Annual Report
2016
Slater and
Gordon is the
leading provider
of consumer
legal services
in Australia
and the UK
Contents
1
2
4
5
6
8
10
11
Highlights
Chair and Group Managing Director’s Report
Overview
Strategy
People and Culture
Social Responsibility
Board of Directors
Operating and Financial Review
20 Financial Statements
21 Directors’ Report
49
50
51
52
53
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
54 Notes to the Financial Statements
96
Slater and Gordon Limited
Directors’ Declaration
97
Independent Auditor’s Report
99 Additional ASX Information
100 Corporate Directory
The images in this report feature Slater and Gordon
Ringwood (Australia) office staff.
Slater and Gordon Limited
Annual Report 2016 Highlights
Results for the year
Total revenue
EBITDAW 1
EBITDAW – normalised2
Net (loss)/profit after tax
Net (loss)/profit after tax – normalised3
Net operating cash flow
Gross operating cash flow – normalised4
2016
A$m
2015
A$m
908.2
598.2
(49.3)
36.6
(1,017.6)
(48.7)
(104.2)
(57.6)
92.6
69.3
62.4
39.1
40.8
56.0
1. EBITDAW is defined as earnings before interest, tax, depreciation, amortisation
and movement in work in progress and is presented prior to non- cash
impairment.
2. Normalised for AASB-3 adjustments, additional debtor/disbursement
provisioning and non-recurring restructuring costs.
3. Normalised for AASB-3 adjustments, goodwill impairment, additional debtor/
disbursement provisioning, non-recurring restructuring costs, finance costs and
tax impact of normalisations.
4. Gross operating cash flow (GOCF) is defined as net cash (utilised)/provided by
operating activities before interest received, borrowing costs paid, income tax
paid and payments to former owners. GOCF has been normalised for non-
recurring restructuring payments to suppliers.
EBITDAW, EBITDAW – normalised, gross operating cash flow – normalised
and net (loss)/profit after tax – normalised balances presented in this report are
unaudited non-IFRS measures that, in the opinion of the Directors, are useful in
understanding and appraising the Company’s performance.
Key achievements
+ Slater and Gordon celebrates
80 years of continuous
operations
+ Service provided to 395,000
clients across Australia
and the UK
+ Improved financial reporting
+ Slater and Gordon lawyers
brand achieves 28% brand
awareness in the UK
Slater and Gordon Limited 1
Annual Report 2016
Chair and Group Managing Director’s Report
a disproportionately higher cost base
in Slater and Gordon Lawyers UK (SGL
UK), lower than anticipated road traffic
accident and noise induced hearing
loss resolutions in SGS, and lastly the
impact of a range of significant non-
recurring restructuring costs.
The recovery in second half
performance is evident in the
improvement in Group EBITDAW1
from a first half loss of $58.3 million
to a second half profit of $9.0 million.
Net operating cash outflow of
$104.2 million for the full year was
driven by the UK underperformance
along with payments to external
advisers in relation to the ASIC
review, AASB–15 implementation and
restructuring costs in relation to the
UK operations and the Group’s finance
facilities. Gross operating cash flow
(GOCF) improved materially in H2
FY16 to an outflow of $17.2 million
(H1 FY16: outflow of $61.1 million). The
Company recognises that significant
improvement is still required to
restore cash flow; however, the trend
is positive with H2 GOCF just over
breakeven when normalising non-
recurring restructuring payments.
The Directors have not declared a
dividend in respect of the year ended
30 June 2016.
In May we announced the successful
amendment of the Group’s finance
facilities. The limits and maturity
profile of the amended facilities are
substantially the same as the previous
facilities providing us with the time and
flexibility to put in place initiatives to
improve the profitability of the business
and reduce debt. Our focus in the 2017
financial year will be on achieving
these objectives.
Australian Operations
The Australian business delivered
a strong fee and services revenue
performance in FY16 despite a
challenging operating environment
with increased activity by competitors
and the ongoing impact of legislative
change in Queensland. A solid result
from the Personal Injury Law (PIL)
John Skippen
Chair
Slater and Gordon’s results for the
financial year ended 30 June 2016
were disappointing and well below
expectations. As announced in
February 2016, a range of performance
improvement initiatives were put in
place in the second half of the year
to improve profitability and cash
performance across the business.
These initiatives are on track in terms
of implementation and delivery
of benefits, but there is still more
work to do. The second half results
demonstrate the positive impact the
activity to date has had on financial
performance and we are confident that
we have the strategy and people in
place to restore the performance
of the Group.
Results
Total revenue of $908.2 million did not
translate meaningfully to the earnings
line with a reported net loss after tax
of $1,017.6 million. The result was
heavily impacted by an $879.5 million
impairment charge against the carrying
value of goodwill, relating mainly
to the $814.2 million write-down of
goodwill in Slater Gordon Solutions
(SGS), underperformance in the UK
operations and an adverse movement in
work in progress (WIP) of $41.3 million.
The impairment charge was
disappointing but necessary due to
both the poorer than expected UK
performance to date, and the increased
risk associated with potential UK
legislative change. There are several
reasons for the UK underperformance
including lower case resolutions from
1. EBITDAW, EBITDAW – normalised, gross operating cash flow – normalised and net
(loss)/profit after tax – normalised balances presented in this report are unaudited
non-IFRS measures that, in the opinion of the Directors, are useful in understanding
and appraising the Company’s performance.
2 Slater and Gordon Limited
business was supplemented by strong
organic growth in the family law and
business and specialised litigation
practices. Pleasingly, results from
recent independent research measuring
client satisfaction showed increasing
client satisfaction levels in 2016.
A review of our operations across
the UK and Australia identified more
opportunity to improve the Australian
business, so operational effectiveness
initiatives will be rolled out over the
2017 financial year.
UK Operations
In the UK, performance in the first
half of FY16 was significantly below
expectations and a performance
improvement program was
commenced in the second half.
The initial activity involves reorganising
our legal services business to service
three key client areas – fast track
personal injury, serious and specialised
personal injury, and general law. Our
structures, processes and technology
will be optimised to ensure we are
able to provide world-class services
efficiently and profitably in each of
these areas. This has involved ceasing
operations in some locations and re-
sizing the workforce. This component
of the performance improvement
program will be substantially
completed by early 2017.
In November the ‘Autumn 2015
Chancellor’s Statement’ included
proposals that would limit the rights
of people in the UK with lower
value personal injury claims, if the
proposals were implemented. Slater
and Gordon will participate in the
consultation process foreshadowed
by the Ministry of Justice and also join
with UK professional organisations and
advocacy groups to oppose the changes
proposed in the former Chancellor’s
Autumn Statement. The Company
believes that the proposed changes,
if implemented, will bring about a
reduction in the rights of people in
the UK to access fair compensation
through the legal system.
It is not clear what the impact of
Brexit will be on either the announced
proposals or the UK economy,
although the outcome of the Brexit
referendum itself is not likely to have
any material adverse impact on the
local performance of the UK operations
of the Company.
Annual Report 2016 Board and Senior
Management Changes
There has been a significant amount
of change across the Slater and
Gordon Group aimed at improving
the performance and governance
of a now much larger entity.
In December we welcomed James M.
Millar to the Board as a Non-Executive
Director and Chair of the Audit,
Compliance and Risk Management
Committee. James brings a wealth
of experience to Slater and Gordon
and will be a key part of our program
to build greater capacity and
confidence in our audit process.
Tom Brown has been appointed to
the Slater and Gordon Board as a
Non-Executive Director and Chair
of the Remuneration Committee,
commencing 1 September 2016. Tom
is one of Australia’s most senior human
resources executives with extensive
experience in global listed companies
and over 20 years board level
experience across multiple industrial
sectors. We very much look forward
to Tom’s contribution heading into
the new financial year.
Erica Lane and Ian Court will retire
as Non-Executive Directors effective
30 August 2016. We would like to thank
Erica and Ian for their contribution to
the Board over the past eight and nine
years respectively and wish them every
success for the future.
Ken Fowlie has chosen to step down
from his position as an Executive
Director effective 30 August 2016.
Ken and the Board believe that at this
point in time his full attention should
be devoted to his role as Chief Executive
Officer UK. We also thank Ken for his
significant contribution to the Board
over the past 13 years.
A process to supplement the Board
with an additional Non-Executive
Director continues and we will update
the market in due course.
We also bolstered our senior
management team during the year
with the appointment of Group Chief
Financial Officer, Bryce Houghton, and
Hayden Stephens as CEO, Australia.
Bryce has extensive CFO experience
and has already made significant
improvements to our finance function.
Hayden has over 20 years’ experience
in legal services and is very capable
of undertaking the change program
underway to ensure we make the most
of the opportunity available to us in
Australia having built the most well-
known brand for consumer
legal services.
Delivering for our Clients
It is important to remember that
despite a poor financial performance
in 2016, we have continued to deliver
a great service and some exceptional
outcomes for over 395,000 clients
across Australia and the UK.
In Australia, service highlights included:
• securing a significant settlement for
a man injured in a head-on collision
with a truck, who suffered a major
head injury, permanently restricting
his mobility and ability to work;
• successfully representing a young
man who suffered severe burns to
over 60% of his body while attending
a friend’s birthday celebrations.
We were able to obtain a significant
settlement to assist our client to
obtain the best available medical
treatment as he undergoes
extensive and repeated surgical
procedures; and
• signing an appeal launched by one
of Australia’s largest residential
builders against a couple forced
to live in a substandard house for
the past six years.
In the UK, service highlights included:
• exposing serious failings in medical
care that led to a mother’s death, and
successfully representing her family
in a clinical negligence case against
the hospital responsible;
• successfully representing a police
officer who was the victim of racial
discrimination; and
• securing a significant settlement
to pay for the full-time care of a
teenage boy who suffered devastating
injuries after being knocked off his
bike by a car.
Successful outcomes like these make
a difference to our clients’ lives and
the feedback provided by our clients is
testament to the quality of service we
provide. It pleases us immensely to see
words like professionalism, knowledge
and dedication consistently used in
Andrew Grech
Group Managing Director
the feedback we receive from our
clients. Our work can and does make a
difference and our purpose remains as
strong today as it was when we were
founded in 1935. Thank you to all of
our staff for their hard work and
dedication serving our clients during
the past 12 months.
Outlook
The Board and management team
firmly believe that the challenges
Slater and Gordon are facing can be
overcome and that the business can
be reset to deliver strong financial
results as it has done consistently prior
to FY16. We remain convinced that
taking a leadership position in both
the Australian and UK consumer legal
services market best places us to deliver
long-term value for our shareholders.
We thank you for your continued
support of Slater and Gordon and
look forward to updating you on
our progress.
John Skippen
Chair
Andrew Grech
Group Managing Director
Slater and Gordon Limited 3
Annual Report 2016 Overview
Who We Are
Employees
Australia
1,330
UK
3,310
Locations
Australia
61
UK
25
Australia
Brands
UK
Slater and Gordon invests
in a suite of key brands to
drive client enquiries.
• 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,
Services
estate, employment and professional
negligence litigation, class or group
actions and criminal defence work.
• Claims
Our Slater Gordon Solutions claims
business deals with the origination,
assessment and resolution of personal
injury claims with a focus on road
traffic accidents.
• Motor and Health services
Slater Gordon Solutions also provides
motor vehicle accident management
support and rehabilitation and
medical reporting management
solutions.
FY16 Revenue A$908.2 million
Slater and Gordon Lawyers
Australia 26%
Slater and Gordon Lawyers
UK 24%
Slater Gordon Solutions 50%
4 Slater and Gordon Limited
Annual Report 2016 Strategy
Our Mission
To give people easy
access to world-
class legal services
Our Strategy
• Build an effective operating
platform in the UK
• Continue to improve our
Australian business
• Continue to lead the
consolidation of consumer
legal services markets in
Australia and the UK
Our Objectives
• Satisfy our clients
• Engage our staff
• Use increased
cash earnings
to reduce debt
• Deliver improved
returns to our
shareholders
Our Values
• Do it right
• Work well with others
• Take the lead
Slater and Gordon Limited 5
Annual Report 2016 People and Culture
Slater and Gordon is a people business
and everyone across the organisation
plays a pivotal role in enabling us to
deliver a great service to our clients.
Whilst FY16 has presented a number
of challenges, we have continued
to invest in our Australian and UK
teams to build a values-led, high-
performance culture that will enable
us to achieve our mission of providing
people with easy access to world-class
legal services.
Culture and Values
A revised set of values was launched
across the Group in FY15 to underpin
the culture we are striving to embed.
The last 12 months have seen a number
of initiatives implemented to integrate
these values into our performance and
reward framework. This is helping
to create a business where everyday
activity is guided by these behaviours
to create a strong culture across both
Australia and the UK.
Building Capability
We have continued to review and
develop our recruitment and retention
processes to ensure we attract and
keep the best people. By investing
in designing and delivering a broader
learning curriculum, the business has
made significant progress in ensuring
that our people have the skills and
confidence to deliver a great client
experience. Not only have we enhanced
our leadership and professional
development programs, but we have
also begun work to develop a talent
management framework to help
prepare those with high potential
for future roles within our business.
Employee Wellbeing
In recognition of the importance of
creating a working environment where
our people feel supported to perform
and maximise their potential both
personally and professionally, we have
placed significant emphasis on providing
a wide range of initiatives to support the
health and wellbeing of our employees.
Up-skilling our people leaders to
proactively identify potential issues,
mitigating risks and providing access
to support resources remain integral
to our commitment to our people.
6 Slater and Gordon Limited
We have continued to review
and develop our recruitment
and retention processes to
ensure we attract and keep
the best people.
Annual Report 2016 Slater and Gordon Limited 7
Annual Report 2016 Social Responsibility
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.
Since priorities and reduction targets
were established in the Company’s
FY14 Environment and Sustainability
Strategic Plan (Australia), we have
been measuring and monitoring data
to ensure that we are on track and that
targets are appropriate and reasonably
achievable. The strategy focuses
on reductions across four key areas:
paper, electricity, travel and waste, as
well as general sustainability matters.
This work is overseen by an
environment management team
in the Australian business, which
is made up of representatives of
key business units. Activity is also
undertaken in consultation with our
employee Environmental Consultation
Committee.
While progress has been made in
achieving the key deliverables set for
FY16, including surpassing our FY17
target for energy use, a review of
current data shows that improvements
need to be made to travel and paper
use to meet targets.
As part of our pledge to improve our
external environmental reporting,
our overall environmental footprint
was published in the Australian Legal
Sector Alliance’s annual report. We
will use this tool to provide greater
visibility to our efforts and to drive
further improvements in our key
impact areas.
• increasing the donations collected
through the Slater and Gordon Staff
Giving Program in Australia;
• operating two ‘Give-As-You-Earn’
charity schemes in the UK with many
employees donating to St Ann’s
Hospice in Manchester or making
contributions through the Charitable
Aid Foundation;
• partnering with a foundation and
encouraging staff to volunteer with a
program assisting the homeless and
disadvantaged in Melbourne;
• UK fundraising efforts for Children in
Need and Macmillan Cancer Relief;
• providing two grants for the
Tracey McGuckin Travel Award,
an award named in honour of
a former employee providing
financial support to help cover
travel and accommodation expenses
for an educational, charitable or
community building project in
the UK or abroad;
• partnering with the Brisbane
Broncos on a number of initiatives
including giving 1,000 children
across Queensland the opportunity
to participate in the Broncos Mini
League; and
• supporting athletes and officials in
the lead up to the Rio 2016 Olympic
Games, as the official supplier of
legal services to the Australian
Olympic Team.
We also undertook the provision of
pro bono support to many individuals
and community groups in Australia
and the UK including:
• the Cancer Council’s pro bono
legal referral scheme;
• advocacy for asylum seekers
currently in detention;
• volunteering at a Lesbian Gay Bisexual
Transgender Intersex (LGBTI)
community legal clinic; and
• participating on legal panels for
Aftermath, the Limbless Association,
Mesothelioma UK and various
asbestos support groups in the UK.
Increasing the affordability and
accessibility of legal services and
products for consumers is central to
everything we do at Slater and Gordon.
Over the years we have actively
responded to changes in the legal
industry and consumer expectations
and addressed unmet needs through
innovations such as the pioneering
introduction of ‘No win – No fee’
arrangements, fixed fees and online
legal service offerings. We seek
to make a positive contribution to
the communities where we operate
and offer opportunities for our
people through our social
responsibility program.
Our social responsibility program
has three key areas of focus:
1. Assisting people with disease
and disability.
2. Addressing inequality and
disadvantage.
3. Encouraging people to engage
in healthy activity and lifestyles.
During FY16 we continued our
significant investment in supporting
individuals, communities and
organisations aligned to our program
objectives in Australia, while in the UK
we consulted across relevant business
units and practice groups to develop
a cohesive and aligned strategy for
implementation in FY17.
FY16 highlights included:
• distributing $117,000 to medical
research organisations in Australia
and £50,000 to health or research
groups in the UK from the Slater
and Gordon Health Projects and
Research Fund;
• being awarded the largest corporate
team title at both the Melbourne and
Brisbane Mother’s Day Classic
events held in Australia;
• supporting the Spinal Injuries
Association and sponsoring road
safety and victim support charities
such as BRAKE, Headway and
Roadpeace in the UK;
• donating $94,000 to community
groups in Australia from the Slater
and Gordon Community Fund;
8 Slater and Gordon Limited
Annual Report 2016 The team behind
the team.
Slater and Gordon Limited 9
Annual Report 2016 Board of Directors
John Skippen
Andrew Grech
Ian Court1
Chair since 2012, Non-Executive
Director since 2010. Chair of the
Nomination Committee and member
of the Audit, Compliance and Risk
Management Committee.
Group Managing Director since 2000,
Executive Director since 2001.
Non-Executive Director since 2007.
Member of the Audit, Compliance and
Risk Management and Remuneration
Committees.
Ken Fowlie1
Erica Lane1
James M Millar
Chief Executive Officer, UK.
Executive Director since 2003.
Non-Executive Director since 2008.
Chair of the Remuneration Committee.
Member of the Audit, Compliance and
Risk Management Committee.
Non-Executive Director since 2015.
Chair of the Audit, Compliance and
Risk Management Committee.
Rhonda O’Donnell
Non-Executive Director since 2013.
Member of the Audit, Compliance
and Risk Management, Remuneration
and Nomination Committees.
1. Retired from board of directors
30 August 2016.
10 Slater and Gordon Limited
In FY17 Tom Brown was appointed to the Slater and Gordon Board as a
Non-Executive Director and Chair of the Remuneration Committee commencing
1 September 2016. An additional Non-Executive Director will be appointed in
the course of FY17.
For detailed information on each Director see pages 23 to 26.
Annual Report 2016 Operating and Financial Review
Review of Operations –
Business Model
Overview
Slater and Gordon Group is a market-
leading consumer legal services
organisation with 4,640 staff operating
in 86 locations across Australia and
the UK. The Group provides legal
services in two main areas of consumer
law – Personal Injury Law (including
motor vehicle accidents, workers’
compensation/employers liability,
industrial disease and civil liability law)
and General Law (including family law,
conveyancing, wills, estate planning,
probate, business and specialised
litigation, class actions, real estate,
crime and regulation, employment,
reputation and professional discipline).
Slater and Gordon 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. The UK business
has since grown, organically and
through further acquisition, into a
leading UK consumer law firm with
strong brand awareness. In FY15 the
Group acquired a number of business
assets from Watchstone Group Plc
(formerly known as Quindell Plc),
and has since re-branded it as Slater
Gordon Solutions (SGS). The Group
has three main operating segments:
Slater and Gordon Lawyers Australia
(SGL Australia), Slater and Gordon
Lawyers UK (SGL UK) and SGS. The
UK business is currently undergoing
a major reorganisation to realign
the business to serve the markets
it operates in efficiently and to
improve profitability.
Business Model
Slater and Gordon’s mission is to
provide people with easier access to
world-class legal services. This is
achieved by operating in segments of
the legal market to which high levels
of process and systems engineering
can be applied to build operations of
scale and capability that provide highly
specialised services with a great deal
of price certainty for clients.
Revenue is generated from providing
legal and associated services to
approximately 395,000 individual
clients across Australia and the UK
annually and is not reliant on any one
key customer or case outcome. In FY16,
64% of fee and services revenue was
derived from Personal Injury Law (PIL)
and 72% of fee and services revenue
came from the UK. Most PIL 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 – 15 Revenue from Contracts
with Customers), PIL revenue is
recognised over the life of a case
using a stage of completion basis,
which relates to specific claim-
related milestones for each matter.
Recognising revenue on this basis
gives rise to a corresponding asset on
the balance sheet – work in progress
(WIP) that represents the value of work
completed but unbilled at the end of
the period. The majority of General
Law (GL) work is conducted on a fee
for service basis. Class actions are
largely funded by third parties on a fee
for service basis. The Motor Services
and Health Services divisions of SGS
earn services revenue by providing car
hire and repair services and medical
report procurement and rehabilitation
services respectively.
Major Events During the Year
Quindell Plc (now renamed
Watchstone Group Plc)
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 UK
advised that it had 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 operation of the assets
comprising SGS. Those warranties
are secured by a Warranty Escrow
account holding £50 million.
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.
Accounting Changes
In August 2015, Slater and Gordon
announced several accounting changes
to enhance financial reporting including
the early adoption of AASB–15, the
new accounting standard for revenue
recognition, at 31 December 2015.
The new standard requires that
revenue under ‘No Win – No Fee’
arrangements only be recognised when
it is ‘highly probable that a significant
reversal of revenue recognised will
not occur’. Prior to the adoption of
AASB–15, Slater and Gordon had
applied AASB–118 which requires
that revenue only be recognised when
it is ‘probable’ that the economic
benefits associated with a transaction
will flow to a company.
Slater and Gordon Limited 11
Annual Report 2016
Operating and Financial Review continued
UK Performance
Improvement Program
In February 2016 the Company
commenced execution of a
comprehensive performance
improvement program in the UK. As
a part of this program, the Company
will accelerate a reorganisation of its
legal services businesses and operate
through three specialised legal services
divisions across the UK. It intends to
continue to offer motor, health and
other services adjacent to the delivery
of services by its legal services divisions.
The program is on track in terms of
implementation and delivery of benefits.
The organisational restructure is
progressing to plan with office closures
and reorganisations substantially
due for completion by the first quarter
of 2017.
Restructure of Finance Facilities
In May 2016, the Group announced the
successful agreement of amendments
to its existing Syndicated Facility
Agreement (‘Facility’) with its lending
group. The limits and maturity
profile of the amended facility are
substantially the same as the previous
facility. The facility includes a number
of terms and conditions usual for a
facility of this nature. These include
increased frequency of reporting to
the lending group, semi-annual debt
amortisation and no declaration or
payment of dividends.
Vesting Convertible
Redeemable (VCR) Share Loans
The repayment of loans attached to
all Vesting Convertible Redeemable
(VCR) ordinary shares at 30 June 2016
has been extended to 30 June 2018.
The Company will participate in the
consultation process foreshadowed
by the Ministry of Justice and has
made its best effort to factor potential
changes into its assessment of the
carrying value of goodwill and the
resultant impairment losses recorded
at 31 December 2015, even though
results are not yet certain. Slater and
Gordon maintains its view that SGS
will be well positioned to be a leading
provider of services to people who
require legal, car hire, car repair
and rehabilitation services assistance
as a result of road traffic accidents
and legal services for other fast track
claims in the UK.
Goodwill Impairment
In the first half of the year ended
30 June 2016, the Company recognised
a non-cash impairment charge of
$876.4 million against the carrying
value of its goodwill. The majority
of this is accounted for by the
$814.2 million impairment in goodwill
from the SGS acquisition. This arises
from a downward revision in the
expectation for future performance of
SGS having regard for the poorer than
anticipated financial performance since
acquisition and the assessment of its
prospects going forward. In addition,
the proposed changes to UK laws
and the associated uncertainty of
the future earnings trajectory of the
UK business have been assessed and
the assumptions addressing these
issues have contributed to 27% of
the impairment.
There was also a $52.7 million
impairment charge in the Australian
business. $13.9 million of this related
to the General Law cash-generating
unit and $38.8 million arose in the
PIL cash generating unit as a result
of moving to a methodology based on
the performance of state based rather
than national cash-generating units
for assessing goodwill impairment.
An additional $3.1 million impairment
was recognised in PIL in the second half
subsequent to the New South Wales
Government announcing proposed
changes to motor vehicle accident
compensation. The proposals are not
expected to have a material impact
on the Group’s performance.
Review of Operations –
Business Model continued
To reflect the requirements of the
new standard, the Company, in
consultation with accounting and
actuarial advisers has refined its
methodology for measuring work in
progress (WIP). The new methodology
is underpinned by a more data
driven approach to valuing WIP and
specifically, the determination of
average fees per file and probability
of success. Consistent with the previous
standard, revenue continues to be
recognised over time, or the life of
a case, using a basis that relates to
specific claim-related milestones
for each client matter.
The Company has adopted the
new accounting standard on a fully
retrospective basis. This necessitated
derivation of WIP balances under
the new standard as at 1 July 2014,
31 December 2014, 30 June 2015 and
31 December 2015. WIP balances
under AASB–15 are lower than
the previously existing AASB –118
balances by approximately 15% to
20% throughout that date range. This
outcome provides comfort that the
previous methodology, which had an
inherent requirement for higher levels
of management judgement, provides
sound outcomes given the lower
probability thresholds which
previously applied.
Application of AASB –15 will provide
greater consistency and a more
systematic approach to generating
reported values of revenue and WIP.
Potential UK Legislative Changes
In November 2015 the ‘Autumn 2015
Chancellor’s Statement’ included
proposals that if implemented, would
impact on the rights of people to obtain
compensation in minor soft tissue
injury claims and also see the limit
of the Small Claims Court increase
from £1,000 to £5,000.
12 Slater and Gordon Limited
Annual Report 2016
Slater and Gordon Limited 13
Annual Report 2016 Operating and Financial Review continued
Review of Operations – Profit and Financial Position
A summary of Slater and Gordon’s results for the year ended 30 June 2016 and the prior corresponding period are shown below.
Total Revenue
EBITDAW 1
EBITDAW – normalised 2
Net (loss)/profit after tax
Net (loss)/profit after tax – normalised3
Net operating cash flow
Gross operating cash flow – normalised4
FY16
A$m
908.2
(49.3)
36.6
(1,017.6)
(48.7)
(104.2)
(57.6)
FY15
A$m
598.2
92.6
69.3
62.4
39.1
40.8
56.0
1. EBITDAW is defined as earnings before interest, tax, depreciation, amortisation and movement in work in progress and is presented
prior to non-cash impairment.
2. Normalised for AASB –3 adjustments, additional debtor/disbursement provisioning and non-recurring restructuring costs.
3. Normalised for AASB –3 adjustments, goodwill impairment, additional debtor/disbursement provisioning and non-recurring
restructuring costs, finance costs and tax impact of normalisations.
4. Gross operating cash flow (GOCF) is defined as net cash (utilised)/provided by operating activities before interest received, borrowing
costs paid, income tax paid and payments to former owners. GOCF has been normalised for non-recurring restructuring payments
to suppliers.
EBITDAW, EBITDAW – normalised, gross operating cash flow – normalised and net (loss)/profit after tax – normalised
balances presented in this report are unaudited non-IFRS measures that, in the opinion of the Directors, are useful in
understanding and appraising the Company’s performance.
Slater and Gordon reported a
$1,017.6 million loss for the year
ended 30 June 2016. The full year
result was impacted by:
• $879.5 million non-cash impairment
charge against the carrying value of
goodwill, $876.4 million of which
was recognised in the first half
of the financial year;
• application of a revised accounting
policy for revenue recognition as
a result of early adoption of new
accounting standard AASB–15
(Revenue from Contracts with
Customers). A negative net movement
in work in progress (WIP) of $41.3
million was recorded in FY16 due
to case settlements exceeding the
number of new files opened in Slater
and Gordon Lawyers (SGL) Australia
and reduced case volumes in SGL UK;
• $33.3 million of non-recurring
restructuring costs including
consultants costs, redundancy
and property rationalisation
costs associated with the Group’s
UK operations;
• $33.2 million of cash and share-
based payments to former owners
recognised under the Group’s
accounting policies for acquisition
consideration (AASB–3 Business
Combinations), which were
adopted in FY15;
• $18.7 million of additional
provisioning for debtors and
disbursements across the Group;
The consolidated statement of profit
or loss and other comprehensive
income contains a number of
transactions that have been normalised
to provide greater clarity to the
underlying operational results. The
normalisation items for FY16 and
the FY15 comparative period are:
i.
impairment charge against the
carrying value of goodwill;
• underperformance in the UK
ii. payments to former owners
operations, in relation to resolution
of personal injuries claims in Slater
and Gordon Lawyers (SGL UK)
and Slater Gordon Solutions (SGS)
including lower resolutions in
respect of Noise Induced Hearing
Loss (NIHL) claims;
• finance costs of $42.5 million,
which included $14.9 million in
non-recurring facility establishment
and amendment fees; and
• a tax credit of $11.9 million derived
from UK current year tax losses and
prior year fair value adjustments,
noting that goodwill impairment
is not tax deductible.
reclassified as remuneration under
the new accounting treatment
for deferred consideration
under AASB–3;
iii. restructuring costs in relation to
the UK business reorganisation;
iv. additional provisioning for debtors
and disbursements following
a thorough review of
provisioning policies;
v. gain from bargain purchase
in FY15 resulting from the change
in accounting policy in relation
to the treatment of deferred
consideration under AASB–3
Business Combinations; and
vi. costs relating to acquisitions.
14 Slater and Gordon Limited
Annual Report 2016 The impact of these normalisations on net (loss)/profit after tax is as follows:
Net (loss)/profit after tax – reported
Normalisation adjustments:
Goodwill impairment charge
Payments to former owners
Non-recurring restructuring costs
Additional debtor/disbursement provisioning
Finance costs
Gain from bargain purchase
Costs associated with acquisitions
Tax implications of above
Net (loss)/profit after tax – normalised
FY16
A$m
(1,017.6)
879.5
33.2
33.3
18.7
14.9
-
0.7
(11.4)
(48.7)
FY15
A$m
62.4
-
25.4
-
-
-
(72.5)
23.8
-
39.1
Total revenue and other income
increased by 51.8% due mainly to a full
year contribution from SGS, acquired
in May 2015. This increase was partly
offset by reduced total revenue from
SGL Australia and SGL UK, both of
which were impacted by negative
movements in WIP during the period.
Fee and services revenue, excluding
the movement in work in progress,
prior year gain from bargain purchase
and other income increased in SGL
Australia and SGL UK by 8.1% and
1.8% respectively. SGL Australia and
SGL UK segment results are discussed
in more detail from page 17.
Total revenue in the consolidated
statement of profit or loss and other
comprehensive income includes an
item shown separately as ‘Services
revenue’. This amount represents
the revenue associated with the SGS
Motor and Health Services businesses.
The ‘Cost of sales’ line item also
relates to the SGS Motor and Health
Services businesses.
The largest components of operating
costs are salaries and employee
benefits. These also increased
materially in FY16 due to a full year
contribution from SGS. There are also
material marketing and advertising
expenses to support the Slater and
Gordon suite of brands, with brand
awareness being a key driver of client
enquiries. Advertising and marketing
expense also now includes other new
business acquisition costs for SGS. SGS
acquires new business from strategic
partners including insurance industry
participants and claims management
companies and seeks to turn them into
successfully resolved outcomes in a
relatively short space of time.
After disappointing and unacceptable
performance in the first half of
the financial year the Company
implemented a performance
improvement program in the second
half, to improve profitability and cash
performance across the business. These
initiatives have had a positive impact on
second half financial performance with
Group EBITDAW of $9.0 million in
the second half, compared to a
$58.3 million first half loss.
Cash Flow
Net operating cash flow improved
materially in H2 FY16 to an
outflow of $20.9 million (H1 FY16:
outflow of $83.3 million). The
Company recognises that significant
improvement is still required to
restore cash flow, however the trend is
positive with H2 FY16 GOCF just over
breakeven when normalised for non-
recurring restructuring payments.
Financial Position
A summary of key items relating to the Group’s financial position is provided below.
Net assets
Net debt
Loan and overdraft facilities – £ denominated
Loan and overdraft facilities – A$ denominated
FY 16
A$m
305.1
682.3
376.0
94.0
FY15
A$m
1,350.2
614.1
376.0
95.0
Slater and Gordon Limited 15
Annual Report 2016 Operating and Financial Review continued
Review of Operations –
Profit and Financial Position
continued
Net Assets
The Group has net assets of
$305.1 million, which has decreased
by $1,045.1 million since 30 June 2015
primarily due to a goodwill impairment
charge of $879.5 million, mainly
relating to impairment of goodwill
from the SGS acquisition.
The significant balance sheet items 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;
Borrowings (see Debt section below);
and lastly 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.
Debt
At 30 June 2016, gross debt was
$764.8 million and net debt
$682.3 million. In May 2016, the
Group announced amendments to its
existing Syndicated Facility Agreement
(‘Facility’) with its lending group.
The facility included loan facility, bank
guarantees and/or letter of credit with
an overall limit of £375 million and
$90 million with expiry dates between
May 2018 and March 2019. As at
30 June 2016, the Group remains in
compliance with all undertakings
under the Facility.
In the balance sheet, foreign currency
balances are translated at the spot rate
at the 30 June 2015 and 2016 reporting
dates. This accordingly 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 financing
activities for proceeds or repayment
of borrowings as a result of using
an average exchange rate. Where
the proceeds or repayments
of borrowings are 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
the foreign exchange movement
between the transaction date and
the year-end exchange rate.
Dividends
Directors have not declared a dividend
for the 2016 financial year consistent
with its undertakings in the Facility
amendments.
Off Balance Sheet Items
The balance sheet does not include
a value for WIP associated with the
portfolio of noise induced hearing
loss (NIHL) cases acquired as part
of the SGS acquisition. Once stronger
evidence is collected in relation to the
likely success rates of the NIHL cases,
an appropriate value for the WIP will
be revisited.
Review of Operations –
Segment Performance
A summary of revenue and earnings
by segment is provided below.
Fee and services revenue1
SGL Australia
SGL UK
SGS
Group
(Loss)/Profit before tax and net finance expense
SGL Australia
SGL UK
SGS
Group
EBITDAW – Normalised
SGL Australia
SGL UK
SGS
Group
FY16
A$m
265.6
230.0
437.2
932.8
FY16
A$m
(100.9)
(64.4)
(822.6)
(987.9)
FY16
A$m
35.9
(2.6)
3.3
36.6
FY15
A$m
245.7
226.0
35.0
506.7
FY15
A$m
78.3
21.0
(6.0)
93.3
FY15
A$m
41.6
33.3
(5.6)
69.3
Variance
%
8.1
1.8
1,149.1
84.1
Variance
%
(228.9)
(406.7)
(13,610.0)
(1,158.8)
Variance
%
(13.7)
(107.8)
(158.9)
(47.2)
1. Fee and services revenue is revenue from contracts with customers less movement in WIP.
16 Slater and Gordon Limited
Annual Report 2016 Slater and Gordon Lawyers
Australia (SGL Australia)
Overview of Operations
SGL Australia is a market-leading
provider of consumer legal services
enjoying approximately 25% market
share in the Personal Injury Law (PIL)
market and a growing share in key
areas of the General Law (GL) market.
SGL Australia employs 1,330 staff
across 61 locations.
The PIL business provides legal services
to people in a range of areas including
motor vehicle accidents, workers
compensation and civil liability law.
The PIL practice contributed 77%
of SGL Australia’s FY16 fee and
services revenue.
The GL business is made up of Personal
Legal Services (PLS) and Business and
Specialised Litigation Services (B&SLS)
practice areas. 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. The GL practice contributed
23% of SGL Australia’s FY16 fee and
services revenue.
The Australian consumer legal services
market is highly regulated, with
regulations varying state by state.
SGL Australia has used its scale and
strong brand awareness to deliver
stable revenues and earnings by
successfully responding to legislative
change as and when it arises.
Strategic priorities for SGL Australia
are protecting and improving operating
leverage in PIL and significantly
growing market share and achieving
scale in selected areas of GL.
FY16 Performance Review
• Total fee and services revenue growth
of 8.1% was an encouraging result
comprising growth in PIL and GL.
• PIL growth was driven by strong
performances in Victoria, South
Australia and Western Australia.
Performance in New South Wales was
stable while Queensland continued
to adjust to the impact of workers
compensation legislative change.
• The GL business delivered 13.4%
growth in fee and services revenue
in FY16 due to growth in the B&SLS
and family law practices. The
conveyancing practice continued
to perform below expectations
and a strategic review will be
completed shortly.
• Despite the strong operating revenue
performance, total SGL Australia
revenue declined in FY16 due to a
$27.8 million adverse movement
in the value of WIP.
• The net loss before tax and interest
includes $55.8 million of goodwill
impairment, a $27.8 million adverse
movement in WIP and $22.1 million of
non-recurring restructuring costs and
debtors/disbursement provisioning.
• Normalised EBITDAW declined due to
underperformance in some PIL practice
groups, a deteriorating performance
in conveyancing and an increase in
the cost base associated with labour
costs, IT costs, audit fees, legal fees
and other corporate expenses.
Slater and Gordon UK
The Slater and Gordon Group
entered the UK market in 2012 and
has established a circa £300 million
turnover integrated legal and allied
services business with a leading position
in each of the markets it serves, built
on service excellence and innovation,
strategic partnerships and growing
brand awareness.
The Group operates in the UK as Slater
and Gordon Lawyers (SGL UK) and
Slater Gordon Solutions
(SGS) employing 3,310 staff across
25 locations. SGS is comprised of the
claims, motor and health businesses.
In February 2016 the Group announced
a major UK business reorganisation,
which is focused on establishing centres
of excellence in serious and specialist
personal injury, fast track personal
injury and general law services as well
as rationalising the provision of shared
services across the UK.
SGL UK
Overview of Operations
As part of the UK business
reorganisation, SGL UK has been
restructured to focus on delivering
personal injury services in serious and
specialist personal injury law claims
as well as targeted areas of general law.
The SGL UK Serious and Specialist
Practice (SSP) provides legal services
to clients in a range of personal injury
law practice areas including motor
vehicle accidents and employers
liability, as well as in specialist
areas such as industrial disease,
clinical negligence, abuse and travel
claims. The practice also provides
specialist services to member services
organisations. The SSP contributed
76% of SGL UK’s FY16 fee and
services revenue.
The SGL UK General Law (GL) business
is organised into three practice areas:
personal legal services – providing
services such as employment, family
law, residential property and crime;
business law services – providing
services such as commercial real estate,
regulatory, business advisory and
dispute resolution; and group litigation.
SGL UK has the largest family and
claimant employment law practices
in the UK.
The strategic priorities of SGL UK are
building market share and improving
operating leverage in SSP and growing
market share and scale in selected
areas of GL.
Slater and Gordon Limited 17
Annual Report 2016 Operating and Financial Review continued
There are three SGS operating
businesses – Claims, Health and
Motor Services. The Claims business
deals with the origination, assessment
and resolution of personal injury law
claims with a focus on road traffic
accidents. The Motor business division
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.
• While NIHL resolution levels remain
lower than anticipated when the
business was acquired, management
has made significant progress with
internal process improvements and
engagement with key counterparties.
• Management has delivered
consistently high levels of service
performance to partners in SGS
Motor and has made steady progress
in reducing aged debt levels.
• SGS Health has performed broadly
in accordance with expectations
given intake volumes, benefiting from
Group synergy opportunities and a
stabilising operating environment.
SGS is also currently progressing a
portfolio of noise induced hearing loss
(NIHL) claims; however, substantial
losses were made in FY16 from this
portfolio of cases. As cases mature
and protocols for resolution of claims
are developed with insurers, revenue
earned from settlement of cases will
displace the cost of claims management
over time.
Business Strategy
and Prospects
Business Strategy
The Group’s core strategy is to lead
the consolidation of the consumer
legal services market in Australia and
the UK and to participate in adjacent
markets where to do so complements
its legal services offering.
Having established critical mass in both
markets in which it operates, the Group
aims to deliver 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 business performance. The
current focus of the senior management
team is executing a performance
improvement program across the
business to improve profitability
and cash flow and reduce debt.
FY16 Performance Review
• The FY16 SGS net loss before tax and
finance costs was $822.6 million.
The primary driver to this was the
first half goodwill impairment
charge of $814.2 million.
• SGS delivered positive $3.3 million
normalised EBITDAW for FY16.
There was significant improvement
in H2 performance with normalised
EBITDAW of $27.3 million compared
to a $24.0 million H1 normalised
EBITDAW loss.
• Management has driven consistent
quarterly improvement in claims
handling and resolution activity
in SGS Claims, resulting in a
30% improvement in total billed
revenue (from Q1 to Q4) in RTA
claims underpinned by a substantial
improvement in case handler
productivity.
Review of Operations –
Segment Performance
continued
FY16 Performance Review
• SGL UK performed disappointingly
in H1 FY16 and management
commenced a fundamental business
reorganisation in H2 FY16, which
resulted in a reduction in both
operating sites and total headcount.
• Benefits have been realised from
the reorganisation with GBP fee
and services revenue growth on
a substantially lower overall cost
base, driving positive $7.6 million
H2 normalised EBITDAW compared
to a $10.2 million first half loss.
• As part of the reorganisation,
private client fast track Road Traffic
Accidents (RTA) and employers
liability enquiries secured by the
Slater and Gordon Lawyers brand
were successfully transferred to
the SGS Claims business.
• Progress in the remediation and
improvement of process and systems
also contributed to the improved
H2 financial performance.
• Prompted brand awareness has
continued to strengthen, despite a
moderation in overall investment,
with the Slater and Gordon Lawyers
brand now recognised by 28% of
UK survey respondents. New client
enquiry numbers also continue
to grow.
Slater Gordon Solutions (SGS)
Overview of Operations
SGS was acquired in May 2015 and is
the leading fast track personal injury
legal services provider in the UK,
operating across the personal injury
claims management value chain to
provide claims, motor and health
services. It is a collection of client-
focused businesses 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.
18 Slater and Gordon Limited
Annual Report 2016 The Group has performance
improvement programs in place
designed to standardise, centralise,
optimise and promote efficient and
innovative operating platforms,
IT systems and people strategies.
Competition and Market Share
The Group operates in a competitive
market, which may adversely impact
its financial performance and position.
Increased competition for clients can
lead to compression in profit margins
or drive changes to market share.
Strategic planning, innovation in
marketing and IT systems, alignment
of acquired businesses with Group
practices and investment in business
development opportunities are
activities the Group undertakes to
grow market share and protect the
Slater and Gordon Group brand.
Material Risks of the Group
Legislative Change Risk
The Group activities are subject
to extensive regulation. Adverse
regulatory or legislative changes
may adversely impact the Group’s
operations, financial performance
and position.
Comprehensive stakeholder
engagement, informed discussion,
government consultation to advocate
our position, modelling of the potential
impact of changes and business model
and the optimisation of practice
management service offerings are
initiatives we use to monitor, manage
and protect against potential
legislative changes.
Financial Risk
It is critical that the Group ensures
that it has appropriate liquidity to
meet its financial commitments.
The building blocks of effective cash
management are monitored on an
ongoing basis by the business, being
working capital optimisation, cash flow
forecasting and liquidity management.
Key mitigating activities include
monthly reporting and ensuring that
the requirements of the Syndicated
Facility Agreement are met.
Operational Risk
There are a number of key risks that arise
directly from the operations of the Group
as a major participant in the Australian
and UK legal services industry.
The Group’s financial performance and
position have been, and in the future
may continue to be, impacted by
these risks.
Outlook
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
its offering.
Risks
Achievement of the business strategy
and objectives could be impacted by
a number of risks. Those risks could,
individually or together, have an adverse
effect on the achievement of our
objectives and associated prospects.
Risk is an accepted part of doing
business and the Group recognises
the importance of, and is committed
to, embedding proactive risk
management strategies, capabilities
and culture across the Group.
The identification, mitigation and
management of material risks ensures,
where possible, the viability and
sustainability of our business.
As part of its management processes
and operating cycle, the Group
regularly reviews material business
risks, as well as plans to mitigate these
risks and discusses these plans with
the Board.
Set out below are the principal risks
and uncertainties associated with the
Group that could possibly impact
the achievement of our strategy and
objectives. The risks and uncertainties
are not listed in order of significance
and do not comprise every risk we
encounter in conducting our business
or every risk that may affect the
achievement of our strategy and
objectives. Rather, they are the most
significant risks that we believe we
should be monitoring and seeking
to mitigate or otherwise manage
at this point in time.
Slater and Gordon Limited 19
Annual Report 2016 Financial Statements
21 Directors’ Report
49 Auditor’s Independence Declaration
50 Consolidated Statement of Profit or Loss and Other
Comprehensive Income for the Year Ended 30 June 2016
51 Consolidated Statement of Financial Position as at 30 June 2016
52 Consolidated Statement of Changes in Equity for the Year Ended 30 June 2016
53 Consolidated Statement of Cash Flows for the Year Ended 30 June 2016
54 Notes to the Financial Statements for the Year Ended 30 June 2016
96 Directors’ Declaration
97
Independent Auditor’s Report
99 Additional ASX Information
100 Corporate Directory
20 Slater and Gordon Limited
Annual Report 2016
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 2016 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:
• John Skippen – Chair
• Andrew Grech – Group Managing Director
•
Ian Court
• Ken Fowlie – Chief Executive Officer, UK
• Erica Lane
• Rhonda O’Donnell
• James M. Millar (appointed 1 December 2015)
Details of the skills, experience, expertise and special responsibilities of each Director are set out in the “Information on
Directors and Company Secretaries” 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
were 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.
Results
The loss after income tax of the Group was $1,017.6 million (2015 restated: net profit after tax of $62.4 million).
Review of Operations
The review of operations is contained in the Operating and Financial Review report as set out on pages 11-19.
Significant Changes in the State of Affairs
There have been no significant changes in the state of affairs of the Group other than those disclosed in the Operating
and Financial Review report.
Events Subsequent to Reporting Date
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
The Group’s core strategy is to lead the consolidation of the consumer legal services market in Australia and the UK and
to participate in adjacent markets where to do so complements its legal services offering.
Having established critical mass in both markets in which it operates, the Group aims to deliver 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 business performance from its other service lines. The current focus of the senior
management team is executing a performance improvement programme across the business to improve profitability and
cash flow and reduce debt.
Environmental Regulation
The Group’s operations are not subject to any significant environmental regulations or laws in Australia or the UK.
Environmental, Social and Corporate Governance
Pursuant to ASX Corporate Governance Principle and Recommendation 7.4, which provides that companies disclose
any material exposure to economic, environmental or social sustainability risks, the Company has conducted an
assessment of material sustainability issues. Having undertaken a review of the company’s key ESG risks, the Company
commenced a thorough review, with reference to the aspects and indicators tabled in the Global Reporting Initiatives ‘G4
Sustainability Reporting Guidelines’.
Slater and Gordon Limited
Page 12
Slater and Gordon Limited 21
Annual Report 2016
Directors’ Report
Dividend Paid, Recommended and Declared
Pursuant to the amended Syndicated Facility Agreement executed on 1 May 2016 the Company has not declared or paid
any dividends in respect of the 30 June 2016 financial year.
The dividends paid and declared since the start of the financial year are as follows:
Dividends on ordinary shares
No interim dividend paid in 2016 (2015: 3.50 cents per share, partially franked
(40%) at the tax rate of 30%)
Final dividend (partially franked (40%) at the tax rate of 30% for the financial year
ended 30 June 2015: 5.50 cents) (2014: 5.00 cents per share, fully franked at the
tax rate of 30%)
2016
$’000
2015
$’000
-
7,341
19,330
19,330
10,279
17,620
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 interim and final dividend
declared for the financial year ended 30 June 2015.
Share Options
Other than the 2.3m share options and 1.2m performance rights granted to the Group Chief Financial Officer on 5 August
2016 as part of his Board approved retention plan (refer section 4.5 in the Remuneration report), no options over
unissued shares or interests in the Company were granted during or since the end of the financial year. There were no
options outstanding at the end of the financial year.
An equity incentive plan (“EIP”) was established in November 2014 to provide annual equity incentives to selected senior
executives. Pursuant to the EIP 0.5m performance rights were granted in the prior year which are subject to vesting
performance hurdles and continuing service (refer to Remuneration report for further details).
Indemnification and Insurance of Directors and Officers and Auditors
During the financial year, the Group has provided an indemnity or entered an agreement to indemnify, and paid
insurance premiums for a twelve-month period in respect of directors, officers and the company secretary of the
Company against a liability brought against such an officer.
Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the
contract.
The Company has agreed (in certain circumstances) to indemnify its auditors, Ernst & Young, as part of the terms of its
audit engagement agreement. No payment has been made to indemnify Ernst & Young during or since the financial year.
Slater and Gordon Limited
Page 13
22 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Information on Directors and Company Secretary
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 a Board member since 2010 and Chair of the Board since 2012.
in
financial, public company and retail experience and skills
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
financial
extensive
management, general management, mergers and acquisitions and strategy.
Other Current Directorships
Non-Executive Director of Flexigroup Limited (ASX: FLX) (appointed November 2006)
Non-Executive Director of Super Retail Group Ltd (ASX: SUL) (appointed September
2008)
Former Directorships
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 – current)
Andrew Grech
LLB MAICD
Group Managing Director
Experience
Andrew joined Slater and Gordon in 1994 and was appointed Managing Director in 2000.
Before being appointed Managing Director, Andrew worked in most of Slater and Gordon’s
litigation practice areas, 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
Member of the Advisory Council of the Melbourne Law School (2014 – current)
Special Responsibilities
Group Managing Director
Slater and Gordon Limited
Page 14
Slater and Gordon Limited 23
Annual Report 2016
Directors’ Report
Information on Directors and Company Secretary (continued)
Ken Fowlie
Experience
LLB BCom (NSW)
MSc (with distinction) (LBS)
MAICD
Executive Director
Ken joined the Company in 1995 and was appointed an Executive 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
was appointed Chief Executive Officer - UK, incorporating Slater Gordon Solutions.
Other Current Directorships
None
Former Directorships
None
Special Responsibilities
Chief Executive Officer – UK
Ian Court
FAICD
Non-Executive Director
Experience
Ian was appointed a Director of the Company in 2007 prior to the Company listing on the
Australian Securities Exchange.
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
None
Former Directorships
None
Other Current Positions
None
Special Responsibilities
Member – Audit, Compliance and Risk Management Committee (current)
Member – Remuneration Committee (appointed 1 July 2015)
Slater and Gordon Limited
Page 15
24 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Information on Directors and Company Secretary (continued)
Erica Lane
Experience
B App Sc, Grad Dip Comp,
MBA (Melbourne),
MBA (Chicago),
MAICD
Non-Executive Director
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
None
Former Directorships
Wilson HTM Investment Group Limited (ASX: WIG) – Member, Audit/Risk and Nomination
and Remuneration Committees (2013-2014)
Other Positions
None
Special Responsibilities
Chair – Remuneration Committee (appointed 1 July 2015 – current)
Member – Audit, Compliance and Risk Management Committee (current)
Rhonda O’Donnell
Experience
M App Sc, MBA (Melbourne)
Rhonda joined the Board of the Company in 2013.
Non-Executive Director
Rhonda has extensive experience
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 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
September 2014)
International Ltd (ASX: CAT) (appointed
Former Directorships
None
Other Current Positions
None
Other Former Positions
None
Special Responsibilities
Member – Audit, Compliance and Risk Management Committee (current)
Member – Remuneration Committee (appointed 1 July 2015 – current)
Member – Nomination Committee (appointed 1 July 2015 – current)
Slater and Gordon Limited
Page 16
Slater and Gordon Limited 25
Annual Report 2016
Directors’ Report
Information on Directors and Company Secretary (continued)
James M. Millar
Experience
BCom (UNSW), FCA,
FAICD
Non-Executive Director
James was appointed a Director of the Company in December 2015.
James is a former Chief Executive Officer and Oceania Area Managing Partner of Ernst &
Young (now EY) and was a member of the Ernst & Young Global Board. His career prior
to the leadership roles at Ernst & Young was as a corporate reconstruction professional.
In 2012 James was appointed a Member in the General Division of the Order of Australia
for service to Business & Commerce and for Community Leadership.
Other Current Directorships
Non-Executive Director – Fairfax Media Limited (appointed 2012)
Director – Macquarie Media Ltd (appointed 2015)
Non-Executive Director – Mirvac Limited (appointed 2009)
Former Directorships
Non-Executive Director – Helloworld Limited (2010 – 2016)
Chair – Fantastic Holdings Limited (2012 – 2014)
Other Current Positions
None
Special Responsibilities
Chair – Audit, Compliance and Risk Management Committee (current)
Bryce Houghton
B.Com
GCFO and Company
Secretary
Experience
Bryce joined Slater & Gordon as Group Chief Financial Officer in November 2015. He was
appointed Company Secretary on 23 March 2016.
Bryce has 30 years of financial management experience with strong technical and treasury
skills as well as substantial CFO experience in overseeing and development of systems,
processes and resources. Before joining the Company, he served as CFO of Navitas
Limited for 10 years, with prior experience as CFO with Evans & Tate Limited and senior
management roles with Fonterra Cooperative Group and National Bank of New Zealand
and Price Waterhouse in New Zealand.
Other Current Directorships
None
Slater and Gordon Limited
Page 17
26 Slater and Gordon Limited
Annual Report 2016
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
Remuneration
Committee
Nomination
Committee
Special Board
Committee
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
A Grech
K Fowlie
J Skippen
I Court
E Lane
R O’Donnell
J Millar (1)
14
14
15
15
15
15
9
14
14
15
15
15
15
9
-
-
7
7
7
7
3
-
-
7
7
7
7
3
-
-
1
3
3
3
-
-
-
1
3
3
3
-
-
-
1
-
-
1
1
-
-
1
-
-
1
1
10
10
10
-
-
-
10
10
10
-
-
-
10
10
(1) James M. Millar was appointed to the Board on 1 December 2015.
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
James M. Millar
6,750,656
69,804
5,646,221
170,000
60,000
25,000
20,000
40,000
-
16,000
-
-
-
-
Directors’ Interest in Contracts
Directors’ interests in contracts are disclosed in Note 6.1 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.
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. The nature and scope of each type of non-audit service provided means that auditor independence was not
compromised.
Slater and Gordon Limited
Page 18
Slater and Gordon Limited 27
Annual Report 2016
Directors’ Report
Non-Audit Services (continued)
During the year, the following fees were paid or payable for non-audit services provided by the current auditor of the
parent entity, Ernst & Young(2), its related practices and non-related audit firms, and the former auditor of the parent
entity, Pitcher Partners, its related practices and non-related audit firms:
Other Advisory
• Ernst & Young
• Pitcher Partners
Total remuneration for other advisory
Total remuneration for non-audit services
2016
$
257,000
282,033
539,033
555,158
(2) Ernst & Young were appointed auditors of the parent entity on 8 December 2015, following resignation of Pitcher Partners.
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 Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191.The Company is an entity to which the Class Order applies.
The Directors’ Report and accompanying Audited Remuneration Report is signed in accordance with a resolution of the
Directors.
John Skippen
Chair
Melbourne
29 August 2016
Andrew Grech
Group Managing Director
Slater and Gordon Limited
Page 19
28 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report
Dear Shareholder,
I am pleased to present our Remuneration Report for the year ended 30 June 2016.
The 2016 financial year has been a year of great challenge in light of the events faced by Slater and Gordon Limited
(“SGH”), the impact this has had on the financial and operating performance of the group, and the effect that this has had
on our shareholders over the year.
Over recent years the Board has reviewed the remuneration strategy for the executive key management personnel
(“KMP”) to align remuneration and reward with performance. The review in 2015 was undertaken using a comparator
group of companies of similar market capitalisation at that time. There is now significant variance between the
comparator group and the current market capitalisation of SGH. The Board will continue to monitor the relativity of the
Company’s remuneration strategy with the market, company performance, the need to retain key executives, and
alignment of reward.
The review took into account the typical market approach to rewarding senior executives, but also recognised the unique
challenges facing SGH in the short to medium term. Notwithstanding these issues, it is important that we continue to be
able to attract and retain key personnel with the necessary skills and experience to drive the company forward.
The following sets out the key decisions and outcomes that occurred during FY16 as a result of the application of the
remuneration policy previously established by the Board:
• During 2015, the Board fees were reviewed. The review used a comparator group of companies of a similar market
capitalisation to SGH at that time. Subsequently, fees for the Chair and Non-Executive Directors were adjusted from
1 July 2015. In addition, the increase in the Annual Fee Pool was approved by shareholders at the AGM in November
2015. The Board will continue to monitor the fee structure taking into account comparisons to market and the
workload of board members during this period of significant change for SGH (section 3.2).
• Two of the current executive KMP received a STI payment for FY16. These were for specific performance outcomes
which the Board determined supported these payments (section 4.4.1). The majority of executive KMP did not
receive any STI payment for FY16.
• Consistent with the remuneration policy detailed in the FY15 Remuneration Report, the Board approved and made
offers of Performance Rights to executive KMP. However, due to the changing circumstances for SGH, these
performance rights were not granted and the allocation was cancelled (section 4.4.2).
• The Group Chief Financial Officer (“GCFO”) commenced employment with SGH on 30 November 2015. He has been
a key contributor to the successful negotiation of the Syndicated Facility Agreement, and will be central to the
management of SGH’s financial performance over future years. Therefore, the Board determined that it is in the
interest of shareholders and SGH that it offer the GCFO a revised reward structure focused on his retention with the
business and the alignment of his remuneration with SGH performance (section 4.5).
•
In line with developing practice in corporate governance, in June 2016 the Board approved the introduction of a
clawback policy. This policy will apply from FY17 and applies to executive KMP. The policy enables SGH to clawback
certain elements of an executive's remuneration if there has been a misstatement of SGH’s financial statements
which results in the executive receiving a reward which exceeds the outcome that would have been achieved had the
misstatement not been made (section 4.7.1)
• Two executive KMP, being the Chief Executive Officer UK and the Group Chief Operating Officer received
remuneration increases effective from 1 July 2015 in recognition of their expanded roles (section 4.9.1).
Taking into consideration the performance of the Company over FY16, the Board considers that the remuneration
framework has resulted in outcomes that are in line with its purpose, in particular, in relation to at risk remuneration.
Existing remuneration polices will be reviewed in FY17 to ensure that the remuneration policies continue to support the
achievement of improved performance.
For a more fulsome analysis of these matters, please see the enclosed Remuneration Report.
Signed:
Erica Lane
Chair, Remuneration Committee
Slater and Gordon Limited
Page 20
Slater and Gordon Limited 29
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
Section Title
1.0
Introduction
Description
Describes the scope of the Remuneration Report and the individual Board and
executive key management personnel (“KMP”) whose remuneration details are
disclosed.
2.0
3.0
Remuneration
Governance
Describes the role of the Board and the Remuneration Committee (“RC”), and the use
of remuneration consultants when making Board and executive KMP remuneration
decisions.
Non-Executive Director
Remuneration
Provides details regarding the fees paid to Non-executive Directors (“NEDs”).
4.0
Executive Remuneration
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.
Slater and Gordon Limited
Page 21
30 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
1.
Introduction
The Group is a leading international consumer law firm employing 4,640 people across more than 86 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 Slater and Gordon (“SGH”) 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 SGH executive Key Management Personnel (“KMP”) are reviewed annually. A
central success factor for SGH is the capability, motivation and performance of its staff. The past year has been
challenging for SGH given the significant decline in shareholder value and the renegotiation of the Group’s financing
arrangements. This environment has had a direct impact on the reward of executive KMP, many of whom are also
significant shareholders. Within this context, the Board believes SGH’s approach to remuneration is balanced, fair and
equitable. SGH has balanced the need for the conservative approach in recognition of the current challenges, with the
need to retain, reward and motivate the executive team who are central to driving the transformation of the business.
In reviewing remuneration for the Board and executive KMP in 2015, the Board received advice and recommendations
from an independent consultant. At the time SGH’s remuneration policy was benchmarked against a peer group of
similar size companies. Since then, there has been a decline in the value of the company versus this benchmark. The
Board has taken a long term approach to managing remuneration, and will factor in relevant market information into
future remuneration decisions. Central to this is to ensure that the remuneration policy is aligned with the business
priorities necessary to undertake the transformation and achievement of financial performance targets.
1.1. Scope
This Remuneration Report sets out the remuneration arrangements in place for the Board and executive KMP of the
Group during FY16, in accordance with the relevant provisions of the Corporations Act 2001 and the applicable
accounting standard requirements.
Slater and Gordon Limited
Page 22
Slater and Gordon Limited 31
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
1.2. Key Management Personnel (“KMP”)
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
Change during FY16
Country of
Residence
Non-Executive Directors
John Skippen
Chair of the Board, Member – Audit
Compliance and Risk Management
Committee (ACRMC), Chair –
Nomination Committee, Non-
Executive Director
No change. Full year
Australia
James M. Millar
Chair – ACRMC, Member –
Nomination Committee, Non-
Executive Director
Commenced as a Non-Executive Director.
Appointed as Chair of ACRMC effective on
15 December 2015
Australia
Erica Lane
Ian Court
Rhonda O’Donnell
Executive Directors
Chair – Remuneration Committee,
Member – ACRMC, Non-Executive
Director
Member – ACRMC, Member –
Remuneration Committee, Non-
Executive Director
Member – Remuneration
Committee, Member – Nomination
Committee, Member – ACRMC,
Non-Executive Director
No change. Full year
Australia
Resigned as Chair of ACRMC on 15
December 2015
Australia
No change. Full year
Australia
Andrew Grech
Group Managing Director
No change. Full year
Ken Fowlie
Chief Executive Officer, UK
No change. Full year
Australia
United
Kingdom
Other Executive KMP
Bryce Houghton
Group Chief Financial Officer
Commenced on 30 November 2015
Australia
Hayden Stephens
Chief Executive Officer, General
Law
No change. Full year
Australia
Felicity Pantelidis
Group Chief Operating Officer
Changed from Chief Operating Officer, to
Group Chief Operating Officer on 1 July 2015
Australia
Former Executive KMP
Wayne Brown
Group Chief Financial Officer
Neil Kinsella
Head of General Law, UK
Ceased as KMP on 30 November 2015 and
ceased employment on 6 May 2016
Australia
Changed from Head of UK to Head of M&A
(UK), October 2015. Ceased employment on
5 February 2016
United
Kingdom
Cath Evans
Chief Executive Officer, Personal
Injury Law
No change. Full year
Ceased employment on 30 June 2016
Australia
Slater and Gordon Limited
Page 23
32 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
2. Remuneration Governance
This section of the Remuneration Report describes the role of the Board and the Remuneration Committee (“RC”), and
the use of remuneration consultants when making Board and executive KMP remuneration decisions.
2.1. Role of the Board and the Remuneration Committee
The Board has overall responsibility for SGH’s remuneration strategy and policy. Consistent with this responsibility, the
Board has established the RC, comprised solely of independent NEDs.
The role of the RC is set out in its Charter, which is reviewed annually and was last revised and approved by the Board
in 2015. Prior to 1 July 2015, there was a combined Nominations and Remuneration Committee of the Board which was
reconfigured into two (2) separate committees effective from 1 July 2015.
During the reporting year, the RC’s role included:
• ensuring that appropriate procedures exist to assess the remuneration levels of the Chairman, other NEDs, executive
KMP, Board committees, and the Board as a whole;
• ensuring that SGH meets the requirements of the ASX Corporate Governance Council’s Guidelines, including gender
diversity principles and recommendations;
• ensuring that SGH 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 RC’s role and interaction with Board, internal and external advisors for FY16, is illustrated below:
The Board
Reviews, applies
judgement and, as
appropriate,
approves the RC’s
recommendations.
Remuneration
Committee
The RC operates under
the delegated authority
of the Board.
The RC 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
Provide advice on remuneration policy,
composition and quantum of
remuneration components for executive
KMP, and performance targets.
Provide advice on remuneration policy
in respect of NEDs.
Internal resources
Develop and design 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.
Further information on the RC’s role, responsibilities and membership will be contained in the SGH Corporate
Governance Statement. The RC terms of reference can also be viewed in the Governance section of the Company’s
website, www.slatergordon.com.au.
Slater and Gordon Limited
Page 24
Slater and Gordon Limited 33
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
2.2. Use of Remuneration Consultants
During FY16, remuneration consultancy contracts were entered into by SGH and accordingly the disclosures required
under section 300A(1)(h) of the Corporations Act 2001 are set out as follows:
Advisor / Consultant – FY16
Services provided
Crichton & Associates Pty Limited,
Independent Remuneration
Consultant
1. Benchmark remuneration,
assessment and report in respect
of the Board and executive KMP
Remuneration consultant for the
purpose of the Corporations Act
Yes
2. Review of FY16 equity
allocations
3. Drafting of FY15 Remuneration
Report
The Group has an established 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. During FY16, the Board received a
written report containing remuneration recommendations from Crichton & Associates.
The Board is satisfied that the remuneration information provided was free from any such undue influence from executive
KMP, as the protocol for procuring advice relating to KMP remuneration has been followed.
Crichton & Associates was paid $68,232 for all remuneration services provided during FY16.
3. Non-Executive Director (“NED”) 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) was considered at the time of the review. NEDs fees
are recommended by the RC 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 SGH’s performance.
Aggregate Board and committee
fees are approved by shareholders
An increase in the aggregate board fee pool was approved by shareholders at the
2015 AGM. The total amount of fees paid to NEDs in FY16 was $725,358 in total
which is 76% of the approved aggregate annual fee pool.
3.2. NED Fees and Other Benefits
In 2015, the Board sought independent advice in reviewing the fees for the Chair and NEDs. The review used a
comparator group of companies of a similar market capitalisation to SGH at that time, and subsequently fees were
adjusted for the Chair and NEDs from 1 July 2015 as detailed in the following table. The increase in the Annual Fee Pool
was approved by shareholders at the AGM in November 2015. The Board will continue to monitor the fees structure
taking into account comparison to market and the substantial increase in workload of board members during this period
of significant change for SGH. Committee fees are not paid to the Chair of the Board.
Slater and Gordon Limited
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34 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
Elements
Details
Board / Committee
Board Chair fee¹
Fees per annum – FY16
Board NED base fee¹
Committee Fees
Audit, Compliance and Risk Management
• Chair
• Member
Nomination Committee
• Chair
• Member
Remuneration Committee
• Chair
• Member
Annual Fee Pool
Before
1 July 2015
From
1 July 2015
$158,055
$240,000
$89,565
$120,000
$10,000
$5,000
$20,000
$5,000
-
-
-
$5,000
$10,000
$5,000
$10,000
$5,000
$650,000
$950,000
Post-Employment Benefits
Superannuation
Other Benefits
Equity instruments
Other fees / benefits
Superannuation contributions have been made in accordance with the Company’s
statutory obligations
NEDs do not receive any performance related remuneration, options or
performance rights
NEDs receive reimbursement for costs directly related to SGH business
3.3. NED Total Remuneration – Actual Paid
Amounts $
John Skippen (Chair)
James M. Millar
Ian Court
Erica Lane
Rhonda O’Donnell
Total
Year
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
Short-Term Benefits Post-Employment Benefits
Fees Superannuation Benefits
221,573
137,835
76,396
-
117,287
79,258
123,608
97,516
123,713
88,384
662,577
402,993
19,308
24,131
7,451
-
12,526
27,099
11,743
9,259
11,753
8,391
62,781
68,880
1 Fees were increased on 1 July 2015 to reflect the additional workload and complexity arising from the SGS acquisition
Total
240,881
161,966
83,847
-
129,813
106,357
135,351
106,775
135,466
96,775
725,358
471,873
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Slater and Gordon Limited 35
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4. Executive Remuneration
4.1. Executive KMP Remuneration
The SGH 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. The table below describes
the Company’s remuneration policy and preferred market positioning over the longer term. It is recognised that the
current challenges may result in a divergence from this desired state in the short term, however, the Board will continue
to monitor this policy to maintain market alignment:
d
e
x
i
F
d
E
Total fixed
remuneration
(“TFR”)
TFR is set based on
job role, market
relativities, reflecting
responsibilities,
performance,
qualifications,
experience and
geographic location.
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.
Long-term incentives
(“LTI”)
LTI targets are linked
to both the Group’s
internal EPS growth
and external relative
TSR outperformance
measures.
k
s
i
r
t
A
Remuneration
will be
delivered as:
Base salary plus any
fixed elements related
to local markets,
including
superannuation or
equivalents.
Strategic
Intent and
Market
Positioning
Align TFR to the
median of an agreed
peer group of
Australian companies
recognizing the need
to attract and retain
the necessary critical
skills to lead the
business.
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.
In FY16, equity was
offered as
performance rights,
subject to performance
and service for three
years from grant date.
However, the equity
was not granted to
executive KMP due to
the changed
circumstances of
SGH.
Refer section 4.4.2
Position the proportion
of STI relative to TTR
so that the combined
TFR + STI aligns with
the third quartile of the
agreed peer group.
Actual amounts linked
to specific annual
company performance
targets set by the
Board.
LTI is intended to
reward executive KMP
for sustainable long-
term performance
aligned to shareholder
interests. LTI
allocations are
conservatively
positioned relative to
the approved
comparator group.
Total target
remuneration
(“TTR”) is set
by reference
to the
relevant
geographic
market.
Slater and Gordon Limited
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36 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.2. Remuneration Composition 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. As stated in the FY15 Remuneration Report a review of the
remuneration arrangements was conducted in FY15 and the Board determined that the KMP were conservatively valued
relative to the market and that the remuneration should be increased with a particular focus on the variable or “at risk”
elements of their reward strategy. Accordingly, the proposed remuneration mix for the KMP was re-profiled with a
heavier weighting on the variable pay aspects with the desired position proposed to be:
Target Remuneration Mix for FY16
Position
TFR as a % of TTR
Group Managing Director
Other Executive KMP
48%
50% – 60%
STI (at target)
as a % of TTR
19%
16% – 25%
LTI (at target)
as a % of TTR
33%
23% – 33%
However, as has been previously stated the performance of the SGH group has been lower than expectations and as a
result the variable pay elements for FY16 have been much lower and in some cases not provided at all. This has
impacted the overall remuneration mix in FY16 and is illustrated as follows:
Actual Remuneration Mix for FY16
Position
TFR as a % of TTR
Group Managing Director
Other Executive KMP(1)
1. Excludes former KMPs
STI (at target)
as a % of TTR
27%
69%
66% to 77%
21% to 33%
LTI (at target)
as a % of TTR
4%
0% to 4%
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.
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. In 2015 the Board approved the remuneration policy for executive
KMP based on a benchmark group of companies with comparable market capitalisation levels. Accordingly, the
remuneration review in FY16 assessed relativity of remuneration for the executive KMP against that peer group and the
Board approved remuneration levels relative to that group. Since then the current market capitalisation of SGH has
changed considerably and would now not be comparable to the other companies in the benchmark peer group based on
this measure. However, it remains critically important that SGH continues to be able to attract and retain the calibre of
senior management that would be available to those companies in the peer group.
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 SGH’s short, medium and
long-term performance. The key aspects of each component are summarised below:
Slater and Gordon Limited
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Slater and Gordon Limited 37
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.4.1. Short-Term Incentives (“STI”)
Purpose
The STI arrangements are designed to reward executives for achieving SGH’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 reviewed
and endorsed by the Remuneration Committee and approved by the Board.
Performance Targets
The key performance criteria of the Group’s FY16 STI were as follows:
Financial and Operational performance (not less 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;
People and Culture (not less than 30% of weighting). These objectives typically relate
to organisational planning and development for the Group; and
Client and Development (not less than 15% of weighting). 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, unless the Board determines otherwise.
Any anomalies or discretionary elements are validated and approved by the Board.
Rewarding Performance
is calculated under a
the performance criteria set
The achievement against
predetermined matrix.
Validation of performance against the measures set for the Group Managing Director
are reviewed and endorsed by the Remuneration Committee and approved by the
Board.
Validation of performance against the measures set for the executive KMP is endorsed
by the Group Managing Director, and then reviewed and endorsed by the Remuneration
Committee and approved by the Board.
Any anomalies or discretionary elements are validated and approved by the Board.
Actual STI awarded for FY16 compared to STI Opportunity
Executive KMP
Position
Target STI
as a % of
FY16 TTR
STI
awarded
as a % of
Target STI
STI
forfeited
for FY16
as a % of
Target STI
Accrued STI
to be
awarded in
FY16 ($)
Andrew Grech
Ken Fowlie
Bryce Houghton
Hayden Stephens Chief Executive Officer, General Law
Felicity Pantelidis Group Chief Operating Officer
Group Managing Director
Chief Executive Officer, UK
Group Chief Financial Officer
26.95%
27.32%
32.90%
21.27%
23.27%
-
-
100%
-
75%
100%
100%
-
100%
25%
-
-
189,600
-
93,750
Former Executives
Wayne Brown
Neil Kinsella
Cath Evans
Group Chief Financial Officer
Head of General Law, UK
Chief Executive Officer, Personal
Injury Law
-
23.28%
-
-
100%
100%
-
-
24.96%
16.67%
83.33%
25,000
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.
Slater and Gordon Limited
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38 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.4.1 Short-Term Incentives (“STI”) (continued)
For FY16 two of the current executive KMP received a STI payment:
• The current GCFO joined SGH on 30 November 2015. He was paid $100,000 on completion of his probation period
in accordance with his employment agreement. A further $89,600, being the balance of this potential STI, was
awarded to him based on his contribution in finalising the Syndicated Facility Agreement.
• The Group Chief Operating Office (“GCOO”) was awarded 75% of her STI based on her performance as project lead
of the company refinancing exercise, and other major initiatives to drive group efficiencies.
At the time of publication of the Remuneration Report for FY15, the Board had not finalised the actual STI payments to
executive KMP for that year. Provisional STI values were reported. As a result of the moderation process the STI
payment for Mr N Kinsella changed from the provisional value of $40,000 to an actual value of $28,000, and the FY15
STI payment for Ms C Evans increased from the provisional value of $100,000 to an actual value of $125,000. These
adjustments are reflected in the FY16 Remuneration disclosures for these KMP. All other payments were as reported for
FY15.
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
To align executive KMP remuneration opportunity with shareholder value and to
encourage retention.
Types of Equity Awarded Until FY14, LTI was provided under the Employee Ownership Plan (“EOP”). The
Executive Equity Incentive Scheme (“EEIS”) was introduced in October 2014. See
section 5.1 for further details on both plans.
Under the EEIS, selected senior executives are offered performance rights (being a nil
exercise price right to fully paid ordinary shares of SGH).
Time of Grant
All LTI grants are made after the AGM each year, but based on values determined prior
to the AGM.
FY16 Long Term Incentive Plan
As described in section 4.1 and 4.2, SGH’s remuneration policy includes offering executive KMP the opportunity to
participate in a long term incentive. In accordance with the policy, an offer was made to executive KMP in November
2015, and was accepted by the executives invited to participate. Subsequently, the granting of the performance rights
was placed on hold pending announcement to the market on the financial performance of SGH. No grant of performance
rights was made to executive KMP during FY16 and the plan for that year was subsequently cancelled, as the Board did
not consider the design of the plan was aligned with the new medium to long term objectives of the Group.
An expense amount for the FY16 plan is included in the remuneration tables consistent with AASB 2 accounting
treatment, however, no value was received by the executives for this offer. It is the intention of the Board that a revised
plan will be offered during FY17.
FY15 Long Term Incentive Plan
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, but are reviewed at each reporting period, consistent with AASB 2. Details of the plan are
provided in the following table:
Slater and Gordon Limited
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Slater and Gordon Limited 39
Annual Report 2016
Directors’ Report
Audited Remuneration Report (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 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. The performance conditions applying to the FY15 grant are as follows:
Executive Directors Only
Compound annual growth in EPS (3 years)
All other Executive KMP
Compound annual growth in EPS (3 years)
Performance¹
% of equity to vest
Performance
% of equity to vest
< 10%
10% to 15%
> 15%
0%
< 7%
0%
50% to 100% pro-rata
7% to 10%
50% to 100% pro-rata
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
< 50th percentile
% of equity to vest
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.
No dividends are attached to performance rights.
Dividends
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
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 was 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.
4.5. Group Chief Financial Officer Remuneration
4.5.1. GCFO – Retention Plan
The current Group Chief Financial Officer (“GCFO”) is key to the achievement of the operational and strategic objectives
of SGH. Accordingly, in FY16 the Board approved a “one off” Retention Plan to the GCFO that includes two components,
both of which are subject to performance and restriction conditions:
• An allocation of 1.2m Performance Rights; and
• An allocation of 2.3m Options.
The key details of the Retention Plan are as follows:
Performance Period – From: 1 May 2016 to 30 June 2017.
Performance Measure – Relative Total Shareholder Return against the component companies in the ASX/S&P 300
(excluding resources).
Option Exercise Price of $0.2763, which is based on the VWAP for the 20 business days prior to 1 May 2016 and as
agreed in the Syndicated Facility Agreement.
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40 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.5.1. GCFO – Retention Plan (continued)
The following scale shall apply:
Less than the 50th percentile
At or above the 50th percentile
At or above the 75th percentile
None
50% (straight-line interpolation between the 50th and 75th percentile)
100%
Vesting Conditions – The Performance Rights and Options may vest and be exercised subject to:
• The performance measure being achieved at the end of the performance period;
• The participant meeting the Service Condition of the plan; and
• The Board resolving that the hurdle has been achieved.
If the vesting conditions are satisfied, then all or some of the Performance Rights or Options will vest. Fifty percent of the
vested and exercised Performance Rights will be converted to ordinary shares and transferred to the GCFO immediately.
The remaining 50% of vested and exercised Performance Rights will be converted to ordinary shares and held in trust
and cannot be traded until 31 December 2018.
Vested Options may be exercised once the performance hurdle has been achieved, or the GCFO may defer the
exercising of these Options for up to 3 years from the grant date. When the GCFO elects to exercise some or all of the
vested Options they will be converted into shares. Fifty percent of the resulting shares may be transferred to the GCFO
on exercising of the Options, with the remaining 50% of the resulting shares to be held in trust to the end of the
restriction period on 31 December 2018.
Any Options that have vested but have not been exercised will lapse 3 years from the grant date.
If the vesting conditions are not satisfied, the Performance Rights and Options will lapse, and the GCFO will not receive
any value through this plan.
The Performance Rights and Options, as noted above, were granted to the GCFO on 5 August 2016. The GCFO will not
participate in other equity plans that are offered to executive KMP during FY17.
4.5.2. GCFO – FY17 STI
In addition to the retention plan, the Board approved a variation in the structure of the FY17 STI plan for the GCFO as
shown in the table below. Quarterly results are assessed against performance milestones approved by the Board. These
will provide alignment between key performance outcomes for SGH and the reward for the GCFO. Any resulting
payments are then reviewed by the Remuneration Committee prior to being referred to the Board for approval.
Period:
Remuneration Value:
Assessment
Quarter 1: 30 September 2016
Quarter 2: 31 December 2016
Quarter 3: 31 March 2017
Quarter 4: 30 June 2017
4.6. Remuneration Mix for FY17
1 July 2016 to 30 June 2017
$325,000
Weighting
20%
20%
20%
40%
Value ($)
$65,000
$65,000
$65,000
$130,000
The current environment of SGH has changed substantially since the review that was conducted in 2015. While there
has been a significant divergence in performance from the comparator group, and decline in shareholder value, the
remuneration outcomes have been aligned with these changed circumstances. There has been limited STI payments to
executive KMP, and the value of previous equity plan allocations are currently substantially below the performance
targets, and are unlikely to provide benefit to these executives.
SGH is now reviewing its remuneration mix and settings for FY17 to achieve the balance between the current
environment, the need to address the immediate challenges facing SGH, and the alignment of the shareholder
experience and business performance. This needs to be balanced with the ability to attract new talent and to retain key
staff essential to driving future performance.
The objective of this review is to ensure that the remuneration mix for FY17, and beyond, aligns with the overall
objectives of SGH, and maintains alignment between performance and reward.
Slater and Gordon Limited
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Slater and Gordon Limited 41
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.7. Other Remuneration Elements and Disclosures relevant to Executive KMP
4.7.1. Clawback
In line with developing practice in corporate governance, in June 2016 the Board approved the introduction of a clawback
policy. This policy is in place for FY17 and applies to executive KMP. The policy enables SGH to clawback certain
elements of an executive's remuneration if there has been a misstatement of SGH’s financial statements which results in
the executive receiving a reward which exceeds the outcome that would have been achieved had the misstatement not
been made. The clawback provisions are designed to further align the interests of KMP with the long-term interests of
their company or group and to ensure that excessive risk taking is not rewarded.
4.7.2. Hedging and Margin Lending Prohibition
Directors and executive KMP must not engage in dealings based on short term fluctuations in SGH securities. If a
Director or executive KMP acquires SGH securities, they should not sell or agree to sell any SGH securities of that class
for at least 30 days.
Directors are prohibited from entering into margin loans under the SGH Share Trading Policy. Other executive KMP
require prior approval to enter into a margin loan arrangement 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 SGH 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 SGH securities during a prohibited trading period.
Directors and executive KMP must not enter into hedging arrangements in relation to SGH securities that are unvested
or subject to disposal restrictions or minimum shareholding requirements.
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 SGH securities.
The SGH Share Trading Policy is available on the SGH website www.slatergordon.com.au under the Firm, and then
Governance tab.
4.7.3. Minimum Shareholding Guidelines
The majority of executive KMP are subject to minimum shareholding requirements under agreements between the seven
shareholders of the Company prior to listing in 2007.
Executive KMP 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.
4.8. Relationship between the Group’s Performance and Executive KMP Remuneration
4.8.1. The Group’s Financial Performance (FY12 to FY16)
Company Performance
2012
2013
2014
2015
Restated
2016
Revenue ($'000)
217,704
297,963
438,228
598,185
908,185
Profit before tax ($'000)
36,494
61,341
95,747
85,408
(1,029,468)
Profit after tax ($'000)
24,992
41,521
68,236
62,374
(1,017,595)
Basic earnings per share (cents)
16.20
23.90
33.80
26.46
(289.10)
Diluted earnings per share (cents)
15.70
23.30
33.20
26.27
(289.10)
Dividends per share - paid during
financial year (cents)
Total dividends paid during
financial year ($'000)
5.80
6.30
6.85
8.50
5.50
8,786
10,647
13,770
17,620
19,330
Share price at 30 June ($)
1.85
2.78
5.16
3.56
0.39
Slater and Gordon Limited
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42 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.8.2. 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
FY16 than in FY15. This reflects the low STI payout in FY16. 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. The FY16 LTI plan was offered to
executive KMP, however, this was not granted, and subsequently cancelled due to the changing circumstances of SGH
during the year.
Overall, there has been strong alignment between the company performance and the “at risk” reward for executive KMP.
This is reflected in the limited STI payments, and the decision not to proceed with the LTI equity grant during FY16.
4.8.3. Group EPS and TSR Performance and Relationship to Executive KMP Remuneration
As explained in section 4.1, SGH’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
• The FY15 LTI Plan, in the form of performance rights, is 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.
The FY15 plan is the only active long-term incentive plan and utilises EPS and TSR to assess performance, and the
potential vesting of performance rights after the end of FY17. Both these measures are substantially below the level of
performance required for any performance rights to vest.
No performance rights vested during FY16.
Slater and Gordon Limited
Page 34
Slater and Gordon Limited 43
Annual Report 2016
.
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44 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
4.9.2 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 and Cash Incentives Received
Name
Andrew Grech
Ken Fowlie
Bryce Houghton
Hayden Stephens
Felicity Pantelidis
Former Executives
Wayne Brown
Neil Kinsella
Cath Evans
Total
Total
Year
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
FY16
FY15
Fixed
Remuneration
Cash Incentives
received in the
current year
587,515
591,784
670,998
456,399
411,352
-
431,490
417,284
403,361
356,000
154,861
420,561
238,011
474,858
338,682
401,465
3,236,270
3,118,351
35,000
125,000
30,000
50,000
100,000
-
30,000
50,000
80,000
46,750
25,000
60,000
28,298
94,325
125,000
265,000
453,298
691,075
(1) See 4.4.2 regarding the cancellation of the FY16 LTI.
Future at risk
remuneration
received during
the year (LTI)(1)
-
61,608
-
24,643
-
-
-
23,657
-
17,743
-
23,657
-
23,807
-
23,807
-
198,922
Total Cash
622,515
716,784
700,998
506,399
511,352
-
461,490
467,284
483,361
402,750
179,861
480,561
266,309
569,183
463,682
666,465
3,689,568
3,809,426
Slater and Gordon Limited
Page 36
Slater and Gordon Limited 45
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
5. Employee Share Scheme and Other Share Information
5.1. Employee Share Schemes operated by the Group
Plan Details
Type of
Instruments
Employee
Ownership
Plan (“EOP”)
Date established:
2006
Last offered:
2009
Vesting
Convertible
Redeemable
Ordinary
Shares
(“VCR
shares”)
Details
Purpose
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.
No executive KMP are current participants in
the EOP.
The purpose of the EOP was to encourage key
participating employees to take on a significant
stake in SGH over the course of their careers.
As at 30 June 2016, there was a total of
1,963,667 ordinary shares subject to disposal
restrictions (value – $705,171) under the
EOP. The loans outstanding in relation to
these shares totalled $8,300,784 which are
only repayable if the VCR shares vest.
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 by
deferring for 2 years a portion of their STI
earned (up to 30%).
An initial offer was made to invited
executives in FY16, however, no subsequent
grants were made in respect of the STI
deferred scheme. The plan is currently
suspended.
No executive KMP participate in the DSTIS.
Equity
Incentive Plan
(“EIP”)
Date established:
Nov 2014
Grant date:
13 Nov 2015
Exempt
shares under
Share Save
Scheme
(“SSS)
The exempt share save scheme allows
participating Australian employees to
acquire up to $1,000 of SGH 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).
Share Incentive
Plan (“SIP”)
Date established:
Dec 2014
Ordinary
shares under
SIP
The SIP allows participating United
Kingdom employees to acquire SGH
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 GBP 375 company
and GBP 375 individual).
No SIP was offered during FY16.
The purpose of the EIP is to provide annual
equity incentives to 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 2016, 45 employees held
412,000 performance rights (Value -
$147,953). Vesting is subject to continuing
service and meeting performance hurdles.
Also refer section 4.4.2.
The purpose of the EIP is to provide annual
equity to invited executives in line with
current market standards and expectations.
There are currently no Service Rights issued
through the DSTIS.
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.
During FY16, 401 employees accepted
142,756 exempt shares in the SSS (Value –
$200,500).
The purpose of the SIP is to encourage
broad based employee equity participation in
the UK on an affordable and sustainable
basis in line with current market standards
and expectations.
Slater and Gordon Limited
Page 37
46 Slater and Gordon Limited
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
5.2. Employee Share Scheme Grants to Executive KMP
5.2.1. Vesting and Exercise of Performance Rights granted as Remuneration
During FY16, no performance rights vested or were exercised.
5.2.2. Analysis of Movement in Performance Rights
During the financial year, the movement in the number and value of performance rights over ordinary shares of SGH
acquired under EIP LTI held by executive KMP is detailed below:
Number
held at 1
July
2015
40,000
16,000
Number
offered in
year (1)
133,578
83,486
Offer
Value ($)
15,295
9,559
-
113,000
12,939
16,000
58,440
6,691
12,000
66,789
7,647
Andrew Grech
Ken Fowlie
Bryce
Houghton
Hayden
Stephens
Felicity
Pantelidis
Former
Executives
Wayne Brown
Neil Kinsella
Cath Evans
16,000
16,000
16,000
-
-
-
-
50,092
5,736
Total
132,000
505,385
57,867
(1) Rights were offered and accepted but not granted, see 4.4.2.
5.3. KMP Equity Interests
Number
exercise
-ed in
year
-
-
-
-
-
-
-
-
-
Number
cancelled
during
year
(133,578)
(83,486)
(113,000)
(58,440)
(66,789)
Number
forfeited
during
year
Number
held at 30
June
2016
Intrinsic
Value at
30 June
2016 ($)
-
-
-
-
-
40,000
15,600
16,000
6,240
-
-
16,000
6,240
12,000
4,680
-
-
(16,000)
(16,000)
(50,092)
(16,000)
-
-
-
-
-
-
(505,385)
(48,000)
84,000
32,760
In accordance with the Corporations Act (section 205G(1)), the Company is required to notify the interests (shares and
rights to shares) of directors to the ASX.
In the interests of transparency and completeness of disclosure, this information is provided for each NED (as required
under the Corporations Act) and all executive KMP.
Please refer section 4.7.2 Hedging and margin lending prohibition for more information.
The table below indicates shareholdings of SGH KMPs:
Number held at 1
July 2015
Acquisitions
Disposals
Number held at 30
June 2016
John Skippen
James M. Millar
Ian Court
Erica Lane
Rhonda O’Donnell
Andrew Grech
Ken Fowlie
Bryce Houghton
Hayden Stephens
Felicity Pantelidis
Former Executives
Wayne Brown
Neil Kinsella
Cath Evans
25,000
-
59,804
170,000
25,000
6,750,656
5,646,221
-
4,804,115
16,161
345,103
427,127
4,081,433
35,000
20,000
10,000
-
-
-
-
-
-
305
-
-
-
22,350,620
65,305
Slater and Gordon Limited
-
-
-
-
-
-
-
-
-
-
-
-
-
60,000
20,000
69,804
170,000
25,000
6,750,656
5,646,221
-
4,804,115
16,466
345,103
427,127
4,081,433
22,415,925
Intrinsic
Value at 30
June 2016
($)
23,400
7,800
27,224
66,300
9,750
2,632,752
2,202,026
-
1,873,605
6,422
134,590
166,580
1,591,759
8,742,208
Page 38
Slater and Gordon Limited 47
Annual Report 2016
Directors’ Report
Audited Remuneration Report (continued)
The table below indicates any unvested performance rights issued to executive KMP before 30 June 2016, but still
subject to performance hurdles and service conditions:
Andrew Grech
Ken Fowlie
Bryce Houghton
Hayden Stephens
Felicity Pantelidis
Former Executives
Wayne Brown
Neil Kinsella
Cath Evans
Unvested
EOP Shares
Unvested
Performance
Rights
Total Number
held at
30 June 2016
Intrinsic Value
at 30 June 2016
($)
-
-
-
-
-
-
-
-
-
40,000
16,000
-
16,000
12,000
-
-
-
40,000
16,000
-
16,000
12,000
-
-
-
15,600
6,240
-
6,240
4,680
-
-
-
84,000
84,000
32,760
6. Service Contracts and Employment Agreements
6.1. Employment Agreements: Executive Directors and Other KMP Executives
The following sets out details of the employment agreements relating to the executive KMP:
Length of Contract
Executive KMP are on rolling contracts, which are ongoing employment contracts until notice is given
by either party.
Notice Periods
Resignation
Termination on
Notice by the
Company
Redundancy
In order to terminate the employment arrangements, executive KMP are required to provide the
Company between three (3) and six (6) months’ written notice.
In the case of the GCFO, he is required to provide a minimum of 6 months’ notice of termination
during the first 18 months of service. Subsequently, a minimum of 3 months’ notice must be given.
On resignation, unless the Board determines otherwise, all unvested STI or LTI benefits are forfeited.
The Company may terminate employment by providing between three (3) months’ and six (6)
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.
In the case of the GCFO SGH is required to provide a minimum of 6 months’ notice of termination
during his first 18 months of service. Subsequently a minimum of 3 months’ notice must be given.
If the Company terminates employment for reasons of redundancy, under Company policy a
severance payment may include 4 weeks’ notice plus one additional week if the employee has
completed 5 years’ service and is over the age of 45. Any additional redundancy payments will be
made in accordance with relevant legislation.
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 and other KMP Executives 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.
Statutory
Entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of
separation.
Vendor Shareholders 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.
Post-Employment
Restraints
The employment agreement contains a restraint of trade provision which applies for a period of
between 6 months and 12 months.
Slater and Gordon Limited
Page 39
End of Remuneration Report
48 Slater and Gordon Limited
Annual Report 2016
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of Slater and
Gordon Limited
As lead auditor for the review of Slater and Gordon Limited and Controlled Entities for the year
ended 30 June 2016, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001
in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Slater and Gordon Limited and the entities it controlled during the
financial year.
Ernst & Young
Christopher George
Partner
Melbourne
29 August 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Slater and Gordon Limited 49
Annual Report 2016
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
For the Year Ended 30 June 2016
Revenue
Fee revenue
Net movement in work in progress
Services revenue
Revenue from contracts with customers
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
Impairment of intangible assets
(Loss)/Profit before income tax expense
Income tax (benefit)/expense
(Loss)/Profit for the year after income tax
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 (loss)/income for the year, net of tax
Total comprehensive (loss)/income for the year, net of tax
(Loss)/Profit for the year attributed to:
Owners of the Company
Non-controlling interests
Total comprehensive (loss)/income for the year attributed to:
Owners of the Company
Non-controlling interests
Note
3.1
2
3.2
3.2
3.2
3.2
4.1
3.4
2016
$’000
698,486
(41,318)
234,302
891,470
-
16,715
908,185
416,294
18,529
14,699
170,297
38,169
136,596
92,528
36,158
42,548
39,342
17,743
738
34,506
879,506
(1,029,468)
(11,873)
(1,017,595)
(35,013)
(1,130)
(36,143)
(36,143)
2015
$’000
Restated*
486,267
10,706
20,472
517,445
72,508
8,232
598,185
263,348
13,933
11,506
16,662
27,807
56,289
44,195
6,595
11,210
11,585
9,945
23,769
15,933
-
85,408
23,034
62,374
60,867
(409)
60,458
60,458
(1,053,738)
122,832
(1,017,306)
(289)
(1,017,595)
(1,053,426)
(312)
(1,053,738)
62,288
86
62,374
122,654
178
122,832
Basic earnings per share (cents)
Diluted earnings per share (cents)
3.6
3.6
(289.1) cents
(289.1) cents
26.5 cents
26.3 cents
The accompanying notes form an integral part of these financial statements.
*Certain amounts shown here do not correspond to the 30 June 2015 full year financial statements and reflect adjustments made for
AASB 15 – Revenue from Contracts with Customers, refer to Note 1.3.
Slater and Gordon Limited
Page 41
50 Slater and Gordon Limited
Annual Report 2016
Consolidated Statement of Financial Position
As at 30 June 2016
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.
2016
$’000
2015
$’000
Restated*
1 July 2014
$’000
Restated*
Note
5.1
4.2
4.3
3.4
4.4
4.2
4.3
4.1
3.4
4.5
5.2
3.4
4.6
4.5
5.2
3.4
4.6
5.5
82,494
528,915
361,898
16,803
24,217
96,985
574,295
454,767
34,636
26,454
25,270
183,684
192,259
-
12,403
1,014,327
1,187,137
413,616
33,207
8,853
31,959
31,744
225,635
221,927
393,970
1,343,224
46,725
11,314
88,230
8,545
719,704
1,725,629
1,734,031
2,912,766
12,964
45,684
189,260
123,655
22,264
11,844
405,671
819,287
463,570
612,670
190,527
3,642
9,301
7,490
52,455
3,753
23,412
10,985
38,317
9,076
3,899
10,103
20,124
536,458
689,137
233,729
510
761,138
112,950
2,841
15,037
3,121
707,354
144,088
1,621
17,274
892,476
873,458
1,428,934
305,097
1,562,595
1,350,171
1,116,048
54,290
1,098,345
80,119
(865,348)
171,288
304,990
1,349,752
107
419
7,383
117,255
97,108
1,020
4,760
227,526
461,255
358,032
217,049
14,122
126,620
357,791
241
305,097
1,350,171
358,032
* Certain amounts shown here do not correspond to the 30 June 2015 full year financial statements and reflect adjustments made for
AASB 15 – Revenue from Contracts with Customers, refer to Note 1.3 and fair value adjustments on finalisation of acquisition
accounting.
Slater and Gordon Limited
Page 42
Slater and Gordon Limited 51
Annual Report 2016
Consolidated Statement of Changes in Equity
For the Year Ended 30 June 2016
2016
Note Contributed
Equity
Retained
Profits
Cash Flow
Hedging
Reserve
Foreign
Currency
Translation
Reserve
Share-based
Payment
Reserve
Total
Non-
controlling
interest
Total
Equity
Balance as at 1 July 2015 (restated*)
Net loss after tax for the year
Total other comprehensive loss for the year
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
Issue of warrants
Performance rights
Total transactions with owners in their
capacity as owners
Balance as at 30 June 2016
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
1,098,345
171,288
(1,189)
70,689
10,619
1,349,752
419
1,350,171
-
-
(1,017,306)
-
-
-
(1,130)
(34,990)
-
-
(1,017,306)
(289)
(1,017,595)
(36,120)
(23)
(36,143)
-
(1,017,306)
(1,130)
(34,990)
-
(1,053,426)
(312)
(1,053,738)
5.5
3.5
5.5
5.5
5.5
3,128
-
-
(19,330)
11,808
-
2,767
-
-
-
-
-
17,703
(19,330)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,128
(19,330)
(11,808)
-
14,699
14,699
-
7,422
(22)
2,767
7,422
(22)
10,291
8,664
-
-
-
-
-
-
-
3,128
(19,330)
-
14,699
2,767
7,422
(22)
8,664
1,116,048
(865,348)
(2,319)
35,699
20,910
304,990
107
305,097
2015
Restated*
Note Contributed
Equity
Retained
Profits
Cash Flow
Hedging
Reserve
Foreign
Currency
Translation
Reserve
Share-based
Payment
Reserve
Total
Non-
controlling
interest
Total
Equity
Balance as at 1 July 2014 (restated)
217,049
126,620
$’000
$’000
$’000
(780)
$’000
9,914
$’000
$’000
$’000
$’000
4,988
357,791
241
358,032
Net profit after tax for the year (previously
reported)
Total other comprehensive income for the year
(previously reported)
Adjustments
Total comprehensive income for the year
(restated)
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
1.3
5.5
3.5
5.5
5.5
5.5
-
-
-
-
-
-
-
-
-
-
83,554
-
-
-
(409)
63,438
(21,266)
-
(2,663)
62,288
(409)
60,775
83,554
249
83,803
63,029
104
63,133
(23,929)
(175)
(24,104)
122,654
178
122,832
896,352
-
-
(17,620)
6,199
-
(21,255)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Total transactions with owners in their
881,296
(17,620)
capacity as owners
Balance as at 30 June 2015 (restated)
1,098,345
171,288
(1,189)
70,689
10,619
1,349,752
419
1,350,171
The accompanying notes form an integral part of these financial statements.
* Certain amounts shown here do not correspond to the 30 June 2015 full year financial statements and reflect adjustments made for AASB 15
– Revenue from Contracts with Customers, refer to Note 1.3 and fair value adjustments on finalisation of acquisition accounting.
Slater and Gordon Limited
Page 43
52 Slater and Gordon Limited
Annual Report 2016
Consolidated Statement of Cash Flows
For the Year Ended 30 June 2016
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Payments to former owners
Interest received
Borrowing costs
Income tax refund/(paid)
Net cash (used in)/provided by operating activities
3.3
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
Proceeds from disposal of businesses
Repayment of cash consideration for SGS acquisition
Payment for acquisition of businesses, net of cash in subsidiaries
Payment for acquisition of businesses – deferred consideration
Net cash used in investing activities
Cash flow from financing activities
Proceeds from share issue
Costs of equity issued
(Loans/payments to)/proceeds from related parties and employees
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash provided by financing activities
Net (decrease)/increase in cash held
Net foreign exchange difference
Cash at beginning of financial year
Cash at end of financial year
The accompanying notes form an integral part of these financial statements.
5.5
Note
2016
$’000
2015
$’000
1,056,757
520,954
(1,135,083)
(464,980)
(14,211)
381
(35,263)
23,175
(104,244)
(5,314)
(12,743)
(738)
-
168
2,386
(2,592)
2,294
(8,865)
(6,049)
40,762
(9,166)
(13,142)
(23,662)
(9,464)
-
-
-
(1,333,973)
(12,002)
(28,243)
(14,720)
(1,404,127)
-
(85)
(5,353)
192,787
(44,759)
(17,060)
125,530
(6,957)
(7,534)
96,985
82,494
890,939
(18,438)
3,356
594,068
(43,966)
(15,924)
1,410,035
46,670
25,045
25,270
96,985
Slater and Gordon Limited
Page 44
Slater and Gordon Limited 53
Annual Report 2016
Notes to the Financial Statements
For the year ended 30 June 2016
Note 1: Basis of Preparation
This note sets out the accounting policies adopted by Slater and Gordon Limited (the “company” or “parent”) and its
consolidated entities (the “consolidated entity” or the “Group”) in the preparation and presentation of the financial report.
Where an accounting policy is specific to one note, the policy is described within the note to which it relates.
The financial report was authorised for issue by the directors as at the date of the Directors’ Report.
Slater and Gordon Limited is a company limited by shares, incorporated and domiciled in Australia whose shares are
publicly traded on the Australian Securities Exchange.
1.1
Basis of Accounting
This financial report is a general purpose financial report, for a ‘for-profit’ entity, which 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. 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”).
The financial report has been prepared under the historical cost convention, except where noted.
This year the Group’s financial statements have been presented in a more streamlined manner by changing the format
and the layout to simplify the information disclosed and make it more relevant to users. Similar notes have been grouped
into sections with relevant accounting policies and judgement and estimate disclosures incorporated within the notes to
which they relate.
Comparatives have been updated for changes in accounting policies as described in Note 1.3 below.
The parent entity and the consolidated entity have applied the relief available under ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191 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.
Going Concern
The financial report has been prepared on a going concern basis.
The Directors, having given consideration to the current financial forecasts for the Group, the engagement with the
banking syndicate and its financial advisers, the comprehensive review, and the performance improvement programmes
being implemented by management, consider the going concern basis of preparation is appropriate. Refer to Note 5.2 for
additional details.
1.2
Basis of Consolidation
The consolidated financial statements comprise 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.
1.3
Adoption of New Accounting Standards
The Group 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
as they did not result in any changes to the Group’s existing accounting policies.
Slater and Gordon Limited
Page 45
54 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
1.3
Adoption of New Accounting Standards (continued)
The Group has elected to early adopt AASB 15 Revenue from Contracts with Customers as issued in December 2014,
which would otherwise be mandatorily effective for annual reporting periods beginning on or after 1 January 2018. The
initial application date for the Group is 1 July 2015. The Group elected to apply the standard on a full retrospective basis
as permitted by AASB 15 whereby the cumulative effect of retrospective application is recognised by adjusting opening
retained profits or other relevant components of equity for the earliest comparative period presented (which for the Group
is the comparative period beginning on 1 July 2014). See below for further details on the key impacts arising from the
adoption of the new standard. Refer to Note 3.1 for additional details, however key judgements adopted as part of the
adoption of the new standard include:
(i).
Estimating variable consideration
Prior to the adoption of AASB 15, in previous reporting periods, variable consideration expected to be received from
services (including services provided on a No Win – No Fee basis) was estimated based on historical average fees and
success outcomes.
Under AASB 15, where consideration in respect of a contract is variable, revenue can only be recognised to the extent
that it is highly probable that the cumulative amount of revenue recognised in respect of a contract will not be subject to a
significant reversal when the uncertainty associated with the variable consideration is subsequently resolved (this is
referred to as the “constraint” requirements). As a result, the Group has applied the new constraint requirements in
estimating the amount of variable consideration included in the transaction price compared to the amount of variable
consideration previously included.
(ii).
Stage of completion
As a result of more detailed requirements under AASB 15 with respect to measuring the stage of completion of a
performance obligation, the Group has conducted a review of its methodology for measuring progress towards
completion of relevant performance obligations.
In summary, as a result of early adopting AASB 15 on a full retrospective basis, the following adjustments were made to
the amounts recognised in the statement of financial position and statement of profit or loss and other comprehensive
income at 1 July 2014 and at the end of the comparative period (30 June 2015):
Statement of Financial Position
Work in progress (current and non-
current)
Current tax liabilities
Deferred tax liabilities
Reserves
Retained profits
Non-controlling interests
Statement of Profit or Loss and
Other Comprehensive Income
Net movement in work in progress
Income tax expense
Earnings per share
Statement of Financial Position
Receivables
Work in progress* (current and non-
current)
Current tax liabilities*
Deferred tax liabilities*
Reserves*
Retained profits
Non-controlling interests
AASB 118
carrying
amount
1 Jul 2014
$’000
467,334
2,481
123,621
14,217
187,213
271
30 Jun 2015
$’000
53,399
30,728
35.6 cents
30 Jun 2015
$’000
619,855
825,898
22,556
180,508
82,877
253,147
624
Prior Period
Remeasurement
Current Period
Remeasurement
AASB 15
carrying
amount
1 Jul 2014
$’000
$’000
$’000
-
-
-
-
-
-
(85,815)
1,418
(26,513)
(95)
(60,593)
(30)
381,519
3,899
97,108
14,122
126,620
241
30 Jun 2015
$’000
$’000
$’000
-
-
-
(42,693)
(7,694)
10,706
23,034
(14.9 cents)
20.7 cents
$’000
-
(86,706)
1,612
(26,886)
(808)
(60,592)
(32)
$’000
(113)
(45,576)
(1,001)
(9,021)
(2,415)
(33,079)
(173)
30 Jun 2015
$’000
619,742
693,616
23,167
144,601
79,654
159,476
419
Slater and Gordon Limited
Page 46
Slater and Gordon Limited 55
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
1.3
Adoption of New Accounting Standards (continued)
Remeasured amounts relate solely to the application of AASB 15 and do not reflect other adjustments as a result of
finalisation of provisional accounting for acquisitions.
* Prior period remeasurements converted at the closing rate in the current period with the resulting foreign exchange
difference included in the Foreign Currency Translation Reserve included in Equity.
1.4
Significant Accounting Judgements, Estimates and Assumptions
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 significant judgements made by management in applying the Group’s accounting policies and the key sources of
estimation uncertainty are outlined in detail within the specific note to which they relate. Noted below are new significant
accounting judgements and key sources of estimation uncertainty applied in the current reporting year:
(i).
Revenue Recognition – Identifying the Performance Obligation
In personal injury matters, contracts with clients generally comprise a single distinct performance obligation, being the
provision of services in pursuit of the successful settlement of a customer’s claim, and the transaction price is allocated
to this single performance obligation. Some contracts contain multiple deliverables – such as legal services in respect of
a statutory claim and a common law claim, or initial pre-issue work and litigation work. In such circumstances, these
multiple deliverables are considered to represent a single distinct performance obligation, given there is a significant
service of integration performed by the Group in delivering these services. Management considers the methods used
provide a faithful depiction of the transfer of goods or services.
The Group has some contractual arrangements outside of personal injury matters that include multiple performance
obligations. In these transactions, the transaction price must be allocated to the performance obligations on a relative
stand-alone selling price basis. In most cases, the price for each separate performance obligation is identified in the
contract and in most cases, these prices are considered to be reflective of the stand-alone selling price of each
performance obligation.
The Group notes that it is not practicable to determine and track on a case-by-case basis the elements of a transaction
that should be attributed to pre- and post-acquisition performance, given the nature of the estimates of variable
consideration, and the methodology adopted (based around actual historical average fees and estimates of success
rates on a cohort-by-cohort rather than case-by-case basis).
(ii). Revenue Recognition – Estimating the Transaction Price: Variable Consideration – No Win – No Fee
Arrangements
The Group provides various services on the basis of No Win – No Fee conditional fee arrangements. The uncertainty
around the fees ultimately receivable under these types of contracts is generally only fully resolved when a matter is
concluded.
Where the Group has sufficient historical experience in similar contracts in order to be able to estimate the expected
outcome of a group of existing contracts reliably, revenue is estimated using the expected value method. Fees are only
included in revenue to the extent that it is highly probable that the cumulative amount of revenue recognised in respect of
a contract at the end of a reporting period will not be subject to significant reversal when a matter is concluded.
To determine the probability of success of a case using the expected value method, a level of judgement is required to
be applied based on past experience and historical performance of similar matters. The estimated amount of variable
consideration is based on the expected fee for the nature of the legal service provided with reference to internal historical
fee levels and relative rates of successful and unsuccessful outcomes.
Where historical averages are not predictive of the probability of outcomes for a given contract, or where the Group has
limited historical experience with similar contracts, the expected amount of variable consideration is estimated using a
most likely amount approach on a contract by contract basis. In such circumstances, a level of judgement is required to
determine the likelihood of success of a given matter, as well as the estimated amount of fees that will be recovered in
respect of the matter.
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.
Slater and Gordon Limited
Page 47
56 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
1.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
(iii). Recognising Revenue: Measuring the Stage of Completion
Revenue is recognised when control of a service is transferred to the customer. The Group recognises revenue in
respect of personal injury matters “over time” (as opposed to at a “point in time”). A stage of completion approach is
used to measure progress towards completion of the performance obligation. The stage of completion is determined
using a milestones based approach using prescribed status codes for client matters as the relevant milestones. The
percentage completion is determined either by calculating the average fee received for matters that resolve at a
particular status code as a percentage of the average fee received for matters that resolve at that status and any later
status, or by use of defined completion allocations based on historical performance.
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.
(iv). Proposals from the Autumn 2015 Chancellor’s Statement
The proposed reforms announced by the UK Government in November 2015 are expected to affect personal injury cases
below £5,000. As yet there has been no announcement in relation to the commencement of the foreshadowed
consultation process and the Company has made its best effort to factor potential changes into its assessment of the
future cash flows, even though the results are not yet certain.
As both the Slater and Gordon UK (“SGL UK”) and Slater Gordon Solutions (“SGS”) segments of the Group operate in
the UK, management has also given consideration to the possible influence of the outcome of the UK referendum to
withdraw from the European Union (“Brexit”) on the progress of the consultation process.
It is not clear what the impact of Brexit and the process which will now ensue to implement the UK’s exit from the
European Union will be on the UK economy however management assesses that the outcome of the Brexit referendum
itself is not likely to have any material adverse impact on the performance of the Group.
1.5
Foreign Currency Translations and Balances
Functional and Presentation Currency
The consolidated financial statements are presented in Australian dollars which is also the functional currency of the
parent entity and all Australian subsidiaries. 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).
Transactions and Balances
Transactions in foreign currencies of entities within the consolidated group are translated into the respective functional
currency of each entity at the rate of exchange ruling at the date of the transaction. The assets, liabilities and results of
foreign operations where their functional currency is different to the presentation currency are translated as disclosed
below.
Foreign currency monetary items that are outstanding at the reporting date 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 of
monetary items are recognised as income and expenses for the financial year.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions and are not remeasured unless they are carried at fair value.
Foreign Operations
On consolidation, the assets and liabilities of foreign operations are translated into the presentation currency of the
Group at the closing rate on the reporting date. Income and expenses are translated at 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. All resulting exchange differences are recognised in Other Comprehensive Income in the
foreign currency translation reserve, 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.
Slater and Gordon Limited
Page 48
Slater and Gordon Limited 57
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
Note 2: Segment Reporting
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
components. All operating segment results are regularly reviewed by the Group’s Managing Director, who is the Chief
Operating Decision Maker, to make decisions about resources to be allocated to the segment and to assess its
performance.
The Group has three operating segments which also represents its three reportable segments, as described below,
which are the Group’s strategic business units. Each strategic business unit is managed separately. 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.
• Slater and Gordon UK (“SGL UK”) – conducting a range of personal injury and general law legal services in the
United Kingdom.
• Slater Gordon Solutions (“SGS”) – represents the acquired business assets/entities from Quindell Plc in the UK,
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 and liabilities are allocated to countries based on where the assets are located.
AUS
2016
$’000
2015
$’000
Restated
SGL UK
2015
$’000
Restated
2016
$’000
SGS
2016
$’000
2015
$’000
Restated
TOTAL
2016
$’000
2015
$’000
Restated
Revenue
Fee and services revenue
Movement in WIP
Revenue from contracts with
customers
Gain from bargain purchase
Other income
Total revenue and other
income
Result
EBITDA*
265,629 245,706 229,958 225,991 437,201
3,921
(17,391)
(27,848)
(3,218)
14,067
35,042
(143)
932,788
(41,318)
506,739
10,706
237,781 259,773 212,567 222,773 441,122
34,899
891,470
517,445
-
16,715
72,508
8,232
908,185
598,185
(35,506)
84,058
(49,053)
25,014
(6,102)
(5,780)
(90,661)
103,292
Depreciation and amortisation
Impairment of intangible assets
(9,578)
(55,803)
(5,715)
-
(5,952)
(9,458)
(4,023)
(2,213)
- (814,245)
(207)
-
(17,743)
(879,506)
(9,945)
-
(Loss)/Profit before tax and net
finance expense
Net finance expense
(Loss)/Profit before income tax
Income tax (benefit)/expense
Net (loss)/profit after income
tax
(100,887)
78,343
(64,463)
20,991 (822,560)
(5,987)
(987,910)
93,347
(41,558)
(7,939)
(1,029,468)
85,408
(11,873)
23,034
(1,017,595)
62,374
EBITDAW**
7,657
69,992
(31,663)
28,231
(10,023)
(5,637)
(49,343)
92,586
Total segment assets
Total segment liabilities
429,675 535,503 512,157 638,894 792,199 1,738,369 1,734,031 2,912,766
388,315 1,428,934 1,562,595
316,555 307,037 794,308 867,243 318,071
Net assets per statement of
financial position
113,120 228,466 (282,151) (228,349) 474,128 1,350,054
305,097 1,350,171
*EBITDA = Earnings before net interest, taxes, depreciation, amortisation and impairment.
**EBITDAW = Earnings before net interest, taxes, depreciation, amortisation, impairment and movement in WIP.
Slater and Gordon Limited
Page 49
58 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
Note 3: Financial Performance
3.1
Revenue from Contracts with Customers
3.1.1 Accounting Policies
Provision of Legal Services – Personal Injury Law Claims
The personal injury law practice operates on the basis of No Win – No Fee conditional fee arrangements, whereby fees
are earned only in the event of a successful outcome of a customer’s claim. In some cases, fees may be fixed,
depending on the stage at which a matter concludes. For some arrangements (primarily in the UK), fees are fixed as a
specified percentage of damages awarded under a claim.
In personal injury matters, contracts with clients generally comprise a single distinct performance obligation, being the
provision of services in pursuit of the successful settlement of a customer’s claim, and the transaction price is allocated
to this single performance obligation. Some contracts contain multiple deliverables – such as legal services in respect
of a statutory claim and a common law claim, or initial pre-issue work and litigation work. In such circumstances, these
multiple deliverables are considered to represent a single distinct performance obligation, given there is a significant
service of integration performed by the Group in delivering these services. Management considers the methods used
provide a faithful depiction of the transfer of goods or services.
The uncertainty around the fees receivable under a contract is generally only resolved when a matter is concluded. In
recognising revenue in the personal injury practice, where the Group has sufficient historical experience in similar
contracts in order to be able to estimate the expected outcome of a group of existing contracts reliably, revenue from the
fees from contracts is estimated using the expected value method based. The estimate amount of variable consideration
is based on the expected fee for the nature of the legal service with reference to historical fee levels and relative rates of
successful and unsuccessful outcomes. To determine the probability of success of a case, a level of judgement is
required to be applied based on past experience and historical performance of similar matters.
Expected fees are only included in revenue to the extent that it is highly probable that the cumulative amount of revenue
recognised in respect of a contract at the end of a reporting period will not be subject to significant reversal when a
matter is concluded.
Where historical averages are not predictive of the probability of outcomes for a given contract, or where the Group has
limited historical experience with similar contracts, the expected amount of variable consideration is estimated using a
most likely amount approach on a contract by contract basis. In such circumstances, a level of judgement is required to
determine the likelihood of success of a given matter, as well as the estimated amount of fees that will be recovered in
respect of the matter.
Revenue is recognised when control of a service is transferred to the customer. The Group recognises revenue in
respect of personal injury matters “over time” (as opposed to at a “point in time”). A stage of completion approach is
used to measure progress towards completion of the performance obligation. The stage of completion is determined
using a milestones based approach using prescribed status codes for client matters as the relevant milestones. The
percentage completion is determined either by calculating the average fee received for matters that resolve at a
particular status code as a percentage of the average fee received for matters that resolve at that status and any later
status, or by use of defined completion allocations based on historical performance
Estimates of revenues (including interim billing), costs or extent of progress toward completion are revised if
circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss
in the period in which the circumstances that give rise to the revision become known by management.
The Group has determined that no significant financing component exists in respect of the personal injury revenue
streams. This is because in personal injury matters, a substantial amount of the consideration promised by the customer
is variable subject to the occurrence or non-occurrence of a future event that is not substantially within the control of the
customer or the Group.
A receivable in relation to these services is recognised on settlement of the client matter and when a bill has been
invoiced, as this is the point in time that the consideration is unconditional because only the passage of time is required
before the payment is due.
The Company arranges for the disbursement activities on behalf of the client; however it does not control the output
from those activities. The Company cannot influence the content of the medical reports or court filings, therefore no
profit margin is recognised on the activities and the clients are charged the direct cost incurred by the Company. As
such, the Company acts as an agent for disbursements, which 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.
Slater and Gordon Limited
Page 50
Slater and Gordon Limited 59
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.1
Revenue from Contracts with Customers (continued)
3.1.1 Accounting Policies (continued)
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.
Provision of Legal Services – General Law Legal Services
The Group also earns revenue from provision of general legal services, incorporating project litigation. Revenue for
general legal services is recognised over time in the accounting period when services are rendered.
Fee arrangements from general legal services include fixed fee arrangements, unconditional fee for service
arrangements (“time and materials”), and variable or contingent fee arrangements (including No Win – No Fee
arrangements for services including project litigation, and some consumer and commercial litigation).
For fixed fee arrangements, revenue is recognised based on the stage of completion with reference to the actual
services provided as a proportion of the total services expected to be provided under the contract. The stage of
completion is tracked on a contract by contract basis using a milestone based approach, which was explained above.
In fee for service contracts, revenue is recognised up to the amount of fees that the Group is entitled to invoice for
services performed to date based on contracted rates.
The Group estimates fees for variable or conditional service fee arrangements using a most likely amount approach on
a contract by contract basis. Management makes a detailed assessment of the amount of revenue expected to be
received and the probability of success of each case. Variable consideration is included in revenue only to the extent
that it is highly probable that the amount will not be subject to significant reversal when the uncertainty is resolved
(generally when a matter is concluded).
Certain project litigation matters are undertaken on a partially funded basis. The Group has arrangements with third
party funders to provide a portion of the fees receivable on a matter over time as services are performed. In such
arrangements, the funded portion of fees is billed regularly over time and is not contingent on the successful outcome
of the litigation. The remaining portion of fees is variable consideration which is conditional on the successful
resolution of the litigation. The variable consideration is included in revenue as services are performed only to the
extent that it is highly probable that the amount will not be subject to significant reversal when the uncertainty is
resolved.
As in the case of personal injury claims, estimates of revenues, costs or extent of progress toward completion are
revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in
profit or loss in the period in which the circumstances that give rise to the revision become known by management.
The Group has determined that no significant financing component exists in respect of the general law services
revenue streams. This has been determined on fee for service and fixed fee arrangements as the period between
when the entity transfers a promised good or service to a customer and when the customer pays for that good or
service will be one year or less. For No Win - No Fee arrangements this has been determined because a significant
amount of the consideration promised by the customer is variable subject to the occurrence or non-occurrence of a
future event that is not substantially within the control of the customer or the Group.
A receivable in relation to these services is recognised when a bill has been invoiced, as this is the point in time that the
consideration is unconditional because only the passage of time is required before the payment is due.
Provision of Other Services – Slater Gordon Solutions
Legal Services
Revenue from Road Traffic Accidents (“RTA”) and Employer Liability/Public Liability (“EL/PL”) files is recognised over
the life of the case based on prescribed milestones in a matter.
The legal services practice operates on the basis of No Win – No Fee conditional fee arrangements and applies the
same accounting policies as personal injury claims described above. In some cases, fees may be fixed, depending on
the stage at which a matter concludes. For some arrangements, fees are fixed as a specified percentage of damages
awarded under a claim.
No revenue has been recognised for Noise Induced Hearing Loss (“NIHL”) files that are in progress as at 30 June 2016
due to the low number of NIHL cases that have settled within SGS during the year and the inherent uncertainty over
the consideration to be achieved in each successful matter.
Slater and Gordon Limited
Page 51
60 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.1
Revenue from Contracts with Customers (continued)
3.1.1 Accounting Policies (continued)
Vehicle Hire and Repair
Revenue from the provision of car repair is recognised at a point in time. Revenue from the provision of car hire and
cost recovery services are recognised over the time that the services are performed.
For car repair services, revenue is recognised upon completion of all repair work and upon the customer signing a
“client satisfaction note” in taking back possession of the car. The amount of revenue recognised is the amount as
agreed in writing between the parties prior to the service being provided in the repair contract.
For car hire and cost recovery services, the revenue is recognised over time, being the period between the
commencement of the car hire and settlement of costs through the Third Party Insurer (“TPI”). The amount of revenue
recognised is the amount as agreed in writing between the parties prior to the service being provided in the hire rental
agreement.
Work in progress is only included in revenue to the extent that it is highly probable that the cumulative amount of
revenue recognised in respect of a contract at the end of a reporting period will not be subject to significant reversal
when a matter is concluded. 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’.
A receivable in relation to these services is recognised when a bill has been issued, as this is the point in time that the
consideration is unconditional because only the passage of time is required before the payment is due.
For car hire and repair services provided for not at fault clients, 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 and 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.
Medical Reports and Rehabilitation Services
Revenue from the provision of medical appointments and rehabilitation services is recognised at a point in time.
For medical appointments, the revenue is recognised when the medical report is received from the medical expert. The
amount of revenue recognised is based on the average fee per case calculated on a historic basis. This value remains
in work in progress until the medical report is issued to the Instructing Party (‘IP‘) at which point the sales invoice is
raised.
For rehabilitation services, the revenue is recognised when the course of treatment is completed and the final
assessment or discharge report is issued to the IP. The amount of revenue recognised is based on the average fee per
case calculated on a historic basis. This value remains in work in progress until the final assessment or discharge
report is issued to the IP at which point the sales invoice is raised.
A receivable in relation to these services is recognised when a bill has been issued, as this is the point in time that the
consideration is unconditional because only the passage of time is required before the payment is due.
Contract Costs
Applying the practical expedient in paragraph 94 of AASB 15, the Group recognises the incremental costs of obtaining
contracts as an expense when incurred.
Slater and Gordon Limited
Page 52
Slater and Gordon Limited 61
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.1.2 Disaggregation of Revenue from Contracts with Customers
The Group derives revenue from the transfer of goods and services over time and at a point in time, in the major
product lines of Personal Injury Law (“PIL”) and General Law (“GL”) and the geographical regions of Australia and the
UK:
Australia
PIL
$’000
GL
$’000
-
-
173,721
173,721
22,448
29,532
12,080
64,060
PIL
$’000
1,862
5,025
151,417
158,304
UK
GL
$’000
10,066
41,733
2,464
54,263
SGS
$’000
72,098
164,761
204,263
441,122
Total
$’000
106,474
241,051
543,945
891,470
-
-
201,935
201,935
21,765
27,923
8,150
57,838
1,819
10,330
160,839
172,988
4,567
43,281
1,937
49,785
21,065
-
13,834
34,899
49,216
81,534
386,695
517,445
Year ended 30 June
2016
Type of contract:
Fixed price
Time and Materials
No Win – No Fee
Revenue from contracts
with customers
Year ended 30 June 2015
(restated)
Type of contract:
Fixed price
Time and Materials
No Win – No Fee
Revenue from contracts
with customers
3.2
Expenses
3.2.1 Accounting Policies
Interest
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or
premium on settlement.
Depreciation
The depreciable amounts of all property, plant and equipment, excluding land, 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. Land is not depreciated.
The depreciation rates used for each class of assets are:
Class of Fixed Asset
Plant and equipment
Low value asset pool
Amortisation
Depreciation Rates
Depreciation Method
5.00 – 66.67%
18.75 – 37.50%
Straight Line and Diminishing Value
Diminishing Value
Amortisation is calculated using a straight-line method to allocate the cost of intangible assets over their estimated useful
lives. Amortisation commences when the intangible asset is available for use.
Software development costs 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 that have been assessed as having a finite useful life are
amortised over the useful life of 3 years.
Share Based Payments
The accounting policy for share based payments is included in Note 5.6.
Slater and Gordon Limited
Page 53
62 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.2.2 Expense Analysis by Nature
Finance costs expense
Interest and fees on bank overdraft and loans (includes costs of borrowing)
Interest on deferred consideration payable to vendor on acquisitions
Interest on obligations under hire purchases
Salaries and employee benefit expense
Wages and salaries
Post-employment benefits
Share based payments expense
Cost of sales
Ancillary revenue
Rendering of services – non-legal
Depreciation and Amortisation
Property, plant & equipment
Software development
Trademarks
Research costs expensed
3.3
Cash Flow Information
Reconciliation of profit for the period to cash flows from operating
activities
Profit after income tax
Non-cash flows in profit from ordinary activities
Notional interest on VCR share loans
Depreciation and amortisation
Goodwill impairment
Share based payment expenses
Accrual for payments to former owners
Notional interest on deferred consideration
Bad and doubtful debts
Deferred costs of borrowing
Gain from bargain purchase
Notional FX loss
Items shown in investing activities
Costs associated with acquisition
Proceeds from disposal of businesses
Changes in assets and liabilities
Increase in receivables
Increase in other assets
Decrease / (increase) in work in progress
(Decrease) / increase in payables
Decrease in income tax payable
Increase in net deferred tax
Increase in provisions
Cash flows from operating activities
Slater and Gordon Limited
2016
$’000
2015
$’000
Restated
8,739
1,941
530
42,548 11,210
41,293
623
632
398,747
16,290
1,257
416,294
147,806
22,491
170,297
8,195
4,489
5,059
17,743
249,148
12,169
2,031
263,348
14,493
2,169
16,662
4,442
1,807
3,696
9,945
255
-
2016
$’000
(1,017,595)
2015
$’000
Restated
62,374
(611)
17,743
879,506
15,957
18,529
623
39,342
10,850
-
2,808
(975)
9,945
-
13,537
13,933
1,942
11,585
217
(72,508)
-
738
(168)
23,662
-
(37,241)
(1,284)
40,486
(70,573)
(14,408)
4,801
6,253
(104,244)
(67,445)
(2,690)
(19,335)
37,726
(5,048)
22,524
11,318
40,762
Page 54
Slater and Gordon Limited 63
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.4
Income and Other Taxes
3.4.1 Accounting Policies
Income and other taxes consist of income tax, Goods and Services Tax and Value Added Tax.
Income Tax
Current income tax expense or benefit for the current and prior periods is measured at the amount expected to be
recovered from or paid to the tax authorities. 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.
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 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. 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.
Critical Accounting Estimates and Judgements
Deferred tax assets and liabilities are based on the assumption that no adverse change will occur in the income tax
legislation both in Australia 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.
Deferred tax assets are recognised only if management considers it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
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.
The major components of income tax expense are:
Consolidated statement of profit or loss
Current income tax (benefit)/expense
Adjustment for current tax relating to prior periods
Deferred income tax relating to the origination and reversal of temporary differences
Consolidated statement of OCI
Deferred tax credit arising on revaluation of cash flow hedges
Deferred tax charge arising on foreign exchange gain on revaluation of loans
Income tax recognised directly in equity
Current tax credit on share issue costs
2016
$’000
(9,482)
(12,167)
9,776
(11,873)
(144)
(310)
(454)
(26)
(26)
2015
$’000
Restated
11,981
(1,072)
12,125
23,034
(150)
5,190
5,040
(7)
(7)
Slater and Gordon Limited
Page 55
64 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.4.2
Income Tax Expense
Deferred income tax expense included in income tax expense
Decrease in deferred tax assets
Deferred income tax relating to items charged to OCI
Deferred income tax relating to items charged directly to equity
(Decrease)/increase in deferred tax liabilities
Recoup prior year losses and over/under on prior year losses
Net deferred taxes arising from changes in accounting standards
Net deferred taxes arising on business combinations
Exchange differences
2016
$’000
2015
$’000
Restated
41,505
454
26
(31,138)
-
-
-
(1,071)
9,776
(64,958)
(5,040)
7
41,084
(78)
2,839
36,162
2,109
12,125
The prima facie tax payable on profit before tax differs from the income tax expense
as follows:
Accounting (loss)/profit before tax
At the Australian statutory income tax rate of 30% (2015: 30%)
(1,029,468)
(308,840)
85,408
25,622
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 (benefit)/expense
3.4.3 Recognised Tax Assets and Liabilities
Current tax assets
Balance at the beginning of the year
Balance acquired per SGS acquisition
Tax (refunded)/paid
Adjustments in respect to prior periods
Exchange differences
Balance at the end of the year
Current tax liability
Balance at the beginning of the year
Balances arising from business acquisitions
Current income tax benefit/(expense)
Tax paid
Adjustments in respect of prior periods
Losses utilised
Exchange differences
Balance at the end of the year
212,724
(3,016)
175
74,116
12,968
-
-
(11,873)
8,520
(15,303)
(1,068)
883
4,273
(5)
112
23,034
2016
$’000
2015
$’000
Restated
34,636
-
(29,464)
9,215
2,416
16,803
(23,412)
-
9,482
6,289
2,937
(4,597)
-
-
29,041
5,595
-
-
34,636
(2,465)
(13,977)
(11,981)
6,049
(785)
-
(253)
(9,301)
(23,412)
Slater and Gordon Limited
Page 56
Slater and Gordon Limited 65
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.4.3 Recognised Tax Assets and Liabilities (continued)
Deferred tax assets
Provision for impairment
Employee benefits
Provision for legal costs
Accruals
Non-deducted business related costs
Fair value of cash flow hedges
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
Balance at the end of the year
Deferred tax liabilities
Prepayments
Work in progress
Unrendered disbursements
Intangibles/Goodwill
Foreign currency translation reserve
Other
Balance at the end of the year
3.4.4 Unrecognised Deferred Tax Assets
2016
$’000
3,521
6,931
552
2,788
144
521
326
-
1,577
26,811
3,554
-
46,725
2015
$’000
Restated
13,474
6,602
378
3,122
251
378
15,752
706
2,119
26,269
12,490
6,689
88,230
(629)
(77,987)
(12,156)
(17,179)
(6,424)
1,425
(917)
(110,575)
(15,036)
(9,779)
(7,276)
(505)
(112,950)
(144,088)
At 30 June 2016 the Group has unrecognised deferred tax assets of $53.6m mainly relating to unrecognised tax losses
as well as costs incurred for Trademarks and acquisition costs. No deferred tax has been recognised for these costs as
the Group does not plan to dispose of the relevant subsidiaries in the foreseeable future. A portion of the deferred tax
asset on tax losses carried forward is also unrecognised.
3.5
Dividends
Dividends paid during the year
Dividends on ordinary shares
No interim dividend paid for 2016 (2015: 3.50 cents, partially franked (40%))
Final dividend for 2015 partially franked (40%): 5.50 cents (2014: 5.00 cents, fully
franked )
Total dividends paid during the year
Dividends proposed and not recognised as a liability
Dividends on ordinary shares
No final dividend proposed for 2016 (2015: 5.50 cents, partially franked (40%))
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:
2016
$’000
2015
$’000
-
7,341
19,330
19,330
10,279
17,620
-
19,330
844
891
-
3,307
Slater and Gordon Limited
Page 57
66 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
3.6
(Loss)/Earnings per Share
The following reflects the income and share data used in the calculations of basic and diluted (loss)/earnings per share:
2016
$’000
2015
$’000
Restated
(Loss)/earnings used in calculating basic and diluted earnings per share
(1,017,306)
62,288
Weighted average number of ordinary shares used in calculating basic
(loss)/earnings per share (‘000’s)
Adjusted weighted average number of ordinary shares used in calculating diluted
(loss)/earnings per share (‘000’s)
351,907
234,842
352,085
236,522
Note 4: Assets and Liabilities
This section shows the assets used to generate the Group’s revenue and the liabilities incurred as a result. Liabilities
relating to the Group’s financing activities are disclosed in Section 5. Deferred tax assets and liabilities are disclosed in
note 3.4.
On the following pages there are notes covering intangible assets, working capital, work in progress, other non-current
assets, payables and provisions.
4.1
Intangible Assets
4.1.1 Accounting Policies
Goodwill
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount
recognised for non-controlling interests) and any previous interest held over the net 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.
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 and accumulated impairment losses.
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.
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, based on the Company’s long-term strategy for using the
asset, therefore no amortisation is applicable but they are tested annually for impairment or more frequently if events or
changes in circumstances indicate that they might be impaired.
Slater and Gordon Limited
Page 58
Slater and Gordon Limited 67
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.1
Intangible Assets (continued)
Gross Cost
Accumulated amortisation
At 30 June 2015 (restated)*
Gross Cost
Accumulated amortisation
Accumulated impairment loss
At 30 June 2016
Movement in carrying amounts
Balance at 1 July 2014
Additions
Additions through acquisition of entities
Reclassification from plant & equipment
Exchange differences
Amortisation expense
Disposals
Balance at 30 June 2015 (restated)*
Additions
Exchange differences
Amortisation expense
Impairment expense
Disposals
Balance at 30 June 2016
Goodwill
$’000
1,269,456
-
1,269,456
1,119,599
-
(786,731)
332,868
108,492
-
1,121,611
-
39,353
-
-
1,269,456
-
(57,082)
-
(879,506)
-
332,868
Software
Development
$’000
38,984
(19,908)
19,076
38,006
(20,597)
-
17,409
5,105
9,970
3,724
1,995
149
(1,807)
(60)
19,076
5,314
(2,437)
(4,489)
-
(55)
17,409
Trademarks &
Brand Names
$’000
60,173
(5,481)
54,692
53,452
(9,759)
-
43,693
10,058
-
46,578
-
1,752
(3,696)
-
54,692
-
(5,940)
(5,059)
-
-
43,693
Total
$’000
1,368,613
(25,389)
1,343,224
1,211,057
(30,356)
(786,731)
393,970
123,655
9,970
1,171,913
1,995
41,254
(5,503)
(60)
1,343,224
5,314
(65,459)
(9,548)
(879,506)
(55)
393,970
* Reflects adjustments made for finalisation of the accounting for acquired entities under AASB 3 Business Combinations.
4.1.2
Impairment Testing of Goodwill and Indefinite Life Intangible Assets
For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately
identifiable, largely independent cash inflows (cash generating units “CGU’s”). Goodwill and indefinite life intangible
assets are allocated to CGU’s according to applicable business operations as follows:
AUS
AUS
PIL
GL
UK
PIL
UK
GL
UK
SGS
Total
2016
Goodwill recognised ($’000)
Indefinite life intangibles ($’000)
5,637
57
-
-
43,788
1,715
-
-
283,443
41,921
332,868
43,693
2015 (restated)
Goodwill recognised ($’000)
47,499
13,939
Indefinite life intangibles ($’000)
57
-
50,843
1,956
9,574
1,147,601
1,269,456
-
47,823
49,836
Impairment testing is completed at least annually for goodwill, intangible assets not yet ready for use and indefinite life
intangible assets or more frequently if events or changes in circumstances indicate that the asset may be impaired.
An impairment loss is recognised where the carrying amount of the asset or CGU exceeds its recoverable amount. The
recoverable amount of an asset or CGU is defined as the higher of its fair value less costs of disposal and value-in-use.
Slater and Gordon Limited
Page 59
68 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.1.2
Impairment Testing of Goodwill and Indefinite Life Intangible Assets (continued)
Critical Accounting Estimates and Judgements
Determining whether goodwill is impaired requires an estimation of the value-in-use of the CGU’s to which goodwill has
been allocated. The value-in-use calculation requires management to estimate the future cash flows expected to arise
from the CGU and a post-tax discount rate that reflects the current market assessments of the time value of money and
the risks specific to the asset in order to calculate present value. Where the actual future cash flows are less than
expected, a material impairment loss may arise.
4.1.3
Impairment Losses Recognised
The Group considered the relationship between its market capitalisation and the book value of its equity, among other
factors, when reviewing for indicators of impairment. As at 31 December 2015, the market capitalisation of the Group
was below the book value of its equity, indicating a potential impairment of goodwill and other assets. In addition, the
performance of the UK business had not been in line with the Directors’ expectations and internal forecasts and there
was an indication that the business would be adversely impacted by changes in the UK regulatory environment in
relation to the proposals from the Autumn 2015 Chancellor’s statement. Furthermore, the Australian General Law (“GL”)
business and, in some states, the Australian Personal Injury Law (“PIL”) businesses had not met acquisition targets.
As a result, management performed an impairment test as at 31 December 2015 for all CGUs. The impairment test was
based on value-in-use methodology.
A further assessment was performed as to whether there were any indicators of impairment in relation to the CGUs in
accordance with AASB 136. The NSW Government announced proposals to change the circumstances in which a
person injured in a car accident may claim compensation. If the proposals succeed any impact is not likely to occur until
2019/2020. Notwithstanding the uncertainty of the impact of the proposals, management have impaired the remaining
NSW PI goodwill balance of $3.1m at 30 June 2016.
Given the level of impairment taken in the UK business as at 31 December 2015 and the continued potential impact from
regulatory change as a result of the Autumn 2015 Chancellor’s statement, and the added impact of the “Brexit” vote in
July 2016, management performed an impairment test as at 30 June 2016 for the UK CGUs. The impairment test was
based on value-in-use methodology. The result of that impairment testing was that no further impairment was identified
for the UK CGUs to that recognised at 31 December 2015.
The following CGUs were impaired during the year ended 30 June 2016:
CGU
Slater & Gordon Solutions (SGS)
UK – GL
Australia – PIL NSW, QLD and WA
Australia – GL
Impairment loss
$’000
Recoverable amount
$’000
814,245
9,458
41,864
13,939
504,561
45,207
101,676
19,565
At 30 June 2015, goodwill for Australia was tested at the operating segment level, being GL and PIL. At 31 December
2015 and 30 June 2016 goodwill for PIL was tested for impairment at a more disaggregated state level.
4.1.4 Key Assumptions used in value-in-use calculations and sensitivity to changes in Assumptions
Discount rates used in the calculation of value-in-use at 30 June 2016
Australian CGUs
A post-tax discount rate of 9.25% (30 June 2015: 9.25%) was used for all Australian CGUs.
United Kingdom CGUs
A post-tax discount rate of 9.25% was used for each of the 3 UK CGUs (30 June 2015: 10.45% for SGS and 9.25% for
UK PIL and UK GL). The discount rate for SGS was assessed at a higher rate at 30 June 2015 due to the recent
acquisition of SGS by the Group at that date and the inherent risk that new acquisitions carry with them, as well as the
risk characteristics of the forecast cash flows. For the current year a risk adjustment and updated assumptions have
been included in the cash flow to reflect uncertainty in the UK legal market rather than adjusting the discount rate.
Slater and Gordon Limited
Page 60
Slater and Gordon Limited 69
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.1.4 Key Assumptions used in value-in-use calculations and sensitivity to changes in Assumptions
(continued)
Cash Flow Forecasts used in the calculation of Value-in-Use
Value-in-use was calculated using approved forecasts covering a period of five years for each of the individual CGU’s.
The average growth rates used in the value-in-use calculation for the next five years range between -6.5% and 4.6%.
The negative rates relate to the impact of the UK Autumn 2015 Chancellor’s statement (referred to below) in the Slater
and Gordon Solutions (SGS) CGU. Cash flows beyond five years were subject to a terminal growth rate of 2.5% for all
CGUs (30 June 2015: 3.0%).
Key assumptions underlying cash flow forecasts were:
For each of the CGUs, performance in the financial year ending 30 June 2017 was based upon the Board approved
budget.
Australia – GL
The cash flow forecasts used in the impairment test showed operating cash outflows in all periods covered by the five
year model. Accordingly, management fully impaired the goodwill of $13.9m in the Australian GL CGU.
Australia – PIL
Value-in-use was calculated separately for the PIL business in each state. The cash flow forecasts in New South Wales
(“NSW”) and Queensland reflect the impact of regulatory change to workers’ compensation. In other states the forecasts
assumed an average growth consistent with growth rates experienced over the last three years in the five year forecast
period. The value-in-use calculation resulted in impairment losses in Queensland, New South Wales and Western
Australia as at 31 December 2015 which were recorded in the 31 December 2015 financial report. As at 30 June 2016
the recoverable amounts for each of these CGUs, with the exception of NSW, exceeded the carrying amounts and there
are no reasonably possible changes that could cause the recoverable amounts to be less than the carrying amounts. An
impairment of $3.1m was recorded in relation to goodwill allocated to the NSW CGU at 30 June 2016.
The remaining aggregate carrying amount of goodwill in the Australian PIL CGUs after impairment is $5.6m.
United Kingdom Businesses
The proposals from the Autumn 2015 Chancellor’s statement announced in November 2015 are expected to affect
personal injury claims below £5,000. The cash flow forecasts for the UK businesses assume that the proposed reforms
will be implemented as announced and will affect forecast fees beginning from July 2018. The forecasts assume that
fees on claims below the £5,000 threshold will be significantly impacted, with a proportionate reduction in direct operating
costs. Management’s estimate of the impact is based on the current proportion of total fees that represent claims below
the threshold. Management expects that the UK businesses will be able to take advantage of other opportunities
following these proposed reforms, however given the inherent uncertainty regarding any such opportunities they have not
yet been reflected in the cash flow forecasts.
The cash flow forecasts assume a steady state for practice areas that are not affected by the proposed reforms in the
five year forecast period.
Sensitivity
Increases in the discount rate in the impairment analysis of the SGL PI CGU from 9.25% to 13.5% or a reduction in the
cash flows of the CGU by 50% in the terminal year would result in the recoverable amount to be less than the carrying
amount.
Increases in the discount rate in the impairment analysis of the SGS CGU from 9.25% to 10.5%, or a reduction in the
cash flows of the CGU by 15% in the terminal year would result in the recoverable amount to be less than the carrying
amount.
4.2
Receivables
4.2.1 Accounting Policies
Collectability of trade debtors is reviewed at each reporting period. Management considers whether further impairment of
debtors is required based on the aging profile and use calculated historical rates of recovery to determine the required
impairment. Debts that are known to be uncollectible are written off when identified.
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.
Slater and Gordon Limited
Page 61
70 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.2
Receivables (continued)
Current
Trade debtors
Impairment of trade debtors
Disbursements
Allowance for non-recovery
Other receivables
Non-current
Disbursements
Allowance for non-recovery
Impairment of receivables
Balance at beginning of the year
Receivables written off as uncollectible
Provision for impairment recognised, including balances from business
acquisitions
Provision for discount
Foreign exchange translation differences
Balance at end of the year
4.3 Work in Progress
4.3.1 Accounting Policies
2016
$’000
299,502
(92,824)
206,678
340,605
(20,035)
320,570
2015
$’000
Restated
371,138
(104,327)
266,811
346,257
(47,514)
298,743
1,667
8,741
528,915
574,295
88,991
(80,138)
8,853
78,547
(46,803)
31,744
(104,327)
835
(9,059)
7,856
11,871
(8,690)
2,980
(94,434)
-
(4,183)
(92,824)
(104,327)
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. Refer to
note 3.1 for further details.
Contracts for legal services are billed based on time incurred. As permitted under AASB 15, the transaction price
allocated to the unsatisfied or partially unsatisfied performance obligations under these contracts has not been disclosed.
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.
Current
Non-personal injury
Personal injury
Project litigation
Non-current
Non-personal injury
Personal injury
Project litigation
2016
$’000
17,493
333,792
10,613
361,898
-
224,174
1,461
225,635
2015
$’000
Restated
21,421
429,225
4,121
454,767
718
218,575
2,634
221,927
Work in progress has decreased during the year ended 30 June 2016 by $89.2m. Of this decrease $41.3m is largely due
to a decline in case volumes in the Australian and UK PIL practice and the resolution of acquired work in progress during
the period. The remaining decrease is as a result of the decline in the GBP foreign exchange rate during the year.
Slater and Gordon Limited
Page 62
Slater and Gordon Limited 71
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.4
Property, Plant and Equipment
4.4.1 Accounting Policies
Property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment
losses.
An asset’s residual value and useful life is reviewed, and adjusted if appropriate, at the end of each reporting period. Any
depreciation and impairment losses of an asset 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 when the asset is derecognised.
Gross Cost
Less accumulated depreciation
At 30 June 2015 (restated)
Gross Cost
Less accumulated depreciation
At 30 June 2016
Movement in carrying amounts
Balance at 1 July 2014
Additions
Additions through acquisition of entities
Reclassification of plant & equipment
Exchange differences
Depreciation expense
Disposals
Balance at 30 June 2015
Additions
Reclassification of plant & equipment
Exchange differences
Depreciation expense
Disposals
Balance at 30 June 2016
Plant &
Equipment
$’000
Land &
Buildings
$’000
Low Value
Asset Pool
$’000
74,350
(43,514)
30,836
77,345
(45,173)
32,172
12,450
16,823
7,389
(2,140)
581
(4,153)
(114)
30,836
12,443
(40)
(2,478)
(7,825)
(764)
32,172
302
-
302
265
-
265
-
-
157
145
-
-
-
302
-
-
(37)
-
-
265
2,442
(1,621)
821
2,877
(2,107)
770
514
515
81
-
-
(289)
-
821
300
40
(21)
(370)
-
770
Total
$’000
77,094
(45,135)
31,959
80,487
(47,280)
33,207
12,964
17,338
7,627
(1,995)
581
(4,442)
(114)
31,959
12,743
-
(2,536)
(8,195)
(764)
33,207
The carrying amount of plant and equipment under finance lease included above amounted to $6,784,000 (30 June
2015: $6,493,000).
4.5
Payables
4.5.1 Accounting Policies
Trade creditors and accruals are carried at amortised cost and represent liabilities for goods and services provided to the
Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future
payments in respect of the purchase of these goods and services.
Legal creditors are carried at cost and represent liabilities in relation to disbursements where there is an agreement with
the vendor that payment will not be made by the Group until the Group has received payment from any settlement
proceeds on the matter.
Vendor liabilities are carried at net present value and refer to deferred consideration payable to vendors in relation to
previous acquisitions.
Slater and Gordon Limited
Page 63
72 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.5
Payables (continued)
Current
Unsecured liabilities
Trade creditors and accruals
Legal creditors
Vendor liabilities - acquisitions
Non-current
Unsecured liabilities
Vendor liabilities - acquisitions
4.6
Provisions
4.6.1 Accounting Policies
2016
$’000
173,672
287,655
2,243
463,570
2015
$’000
Restated
257,164
336,588
18,918
612,670
510
3,121
Non-employee 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.
Solicitor Liability Claims – Critical Accounting Estimates and Judgements
A provision for solicitor liability claims is made for the potential future cost of claims brought against the Group by former
clients. The provision relates to open claims and potential future claims as identified at the end of the reporting period.
The provision is determined based on historical data, taking into account the nature of the existing claim, expected
reimbursed expense and includes the estimated maximum amount payable by the Group under its Professional
Indemnity Insurance Policy on all claims notified to its insurer.
Employee Benefits
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. Liabilities arising 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.
A bonus provision is recognised when it is payable in accordance with the employee’s contract of employment and the
amount can be reliably measured.
A provision for termination benefits is recognised 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.
Employee benefit obligations are presented as current liabilities 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.
Onerous Contracts
An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it. The unavoidable costs are the lower of the cost of fulfilling the
contract and any compensation or penalties arising from failure to fulfil the contract. The economic benefits expected to
be received include direct and indirect benefits under the contract and contractual and non-contractual benefits.
A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the
contract and the expected net cost of continuing with the contract. Before a provision is established, the Group
recognises any impairment loss on the assets associated with that contract.
Slater and Gordon Limited
Page 64
Slater and Gordon Limited 73
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.6
Provisions (continued)
Current
Employee benefits
Solicitor liability claims
Provision for onerous contracts
Provision for payments to former owners
Non-current
Employee benefits
Provision for onerous contacts
Other non-current provisions
4.7
Fair Value Measurements
4.7.1 Accounting Policies
Critical Accounting Estimates and Judgements
2016
$’000
19,700
9,158
4,160
19,437
52,455
3,404
3,804
7,829
15,037
2015
$’000
Restated
18,641
6,067
2,467
11,142
38,317
3,366
3,978
9,930
17,274
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.
4.7.2 Fair Value Hierarchy
30 June 2016
Recurring fair value measurements
Financial liabilities
Derivative financial instruments – interest rate swaps
Contingent consideration *
30 June 2015
Recurring fair value measurements
Financial liabilities
Derivative financial instruments – interest rate swaps
Contingent consideration *
* Included in Vendor Liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
2,841
-
2,841
-
2,977
2,977
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
1,621
-
1,621
-
6,090
6,090
Total
$’000
2,841
2,977
5,818
Total
$’000
1,621
6,090
7,711
4.7.3 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% (30 June 2015: 9%) used to determine the present
value the future cash flows.
Slater and Gordon Limited
Page 65
74 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
4.7.4 Reconciliation of recurring Level 3 Fair Value Movements
Opening balance
Acquisitions
Payments relating to contingent consideration
Adjustment to contingent consideration
Interest
Exchange differences
Closing balance
2016
$’000
6,090
-
(3,455)
-
342
-
2,977
2015
$’000
Restated
7,927
4,185
(1,865)
(4,983)
378
448
6,090
There has been no change in the range of undiscounted contingent consideration outcomes during the year. 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.
Note 5: Capital Structure and Financing
This section outlines how the Group manages its capital structure and related financing costs, including its balance sheet
liquidity and access to capital markets.
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.
5.1
Cash and Cash Equivalents
5.1.1 Accounting Policies
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. 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.
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.
5.2
Financing Arrangements
5.2.1 Accounting Policies
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.
5.2.2 Financing Arrangements
The Group has net assets of $305.1m, which have decreased by $1,045.1m since 30 June 2015 primarily due to a non-
cash impairment charge of $879.5m and the adoption of AASB 15. The Group has net current assets of $477.9m (30
June 2015: $498.0m).
The Group entered into a multi-currency (AUD/GBP) Syndicated Facility Agreement (“SFA”) in May 2015. This facility
was amended in May 2016 with the following structure and maturity profile (these facilities will be referred to
subsequently as ‘bills of exchange’):
• a GBP 157,500,000 term loan facility. This facility expires on 29 May 2018 and interest is charged on the loans at
LIBOR plus an agreed margin;
• a GBP 157,500,000 term loan facility. This facility expires on 31 March 2019 and interest is charged on the loans at
LIBOR plus an agreed margin;
• a GBP 60,000,000 term loan facility, bank guarantee facility and/or letter of credit. This facility expires on 29 May
2018 and interest is charged on the loans at LIBOR plus an agreed margin;
• an AUD 45,000,000 term loan facility. This facility expires on 29 May 2018 and interest is charged on the loans at
BBSY Bid plus an agreed margin; and
• an AUD 45,000,000 term loan facility. This facility expires on 31 March 2019 and interest is charged on the loans at
BBSY Bid plus an agreed margin.
Slater and Gordon Limited
Page 66
Slater and Gordon Limited 75
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.2.2
Financing Arrangements (continued)
The key terms under the amended SFA are substantially unchanged to those under the original facility, however, as the
discounted present value of the cash flows under the amended SFA are greater than 10% different to the discounted
present value of the remaining cash flows under the original facility, the amended SFA is treated as an extinguishment of
the old facility and the recognition of a new financial liability under AASB 139. As a result, the remaining amendment fee
of $9.2m that was being carried on the balance sheet on 1 July 2015 under the original facility was amortised to the
Statement of Comprehensive Income in full during the year ended 30 June 2016. The amendment fee of $4.2m paid in
relation to the amended SFA is currently on the balance sheet and being amortised to the income statement over the
earliest maturity date of the facility.
Under the amended SFA, the Company is also required to pay a deferred fee to the lenders in the form of cash or
warrants, at the irrevocable election of the lenders. The costs associated with this deferred restructure fee totalling
$17.8m have been treated as transaction costs relating to the underlying borrowing and are being amortised to the
income statement over the term of the facility. Refer to note 5.6.5 for further details on how this deferred fee has been
accounted for.
The Group has drawings of $765.6m (30 June 2015: $710.9m) under the SFA, against limits of $765.6m at 30 June
2016. The Group has cash on hand of $82.5m (30 June 2015: $97.0m), other borrowings of $8.5m (30 June 2015:
$9.4m), offset by deferred debt raising costs of $9.6m (30 June 2015: $9.2m) resulting in net debt of $682.3m (30 June
2015: $614.1m) and available liquidity of $88.3m (30 June 2015: $253.5m). The Group’s net debt position has increased
since 30 June 2015 by $68.2m, reflecting underlying cash requirements in the business.
The bills of exchange and bank guarantee facility/letter of credit have been used to fund business acquisitions, to meet
the day to day working capital requirements and for general corporate purposes. They are secured by a fixed and floating
charge over the assets of the Group.
As at 30 June 2016 the Group remains in compliance with all its undertakings under the SFA.
The Directors are of the view that the Group will continue to comply with the obligations under the SFA. The Group has
further initiated a comprehensive review including an assessment of revised financial forecasts, and the implementation
of performance improvement programmes with the aim of improving the profitability of the business and reducing the
level of drawn debt.
5.2.3 Summary of Borrowing Arrangements
At reporting date, the following banking facilities had been executed and were available.
Total banking facilities
Bank overdrafts
Bills of exchange
Other sundry facilities
Total credit facilities
Facilities utilised
Current
Bills of exchange
Finance lease liability
Non-current
Bills of exchange
Debt raising costs under the SFA facility(1)
Finance lease liability
2016
$’000
5,799
765,893
10,000
781,692
280
3,362
3,642
765,613
(9,567)
5,092
761,138
2015
$’000
7,053
859,688
12,736
879,477
447
3,306
3,753
710,477
(9,246)
6,123
707,354
(1) Comprises the unamortised value of borrowing costs on establishment of $3.7m (30 June 2015: $9.2m) and refinance of net debt
facilities of $5.9m. These costs are deferred on the balance sheet and amortised to the Statement of Comprehensive Income (in
Finance Costs) over the earliest maturity date of the facility.
A portion of the bills of exchange is the subject of interest rate swaps to hedge the risk of an adverse interest rate
movement. Refer to Note 5.4 for more details.
Bank overdraft facilities are arranged with Westpac Banking Corporation and Royal Bank of Scotland (National
Westminster Bank) with the general terms and conditions being set and agreed to annually. The current facilities are
$4.0m and £1.0m respectively (30 June 2015: $5.0m and £1.0m). Interest rates on the bank overdrafts are charged at
variable rates plus an agreed margin, subject to adjustment.
Slater and Gordon Limited
Page 67
76 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.3 Leasing
5.3.1 Accounting Policies
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the
inception of the lease and requires an assessment of whether the fulfilment of the arrangement is dependent on the use
of a specific asset or assets and the arrangement conveys a right to use the asset, even if the right is not explicitly
specified in the arrangement. The lease is classified at the inception date as a finance lease or an operating lease.
Finance Leases
A lease that transfers substantially all of the risks and rewards incidental to ownership to the Group is classified as a
finance lease.
Finance leases are capitalised at the commencement of the lease, the inception date fair value of the leased property or,
if lower, the present value of the minimum lease payments. Lease payments are apportioned between finance charges
and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are recognised as finance costs in the statement of profit or loss and other comprehensive income.
Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely the Group will
obtain ownership of the asset, or if not, over the shorter of the estimated useful life of the asset and the term of the lease.
The Group leases a certain number of its fixed assets under finance leases. The lease terms range from 3 to 10 years
(30 June 2015: 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 3.96% to 9.25%
(30 June 2015: 3.2% to 9.25%) per annum.
Future minimum rentals payable under finance leases as at 30 June are, as follows:
2016
$’000
Present
value of
payments
Minimum
payments Interest
Minimum
payments
Interest
3,808
5,536
-
9,344
(446)
(444)
-
(890)
3,362
5,092
-
3,784
6,778
-
(478)
(655)
-
8,454
10,562
(1,133)
2015
$’000
Present
value of
payments
3,306
6,123
-
9,429
Within one year
One year or later and not later than five years
Greater than five years
Operating Leases
An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating
expense in the statement of profit or loss and other 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.
Commitments and contingencies are disclosed net of the amount of GST/VAT recoverable from, or payable to, the
relevant taxation authority.
Future minimum rentals payable under non-cancellable operating leases as at 30 June are, as follows:
Within one year
One year or later and not later than five years
Greater than five years
5.4
Financial Risk Management
5.4.1 Accounting Policies
2016
$’000
33,731
80,470
52,632
2015
$’000
31,223
76,894
65,007
166,833
173,124
The Group’s principal financial instruments comprise cash and cash equivalents, loans and receivables, trade payables
and loans. The classification of financial instruments depends on the purpose for which the instruments were acquired.
Management determines the classification of its financial instruments at initial recognition.
Slater and Gordon Limited
Page 68
Slater and Gordon Limited 77
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.4
Financial Risk Management (continued)
5.4.1 Accounting Policies (continued)
Financial Assets
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.
Financial assets are tested for impairment at each financial year end to establish whether there is any objective evidence
of impairment.
For loans and receivables 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.
Non-Derivative Financial Liabilities
Non-derivative 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, net of directly attributable
transaction costs less principal payments and amortisation using the effective interest rate method.
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 or 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 hedges); 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 cash flow hedged items, are also
documented.
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 other comprehensive income in the hedge reserve which forms part of equity. The gain or loss relating to
the ineffective portion is recognised immediately in the consolidated statement of profit or loss and other comprehensive
income.
Amounts accumulated in the hedge reserve in equity are transferred to profit or loss in the periods when the hedged item
will affect profit or loss.
5.4.2
Interest Rate Risk
The Group's exposure to interest rate risk 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:
Variable interest rate
Fixed interest rate
2016
$’000
2015
$’000
2016
$’000
2015
$’000
Total
2016
$’000
2015
$’000
82,494
82,494
96,985
96,985
7,490
-
675,913
683,403
10,985
-
614,610
625,595
-
-
-
8,454
89,980
98,434
-
-
82,494
82,494
96,985
96,985
-
9,429
96,314
105,743
7,490
8,454
765,893
781,837
10,985
9,429
710,924
731,338
Page 69
Financial assets
Cash
Total financial assets
Financial liabilities
Other current liabilities
Finance lease liability
Bills of exchange
Total financial liabilities
Slater and Gordon Limited
78 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.4.2
Interest Rate Risk (continued)
Interest rate swap transactions are entered into by the Group to exchange variable interest payment obligations to fixed,
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 12% (30 June 2015: 14%) of the Group’s outstanding
borrowings on the SFA at 30 June 2016. 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 to 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:
Maturity of notional amounts
Effective average fixed interest
rate payable
Notional principal value
0 to 2 years
2 to 5 years
2016
2.06%
2.47%
2015
2.23%
2.27%
2016
$’000
2015
$’000
27,992 35,534
61,988 60,780
89,980
96,314
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.
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 would be as follows:
+/- 100 basis points:
Impact on profit after tax
Impact on equity
2016
$’000
-
2,121
2015
$’000
-
3,098
As borrowings are measured at amortised cost and not fair value, any movement in interest rates does not impact the
carrying value of those borrowings but would impact their related interest charges.
5.4.3 Foreign Exchange Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Group’s exposure to foreign currency risk relates primarily to the Group’s
operating activities (when revenue or expense is denominated in a different currency from the Group’s presentation
currency), and the Group’s net investments in foreign subsidiaries (“translational risk”).
Translational risk relating to the acquisition of United Kingdom subsidiaries is partially hedged on an economic basis
through borrowings of those United Kingdom subsidiaries also 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 the transactional and translational foreign currency
exposures in relation to its UK subsidiaries. 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 in the foreign
currency translation reserve which forms part of equity. Refer to Note 1.5.
The Group has no other significant exposures to foreign exchange risk.
5.4.4 Credit Risk
Credit risk arises from the financial assets of the Group. The main exposure to credit risk in the Group is represented by
receivables (debtors and disbursements) owing to the Group. The Group’s exposure to credit risk arises from potential
default of the counterparty, with a maximum exposure equal to the carrying amount of those assets as disclosed in the
statement of financial position and notes to the financial statements.
The Group held cash and cash equivalents of $82.5m at 30 June 2016 (30 June 2015: $97.0m). The credit risk
associated with cash and cash equivalents is considered as minimal as the cash and cash equivalents are held with
reputable financial institutions in Australia and the UK.
Slater and Gordon Limited
Page 70
Slater and Gordon Limited 79
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.4.4 Credit Risk (continued)
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 policyholders’ 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.
Receivables
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. 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.
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.
5.4.5 Liquidity Risk
The Group’s objective is to maintain a balance between the continuity of funding and flexibility through the use of
operating cash flows and committed available credit facilities. The Group actively reviews its funding position to ensure
the available facilities are adequate to meet its current and anticipated needs.
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 3.3 Cash Flow Information, for further information on the
historical cash flows. Further information in relation to bank facilities available and utilised are outlined in Note 5.2
Financing arrangements.
KPIs are set for practitioners relating to budgeted fee events, which are closely monitored by senior management.
Maturity Analysis
The table below represents the estimated and undiscounted contractual settlement terms for financial instruments and
management’s expectation for settlement of undiscounted maturities.
Slater and Gordon Limited
Page 71
80 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.4.5 Liquidity Risk (continued)
2016
Non-derivative financial liabilities
Payables
Borrowings
Other current liabilities
Financial liability maturities
2015 (restated)
Non-derivative financial liabilities
Payables
Borrowings
Other current liabilities
Financial liability maturities
< 12 Months
$’000
1-5 years
$’000
Total contractual
cash flows
$’000
463,570
43,736
7,490
514,796
612,670
19,034
10,985
642,689
510
841,326
-
841,836
3,121
768,478
-
771,599
Carrying
amount
$’000
464,080
764,780
7,490
1,236,350
464,080
885,062
7,490
1,356,632
615,791
787,512
10,985
615,791
711,107
10,985
1,414,288
1,337,883
Refer to Note 5.4.2 for the maturity analysis of interest rate swaps.
5.4.6 Fair Value Risk
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 except as set out in Note 4.7.2.
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.
5.5
Contributed Equity
Ordinary shares fully paid
VCR Shares
2016
Shares
2016
$’000
2015
Shares
2015
$’000
352,377,933
-
1,116,573
(525)
350,719,894
833,334
1,097,928
417
Balance at the end of the year
352,377,933
1,116,048
351,553,228
1,098,345
Movement in Ordinary Share Capital
350,719,894
Balance at the beginning of the year
1,097,928
204,338,625
214,514
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
• Reversal of capital raising costs, net of tax
Balance at the end of the year
-
-
4,873,700
728,334
786,949
142,756
-
-
-
352,377,933
1,399
2,270
401
-
11,808
2,767
1,116,573
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
*The Group made two Entitlement Offers during the previous 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.
Ordinary Shares
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.
During 2016, the company paid a dividend of $19,330,000 (30 June 2015: $17,620,000).
Slater and Gordon Limited
Page 72
Slater and Gordon Limited 81
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.5
Contributed Equity (continued)
VCR Shares
All VCR shares have vested (728,334 VCR shares) or been redeemed (105,000 VCR shares) in the current year. As at
30 June 2016 there were nil VCR shares on issue (30 June 2015: 833,334 VCR shares). Please refer to Note 5.6 for
discussion on the rights attached to VCR shares.
5.6
Share-Based Payment Arrangements
5.6.1 Accounting Policies
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. 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.
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.
5.6.2 Employee Equity Incentive Plan (“EIP”)
For cash-settled share-based payment transactions, the liability needs to be remeasured at the end of each reporting
period up to the date of settlement, with any changes in fair value recognised in the profit or loss. This requires a
reassessment of the estimates used at the end of each reporting period.
The Group introduced a broad based equity incentive plan which was approved by the Shareholders at the 2014 Annual
General Meeting (“AGM”).
(i).
Exempt Share Save Scheme (“SSS”)
In 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 are entitled to participate in this Plan. Shares acquired under this
Plan are subject to a holding period of 3 years. In the year ended 30 June 2016, 142,756 shares were issued under this
scheme (30 June 2015: 65,688 shares).
(ii).
Share Incentive Plan (“SIP”)
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 are entitled to
participate in this Plan. Shares acquired under this plan are held in trust by MM&K Share Plan Trustee Ltd for a period of
5 years from the date of acquisition. There was no issue of shares under this plan in the current year ended 30 June
2016 (30 June 2015: 85,980 shares).
(iii). Executive Equity Incentive Scheme (“EEIS”)
The plan introduces an ownership-based compensation scheme for executives and senior employees.
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
TSR against the TSR of the constituent companies within the S&P/ASX200 (30 June 2015:S&P/ASX 300) index
(excluding resources) over the Measurement Period.
Slater and Gordon Limited
Page 73
82 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.6.2 Employee Equity Incentive Plan (“EIP”) (continued)
• 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.
Any performance rights not vested at the end of the performance period are forfeited.
FY16 EEIS Offer
An offer for 547,128 rights was made to Executives in November 2015, and was accepted by those invited to participate.
The granting of the performance rights was, however, placed on hold and the plan for FY16 was subsequently cancelled.
Under AASB 2, cancellation of performance rights results in an acceleration of vesting and therefore the full fair value of
the performance rights of $63,412 was recognised as a share based payment expense in profit or loss in the year ended
30 June 2016.
FY15 EEIS Offer and Grant
In late 2014, an offer for performance rights was made and accepted by Executives invited to participate, resulting in
496,000 rights being granted to Executives.
The performance conditions applying to the FY15 grant 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%
The fair value of services received in return for the performance rights granted is calculated 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 and is measured at 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
and Non-Directors in
Australia (31 October 2014)
Group Executives in the UK
(12 December 2014)
Regional Executives in
Australia (31 October 2014)
Regional Executives in the
UK (12 December 2014)
Performance
rights
granted
124,000
Fair value of
rights at
Grant date
2.4643
44,000
2.4799
176,000
6.1608
152,000
6.1997
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
* All performance rights include 3 years’ service condition from grant date.
Slater and Gordon Limited
Page 74
Slater and Gordon Limited 83
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.6.2 Employee Equity Incentive Plan (“EIP”) (continued)
Total number of rights granted under both the FY15 and FY16 plan:
Grant date
Balance at
beginning
of the year
31 October 2014
12 December 2014
18 December 2015
300,000
196,000
-
Granted
during the
year
-
-
547,128 (1)
Vested
during
the
year
-
-
-
Forfeited
during
the year
Cancelled
during
the year
Balance at
end of the
year
Exercisable
at end of
the year
(16,000)
(68,000)
-
-
-
(547,128)
284,000
128,000
-
-
-
-
(1) Performance rights were offered, accepted but not granted as the plan was subsequently cancelled.
Share-based payment expenses recognised in profit or loss are disclosed in Note 3.2.
5.6.3 Employee Ownership Plan (“EOP”)
The EOP has been replaced by the EIP (refer 5.6.2 above) and is therefore currently in run-off. No new shares have
been issued under the EOP during the year ended 30 June 2016.
The EOP provided for the issue of VCR shares to participants in a number of tranches and for the Company to make a
full recourse loan to participants equal to the total amount that is to be subscribed.
The loan is secured by the VCR shares or the converted VCR shares. The offer made by the Board specified the date by
which the loan must be repaid.
Vesting, Redemptions and Conversion
Vesting conditions were set by the Board and related to the performance of the participant and the performance of the
Company. Cessation of employment with the Group resulted in the forfeiture of that participant’s VCR shares. The Board
has the power to specify other forfeiture events.
Where vesting conditions were not met or a forfeiture event occurred, the Company had 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 were satisfied, and no forfeiture event had occurred, each tranche of VCR shares vested, and
then automatically converted to ordinary shares on a one for one basis, on the relevant vesting date.
All remaining VCR shares were either redeemed or vested and converted to ordinary shares during the current year,
resulting in nil VCR shares as at 30 June 2016.
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.
Slater and Gordon Limited
Page 75
84 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.6.3 Employee Ownership Plan (“EOP”) (continued)
Profile of Vesting, Conversion and Redemption of VCR Shares to Ordinary Shares
The profile of the conversion of VCR shares relating to the issued VCR shares in February 2011, December 2011,
December 2012 and February 2013 into ordinary shares (subject to disposal restrictions) based on the shares issued
under the EOP as at 30 June 2016:
VCR shares which have (or may) vest as ordinary
shares
VCR shares which may convert to ordinary
shares but are subject to disposal restrictions
Accounting Recognition
Vested
’000
5,683
3,719
1 year or
less
’000
1 to 5
years
’000
More than
5 years
’000
-
-
-
1,964
-
-
Total
’000
5,683
5,683
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 or 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 2018 (1)
2,390,000
$1.79
8.5%
1 July 2015 to
1 July 2018 (1)
20 December 2012
and
25 February 2013
2,425,000
$1.95
8.5%
1 July 2016 to
1 July 2018 (1)
(1) During the year, the Board extended the final repayment date for each remaining tranche to 30 June 2018.
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 3.2.
5.6.4 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 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 profit or loss and other
comprehensive income.
5.6.5 Share Based Payment Arrangements under the Syndicated Facility Agreement (“SFA”)
As mentioned in note 5.2.1, in May 2016, the terms of the multicurrency SFA were revised. Under the revised terms, the
company is required to pay a deferred restructure fee to its lenders on refinancing or maturity of the debt in the form of
cash or warrants, at the irrevocable option of the lender. As reported to the market on 6 June 2016, 58.4% of lenders
elected to be paid in cash whilst 41.6% have elected to be paid in warrants. The warrants provide for a placement of
shares of up to 15% of any uplift in the market capitalisation of the Company from the effective date of the SFA
amendment to such refinancing or maturity.
Slater and Gordon Limited
Page 76
Slater and Gordon Limited 85
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
5.6.5 Share Based Payment Arrangements under the Syndicated Facility Agreement (“SFA”) (continued)
The deferred restructure fee was accounted for as a compound share-based payment within the scope of AASB 2,
including a debt and equity component. The total value of the restructure fee was measured directly, with reference to
the fair value of the debt establishment services, being $17.8m. This was determined by proxy as the present value of
the cash settlement option which amounted to $20.2m, therefore the initial liability was recognised at $17.8m and the
residual equity component was initially measured at nil. The costs associated with this deferred restructure fee have
been treated as transaction costs relating to the underlying borrowing and are being amortised to the income statement
over the term of the facility. Refer note 5.2.2 for more information.
Partial settlement of the deferred restructure fee liability occurred in June 2016 when 41.6% of the lenders elected to
take the warrant payment option. This resulted in a reclassification from liability to share based payment reserve in
equity of $7.4m with no gain or loss recognised on reclassification. Despite not being due until at least 29 May 2018, the
warrants vested immediately, as there are no conditions attached to the exercise of the warrants. This equity component
is not remeasured after vesting and no gain or loss will be recognised when the share capital is issued on settlement.
Upon settlement and issuance of shares, the equity amount will be transferred to contributed capital.
The remaining cash payment restructure fee is treated as a cash-settled share-based payment and is remeasured to fair
value at each reporting date up until settlement, with gains and losses recognised in profit or loss. Gains and losses on
remeasurement of $0.1m are presented within finance costs for the year ended 30 June 2016. The liability recognised for
the remaining cash component as at 30 June 2016 is $10.5m and is presented included in the net long term borrowings
amounts as detailed in Note 5.2.3.
Note 6: Other Notes
6.1
Related Party Disclosures
6.1.1 Equity Interests in Related Parties
The table below lists the primary operating controlled entities of the Group. Individual controlled entities that are dormant
have not been listed. All are owned 100% unless noted.
Country of incorporation
Australia
Trilby Misso Lawyers Limited
Slater & Gordon Lawyers NSW Pty Limited
Conveyancing Works (Qld) Pty Limited
United Kingdom
SGL UK
Walker Smith Way Limited
WSW Limited
Slater & Gordon (UK) 1 Limited
4 Legal Limited
SGS
Quindell Legal Services Limited
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
React & Recover Medical Group Limited
Recover Healthcare Limited
React Medical Reporting Limited
React Medical Management Limited
Medicalaw Limited
Abstract Legal Holdings Limited
Malta
Overland Limited
Overland Health Limited
Schultz Toomey O’Brien Pty Ltd
All States Legal Co Pty Ltd
SG NSW Pty Ltd
4 Legal Solutions Limited
Slater & Gordon (UK) LLP
Adroit Financial Planning Limited
Quindell Business Process Service (UK) Limited
Accident Advice Helpline Direct Limited
Legal Facilities & Management Services Limited
Access to Compensation Limited
Liberty Protect Limited
Slater Gordon Solutions Legal Limited
Quindell ACH Limited
Crusader Group Holdings Limited
Equi-Medical Reports Limited
Equi Rehab Limited
Crusader Uninsured Loss Recovery Services Limited
Crusader Connect Limited
SGS Business Process Services (UK) Limited
Overland Malta (Trading) Limited
Slater and Gordon Limited
Page 77
86 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
6.1.1 Equity Interests in Related Parties (continued)
ACH Group Management Limited was disposed of during the period. Overland Legal Limited and Property Home Buyer
Limited were liquidated during the period.
6.1.2 Deed of Cross Guarantee
All Australian segment entities 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. Please refer to the Slater and Gordon Australia segment in Note 2 for further information.
6.1.3 Key Management Personnel Compensations
Compensation by category
Short-term employment benefits
Post-employment benefits
Other long term employment benefits
Share based payments
Other benefits
2016
$
2015
$
4,056,725
213,254
60,741
73,548
499,331
3,733,136
210,386
54,954
49,084
-
4,903,599
4,047,560
6.1.4 Transactions with Other Related Parties
The shareholdings of related parties and remuneration of KMP are disclosed in the Directors’ Report.
Outstanding receivables, if any, between related parties are included in Note 4.2. Outstanding payables, if any, are
included in Note 4.6.
6.2
Parent Entity Disclosures
As at, and throughout, the financial year ended 30 June 2016 the parent entity of the Group was Slater and Gordon
Limited. Investments in subsidiary are accounted for at cost, less any impairment recognised since acquisition.
Results of parent entity
(Loss)/profit for the year
Other comprehensive loss
Total comprehensive (loss)/income for the year
2016
$’000
2015
$’000
Restated
(1,133,848)
(334)
(1,134,182)
71,538
(351)
71,187
There has been a recharge by the parent entity of management and associated services and interest expense to the
subsidiary entities up to 31 May 2016.
Financial position for the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent company comprising of
Contributed equity
Reserves
Retained profits
Total Equity
134,306
328,910
412,799
1,518,650
91,857
290,813
102,520
270,493
1,115,993
34,705
(1,028,712)
121,986
1,098,292
25,399
124,466
1,248,157
Slater and Gordon Limited
Page 78
Slater and Gordon Limited 87
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
6.3
Auditor’s Remuneration
The auditor of the Group for the year ended 30 June 2016 is Ernst & Young (30 June 2015: Pitcher Partners).
Audit Services
Ernst & Young
Audit and review of financial reports
Overseas Ernst & Young firms
Audit and review of financial reports
Other regulatory audit services
Other Auditor
Audit and review of financial reports
Other regulatory audit services
Other Services
Ernst & Young
Other – consulting services
Overseas Ernst & Young firms
Due diligence investigations
Other Auditor
Other – consulting services
Due diligence investigations
2016
$
2015
$
700,000
-
2,797,090
57,446
1,614,080
-
218,553
51,531
3,824,620
685,557
43,472
2,343,109
257,000
-
-
1,475,791
282,033
16,125
4,379,778
-
177,860
3,996,760
6.4
Accounting Standards issued but not yet effective at 30 June 2016
At the date of authorisation of the financial statements, the Standards and Interpretations that were issued but not yet
effective, which have not been early adopted are listed below. A formal assessment of the expected impacts of these
standards and interpretations has not taken place, however, it is not expected that there will be significant changes in the
Group’s accounting policies.
Reference
AASB 9
Title
Application date of
Standard
Application date for
Group
Financial Instruments
1 January 2018
1 July 2018
AASB 9 is the replacement of AASB139 Financial Instruments: Recognition and measurement and comprises three
parts. The first part introduces new requirements for the classification and measurement of financial assets and liabilities.
These requirements improve and simplify the approach for classification and measurement of financial assets compared
with the requirements of AASB 139.
The main changes are:
• Financial assets that are debt instruments will be classified based on (i) the objective of the entity's business model
for managing the financial assets, and (ii) the characteristics of the contractual cash flows.
• Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments
that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a
return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the
instrument.
•
Introduces a ‘fair value through other comprehensive income’ measurement category for particular simple debt
instruments.
• Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so
eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring
assets or liabilities, or recognising the gains and losses on them, on different bases.
• Where the fair value option is used for financial liabilities, the change in fair value is to be accounted for as follows:
o The change attributable to changes in credit risk are presented in other comprehensive income (OCI)
o The remaining change is presented in profit or loss
If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk
are also presented in profit or loss.
Slater and Gordon Limited
Page 79
88 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
6.4
Accounting Standards issued but not yet effective at 30 June 2016 (continued)
The second part of AASB 9 relates to hedge accounting and represents a substantial overhaul of hedge accounting that
enable entities to better reflect their risk management activities in the financial statements.
The final part of AASB 9 introduces a new impairment model based on expected credit losses. This model makes use of
more forward-looking information and applies to all financial instruments and other assets e.g. contract assets/work in
progress recognised under AASB15 that are subject to impairment requirements of AASB 9.
Reference
AASB 2016-3
Title
Application date of
Standard
Application date for
Group
Amendments to Australian
Accounting Standards –
Clarifications to AASB 15
1 January 2018
1 July 2018
AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends AASB 15 to clarify
the requirements on identifying performance obligations, principal versus agent considerations and the timing of
recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15.
Reference
AASB 16
The key features of AASB 16 are as follows:
Lessee Accounting
Title
Leases
Application date of
Standard
Application date for
Group
1 January 2019
1 July 2019
• Lessees are required to recognise assets and liabilities for all leases on balance sheet with a term of more than 12
months, unless the underlying asset is of low value.
• Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes
non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in
optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an
option to terminate the lease.
• AASB 16 contains disclosure requirements for lessees.
Lessor Accounting
• AASB 16 substantially carries forward the lessor accounting requirements in the current lease standard AASB 117.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those
two types of leases differently.
• AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about
a lessor’s risk exposure, particularly to residual value risk.
Note 7: Unrecognised Items
7.1 Guarantees
The Group has entered into lease rental guarantees and performance guarantees with a face value of $12.5m (30 June
2015: $28.6m).
7.2
Contingent Consideration
The Group may be required to pay contingent consideration in relation to acquisitions that have been undertaken.
Further details are included in Notes 4.7 and 9.
7.3 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”), who fund disbursements in respect of individual matters and are reimbursed
out of any settlement proceeds on the matter. The Group has provided a financial guarantee to the funders for the
repayment of clients’ obligations.
During the prior financial year, 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 to the Group’s clients at 30 June 2016 is $19.0m (30 June 2015: $18.9m). The maximum
exposure of the Group at 30 June 2016 is $19.0m (30 June 2015: $18.9m) if the disbursements on client matters are not
recovered from any other party.
Slater and Gordon Limited
Page 80
Slater and Gordon Limited 89
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
Note 8: Subsequent Events
Subsequent to the end of the financial year there have been no matters or circumstances that have significantly affected,
or may significantly affect, the results reported in the financial statements.
Note 9: Business Combinations
9.1
Accounting Policies
Business combinations are accounted for by applying the acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred, which is measured at acquisition-date fair value, and the amount of any
non-controlling interests in the acquiree. Deferred consideration payable is measured at present value. Any contingent
consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Contingent consideration
classified as a liability that is a financial instrument and within the scope of AASB 139 is measured at fair value with
changes in fair value recognised in the statement of profit or loss and other comprehensive income. For each business
combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or the
proportionate share of the acquiree identifiable net assets. Acquisition related costs are expensed as incurred.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount
recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and
liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the
Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts recognised at the acquisition date. If the reassessment still results
in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is
recognised in profit or loss as a gain from bargain purchase.
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.
Critical Accounting Estimates and Judgements
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
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. An entity has 12 months to finalise its provisional accounting. 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.
9.2
Current Period Business Combinations
There were no business combinations during the year ended 30 June 2016.
9.3
Prior Period Business Combinations
9.3.1 Acquisition of business – All States Legal Co Pty Ltd trading as Nowicki Carbone
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 was:
•
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 initial accounting for this acquisition had previously been provisionally determined. The necessary fair valuation of
consideration and net assets acquired has now been finalised and is reflected in the amounts detailed below. This
revaluation has resulted in an increase in the work in progress of $5,805,000 and additional provisions raised of
$986,000 resulting in an increase in the gain from bargain purchase of $4,819,000.
Slater and Gordon Limited
Page 81
90 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
9.3.1
Acquisition of business – All States Legal Co Pty Ltd trading as Nowicki Carbone (continued)
The consideration transferred and the value of the assets and liabilities assumed at the date of acquisition are as follows:
Consideration
Cash
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
3,158
45,014
993
57
770
1,323
51,315
(151)
(3,448)
(511)
(319)
(4,429)
46,886
(36,886)
Acquisition-related costs for this acquisition amounting to $nil (30 June 2015: $270,000) have been excluded from the
total consideration and have been recognised as an expense in the period, within the ‘costs associated with acquisitions’
line item in the statement of profit or loss and other comprehensive income.
9.3.2 Acquisition of Business – Slater Gordon Solutions
On 29 May 2015 the Group acquired SGS from Quindell Plc. SGS comprised of 52 legal entities incorporated in the UK
and Malta. A listing of the entities, excluding dormant entities, is shown in Note 6.1.1.
The principal activities of SGS are:
(i).
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;
(ii).
Conducting claims on behalf of not at fault parties to road traffic accidents (“RTA”), including car hire, repair and
personal injury claims;
(iii). Conducting claims on behalf of individuals injured in the course of employment or in a public place (“EL/PL”).
One type 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).
A medical reporting service for claimant lawyers;
(b).
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 was:
•
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.
Slater and Gordon Limited
Page 82
Slater and Gordon Limited 91
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
9.3.2 Acquisition of Business – Slater Gordon Solutions (continued)
The consideration transferred and the value of the consolidated assets and liabilities assumed at the date of acquisition
is as follows:
Consideration
Cash
Repayment of cash consideration for SGS acquisition
Cash paid for liabilities acquired from previous owner
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
936,793
(2,399)
357,902
1,292,296
Fair Value
$’000
5,129
266,359
121,941
4,890
50,342
34,484
47,768
7,080
537,993
(10)
(14,080)
(331,098)
(7,504)
(9,304)
(361,996)
175,997
1,116,299
The initial accounting for the acquisition of SGS had previously been provisionally determined. The necessary fair
valuation of consideration and net assets acquired has now been finalised and is reflected in the amounts detailed
above. The respective changes to reported provision fair value of net assets acquired are:
• $31.4m reduction in the fair value of work in progress;
• $93.5m decrease in the fair value of trade and other receivables and other assets;
•
Increase in current tax assets by $5.4m;
• Reduction of Brand Names totalling $20.9m with an assessed fair value of Nil at acquisition date (Quindell Business
Processes Services (“QPBS”) and Accident Claims Helpline (“ACH”));
•
Increase in the deferred tax asset by $3.0m to recognise the future tax benefit associated with the revised fair value
of WIP in accordance with AASB 15, AASB 3 restatements, and other fair value adjustments incorporating carry
forward losses;
• Reduction in the fair value of trade payables and provisions by $14.4m; and
• $4.1m reduction to deferred tax liabilities associated with de-recognition of acquired brands (QPBS & ACH).
The resulting impact of the above fair value adjustment is to increase the value of Goodwill on acquisition to $1.116
billion.
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. However, during the current year ended 30 June 2016 an impairment expense of
$814.2m was recognised against this goodwill. Refer to Note 4.1 for further detail.
Slater and Gordon Limited
Page 83
92 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
9.3.2 Acquisition of Business – Slater Gordon Solutions (continued)
Acquisition-related costs for this acquisition amounting to $445,006 (30 June 2015: $20,776,000) have been recognised
as an expense in the period, within the ‘costs associated with acquisitions’ line item in the statement of profit or loss and
other comprehensive income.
It remains impractical for the Group to determine an estimate of the noise-induced hearing loss (“NIHL”) claims asset and
associated deferred consideration.
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 had 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 until October
2016.
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.
9.3.3 Acquisition of other Businesses in the UK
During the prior 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
Business Type
Personal Injury Law
Personal Injury Law and Consumer Legal Services
The strategic rationale for these business acquisitions was:
• 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 acquisitions had previously been provisionally determined.
The necessary fair valuation of consideration and net assets acquired has now been finalised and is reflected in the
amounts detailed below. For Flint Bishop LLP this revaluation has resulted in an increase in the work in progress of
$1.6m and increase in deferred tax liability of $0.3m resulting in a decrease of the goodwill to nil, and a resulting gain
from bargain purchase of $1.2m. For Leo Abse Cohen this revaluation has resulted in a decrease in the work in progress
of $1.5m and decrease in deferred tax liability of $0.3m resulting in a decrease in the gain from bargain purchase of
$1.2m.
The consideration transferred and the value of the consolidated assets and liabilities assumed at the dates of acquisition
are as follows:
Slater and Gordon Limited
Page 84
Slater and Gordon Limited 93
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
9.3.3 Acquisition of other Businesses in the UK (continued)
Consideration
Cash
Fair value of deferred and contingent consideration (cash)
Net present value of total consideration
Net assets acquired
Assets
- Trade and other receivables
- Work in progress
- Other assets
Total assets acquired
Liabilities
- Payables
- Provisions
- Deferred tax liabilities
Total liabilities acquired
Net assets acquired
Gain from bargain purchase
$’000
13,136
1,427
14,563
Fair Value
$’000
7,670
29,356
850
37,876
(4,499)
(1,140)
(20)
(5,659)
32,217
(17,654)
*The acquisition of Flint Bishop LLP resulted in a gain from bargain purchase of $1,226,000 and the acquisition of Leo
Abse Cohen resulted in a gain from bargain purchase of $16,428,000.
Acquisition-related costs for these acquisitions amounting to $28,000 (30 June 2015: $458,000) have been recognised
as an expense in the period, within the ‘costs associated with acquisitions’ line item in the statement of profit or loss and
other comprehensive income
9.3.4 Acquisition of Business – Walker Smith Way Limited
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 initial accounting for this acquisition had previously been provisionally determined. The necessary fair valuation of
consideration and net assets acquired has now been finalised and is reflected in the amounts detailed below. This
revaluation has resulted in an increase in the work in progress of $8.7m, a decrease in trade and other receivables of
$0.2m and an increase in deferred tax liability of $1.7m resulting in an increase in the gain from bargain purchase of
$6.8m.
The consideration transferred and the value of the assets and liabilities assumed at the date of acquisition are as follows:
Slater and Gordon Limited
Page 85
94 Slater and Gordon Limited
Annual Report 2016
Notes to the Financial Statements
For the Year Ended 30 June 2016
9.3.4
Acquisition of Business – Walker Smith Way Limited (continued)
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
947
12,578
Fair Value
$’000
2,174
7,449
28,885
67
38,575
(4,313)
(1,328)
(4,565)
(10,206)
28,369
(15,791)
Acquisition-related costs for this acquisition amounting to $nil (30 June 2015: $230,000) has been recognised as an
expense in the period, within the ‘costs associated with acquisitions’ line item in the statement of profit or loss and other
comprehensive income.
Slater and Gordon Limited
Page 86
Slater and Gordon Limited 95
Annual Report 2016
Slater and Gordon Limited
Directors’ Declaration
The directors declare that the financial statements and notes set out on pages 50 to 95 and the directors’ report are in
accordance with the Corporations Act 2001 and:
(a). Comply with Accounting Standards and the Corporations Regulations 2001, and other mandatory professional
reporting requirements;
(b).
As stated in Note 1, the financial statements also comply with International Financial Reporting Standards;
(c). Give a true and fair view of the financial position of the consolidated entity as at 30 June 2016 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 6.1 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 2016.
This declaration is made in accordance with a resolution of the directors.
John Skippen
Chair
Melbourne
29 August 2016
Andrew Grech
Group Managing Director
Slater and Gordon Limited
Page 87
96 Slater and Gordon Limited
Annual Report 2016
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
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, which comprises the
consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or
loss and other comprehensive income, the consolidated statement of changes in equity and the
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 controls as the directors determine are necessary to enable the preparation of the financial
report that is free from material misstatement, whether due to fraud or error. In Note 1.1, 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 controls relevant to the entity's
preparation and fair presentation of the financial report 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 entity's internal controls. 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.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act
2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a
copy of which is included in the directors’ report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Slater and Gordon Limited 97
Annual Report 2016
Opinion
In our opinion:
a.
the financial report of Slater and Gordon Limited is in accordance with the Corporations Act
2001, including:
i
ii
giving a true and fair view of the consolidated entity's financial position as at 30 June 2016
and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001;
and
b.
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 1.1.
Report on the remuneration report
We have audited the Remuneration Report included in pages 29 to 48 of the directors' report for the year
ended 30 June 2016. 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 for the year ended 30 June 2016 complies
with section 300A of the Corporations Act 2001.
Ernst & Young
Christopher George
Partner
Melbourne
29 August 2016
98 Slater and Gordon Limited
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
Annual Report 2016
Additional ASX Information
In accordance with the Australian Stock Exchange Limited Listing Rules, the Directors provide the following information
as at 26 August 2016.
(a). Distribution of shareholders and option holders.
Holding
1
1,001
5,001
10,001
100,001
- 1,000
- 5,000
- 10,000
- 100,000
- Over
Number of Ordinary Shareholders
Performance Rights
4,471
8,178
3,281
4,001
436
20,367
-
12
18
15
-
45
There are 3,566 shareholders holding less than a marketable parcel of 944 shares each (i.e. less than $500 per
parcel of shares).
(b).
Twenty largest shareholders
Shareholder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
Mr Andrew Grech
Mr Ken Fowlie
ABN AMRO Clearing Sydney Nominees Pty LTD (Custodian A/C)
Mr Hayden Stephens
Ms Cath Evans
BNP Paribas Noms Pty Ltd (DRP)
1
2
3
4
5
6
7
8
9
10
11
12
Comsec Nominees Pty Ltd
Hishenk Pty Ltd
Mr Patrick Thomas Bergin
13 Writing College Australia Pty LTD
14
15
16
17
18
19
20
Mr Jake John Rutten & Mrs Dinah Ann Rutten (Jake Rutten Super)
Mr Denis Baulsom
Deansgate 123 LLP
Mr Albert Wijeweera
Joeman Holdings Pty LTD
Mr Adrian Crisafi
Mr Harry Hatch
Number of
Shares held
%
Held
16,707,261
9,925,181
9,045,793
6,383,238
5,096,221
4,805,256
4,255,115
3,981,433
3,050,441
2,791,963
2,700,000
1,877,400
1,807,591
1,650,000
1,575,000
1,516,015
1,243,091
1,240,170
1,232,000
4.74
2.82
2.57
1.81
1.45
1.36
1.21
1.13
0.87
0.79
0.77
0.53
0.51
0.47
0.45
0.43
0.35
0.35
0.35
1,118,888
82,002,057
0.32
23.27
(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
None
Number
Ordinary Shares
% *
* 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 90
Slater and Gordon Limited 99
Annual Report 2016
Corporate Directory
Directors
John Skippen, Chair
Andrew Grech, Group Managing Director
Ian Court
Ken Fowlie
Erica Lane
Rhonda O’Donnell
James M. Millar
Company Secretary
Bryce Houghton
Registered Office and
Corporate Office
Level 12
485 La Trobe Street
Melbourne Victoria 3000
Telephone: (03) 9602 6888
Facsimile: (03) 9600 0290
Company Website
Auditors
Ernst & Young
8 Exhibition Street
Melbourne Victoria 3000
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
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:
www.slatergordon.com.au
Melbourne Victoria 3000
web.queries@computershare.com.au
Company Numbers
ACN 097 297 400
ABN 93 097 297 400
Securities Exchange Listing
Slater and Gordon Limited
shares are listed on the
Australian Securities
Exchange. The Home
Exchange is Melbourne.
ASX Code: SGH
Slater and Gordon Limited
Page 91
100 Slater and Gordon Limited
Annual Report 2016
slatergordon.com.au