Performance rights may not be
transferred, disposed or pledged as security. If the executive ceases to be employed by the Group within the vesting
period, the rights will be forfeited, except in limited circumstances that are approved by the Board.
The performance hurdles are based on the following:
• Total Shareholder Return (TSR) Outperformance Hurdle – This performance hurdle is based on the Company’s total
shareholder return (TSR) against the TSR of the constituent companies within the S&P/ASX 300 index (excluding
resources) over the Measurement Period. The performance period shall be the period from 1 September 2014 to 31
August 2017.
• Compound Annual Growth Rate in Earnings Per Share (CAGR EPS) Hurdle – This performance hurdle is based
on the Company’s Compound Annual Growth Rate in Earnings Per Share over the Measurement Period.
• Compound Annual Growth Rate in Regional EBITDA (CAGR EBITDA) Hurdle – This performance hurdle is based on
the designated Region’s Compound Annual Growth Rate in EBITDA over the Measurement Period.
108
Slater and Gordon Limited
Page 87
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 27: Share-Based Payment Arrangements (continued)
The performance conditions applying to the latest grant (FY15) were as follows:
CAGR EPS Hurdle (Group
Directors only)
CAGR EPS Hurdle
TSR Outperformance
Hurdle
CAGR EBITDA
Performance
< 10%
10% to 15%
% of
equity
to vest
0%
50% to
100%
pro-rata
Performance
< 7%
7% to 10%
% of
equity to
vest
0%
50% to
100% pro-
rata
> 15%
100%
> 10%
100%
Performance
< 50th
percentile
50th to 75th
percentile
> 75th
percentile
% of
equity to
vest
0%
50% to
100%
pro-rata
Performance
< 15%
15% to 20%
% of
equity to
vest
0%
50% to
100% pro-
rata
100%
> 20%
100%
Any performance rights not vested at the end of the performance period are forfeited.
The fair value of services received in return for the performance rights granted is measured by reference to the average
of volume weighted average price of ordinary shares on each of 5, 10, 15 and 20 days immediately preceding the grant
date. The weighted average fair values at grant date are determined using a fair valuation model which reflects the fact
that vesting of the shares is dependent on meeting performance criteria based on TSR. The vesting of the shares is also
subject to non-market conditions but these are not taken into account in the grant date fair value measurement of the
services received. The assessed fair value of performance rights granted under this scheme as remuneration is allocated
equally over the period from grant date to vesting date.
The key terms and conditions related to the performance rights granted under this plan are as follows:
Grant date/employee entitled
Group Executive Directors in Australia (31
October 2014)
Performan
ce rights
granted
56,000
Fair value of
rights at
Grant date
2.4643
Group Executives in Australia (31 October
2014)
Group Executives in the UK (12 December
2014)
Regional Executives in Australia (31
October 2014)
68,000
2.4643
44,000
2.4799
Same as above
176,000
6.1608
Vesting conditions*
50% subject to TSR
Outperformance hurdle
and 50% subject to
CAGR EPS hurdle
Same as above
50% subject to CAGR
EBITDA hurdle and
50% subject to CAGR
EPS hurdle
Same as above
Contractual life
of performance
rights
3 years
3 years
3 years
3 years
3 years
Regional Executives in the UK (12
December 2014)
152,000
6.1997
* All performance rights include 3 years’ service condition from grant date.
Number of rights granted:
Grant date
31 October 2014
12 December 2014
Balance at
beginning
of the year
-
-
Granted during
the year
300,000
196,000
Vested
during the
year
-
-
Forfeited
during the
year
-
-
Balance at
end of the
year
300,000
196,000
Exercisable
at end of the
year
-
-
Share-based payment expenses recognised in profit or loss are disclosed in Note 5.
Slater and Gordon Limited
Page 88
109
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 27: Share-Based Payment Arrangements (continued)
Share based payment arrangements to former owners
The Group has changed its accounting treatment of deferred consideration payable for the acquisition of legal service
practices. Arrangements that include contingent consideration to vendors of the business that are subject to so-called
“bad leaver” provisions were previously considered as part of the consideration paid or payable for the business
combination.
Included in the terms of a number of purchase agreements entered into by the Group is an arrangement whereby the
payment of cash consideration to and/or the retention of share-based consideration by the vendors of acquired entities is
contingent upon the relevant vendors remaining with the Group for a defined period. If a vendor ceases to remain with
the Group for the prescribed period, the vendor may forfeit its entitlement to payment of the cash consideration and/or its
ability to retain its share-based consideration, at the discretion of the Group.
These arrangements are now treated as a share-based payment transaction with the former owners. The transaction is
measured at the fair value of the equity instruments granted and then recognised as an expense over the vesting period
as agreed per each contract. The relevant expense is disclosed in the statement of comprehensive income.
Employee ownership plan (“EOP”)
The EOP provides for the issue of VCR shares to participants in a number of tranches and for the Company to make a
loan to participants equal to the total amount that is to be subscribed.
When making an offer to an employee to subscribe for VCR shares, the Board has the power to specify:
•
•
•
•
the number of VCR shares which may be subscribed for by a particular employee;
the issue price. The Board sets the issue price at the fair value of a share as at the date of the issue;
the number of tranches into which the VCR shares will be divided and the vesting date for each tranche;
the period for which an absolute restriction on disposal will apply (this period may not exceed 3 years from vesting);
• any conditions to be placed on vesting;
• any events which would result in the forfeiture of the VCR shares; and
•
the period for which the Company will be able to buy back or require the forfeiture of the converted shares.
The EOP provides for a full recourse loan from the Company to the employee to facilitate the employee’s subscription for
VCR shares. The loan is secured by the VCR shares or the converted VCR shares. The offer made by the Board must
specify the date by which the loan must be repaid.
Vesting, redemptions and conversion
VCR shares do not carry rights to participate in issues by the Company or to receive any dividends paid by the Company
and cannot be transferred or otherwise disposed of without the prior written consent of the Board. VCR shares will not
confer a right to notices of general meetings, a right to attend or speak at general meetings, nor a right to vote at general
meetings except as may be required by law.
Vesting conditions are set by the Board and relate to the performance of the participant and the performance of the
Company. Cessation of employment with the Group results in the forfeiture of that participant’s VCR shares. The Board
has the power to specify other forfeiture events.
Where vesting conditions are not met or a forfeiture event occurs, the Company has the power to redeem the relevant
tranche (or tranches) of VCR shares for an amount equal to the relevant proportion of the subscribed amount (this
amount may be offset against any loan made to the participant).
If all vesting conditions are satisfied, and no forfeiture event has occurred, each tranche of VCR shares vests, and then
automatically converts to ordinary shares on a one for one basis, on the relevant vesting date.
110
Slater and Gordon Limited
Page 89
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 27: Share-Based Payment Arrangements (continued)
After conversion
After conversion the shares rank in all respects pari passu with all other shares on issue. However those shares will be
subject to disposal restrictions.
If the participant ceases employment with the Group, their converted VCR shares can be forfeited or bought back by the
Company and set off against any outstanding loan. The participant may be deemed liable for any shortfall between the
value of the shares forfeited or brought back by the Company and the loan amount.
At the cessation of the Buyback Period, each participant is required to enter into a Binding Commitment with the
Company in respect of their converted VCR shares. Under the Binding Commitment the participants in the EOP will be
under the following restrictions:
They will be required to maintain a minimum level of shareholding for as long as they remain an employee of the Group.
The minimum holding is calculated based on the:
•
•
lower of 15% of the aggregate number of VCR shares, or 20% of the aggregate value (based on the issue price) of
VCR shares, issued to that employee which have vested and converted to shares.
if they cease to be employed by the Group, they may forfeit or be required to dispose of some or all of their shares
upon such termination. The ramifications of a departure from employment are linked to the circumstances
surrounding that departure.
Transfer
VCR shares may not be transferred. During the Buyback Period, converted VCR shares may not be transferred;
however, an exception applies for a takeover or scheme of arrangement relating to the Company that meets certain
conditions set out in the EOP.
Profile of vesting, conversion and redemption of VCR shares to ordinary shares
The profile of the vesting of VCR shares relating to the issued VCR shares in February 2011, December 2011,
December 2012 and February 2013 into ordinary shares, conversion into ordinary shares (subject to disposal
restrictions) or scheduled for redemption as VCR shares based on the shares issued under the EOP as at 30 June 2015:
VCR shares which have (or may) vest as ordinary
shares
VCR shares which may convert to ordinary
shares but are subject to disposal restrictions
VCR shares to be redeemed
Vested
’000
4,954
1,959
1 year or
less
’000
1 to 5
years
’000
More than
5 years
’000
833
-
1,840
1,988
-
75
-
-
-
-
Total
’000
5,787
5,787
75
Slater and Gordon Limited
Page 90
111
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 27: Share-Based Payment Arrangements (continued)
Accounting recognition
The VCR Share loan receivable is initially recognised at its fair value and is ascertained with reference to the effective
interest method under AASB 139 Financial Instruments: Recognition and Measurement. The profit and loss impact is
taken as the difference between the expected repayment period and the expected present value of the loan amount at
the reporting date and is recognised as interest income.
The key assumptions used in the present value calculation are:
Date VCR shares issued
22 February 2011
31 December 2011
Shares issued
Issue price
Effective interest rate
Final repayment date
1,830,000
$2.05
8.5%
1 July 2014 to
1 July 2016
2,390,000
$1.79
8.5%
1 July 2015 to
1 July 2017
20 December 2012
and
25 February 2013
2,425,000
$1.95
8.5%
1 July 2016 to
1 July 2018
The interest income recognised on VCR Share loans to employees has been disclosed in Note 4.
The benefit provided to the employee is required to be recognised in the accounts under AASB 2 Share-based Payment.
The benefit is assessed as the difference between the fair value of the VCR shares at the issue date and the present
value discounted over the vesting period. The benefit is expensed with reference to the effective interest rate method
over the vesting period. The share based payments expense has been disclosed in Note 5.
Note 28: Auditor’s Remuneration
Amounts received or due and receivable by Pitcher Partners:
An audit of the financial report of the Group and review of statutory accounts
The half year review of the financial report of the Group
Other assurance services
Due diligence investigations
IT review
Amounts received or due and receivable by network firms of Pitcher
Partners:
An audit of the financial report of the Group and review of statutory accounts
Other assurance services
Other auditors – Ernst & Young LLP:
An audit of the financial reports of the subsidiaries of the Company and review of
statutory accounts
Due diligence investigations
Note
2015
$
2014
$
276,623
106,500
106,500
39,227
39,227
177,860
-
600,210
247,198
97,788
12,130
15,900
5,427
378,443
302,434
4,245
306,679
228,355
-
228,355
1,614,080
1,475,791
3,089,871
-
-
-
Total auditor’s remuneration
3,996,760
606,798
112
Slater and Gordon Limited
Page 91
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 29: Related Party Disclosures
The following provides the total amount of transactions that were entered into with related parties for the relevant
financial year:
As outlined in the replacement Prospectus (“the Prospectus”) dated 13 April 2007 the South Australian practice is
operated by Andrew Grech as a sole practitioner trading as Slater & Gordon Lawyers under a Service and Licence
Agreement between Andrew Grech and the Company. During the 3 months ended 30 September 2014, the service and
licence fee totalled $531,532 (2014: $1,184,937).
Legislation in South Australia changed with effect from 1 July 2014 to allow for incorporated legal practices to operate in
South Australia. As a consequence, the Adelaide practice was transferred from Andrew Grech trading as Slater &
Gordon Lawyers to the Company for the value of the practice’s net assets at 30 September 2014. The net asset value
was fully offset by amounts owed to the Company pursuant to the service and license agreement.
As disclosed in Note 1, this entity is included in the consolidated group in accordance with AASB 10 Consolidated
Financial Statements.
The shareholdings of related parties and remuneration of KMP are disclosed in the Directors’ Report.
Outstanding receivables, if any, between related parties are disclosed in Note 9. Outstanding payables, if any, are
disclosed in Note 15.
Slater and Gordon Limited
Page 92
113
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 30: Group Entities
Controlled entities
Trilby Misso Lawyers Limited
Slater & Gordon Lawyers NSW Pty Limited
Conveyancing Works (Qld) Pty Limited
Schultz Toomey O’Brien Pty Ltd
All States Legal Co Pty Ltd
SG NSW Pty Ltd
Walker Smith Way Limited
WSW Limited
Slater & Gordon (UK) 1 Limited
New Claims Direct Limited
4 Legal Limited
4 Legal Solutions Limited
Slater & Gordon (UK) LLP
Adroit Financial Planning Limited
Pannone Trust Corporation Limited
Entities collectively referred to as Slater Gordon Solutions:
iSaaS Technology Limited
Compass Costs Consultants Ltd
Intelligent Claims Management Limited
Mobile Doctors Group Limited
Medici Legal Limited
Mobile Doctors Solutions Limited
Mobile Doctors Limited
MDL Medical Administration Ltd
React & Recover Medical Group Limited
Recover Healthcare Limited
React Medical Reporting Limited
React Medical Management Limited
Medicalaw Limited
Abstract Legal Holdings Limited
Accident Advice Helpline Direct Limited
Legal Facilities Management & Services Limited
Fast Track PPI Limited
Access to Compensation Limited
Cab Claims Limited
Liberty Protect Limited
Claim4 Limited
Accident Advice Helpline Limited
Claim 103 Limited
Accident Advice Insurance Management Group Limited
Sentinel Alliance Limited
Accident Advice (IA) Limited
Quindell Legal Services Limited
Quindell ACH Limited
ACH Group Management Limited
ACH Access Legal Limited
ACH Claims Limited
ACH Media Solutions Limited
ACH Medical Limited
ACH Broker Services Ltd
ACH Quote Me Cover Me Limited
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
2015
Ownership
Interest (%)
2014
Ownership
Interest (%)
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
114
Slater and Gordon Limited
Page 93
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 30: Group Entities (continued)
Controlled entities (continued)
Country of
incorporation
2015
Ownership
Interest (%)
2014
Ownership
Interest (%)
Entities collectively referred to as Slater Gordon Solutions (continued):
Crusader Assistance Group Holdings Limited
Accident & Equity Limited
Crusader Group Holdings Limited
Centurion Uninsured Loss Recovery Services Limited
Equi-Medical Reports Limited
Equi Rehab Limited
Crusader Uninsured Loss Recovery Service Limited
Crusader Connect Limited
Quindell Business Process Services (UK) Limited
Colegate Vehicle Hire Limited
Colegate Accident Assistance Ltd
Auto Indemnity (UK) Limited
Overland Limited
Overland Health Limited
Overland Malta (Trading) Limited
Overland Legal Limited*
Property Home Buyers Limited*
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Malta
Malta
Malta
Malta
Malta
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
60
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
*Entities under voluntary liquidation since November 2014.
Slater and Gordon Limited
Page 94
115
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations
2015:
Acquisition of business – All States Legal Co Pty Ltd trading as Nowicki Carbone (provisionally accounted)
On 31 October 2014, the Group acquired the business of Nowicki Carbone, a personal injury law firm based in
Melbourne, Victoria.
The strategic rationale for this business acquisition is:
•
to further expand the Group’s personal injury law practice;
• synergies expected to be achieved as a result of combining the acquired business with the rest of the Group; and
•
to reaffirm the Group’s position as the leading law firm brand in the Australian consumer legal services market.
The consideration transferred and the value of the assets and liabilities assumed at the date of acquisition are as follows:
Consideration
Cash
Net present value of total consideration
Net assets acquired
Assets
- Trade and other receivables
- Work in progress
- Plant and equipment
- Intangible assets
- Deferred taxation
- Other assets
Total assets acquired
Liabilities
- Bank overdraft
- Payables
- Provisions
- Borrowings
Total liabilities acquired
Net assets acquired
Gain from bargain purchase
$’000
10,000
10,000
Fair Value
$’000
3,899
39,209
993
57
770
1,802
46,730
(151)
(3,683)
(511)
(318)
(4,663)
42,067
(32,067)
The initial accounting for the acquisition of Nowicki Carbone has only been provisionally determined at the end of the
reporting period.
Since the acquisition date, Nowicki Carbone has contributed profit after tax of $9,981,000 in the period ended 30 June
2015, which is included in the consolidated profit. As at the date of reporting, it is not practical to disclose the revenue
and profit after tax of the combined entity as if the acquisition took place on 1 July 2014 as the Group does not have
access to audited financial information for the period prior to the date of acquisition prepared on the same Group
accounting policies.
Acquisition-related costs for this acquisition amounting to $270,000 have been excluded from the total consideration and
have been recognised as an expense in the period ended 30 June 2015, within the ‘costs associated with acquisitions’
line item in the statement of profit or loss.
116
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Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of other businesses in Australia
During the year ended 30 June 2015, the Group acquired the following businesses in Australia:
Acquisition Date
31 July 2014
5 September 2014
12 September 2014
31 October 2014
28 November 2014
Business
Fiocco Lawyers
Biddle Lawyers
Cox West Lawyers
Schultz Toomey O’Brien
Bannister Law
Location
Perth, WA
Victoria Point, QLD
Penrith, NSW
Sunshine Coast, QLD
Sydney, NSW
Business Type
Personal Injury Law and Consumer Legal Services
Consumer Legal Services
Personal Injury Law and Consumer Legal Services
Personal Injury Law and Consumer Legal Services
Personal Injury Law
The strategic rationale for these business acquisitions is:
•
to further expand the Group’s personal injuries and consumer legal services practice;
• synergies expected to be achieved as a result of combining the acquired businesses with the rest of the Group; and
•
to reaffirm the Group’s position as the leading law firm brand in the Australian consumer legal services market.
The consideration transferred and the final value of the consolidated assets and liabilities assumed at the dates of
acquisition are as follows:
Consideration
Cash
Equity issued (342,961 shares at $5.54 per share)
Fair value of deferred consideration (cash)
Net present value of total consideration
Net assets acquired
Assets
- Trade and other receivables
- Work in progress
- Plant and equipment
- Intangibles
- Deferred taxation
- Other assets
Total assets acquired
Liabilities
- Bank overdraft
- Payables
- Provisions
- Borrowings
Total liabilities acquired
Net assets acquired
Goodwill on acquisition
$’000
19,165
1,900
4,653
25,718
Fair Value
$’000
3,642
17,263
1,473
2,764
527
523
26,192
(53)
(951)
(637)
(1,194)
(2,835)
23,357
2,361
There were 342,961 shares issued as part of the consideration. The issue price of $5.54 is based on the volume
weighted average price of ordinary shares on the 130 business days immediately preceding the completion date.
The profit and loss results of the acquired businesses are not set out. It is not practicable to disclose the profit and loss
results of the acquired businesses as they have been integrated into the existing operations and reporting structure of
the Group.
It is also not practical to disclose the revenue and profit after tax of the combined entities as if these acquisitions took
place on 1 July 2014 as the Group does not have access to audited financial information for the period prior to the dates
of acquisition prepared on the same Group accounting policies.
Slater and Gordon Limited
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117
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of other businesses in Australia (continued)
Acquisition-related costs for these acquisitions amounting to $235, 000 have been excluded from the total consideration
and have been recognised as an expense in the period ended 30 June 2015, within the ‘costs associated with
acquisitions’ line item in the statement of profit or loss.
Acquisition of business – Slater Gordon Solutions (provisionally accounted)
On 29 May 2015 the Group acquired SGS from Quindell Plc. SGS is comprised of 52 legal entities incorporated in the
UK and Malta as outlined in Note 30.
The principal activities of SGS are:
I.
II.
III.
First notification of loss (“FNOL”) services for various partner organisations, including insurance brokers, insurers,
motoring organisations and vehicle manufacturers. These services include the facilitation of vehicle retrieval,
repair and replacement vehicle hire for not at fault drivers;
Conducting claims on behalf of not at fault parties to road traffic accidents (“RTA”), including credit hire, repair and
personal injury claims.
Conducting claims on behalf of individuals injured in the course of employment or in a public place (“EL/PL”).
One species of employers’ liability claim that SGS is currently conducting are personal injury claims for a large
group of people who allege noise induced hearing loss (“NIHL”) as a consequence of employment and who may
be entitled to compensation as a result. It is expected that these NIHL claims will be concluded in the next 1 to 3
years; and
IV.
Services complementary to these claims processes, including:
a.
b.
A medical reporting service for claimant lawyers;
The assessment, triage and facilitation of rehabilitation services for not at fault parties injured in accidents;
and
c.
A costing service for lawyers and law firms.
The strategic rationale for this business acquisition is:
•
to become the leading personal injury group in the UK; and
• access to a comprehensive platform of businesses, processes and infrastructure that augments the Group’s existing
UK operation.
118
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Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of business – Slater Gordon Solutions (provisionally accounted) (continued)
The provisional consideration transferred and the value of the consolidated assets and liabilities assumed at the dates of
acquisition is as follows:
Consideration
Cash
Net present value of total consideration
Net assets acquired
Assets
- Cash and cash equivalents
- Trade and other receivables
- Work in progress
- Plant and equipment
- Intangible assets
- Current tax assets
- Deferred tax assets
- Other assets
Total assets acquired
Liabilities
- Short-term borrowings
- Current tax liability
- Payables
- Provisions
- Deferred tax liabilities
Total liabilities acquired
Net assets acquired
Goodwill on acquisition
$’000
1,294,695
1,294,695
Fair Value
$’000
5,129
358,956
153,349
4,890
71,299
29,041
44,720
8,010
675,394
(10)
(14,080)
(348,182)
(4,794)
(13,357)
(380,423)
294,971
999,724
The initial accounting for the acquisition of SGS has only been provisionally determined at the end of the reporting
period.
The key item that gave rise to the goodwill above is the capacity of SGS to underpin strategic growth of the personal
injuries practice within the UK market.
Since the acquisition date, SGS has contributed total revenue of $37,181,000 and loss after tax of $4,626,000 in the year
ended 30 June 2015, which is included within the consolidated profit. As at the date of reporting, it is not practical to
disclose the revenue and profit after tax of the combined entities as if the acquisition took place on 1 July 2014 as the
Group does not have access to audited financial information for the period prior to the date of acquisition prepared on the
same Group accounting policies.
Acquisition-related costs for this acquisition amounting to $20,776,000 have been recognised as an expense in the year
ended 30 June 2015, within the ‘costs associated with acquisitions’ line item in the statement of profit or loss.
The acquisition of SGS has been provisionally accounted for at year end. Given the proximity of the acquisition date to
the reporting date, the values of the acquired assets and liabilities of SGS are considered provisional. It is also not
practical for the Group to determine an estimate of the noise-induced hearing loss (“NIHL”) claims asset and associated
deferred consideration. These will be updated within 12 months post-acquisition in accordance with AASB 3 Business
Combinations. The directors believe deferred consideration would be in the range of £25 million ($51 million) to £55
million ($113 million).
On 5 August 2015, Quindell Plc, the vendor of SGS, published qualified financial statements in which the current
directors and auditors of Quindell Plc explained, inter alia, that relevant information relating to transactions entered into
Slater and Gordon Limited
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119
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of business – Slater Gordon Solutions (provisionally accounted) (continued)
by the former directors that could impact on the accounting, intention, commercial purpose or value of certain
transactions was not available to them.
On 5 August 2015 the Serious Fraud Office in the United Kingdom advised that it has opened a criminal investigation
into the business and accounting practices of Quindell Plc.
The acquisition of SGS was structured as an acquisition of the various entities rather than an acquisition of the common
stock of Quindell Plc. Moreover, Quindell Plc provided detailed warranties to the Company in relation to the operations
of the assets comprising SGS. Those warranties are secured by a Warranty Escrow account holding £50m.
The Company is confident that it has no liability as a result of the matters described above.
In the course of preparing these financial statements, the Directors have sought to identify, understand and properly
account for all relevant prior transactions undertaken by entities within SGS. Despite reasonable inquiries, including of
current directors of Quindell Plc, the Directors are unable to identify or rationalise every historic transaction undertaken
by the former directors of the various entities and have made fair value adjustments as appropriate. The Directors
believe that none of the known transactions relate to the fundamental business activities or economics of SGS and none
of the known transactions are material in value or effect to the Company.
Acquisition of other businesses in the UK (provisionally accounted)
During the year ended 30 June 2015, the Group acquired the following businesses in the UK:
Acquisition Date
5 September 2014
8 May 2015
Business
Flint Bishop LLP
Leo Abse Cohen
Location
Derby, UK
Wales, UK
The strategic rationale for these business acquisitions is:
Business Type
Personal Injury Law
Personal Injury Law and Consumer Legal
Services
• diversification of earnings through expansion of geographic coverage; and
•
to become a dominant law firm brand in the consumer legal services market in the UK.
The provisional consideration transferred and the value of the consolidated assets and liabilities assumed at the dates of
acquisition are as follows:
Consideration
Cash
Fair value of deferred consideration (cash)
Net present value of total consideration
Net assets acquired
Assets
- Trade and other receivables
- Work in progress
- Plant and equipment
- Other assets
Total assets acquired
$’000
13,136
1,427
14,563
Fair Value
$’000
7,477
26,295
3,153
850
37,775
Liabilities
(4,499)
- Payables
(1,140)
- Provisions
(5,639)
Total liabilities acquired
32,136
Net assets acquired
(17,573)*
Gain from bargain purchase
*The acquisition of Flint Bishop LLP resulted in goodwill of $30,000 and the acquisition of Leo Abse Cohen resulted in a gain from
bargain purchase of $17,603,000.
120
Slater and Gordon Limited
Page 99
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of other businesses in the UK (provisionally accounted) (continued)
The initial accounting for the acquisitions have only been provisionally determined at the end of the reporting period.
The profit and loss results of the acquired businesses are not set out. It is not practicable to disclose the profit and loss
results of the acquired businesses as they have been integrated into the existing operations and reporting structure of
the Group.
It is also not practical to disclose the revenue and profit after tax of the combined entities as if these acquisitions took
place on 1 July 2014 as the Group does not have access to audited financial information for the period prior to the dates
of acquisition prepared on the same Group accounting policies.
Acquisition-related costs for these acquisitions amounting to $458,000 have been recognised as an expense in the year
ended 30 June 2015, within the ‘costs associated with acquisitions’ line item in the statement of profit or loss.
Acquisition of business – Walker Smith Way Limited (provisionally accounted)
On 30 April 2015, the Group acquired the business of Walker Smith Way Limited, a personal injury and consumer law
practice operating throughout Northern England and Wales.
The strategic rationale for this business acquisition is:
• diversification of earnings through expansion of geographic coverage; and
•
to become a dominant law firm brand in the consumer legal services market in the UK.
The provisional consideration transferred and the value of the consolidated assets and liabilities assumed at the dates of
acquisition are as follows:
Consideration
Cash
Cash settled vendor debt
Fair value of deferred consideration (cash)
Net present value of total consideration
Net assets acquired
Assets
- Cash and cash equivalents
- Trade and other receivables
- Work in progress
- Plant and equipment
Total assets acquired
Liabilities
- Payables
- Provisions
- Deferred tax liabilities
Total liabilities acquired
Net assets acquired
Gain from bargain purchase
$’000
5,204
6,427
794
12,425
Fair Value
$’000
2,174
7,449
20,188
67
29,878
(4,313)
(1,328)
(2,825)
(8,466)
21,412
(8,987)
The initial accounting for the acquisition of WSW has only been provisionally determined at the end of the reporting
period.
The profit and loss result of the acquired business is not set out. It is not practicable to disclose the profit and loss results
of the acquired businesses as it has been integrated into the existing operations and reporting structure of the Group.
It is also not practical to disclose the revenue and profit after tax of the combined entities as if these acquisitions took
place on 1 July 2014 as the Group does not have access to audited financial information for the period prior to the date
of acquisition prepared on the same Group accounting policies.
Slater and Gordon Limited
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121
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of business – Walker Smith Way Limited (provisionally accounted) (continued)
Acquisition-related costs for this acquisition amounting to $230,000 has been recognised as an expense in the year
ended 30 June 2015, within the ‘costs associated with acquisitions’ line item in the statement of profit or loss.
2014:
Acquisition of business – Gibson & Gibson
On 1 August 2013, the Group acquired the business of Gibson & Gibson, a personal injuries law firm based in Perth,
Western Australia, for a total consideration of $3,289,100. Included in this amount is final goodwill of $1,636,314.
Acquisition of business – Pannone Solicitors LLP (“Pannones”) and related entities
Business combinations in the UK in 2014 have been restated for the effect of the application of the change in Group
accounting policies discussed in Note 1.
On 14 February 2014, the Group acquired the business of Pannone, a law firm based in Manchester, UK. On the same
day the Group also acquired two related entities, Adroit Financial Planning Limited (“Adroit”) and Pannone Trust
Corporation Limited (“Pannone Trust”). Adroit Financial Planning Limited is a financial planning business. Pannone Trust
Corporation Limited is a dormant company, initially incorporated to act as the administrator of estates and other
appointments having fiduciary responsibility associated with Adroit.
The strategic rationale for these business acquisitions is:
• diversification of earnings through expansion of geographic coverage; and
•
to become a dominant law firm brand in the consumer legal services market in the UK.
The initial accounting for the acquisition had previously been provisionally determined. The necessary fair valuation of
consideration and net assets acquired have now been finalised and are reflected in the amounts detailed below.
The value of the assets and liabilities at the date of acquisition and converted using the acquisition date rate of exchange
are as follows:
Consideration
Cash
Equity issued (37,718 shares at $4.42 per share)
Fair value of deferred consideration (cash)
Net present value of total consideration
Net assets acquired
Assets
- Cash and cash equivalents
- Trade and other receivables
- Work in progress
- Plant and equipment
- Intangible assets
- Other assets
Total assets acquired
Liabilities
- Payables
- Provisions
Total liabilities acquired
Net assets acquired
Gain from bargain purchase
122
Slater and Gordon Limited
2014
$’000
Restated
37,590
167
6,110
43,867
Fair Value
518
31,889
41,773
83
1,110
1,573
76,946
(27,253)
(602)
(27,855)
49,091
(5,224)
Page 101
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Acquisition of business – Pannone Solicitors LLP (“Pannones”) and related entities (continued)
There were 37,718 shares issued as part of the consideration. The issue price of $4.42 is based on the average of the
volume weighted average price of ordinary shares on each of the 20 business days immediately preceding the
completion date.
In FY15 the Group entered into a variation deed with Pannones which reduces the deferred consideration payable for the
acquisition. As a result the Group recognised a gain of $282,000 in the statement of profit or loss.
Acquisition of business – Fentons Solicitors LLP (“Fentons”)
The value of assets and liabilities at the date of acquisition and converted using the acquisition date rate of exchange are
as follows:
Consideration
Cash
Net present value of total consideration
Net assets acquired
Assets
- Cash and cash equivalents
- Trade and other receivables
- Work in progress
- Plant and equipment
- Other assets
Total assets acquired
Liabilities
- Payables
- Provisions
Total liabilities acquired
Net assets acquired
Gain from bargain purchase
2014
$’000
Restated
43,266
43,266
Fair Value
7
43,768
54,686
1,518
120
100,099
(40,176)
(3,899)
(44,075)
56,024
(12,758)
Acquisition of other businesses in the UK
The Group acquired the following other businesses in the UK in 2014:
Acquisition Date Company
Location
Business Type Acquired
16 August 2013
Taylor Vinters LLP
Cambridge, UK
30 August 2013
Goodmans Law Limited
Liverpool, UK
29 November 2013 John Pickering & Partners LLP Halifax, UK
4 December 2013 Chadwick Lawrence LLP
Yorkshire, UK
Personal Injury
Law
Personal Injury
Law
Personal Injury
Law
Personal Injury
Law
Personal Injuries
business operations and
assets
Business operations and
assets
Business operations and
assets
Personal Injuries
business operations and
assets
Slater and Gordon Limited
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123
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 31: Business Combinations (continued)
Consideration
Cash
Equity issued (110,808 shares at $3.07 per share)
Fair value of deferred consideration (cash)
Net present value of total consideration
Net assets acquired
Assets
- Trade and other receivables
- Work in progress
- Plant and equipment
- Other assets
Total assets acquired
Liabilities
- Payables
- Provisions
Total liabilities acquired
Net assets acquired
Goodwill
*Split as follows
Taylor Vinters LLP
Goodmans Law Limited
John Pickering & Partners LLP
Chadwick Lawrence LLP
2014
$’000
Restated
16,950
340
9,681
26,971
Fair Value
9,665
15,370
9
65
25,109
(5,488)
(849)
(6,337)
18,772
8,199*
9,011
(1,561)
(219)
968
124
Slater and Gordon Limited
Page 103
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 32: Financial Risk Management
The Group is exposed to a variety of financial risks comprising:
i)
ii)
Credit risk
Liquidity risk
iii)
Fair values
iv)
Interest rate risk
v)
Foreign exchange risk
The board of directors has overall responsibility for identifying and managing operational and financial risks.
The categories of financial instruments are as follows:
Financial assets
Cash and cash equivalents
Loans and receivables
Disbursements
VCR Share Loans receivable
Financial liabilities
Payables
Borrowings
Other financial liabilities
Derivatives
i)
Credit risk
2015
$’000
96,985
303,034
396,583
8,325
804,927
639,643
720,353
10,985
1,621
1,372,602
2014
$’000
Restated
25,270
103,158
126,210
11,844
266,482
197,912
126,331
10,103
1,020
335,366
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation. The main exposure to credit risk in the Group is represented by the receivables (debtors and
disbursements) owing to the Group.
The maximum exposure to credit risk, excluding the value of any collateral or other security, at the end of the reporting
period of recognised financial assets is the carrying amount of those assets, net of any provisions against those assets,
as disclosed in the statement of financial position and notes to the financial statements.
Credit risk – Slater Gordon Solutions (motor services)
Debts are almost exclusively due from insurance companies. The capitalisation of insurers is regulated by the Financial
Conduct Authority in the UK. The insurance industry operates a policy holders’ protection scheme to alleviate the impact
of the failure of an insurance company.
Credit risk is therefore spread across major UK based motor insurers in proportion to their respective share of the
market. No credit insurance is taken out given the regulated nature of these entities.
No interest is charged on the receivables balances however late penalty payments become payable at certain dates
under the Association of British Insurers’ General Terms of Agreement. SGS does not hold any collateral over these
balances nor has the legal right of offset with any amounts owed by SGS to the receivables counterparty.
There is also credit risk associated with unrendered disbursements and trade receivables. Once client matters are billed,
a significant portion of receivables related to the personal injuries business are considered low risk. This is because
these receivables are collected directly from settlements paid by insurers into trust funds held on behalf of the Group’s
clients. As at 30 June 2015, approximately 38% of trade receivables relate to the personal injury law business.
Slater and Gordon Limited
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125
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 32: Financial Risk Management (continued)
i)
Credit risk (continued)
For the non-personal injury law business, the Group is exposed to the credit risk associated with the client’s ability to
meet their obligations under the fee and retainer agreement. The Group minimises the concentration of this credit risk by
undertaking transactions with a large number of clients.
Management of credit risk
The Group actively manages its credit risk by:
• assessing the capability of a client to meet its obligations under the fee and retainer agreement;
• periodically reviewing the reasons for bad debt write-offs in order to improve the future decision making process;
• maintaining an adequate provision against the future recovery of debtors and disbursements;
•
including in practitioner’s Key Performance Indicators (“KPI’s”) measurements in respect of debtor levels, recovery
and investment in disbursements;
• providing ongoing training to staff in the management of their personal and practice group debtor portfolios; and
• where necessary, pursuing the recovery of debts owed to the Group through external mercantile agents and the
courts.
At 30 June 2015, the maximum exposure to credit risk for trade and other receivables by segment was as follows:
Australia
UK
SGS
2015
$’000
111,151
213,947
374,519
699,617
2014
$’000
96,249
133,119
-
229,368
Due to the nature of the “No Win No Fee” arrangements applicable to the majority of the legal matters managed by the
Group an increase in the required processing time between initiation and settlement and an increase in the ageing of
receivables, particularly disbursements, does not always increase the associated credit risk.
Management performs periodic assessment of the recoverability of receivables, and provisions are calculated based on
historical write-offs of the receivables as well as any known circumstances relating to the matters in progress.
Cash and cash equivalents
The Group held cash and cash equivalents of $96,985,000 at 30 June 2015 (30 June 2014: $25,270,000). The credit risk
associated with cash and cash equivalents are considered as minimal as the cash and cash equivalents are held with
reputable financial institutions in Australia and UK.
ii)
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Management of liquidity risk
The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate borrowing facilities are
maintained. Refer to the statement of cash flows and Note 23: Cash Flow Information, for further information on the
historical cash flows and the current borrowing facilities below.
KPIs are set for practitioners relating to budgeted fee events, which are closely monitored by senior management.
126
Slater and Gordon Limited
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Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 32: Financial Risk Management (continued)
ii)
Liquidity risk (continued)
The Group actively reviews its funding position to ensure the available facilities are adequate to meet its current and
anticipated needs.
Total banking facilities
Bank overdrafts
Cash advance facility
Other sundry facilities
Total credit facilities
Amount utilised
Unused bank facilities
Bank overdrafts
2015
$’000
7,053
859,688
27,736
894,477
2014
$’000
5,000
200,000
15,640
220,640
(720,049)
174,428
(125,657)
94,983
Bank overdraft facilities are arranged with Westpac and Royal Bank of Scotland (National Westminster Bank) with the
general terms and conditions being set and agreed to annually. The current facilities are $5,000,000 and £1,000,000
respectively (2014: $5,000,000). Interest rates are variable and subject to adjustment.
Cash advance and equipment finance facility
The Group entered into a new multicurrency (AUD/GBP) syndicated bank facility in June 2015 with the following
structure and maturity profile:
• a GBP 157,500,000 revolving loan facility. This facility expires in June 2018 and interest is charged on the loans at
LIBOR plus an agreed margin;
• a GBP 157,500,000 revolving loan facility. This facility expires in June 2020 and interest is charged on the loans at
LIBOR plus an agreed margin;
• a GBP 60,000,000 revolving loan facility, bank guarantee facility and/or letter of credit. This facility expires in June
2018 and interest is charged on the loans at LIBOR plus an agreed margin;
• an AUD 45,000,000 revolving loan facility. This facility expires in June 2018 and interest is charged on the loans at
BBSY Bid plus an agreed margin; and
• an AUD 45,000,000 revolving loan facility. This facility expires in June 2020 and interest is charged on the loans at
BBSY Bid plus an agreed margin.
The proceeds of the loan facilities have been used to settle existing finance debt, general corporate purposes, the SGS
acquisitions and future acquisitions. The bank guarantee facility/letter of credit will be used to meet the day to day
working capital requirements, corporate purposes and future acquisitions.
Slater and Gordon Limited
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127
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 32: Financial Risk Management (continued)
ii)
Liquidity risk (continued)
Maturity analysis
The table below represents the undiscounted contractual settlement terms for financial instruments and management’s
expectation for settlement of undiscounted maturities.
2015
Non-derivative financial liabilities
Payables
Borrowings
Other current liabilities
Financial liability maturities
2014
Restated
Non-derivative financial liabilities
Payables
Borrowings
Other current liabilities
Financial liability maturities
< 12
Months
$’000
636,523
3,753
10,985
651,261
1-5 years
$’000
3,120
716,600
-
719,720
Total
contractual
cash flows
$’000
639,643
720,353
10,985
Carrying
amount
$’000
639,643
720,353
10,985
1,370,981
1,370,981
190,527
9,077
10,103
209,707
7,385
117,254
-
124,639
197,912
126,331
10,103
334,346
197,912
126,331
10,103
334,346
Refer to Note 32 (iv) for the maturity analysis of interest rate swaps.
iii)
Fair values
The fair value of financial assets and financial liabilities not measured at fair value approximates their carrying amounts
as disclosed in the statement of financial position and notes to the financial statements.
Management of fair value risk in interest rate swaps
The Group measures its interest rate swaps at fair value. These fair values are based on level 2 fair value
measurements, as defined in the fair value hierarchy in AASB 13 Fair Value Measurement with reference to market data
which can be used to estimate future cash flows and discount them to present value. Management’s aim is to use and
source this data consistently from period to period.
128
Slater and Gordon Limited
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Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 32: Financial Risk Management (continued)
iv)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of
changes in market interest rates.
The Group's exposure to interest rate risks and the effective interest rates of non-derivative financial assets and financial
liabilities both recognised and unrecognised at the end of the reporting period are as follows:
Financial Instruments
Weighted
average
interest rate
2014
2015
Non-interest
bearing
Variable interest
rate
Fixed interest rate
Total
2015
$’000
2014
$’000
Restated
2015
$’000
2014
$’000
2015
$’000
2014
$’000
2015
$’000
2014
$’000
Restated
(i) Financial assets
Cash
0.09% 0.88%
-
-
96,985
25,270
Trade debtors
Disbursements
Other receivables
VCR share loans
receivable
Total financial assets
(ii) Financial liabilities
Trade creditors and
accruals
Legal creditors
Non-interest bearing
vendor liabilities –
acquisitions
-
-
-
-
-
-
-
- 296,946
102,859
- 396,583
126,210
-
-
6,088 299
8,325
11,844
-
-
-
-
-
-
-
-
707,942 241,212
96,985
25,270
- 281,170
74,792
- 336,588 101,554
-
21,885
21,566
-
-
-
-
-
-
Other current liabilities
4.45% 4.45%
6.04% 7.42%
2.26% 2.49%
2.17% 3.02%
-
-
-
-
-
-
-
10,985
10,103
-
-
-
-
Hire purchase liability
Bills of exchange – fixed
rate
Bills of exchange –
variable rate
Total financial liabilities
Interest rate swaps
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96,985
25,270
296,946 102,859
396,583
126,210
6,088
299
8,325
11,844
804, 927 266,482
281,170
74,792
336,588 101,554
21,885
21,566
10,985
10,103
9,429
6,418
9,429
6,418
96,314 80,094
96,314
80,094
- 614,610
39,819
-
-
614,610
39,819
639,643 197,912 625,595
49,922 105,743 86,512 1,370,981 334,346
Interest rate swap transactions are entered into by the Group to exchange variable and fixed interest payment obligations
to protect long-term borrowings from the risk of increasing interest rates. The Group uses swap contracts to maintain a
designated proportion of fixed to floating debt.
The notional principal amounts of the swap contracts approximate 14% (2014: 67%) of the Group’s outstanding
borrowings on the cash advance facility (excluding the working capital facility) at 30 June 2015. The net interest
payments or receipt settlements of the swap contracts are matched to the maturity of the cash advance they are
hedging. The net settlement amounts are brought into account as an adjustment to interest expense. At the end of the
reporting period, the details of outstanding contracts, all of which are to receive floating/pay-fixed interest rate swaps, are
as follows:
Slater and Gordon Limited
Page 108
129
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 32: Financial Risk Management (continued)
iv)
Interest rate risk (continued)
Maturity of notional amounts
0 to 2 years
2 to 5 years
Effective average
fixed interest rate
payable
2014
2015
Notional principal value
2015
$’000
2014
$’000
17,500
62,594
80,094
2.23%
2.27%
4.18% 35,534
2.02% 60,801
96,335
The net effective variable interest rate borrowings (i.e. unhedged debt) expose the Group to interest rate risk which will
impact future cash flows and interest charges and are indicated by the following interest rate financial liabilities:
Floating rate instruments:
Unhedged cash advances/bills of exchanges
2015
$’000
2014
$’000
614,610
614,610
39,819
39,819
Interest rate swaps are measured at fair value with gains and losses taken to the cash flow hedge reserve until such time
as the profit or loss associated with the hedged risk is recognised in the consolidated statement of comprehensive
income. Given the matching of the hedge settlements with the payment of interest expense on the hedged borrowings,
the balance in the reserve attributable to interest rate swaps is generally minimal.
Interest rate sensitivity
If interest rates were to increase/decrease by 100 basis points from rates used to determine fair values as at the end of
the reporting period, assuming all other variables that might impact on fair value remain constant, then the impact on
profit for the year and equity is as follows:
+/- 100 basis points:
Impact on profit after tax
Impact on equity
v)
Foreign exchange risk
2015
$’000
-
3,098
2014
$’000
-
2,371
The Group is exposed to currency risk on services income, expenses, receivables and borrowings that are denominated
in a currency other than respective functional currencies of the group entities. The major functional currencies are the
Australian Dollar (AUD) and Sterling (GBP).
In relation to recognised assets and liabilities denominated in a currency other than the entity’s functional currency, the
group hedges all foreign currency exposures via a natural hedge.
Foreign currency net investment translation risk relating to the acquisition of Slater Gordon Solutions is partially hedged
through borrowings denominated in GBP, resulting in an overall reduction in the net assets that are translated. The
remaining translation exposure is not hedged.
The Group has no significant exposures to currency risk other than translation of its foreign subsidiaries in the United
Kingdom (UK). Any impacts on the balances relating to Slater and Gordon subsidiaries in the UK as a result of
movements in the foreign exchange rate are recorded in other comprehensive income as foreign currency translation
reserve. Refer to Note 1(s).
The Group has no other significant exposures to foreign exchange risk.
130
Slater and Gordon Limited
Page 109
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 33: Fair Value Measurements
i)
Fair value hierarchy
Refer to Note 2 (d) for discussion on the fair value hierarchy.
30 June 2015
Recurring Fair Value Measurements
Financial liabilities
Derivative financial instruments – interest rate swaps
Contingent consideration
30 June 2014
Restated
Recurring Fair Value Measurements
Financial liabilities
Derivative financial instruments – interest rate swaps
Contingent consideration
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
1,621
-
1,621
-
6,090
6,090
Total
$’000
1,621
6,090
7,711
Level 1
Level 2
Level 3
Total
$’000
$’000
$’000
$’000
-
-
-
1,020
-
1,020
-
12,633
12,633
1,020
12,633
13,653
30 June 2015
Financial instruments not measured at fair value
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Financial assets
Trade and other receivables
Total
Financial liabilities
Trade Creditors*
Legal Creditors
Vendor Liabilities – acquisitions
Borrowings
Finance Lease Liability
Total
-
-
-
-
-
-
-
-
-
303,034
303,034
303,034
303,034
-
-
-
710,924
9,429
720,353
98,558
336,588
21,886
-
-
98,558
336,588
21,886
710,924
9,429
457,032
1,177,385
30 June 2014
Restated
Financial instruments not measured at fair value
Level 1
Level 2
Level 3
Total
$’000
$’000
$’000
$’000
Financial assets
Trade and other receivables
Total
Financial liabilities
Trade Creditors*
Legal Creditors
Vendor Liabilities – acquisitions
Borrowings
Finance Lease Liability
Total
*Accrued expenses that are not financial liabilities are excluded
-
-
-
-
-
-
-
-
-
-
-
119,913
6,418
126,331
103,158
103,158
103,158
103,158
11,914
101,554
21,566
-
-
135,034
11,914
101,554
21,566
119,913
6,418
261,365
Slater and Gordon Limited
Page 110
131
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 33: Fair Value Measurements (continued)
ii)
Valuation techniques and inputs used in Level 2 and 3 fair value measurements
The fair value of the interest rate swaps is measured with reference to market data which can be used to estimate future
cash flows. The key input into this valuation is the interest rate swap revaluation statement as provided by Westpac
Banking Corporation and National Australia Bank.
The fair value of contingent consideration payable in a business combination is measured with reference to current fee
and performance forecasts which can be used to estimate future cash flows. The key inputs into this valuation are the
estimated future cash flows and the average discount rate of 9.2% used to determine the present value the future cash
flows.
iii)
Reconciliation of recurring Level 3 fair value movements
Contingent Consideration
Opening balance
Acquisitions
Payments
Adjustment to contingent consideration
Interest
Exchange differences
Closing balance
2015
$’000
7,927
4,185
(1,865)
(4,983)
378
447
6,089
2014
$’000
Restated
7,976
6,794
(4,947)
(2,668)
930
(158)
7,927
There has been no change in the range of undiscounted contingent consideration outcomes during the year.
iv)
Sensitivity analysis for recurring Level 3 fair value measurements
A reasonable movement in the unobservable inputs would not significantly impact the fair value of contingent
consideration as at the end of the reporting period and therefore not impact profit after tax and equity.
132
Slater and Gordon Limited
Page 111
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 34: Prior Period Error
The Group has identified two errors in the method used to report receipts from customers and payments to suppliers and
employees by the UK business during the current reporting period:
• From the initial date of acquisition of Russell Jones and Walker LLP in the year ended 30 June 2012 until the period
ended 31 December 2013, the UK business reported receipts from customers on a ‘gross’ rather than a ‘net’ basis in
accordance with Group Reporting Policy. This effect was wholly offset by the same amount being added to the
calculation of total payments to suppliers and employees. The amounts represented customer disbursements and
related Value Added Tax (VAT). Net cash derived from operating activities in all periods was unaffected and remains
as reported.
•
In the 30 June 2014 and 31 December 2014 financial statements UK VAT is duplicated in receipts from customers.
This effect was wholly offset by the same amount being included in total payments to suppliers and employees. The
cause of this was an arithmetic error in the consolidation spread sheet model operated in the Company’s UK
business at that time. Net cash derived from operating activities in all periods was unaffected and remains as
reported.
The error has been corrected by restating each of the affected financial statement line items for the prior periods, as
follows:
Previous
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Income tax (paid)/refunded
Net cash provided by operating activities
Restated
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Income tax (paid)/refunded
Net cash provided by operating activities
Year ended 30
June 2012
$’000
Year ended 30
June 2013
$’000
Year ended 30
June 2014
$’000
202,929
(182,110)
357
(5,374)
157
15,959
324,279
(285,148)
281
(6,158)
(537)
32,717
442,609
(375,225)
401
(5,344)
(8,006)
54,435
Year ended 30
June 2012
$’000
Year ended 30
June 2013
$’000
Year ended 30
June 2014
$’000
199,813
(178,994)
357
(5,374)
157
15,959
288,719
(249,588)
281
(6,158)
(537)
32,717
410,142
(342,758)
401
(5,344)
(8,006)
54,435
Difference in net cash provided by operating activities
-
-
-
The error does not have an impact on the Company’s retained earnings, profit or loss previously reported earnings per
share nor the cash and cash equivalent balances in the prior periods.
Note 35: Subsequent Events
Subsequent to the end of the financial year, all unvested VCR shares at 30 June 2015 have either vested and converted
into ordinary shares (subject to disposal restrictions) or have been approved for redemption. Other than the
aforementioned, there have not been any matters or circumstances that have significantly affected, or may significantly
affect, the results reported in the financial statements.
Note 36: Deed of Cross Guarantee
Slater and Gordon Limited, Trilby Misso Lawyers Limited and Slater & Gordon Lawyers NSW Pty Ltd are parties to a
deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the
wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under
Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.
A consolidated statement of comprehensive income and statement of financial position, comprising the Company and
controlled entities subject to the deed, after eliminating all transactions between parties to the deed of cross guarantee is
set out as follows:
Slater and Gordon Limited
Page 112
133
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 36: Deed of Cross Guarantee (continued)
Statement of Comprehensive Income
Revenue
Finance costs
Other expenses
Profit before income tax expense
Income tax expense
Profit for the year
Changes in fair value of cash flow hedges and foreign currency translation, net
of tax
Total comprehensive income for the year
Statement of Financial Position
Current assets
Cash and cash equivalents
Receivables
Work in progress
Other current assets
Total current assets
Non-current assets
Plant and equipment
Receivables
Work in progress
Intangible assets
Investment in subsidiary
Other non-current assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Payables
Short term borrowings
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Long term borrowings
Deferred tax liabilities
Derivative financial instruments
Provision
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
134
Slater and Gordon Limited
2015
$’000
270,958
(6,172)
(217,273)
47,513
(14,201)
33,312
2014
$’000
Restated
226,778
(5,138)
(171,820)
49,820
(16,408)
33,412
11,303
44,615
4,758
38,170
12,923
198,129
177,535
7,598
396,185
10,657
11,947
131,993
57,788
945,640
15,179
28,932
1,202,136
1,598,321
71,333
2,510
4,564
26,757
105,164
3,123
84,647
115,108
1,257
2,921
207,056
312,220
1,286,101
1,098,345
26,261
161,495
1,286,101
11,620
192,813
174,150
5,323
383,906
7,611
13,095
108,685
58,702
7,678
11,844
14,783
222,398
606,304
62,777
1,351
854
16,137
81,119
2,765
44,298
102,152
759
3,034
153,008
234,127
372,177
217,049
9,326
145,802
372,177
Page 113
Annual Report 2015Slater and Gordon Limited
Notes to the Financial Statements
For the Year Ended 30 June 2015
Note 37: Parent Entity Disclosures
As at, and throughout, the financial year ended 30 June 2015 the parent entity of the Group was Slater and Gordon
Limited.
Results of parent entity
Profit for the year
Other comprehensive income
Total comprehensive income for the year
2015
$’000
2014
$’000
Restated
65,128
11,303
76,431
36,054
4,758
40,812
There has been a recharge by the parent entity of management and associated services and interest expense to the
subsidiary entities.
Financial position for the parent entity at year end
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total equity of the parent company comprising of
Contributed equity
Reserves
Retained profits
Total Equity
Other commitments and contingencies
374,540
1,226,906
1,601,446
101,888
201,369
303,257
1,098,345
26,261
173,583
1,298,189
332,308
236,398
568,706
75,551
140,644
216,195
217,049
9,382
126,080
352,511
The Company has agreements with third party disbursement funders, ASK Funding Limited and Equal Access Funding
Proprietary Limited (“the existing Funders”), to provide financial guarantees to the funders with respect to disbursement
funding borrowings to the Group’s clients. The nature of this agreement is that the funders will fund disbursements in
respect of individual matters and will be reimbursed out of any settlement proceeds on the matter. The Group has
provided a financial guarantee for the repayment of the clients’ obligations to the funders.
Since 30 June 2014, the Company ended its arrangement with ASK Funding and settled all disbursements previously
funded by ASK Funding and recognised them as part of the receivables balance at 30 June 2015. The total amount
funded by the funders (existing and assumed) to the Company’s clients at 30 June 2015 is $13,603,000 (30 June 2014:
$10,591,000). The maximum exposure of the Company at 30 June 2015 is $13,603,000 (30 June 2014: $10,591,000) if
the disbursements on client matters are not recovered from any other party.
Operating lease commitments
2015
$’000
2014
$’000
Non-cancellable operating leases (including rental of office space) contracted but not capitalised in the parent financial
statements.
Within one year
One year or later and not later than five years
Greater than five years
12,636
30,140
6,712
11,986
31,775
6,342
49,488
50,103
Slater and Gordon Limited
Page 114
135
Annual Report 2015Slater and Gordon Limited
Slater and Gordon Limited
Directors’ Declaration
The directors declare that the financial statements and notes set out on pages 66 to 135 and the directors’ report are in
accordance with the Corporations Act 2001 and:
(a)
(b)
(c)
Comply with Accounting Standards and the Corporations Regulations 2001, and other mandatory professional
reporting requirements;
As stated in Note 1, the financial statements also comply with International Financial Reporting Standards;
Give a true and fair view of the financial position of the consolidated entity as at 30 June 2015 and of its
performance as represented by the results of its operations, changes in equity and its cash flows, for the year
ended on that date.
In the directors’ opinion there are reasonable grounds to believe that
• Slater and Gordon Limited will be able to pay its debts as and when they become due and payable.
•
the Company and the group entities identified in Note 36 will be able to meet any obligations or liabilities to which
they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group
entities pursuant to ASIC Class Order 98/1418.
This declaration has been made after receiving the declarations required to be made by the chief executive officer and
chief financial officer to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year
ended 30 June 2015.
This declaration is made in accordance with a resolution of the directors.
John Skippen
Chair
Melbourne
29 September 2015
Andrew Grech
Group Managing Director
136
Slater and Gordon Limited
Page 115
Annual Report 2015Slater and Gordon Limited
SLATER AND GORDON LIMITED
ABN 93 097 297 400
AND CONTROLLED ENTITIES
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF
SLATER AND GORDON LIMITED
Report on the Financial Report
We have audited the accompanying financial report of Slater and Gordon Limited and controlled entities,
which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated
statement of comprehensive income, consolidated statement of changes in equity and consolidated
statement of cash flows for the year then ended, notes comprising a summary of significant accounting
policies and other explanatory information, and the directors’ declaration of the consolidated entity
comprising the company and the entities it controlled at the year's end or from time to time during the
financial year.
Directors’ Responsibility 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 Note 1,
the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor's Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit
in accordance with Australian Auditing Standards. Those standards require that we comply with relevant
ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable
assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor's judgement, including the assessment of
the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the company’s preparation of the financial
report that gives a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation
of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
An independent Victorian Partnership ABN 27 975 255 196
Level 19, 15 William Street, Melbourne VIC 3000
Liability limited by a scheme approved under Professional Standards Legislation
Pitcher Partners is an association of independent firms
Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle
An independent member of Baker Tilly International
116
137
Annual Report 2015Slater and Gordon Limited SLATER AND GORDON LIMITED
ABN 93 097 297 400
AND CONTROLLED ENTITIES
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF
SLATER AND GORDON LIMITED
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act
2001.
Opinion
In our opinion:
(a)
the financial report of Slater and Gordon Limited and controlled entities is in accordance with the
Corporations Act 2001, including:
(i)
giving a true and fair view of the consolidated entity's financial position as at 30 June 2015 and
of its performance for the year ended on that date; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b)
the consolidated financial report also complies with International Financial Reporting Standards as
disclosed in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 35 to 63 of the directors' report for the year
ended 30 June 2015. 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.
Opinion
In our opinion, the Remuneration Report of Slater and Gordon Limited and controlled entities for the year
ended complies with section 300A of the Corporations Act 2001.
A R FITZPATRICK
Partner
29 September 2015
PITCHER PARTNERS
Melbourne
An independent Victorian Partnership ABN 27 975 255 196
Level 19, 15 William Street, Melbourne VIC 3000
Liability limited by a scheme approved under Professional Standards Legislation
Pitcher Partners is an association of independent firms
Melbourne | Sydney | Perth | Adelaide | Brisbane| Newcastle
An independent member of Baker Tilly International
117
138
Annual Report 2015Slater and Gordon Limited Additional ASX Information
In accordance with the Australian Stock Exchange Limited Listing Rules, the Directors provide the following information
as at 14 September 2015.
a).
Distribution of shareholders and option holders.
Number of Ordinary Shareholders
VCR Shares
Performance Rights
Holding
1
1,001
5,001
10,001
100,001
- 1,000
- 5,000
- 10,000
- 100,000
- Over
5,267
9,354
2,926
2,220
166
19,933
-
1
-
19
-
20
There are 275 shareholders holding less than a marketable parcel (i.e. less than $500 per parcel of shares).
b).
Twenty largest shareholders
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Shareholder
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd (DRP)
Mr Andrew Grech
Mr Ken Fowlie
Mr Hayden Stephens
Ms Cath Evans
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
HSBC Custody Nominees (Australia) Limited - A/C 3
UBS Nominees Pty Ltd
Merrill Lynch (Australia) Nominees Pty Limited
Wildflower Investments Pty Ltd (Evans Family S/F A/C)
HSBC Custody Nominees (Australia) Limited (Nt-Comnwlth Super Corp
A/C)
Deansgate 123 LLP
AMP Life Limited
Bond Street Custodians Limited (Cockej - F01832 A/C)
Joeman Holdings Pty Ltd
Custodial Services Limited (Beneficiaries Holding A/C)
-
16
19
19
-
54
%
Held
14.54
14.07
13.43
3.15
3.12
1.82
1.45
1.21
1.14
1.11
0.91
0.87
0.64
0.59
0.50
0.43
0.43
0.40
0.35
Number of
Shares held
50,996,052
49,347,216
47,091,870
11,051,410
10,930,978
6,383,238
5,096,221
4,255,115
3,981,433
3,875,618
3,203,242
3,037,159
2,232,958
2,060,545
1,752,472
1,516,015
1,507,386
1,390,267
1,240,170
1,233,844
212,183,209
0.35
60.51
c).
Substantial shareholders
A substantial shareholder is one who has a relevant interest in 5 per cent or more of the total issued shares in the
Company. Following are the substantial shareholders in the Company based on notifications provided to the Company
under the Corporations Act 2001:
Shareholder
National Australia Bank Limited and its Associated Companies
UBS Group AG and its related bodies corporate
Number
24,345,327
25,936,975
Ordinary Shares
% *
6.94
7.40
* Percentage of shares held based on total issued capital of the Company at the time a substantial shareholder notice was provided to
the Company.
d).
Voting rights
All issued ordinary shares carry one vote per share.
VCR shares and performance rights do not carry any voting rights.
Slater and Gordon Limited
Page 118
139
Annual Report 2015Slater and Gordon Limited
Corporate Directory
Directors
John Skippen, Chair
Andrew Grech, Group Managing Director
Ian Court
Ken Fowlie
Erica Lane
Rhonda O’Donnell
Auditors
Pitcher Partners
Level 19
15 William Street
Melbourne Victoria 3000
Company Secretaries
Wayne Brown
Kirsten Morrison
Registered Office and
Corporate Office
Level 12
485 La Trobe Street
Melbourne Victoria 3000
Telephone: (03) 9602 6888
Facsimile: (03) 9600 0290
Company Website
www.slatergordon.com.au
Company Numbers
ACN 097 297 400
ABN 93 097 297 400
Bankers
Westpac Banking
Corporation
Level 7
150 Collins Street
Melbourne Victoria 3000
National Australia Bank
Level 30
500 Bourke Street
Melbourne Victoria 3000
Solicitors
Arnold Bloch Leibler
Level 21
333 Collins Street
Melbourne Victoria 3000
Securities Exchange Listing
Slater and Gordon Limited
shares are listed on the
Australian Securities
Exchange. The Home Exchange
is Melbourne
ASX Code: SGH
Share/Security Registers
The Registrar
Computershare Investor
Services Pty Ltd
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
GPO Box 2975
Melbourne Victoria 3001
Telephone
Toll Free 1300 850 505
(Australia)
+61 3 9415 4000
(Overseas)
Investor Centre Website:
www.computershare.com.au
Email:
web.queries@computershare.com.au
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Slater and Gordon Limited
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Annual Report 2015Slater and Gordon Limited
slatergordon.com.au