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ANNUAL
REPORT
2017
Slater and Gordon’s mission
is to give people easier access
to world-class legal services.
Contents
01 Chair’s Report
02 Slater and Gordon Australia
04 Slater and Gordon United Kingdom
06 People and Culture
07 Social Responsibility
08 Operating and Financial Review
16 Financial Statements
17 Directors’ Report
43 Auditor’s Independence
Declaration
44 Consolidated Statement
of Profit or Loss and Other
Comprehensive Income
45 Consolidated Statement
of Financial Position
46 Consolidated Statement
of Changes in Equity
47
Consolidated Statement
of Cash Flows
48 Notes to the Financial Statements
88 Slater and Gordon Limited
Directors’ Declaration
89 Independent Auditor’s Report
96 Additional ASX Information
97 Corporate Directory
Slater and Gordon Limited | Annual Report 2017
Chair’s Report
The recapitalisation provides the best opportunity to
secure the future of the firm, its clients and employees.
John Skippen
Chair
Slater and Gordon’s financial results
for the year ended 30 June 2017
reflect continued underperformance
across the UK and Australian
operations. As announced in February
2017, the support of our lenders became
fundamental during this period due to
the size of the Company’s debt relative
to its market valuation. Accordingly
the Company and its lending group
began to work co-operatively towards
a reconfiguration of the Group’s
capital structure.
In June 2017 the Company announced
it had entered into a recapitalisation
agreement with its lenders. The
recapitalisation agreement and
the additional funding, which the
Company’s lenders agreed to provide
under the amended agreement
announced on 31 August 2017, will
permanently reduce Slater and
Gordon’s debt to a sustainable level
and is intended to provide a stable
platform for the future operations
of the Company. Regrettably the
interests of existing shareholders
will be significantly diluted and I and
the Board are deeply sorry for this.
The recapitalisation provides the best
opportunity to secure the future of the
firm, its clients and employees. Further
details will be provided to shareholders
in the coming months.
A process of Board and senior
management renewal was agreed
as part of the recapitalisation
process. Existing Board members,
including myself, will resign as new
appointments are made. Andrew
Grech stood down from his position
as Group Managing Director in
June 2017. I would like to take this
opportunity to thank James Millar
and Tom Brown for their valuable
service to the Board. Both joined in
the midst of a challenging period for
the Company and their wealth of
experience was appreciated over
the past financial year.
expanded role as CEO of the Australian
business and have responsibility for the
Group functions, and Ken Fowlie will
continue to lead the UK operations.
Slater and Gordon remains resilient,
continuing to service the legal needs
of hundreds of thousands of clients
across the UK and Australia every year.
While the past two years have no doubt
been one of the most difficult periods
in the firm’s history, what remains in
place is the commitment of our people
to serving the needs of our clients. I
would like to thank all staff in both the
UK and Australia for their dedication
and their hard work and sincerely wish
them and the firm every success. This
will be my last report as Chair of Slater
and Gordon and it has been a privilege
to serve in this capacity.
I would like to also thank Andrew
Grech for his 23-year service to Slater
and Gordon. Andrew will continue to
be involved, for a short time, through
his role as a Non-Executive Director
on the Board. As also announced,
Hayden Stephens will take on an
John Skippen
Chair
31 August 2017
Slater and Gordon Limited | Annual Report 2017 | 01
Slater and Gordon Australia
The firm continues to service significantly more clients than
its nearest competitors, and our clients are more satisfied
than ever before with that service.
Hayden Stephens
Chief Executive Officer, Australia
Slater and Gordon Lawyers (SGL)
Australia’s results for the 2017
financial year show the significant
headwinds faced by the business
over the past 12 months. The loss
before tax and net interest of
$67.2 million was driven by lower
case resolution rates than in prior
periods and one-off costs associated
with the reconfiguration of the capital
structure of the Company, payments
to former owners, provisioning and
the settlement of the Hall class action.
The recapitalisation of Slater and
Gordon is an important step in the path
to recovery for the Australian business.
It will enable the firm to continue to
pursue its mission of providing people
with easier access to world-class legal
services with a stable balance sheet
and sound operating platform. While
there is much work ahead to restore
financial performance to the levels
achieved in the past, it is important to
remember that the underlying business
is strong. The Slater and Gordon
brand remains the most recognised
brand for consumer legal services in
Australia. The firm continues to service
significantly more clients than its
nearest competitors, and our clients
are more satisfied than ever before
with that service.
There were many highlights in the past
financial year, none more significant
than the fact that in many instances
our legal work contributed to the
improvement in the quality of our
clients’ lives. Our class actions team
secured a significant settlement on
behalf of detainees who were held at
the Manus Island detention centre,
which has been said to be one of the
largest human rights class action
settlements in Australian legal history.
It was also pleasing to again see
several of our lawyers receive public
recognition for their contribution
to the legal profession.
We have a lot of work ahead of us
but we are well positioned and ready
for the challenge. I am confident that
if we approach the 2018 financial year
with the same level of determination
and tenacity as the past 12 months,
we will take significant steps towards
making SGL Australia financially
strong and secure once again.
Hayden Stephens
Chief Executive Officer, Australia
Locations
Employees
Brands
51
1,140
02 | Slater and Gordon Limited | Annual Report 2017
FY17 Fee and Services
Revenue A$226.7 million*
75.8%
Personal Injury Law (PIL)
General Law (GL)
* Fee and Services revenue is revenue from contracts
with customers less movement in work in progress.
24.2%
Services – Australia
SGL Australia is a leading provider
of consumer legal services in personal
injury law and general law. The
personal injury law division is made up
of a range of specialist practice groups
including: motor vehicle accidents,
workers compensation and civil liability.
The general law division is made up
of a range of specialist practice groups
including: family and relationship
law, wills, estate planning, probate,
commercial litigation, employment
and professional negligence litigation,
class or group actions and criminal
defence work. In Australia, the
Company operates solely under the
Slater and Gordon Lawyers brand.
Slater and Gordon Limited | Annual Report 2017 | 03
Slater and Gordon United Kingdom
While there is clearly still plenty to do to stabilise operational
and financial performance, there was significant progress
achieved over the past 12 months.
Ken Fowlie
Chief Executive Officer, UK
Slater and Gordon UK’s results for
the 2017 financial year continued to
reflect a business in the midst of a major
transformation. The performance
improvement program implemented
in early 2016 secured cost savings, but
these only partly offset revenue declines
in both SGL UK and Slater Gordon
Solutions (SGS). While there is clearly
still plenty to do to stabilise operational
and financial performance, there was
significant progress achieved over the
past 12 months.
The reorganisation of the UK operations
is now substantially progressed,
allowing us to become more specialised
and efficient and ultimately to more
effectively service our clients. In FY17
we maintained excellent client results
across a wide array of service lines,
servicing clients across the UK without
disruption despite the closure of 18
sites. We continued to improve systems
and processes, with improvements in
relation to the client intake processes
delivering a significant reduction in case
dilution for fast track cases and changes
to improve the efficacy and consistency
of legal service delivery whilst also
improving cash management. The focus
of our operational efficiency program,
Performance Matters, has now shifted
to productivity improvements.
Progress also continued in building
awareness of the Slater and Gordon
Lawyers brand with prompted brand
awareness now 35% up from 28% last
financial year. This growth was achieved
despite a significant reduction in overall
marketing and case acquisition spend
this period with a high volume of quality
media coverage of our cases and lawyers
supporting the marketing spend.
The operating environment during
the year was relatively stable,
nevertheless, the government
has indicated its intention to persist
with earlier announced proposals
to alter the approach to lower
value personal injury claims.
In terms of our legal work, there
were many highlights in the past
year including our clinical negligence
team securing damages for more than
30 women who were operated on
unnecessarily. Lawyers negotiated a
multi-million-pound settlement for a
young woman left brain damaged after
almost drowning on a school swimming
lesson; a landmark case which led to
a change in the law over whether the
local authority could be held liable.
We also secured significant sums for
survivors of road traffic collisions and
accidents at work and abroad.
Despite the challenges the Company
has navigated in FY17, it continues to
serve thousands of clients across the
UK and provide outstanding services and
results. This gives us confidence that the
Company can continue to significantly
improve its operational performance.
Ken Fowlie
Chief Executive Officer, UK
Locations
Employees
Brands
20
3,070
04 | Slater and Gordon Limited | Annual Report 2017
Services – United Kingdom
Slater and Gordon has two key
operating segments in the UK, Slater
and Gordon Lawyers UK (SGL UK)
and Slater Gordon Solutions (SGS).
Together they provide a broad range of
consumer legal services to clients along
with some associated ancillary services.
SGL UK focuses on the provision of
Serious and Specialised Personal Injury
Law and General Law services. The
Serious and Specialised practice groups
focus on consumer claims relating to
road traffic accidents, accidents at work
and in public places, industrial disease,
clinical negligence, accidents abroad,
abuse law and related services in court
of protection work. The General Law
division provides services in three key
areas including business law, personal
legal services and group litigation.
traffic accident and employer liability
and public liability claims. SGS Claims
also handles a legacy noise induced
hearing loss case portfolio. SGS Motor
and Health Services provide motor
accident management support and
rehabilitation and medical reporting
management solutions.
SGS is focused on servicing clients
with lower value legal claims along
with Motor and Health Services.
SGS Claims deals with the origination,
assessment and resolution of road
In the UK, the Company invests in a suite
of key brands to drive client enquiries.
FY17 Fee and Services
Revenue £253.6 million*
27.6%
26.1%
Serious and Specialised PIL
General Law
SGS Claims
SGS Health and Motor
* Fee and Services revenue is revenue from contracts
with customers less movement in work in progress.
11.0%
35.3%
Slater and Gordon Limited | Annual Report 2017 | 05
People and Culture
Our employees at Slater and
Gordon play a pivotal role and their
commitment and expertise underpin
who we are and what we do. This
enables us to provide great service
and outcomes for our clients. We
therefore support a diverse and flexible
workforce and foster innovation. The
2017 financial year saw the Company
face a number of challenges. During
this period we have focused on building
stability, capability, updating our
recruitment processes and providing
a platform for success in FY18.
Diversity
We aim to provide an inclusive
environment where all employees can
excel. Over 75% of our workforce is
female. Flexible work arrangements
are common and include both formal
structured arrangements, such as part-
time and work from home days, as well
as informal flexibility to meet employee
short term needs.
Wellness/Employee Wellbeing
Since becoming a signatory to the Tristan
Jepson Memorial Foundation in 2016 we
have adopted a holistic approach to the
psychological wellbeing of our people
by incorporating their guidelines into
a bespoke mental health and wellness
program in partnership with Medibank.
By raising awareness and striving to
create a workplace culture where
psychological safety is as important
as physical safety, we aim to achieve
a work environment characterised
by trust, honesty and fairness.
Recruitment
We have updated our recruitment
processes and implemented the use of
the LinkedIn Platform to source quality
talent. By investing in the platform
we continue to build brand awareness
as we strive to source the best quality
talent for the business from a variety
of sources. This is complemented by
an Employee Referral Scheme, which
encourages our current employees
to refer friends and acquaintances
for relevant suitable roles.
‘Flexible work arrangements are common and include both
formal structured arrangements, such as part-time and
work from home days, as well as informal flexibility to meet
employee short term needs.’
06 | Slater and Gordon Limited | Annual Report 2017
Social Responsibility
We seek to make a positive contribution
to the communities where we
operate and offer opportunities
for our staff through our social
responsibility program.
Our 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.
The program encompasses investment
in the community through philanthropic
grant schemes, pro bono and
volunteering work and community
and sporting partnerships.
FY 17 highlights included:
• donations to health and medical
research groups in Australia and
the United Kingdom, for the benefit
of those with asbestos-related
disease or catastrophic brain
or spinal cord injuries;
• donating $112,000 to community
groups across Australia from the
staff donated Slater and Gordon
Community Fund;
• tripling our annual volunteer hours
at a café in Melbourne assisting
the homeless and disadvantaged
as a result of our partnership with
the Collingwood Football Club
Foundation;
• continuing our partnership with
the Western Bulldogs Football
Club and our annual match day
partnership, The Robert Rose Cup,
dedicated to disability inclusion and
celebrating the achievements of
people of all abilities;
Environmental Responsibility
Slater and Gordon recognises its
obligation to measure and monitor the
environmental impact of its operations
on the environment. Since FY14 we
have assessed our key impact areas
of paper, energy and travel. During
FY17 we refocused our Environment
and Sustainability Strategic Plan to
concentrate our efforts on reducing our
paper use. We are pleased that we have
recorded an 18% decrease in the total
amount of paper used in Australia and
a decrease of paper use of approximately
5% per head.
We will continue to publicly report
on the breadth of our environmental
impact as part of our membership of
the Australian Legal Sector Alliance,
an industry led association working
collaboratively to promote sustainable
practices of the legal sector.
• United Kingdom fundraising efforts
continued for IncuBabies and Child
Bereavement United Kingdom;
• continuing to support grassroots
sports via our partnership with the
Brisbane Broncos, which enables
1,500 children each season to
participate in the Broncos Mini
League, fostering participation
in active healthy lifestyles;
• continuing our partnership with
Westmead Children’s Hospital
Foundation, which funds a Paediatric
Rehabilitation Project Officer position
at the hospital;
• continuing our long history of road
safety campaigning and advocacy and
support for those with brain and spinal
cord injuries through our association
with Headway, Roadpeace and BRAKE
in the United Kingdom, and Road
Trauma Support Services, Spinal Cord
Injuries Australia and Brain Injury
Australia; and
• increasing the number of lawyers
performing pro bono work by 30%
and the total hours of pro bono work
by 23%.
Slater and Gordon Limited | Annual Report 2017 | 07
Operating and Financial Review
Review of Operations –
Business Model
Overview
Slater and Gordon Group is a leading
consumer legal services organisation
with 1,140 staff operating in 51 locations
across Australia and 3,070 staff
operating in 20 locations across the
United Kingdom (UK). The Company
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 and relationship
law, wills, estate planning, probate,
business and specialised litigation,
class actions, real estate, crime and
regulation, employment, reputation
and professional discipline). Slater
and Gordon listed on the Australian
Securities Exchange (ASX) in 2007
and expanded its operations into the
UK in 2012. In FY17 the Company had
three main operating segments: Slater
and Gordon Lawyers Australia (SGL
Australia) in Australia and Slater
and Gordon Lawyers UK (SGL UK)
and Slater Gordon Solutions (SGS)
in the UK.
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 clients
across Australia and the UK and is not
reliant on any one key customer or
case outcome. In FY17, 76% of fee
and services revenue in Australia and
61% of fee and services revenue in
the UK were derived from Personal
Injury Law (PIL). 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
Bank Facility Amendments
During FY17 the support of the
Company’s lenders became
fundamental to its continued
operation. Several amendments
were made to existing bank facilities
in light of reduced performance
expectations and liquidity concerns,
but it became apparent as the year
progressed that the Company
needed to work with its lenders to
consider recapitalisation options.
The recapitalisation provided the
best opportunity to secure the future
of the firm, its clients and employees.
On 17 March 2017, the Company
advised the ASX that in excess of 94%
of its debt facility had traded from
its original syndicate of par lenders
to secondary debt buyers (the ‘New
Senior Lenders’) and that the New
Senior Lenders intended to implement
a solvent restructure of the Company.
Later in March the New Senior
Lenders agreed further amendments
to the bank facilities including the
capitalisation of A$32 million of
interest payments otherwise due
for payment on 28 June 2017.
Recapitalisation Agreement
On 29 June 2017, the Group
announced it had entered into a
binding recapitalisation agreement
with its lenders and subsequently, on
31 August 2017, the Group announced
it had signed an amended binding
restructuring support deed with 100%
of its secured lenders in relation to the
recapitalisation. The recapitalisation is
intended to provide the Group with a
sustainable level of debt and support a
stable platform for its future operations.
The terms of the recapitalisation
agreement also provide the Group
with additional liquidity support
for its continued operation prior to
and post the implementation of the
recapitalisation in the form of an
increase of $50 million to the Group’s
$40 million working capital facility,
which will be available prior to the
recapitalisation. Key terms of the
recapitalisation and liquidity support
are detailed in note 5.2 Financing
Arrangements.
The recapitalisation is expected to
be completed in early December 2017
and is subject to a number of conditions
precedent, which are detailed at note
5.2.4 Recapitalisation Agreement.
These include shareholder approval of
the recapitalisation and the settlement
of the shareholder class action detailed
in note 8 Subsequent Events.
The Company’s Directors unanimously
support the revised terms of the
recapitalisation. The Directors
continue to hold the view that
current levels of bank debt materially
exceed total enterprise value and
that the Company requires a holistic
restructuring of its balance sheet.
Therefore, in the absence of a superior
proposal, the Directors believe that
the recapitalisation is the best outcome
available for shareholders and all
stakeholders.
The recapitalisation will enable the
Company to pursue its mission to
provide people with easy access to
world-class legal services, with a
08 | Slater and Gordon Limited | Annual Report 2017
Potential UK Legislative Changes
In November 2015, the ‘Autumn 2015
Chancellor’s Statement’ included
proposals, which if implemented,
would impact on the rights of people
to obtain compensation in minor soft
tissue injury claims. Changes to the
compensation framework remain
unpredictable both in terms of outcome
and timing. The Company continues
to work constructively with policy
makers and other stakeholders with
the goal of establishing stabilisation
in the operating environment.
Intangibles Impairment
In the first half of the year ended
30 June 2017 the Company recognised
an impairment charge of $350.3
million against the carrying value
of UK intangible assets due to a
downward adjustment to forecast
performance in the UK. An additional
$11.0 million intangibles impairment
charge was recognised in the second
half of the financial year in relation
to the Australian operations.
ASIC Queries
On 20 December 2016, the Company
was served by ASIC with two notices
to produce documents. ASIC’s queries
focused on the accuracy of financial
records and accounts of the Company
for the period between 1 December
2014 and 29 September 2015.
As advised to the ASX on 24 March 2017,
ASIC has concluded its investigation and
advised the Company that there was no
evidence of any breach of the law.
stabilised balance sheet and sound
operating platform. Shareholders will
retain the opportunity to participate
in future value creation and recovery
as the Company pursues its strategic
plan in Australia.
Board Renewal and Group
Managing Director Resignation
Under the recapitalisation agreement,
the existing Board has agreed to
undertake a Board renewal process
which will enable the New Lending
Group, who will own approximately
95% of the Company’s equity on
implementation of the recapitalisation,
to elect new Directors. All existing
Directors will resign in due course
as new Directors are appointed.
Andrew Grech stood down from
his position as Group Managing
Director, effective 29 June 2017.
Andrew remains a Non-Executive
Director of the Company in the short
term until a replacement has been
appointed with the qualifications
required to fill the role of Legal
Practitioner Director as required by
the relevant provisions of the Legal
Professions Act 2007 (Victoria)
and equivalent provisions in the
jurisdictions in which the Company
conducts legal practices.
Shareholder Claims
During FY17, two shareholder class
action proceedings were filed against
the Company by former and existing
shareholders.
As announced to the ASX on 11 July
2017, the Company has reached in
principle conditional agreement to
settle the class action proceeding
brought on behalf of Mr Matthew
Hall (the ‘Hall Proceedings’) on terms
which will resolve all shareholder
claims against the Company, however
they may arise. Whilst the settlement is
subject to formal legal documentation
and approval by the Federal Court, the
agreed settlement terms are as follows:
• an agreed settlement amount
of $36.5 million, of which
$32.5 million will be made available
by the Company’s insurers;
• the settlement amount will be
applied towards any shareholder
claims against the Company,
however they may arise, including
any other claims or potential claims
which have been, or which have
not been, notified to the Company
(‘Shareholder Creditors’);
• the settlement amount will be
distributed to Shareholder Creditors,
and all claims by Shareholder Creditors
will be compromised, via a creditors’
scheme of arrangement, subject to
the requisite approval of Shareholder
Creditors and the Court (‘Shareholder
Creditor Scheme’); and
• the settlement is without admission
of liability by the Company.
The Shareholder Creditor Scheme,
the Senior Lender Scheme and Court
approval of the settlement terms
for the Hall Proceedings will all be
inter-conditional on each other.
Claim against Watchstone
Group Plc
On 14 June 2017, the Company
filed and served a claim in the
High Court of England and Wales
against Watchstone Group Plc for
approximately £600 million. The
claim is based upon serious allegations
against Watchstone and its then
senior management, including fraud,
concerning the purchase by Slater
and Gordon in 2015 of business assets
from Watchstone Group Plc (formerly
known as Quindell Plc) which have
since been rebranded as SGS. The
litigation is currently in an early stage.
Under the Share Purchase Agreement,
the Company having obtained a
positive merits based opinion from an
independent barrister, £50 million
currently held in escrow against
warranty claims will continue
to be held in escrow until such
claims are resolved.
Slater and Gordon Limited | Annual Report 2017 | 09
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 2017 and the prior corresponding period are shown below.
Total revenue and other income
Net (loss) after tax
Net (loss) after tax – normalised 1
EBITDAW 2
EBITDAW – normalised 3
Net operating cash flow
Gross operating cash flow – normalised 4
FY17
A$m
611.5
FY16
A$m
908.2
(546.8)
(1,017.6)
(75.2)
(76.1)
15.7
(39.1)
10.2
(48.7)
(49.3)
36.6
(104.2)
(57.6)
1.
Normalised for AASB3 adjustments, non-recurring restructuring costs, additional debtor/disbursement provisioning, Hall settlement contribution, intangibles impairment,
non-recurring finance cost, tax normalisations and other miscellaneous items.
2. EBITDAW is defined as earnings before interest, tax, depreciation, amortisation and movement in work in progress and is presented prior to non-cash impairment.
3. Normalised for AASB3 adjustments, non-recurring restructuring costs, additional debtor/disbursement provisioning, Hall settlement contribution and other miscellaneous items.
4. Gross Operating Cash Flow (GOCF) is defined as net cash (utilised)/provided by operating activities before interest received, borrowing costs paid, income tax and payments to
former owners. GOCF has been normalised for non-recurring restructuring payments to suppliers, redundancy costs and sale of business costs.
EBITDAW, EBITDAW – normalised, gross operating cash flow – normalised and net (loss)/profit after tax – normalised
balances presented in this announcement are unaudited non-IFRS measures that, in the opinion of the Directors, are useful
in understanding and appraising the Company’s performance.
The full year result was impacted by:
• a $361.3 million impairment
charge against the carrying value
of intangible assets, $350.3 million
of which was recognised in relation
to UK goodwill in the first half of
the financial year;
• underperformance across the UK and
Australian operations in relation to
resolution of personal injuries claims;
• $47.1 million of non-recurring
restructuring costs including
consultants costs, redundancy
and property rationalisation costs
in both Australia and the UK;
• a negative net movement in work
in progress (WIP) of $51.8 million
(FY16: $41.3 million);
• net finance costs of $50.7 million
which included $9.6 million in
facility amendment fees; and
• material labour, advertising and
marketing cost savings secured
across the business as a result of
operational efficiency programs.
The consolidated statement of profit
or loss and other comprehensive income
contains a number of transactions which
have been normalised to provide greater
clarity to the underlying operational
results. The normalisation items
for FY17 and the FY16 comparative
period are:
i.
impairment charge against the
carrying value of intangible assets;
ii. payments to former owners
reclassified as remuneration under
the new accounting treatment
for deferred consideration
under AASB 3;
iii. non-recurring restructuring
costs including consultants costs,
redundancy costs and property
rationalisation costs;
iv. additional provisioning for debtors
and disbursements following a
thorough review of provisioning;
v. the Company’s contribution to the
settlement of the Hall proceedings;
vi. other miscellaneous items;
vii. non-recurring finance costs; and
viii. tax normalisations.
10 | Slater and Gordon Limited | Annual Report 2017
The impact of these normalisations on net (loss)/profit after tax is as follows:
Net (loss)/profit after tax – reported
Normalisation adjustments:
Intangibles impairment charge
Payments to former owners
Non-recurring restructuring costs
Additional debtor/disbursement provisioning
Non-recurring finance costs
Other items including. Hall settlement and audit adjustments
Tax implications of above
Derecognition of tax losses
Write-back of deferred tax liability
Net (loss)/profit after tax – normalised
FY17
A$m
FY16
A$m
(546.8)
(1,017.6)
361.3
879.5
11.6
47.1
18.0
9.6
15.1
(15.7)
(7.9)
32.6
(75.2)
33.2
33.3
18.7
14.9
0.7
(11.4)
0.0
0.0
(48.7)
Total revenue and other income
decreased by 32.7% due to reduced
total revenue across all three main
operating segments driven by
underperformance in relation to
resolution of personal injuries claims
and the loss of two key contracts in
SGS Motor.
This decrease was partly offset by
material labour, advertising and
marketing cost savings secured
across the business as a result of
operational efficiency programs.
SGL Australia, SGL UK and SGS
segment results are discussed in
more detail from page 13.
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.
Cash Flow
Net operating cash flow was an
outflow of $39.1 million for the year
(FY16 outflow of $104.2 million).
When normalised for non-recurring
restructuring costs, gross operating
cash flow (excluding net finance and
tax payments/receipts and payments
to former owners) was $10.2 million
(FY16 outflow of $57.6 million).
The largest component of operating
costs are salaries and employee
benefits. There are also material
marketing and advertising expenses
to support the Slater and Gordon suite
of brands, with brand awareness being
a key driver of client enquiries.
Financial Position
A summary of key items relating
to the Group’s financial position
are provided below.
Net (liabilities)/assets
Net debt
Loan and overdraft facilities – £ denominated
Loan and overdraft facilities – A$ denominated
30 June 2017
A$m
30 June 2016
A$m
(248.8)
747.7
376.0
130.0
305.1
682.3
376.0
94.0
Slater and Gordon Limited | Annual Report 2017 | 11
Operating and Financial Review continued
Review of Operations – Profit
and Financial Position continued
Net Assets
The Group has net liabilities of
$248.8 million at 30 June 2017,
which has decreased from net assets
of $305.1 million at 30 June 2016 due
mainly to an intangibles impairment
charge of $361.3 million primarily
relating to the UK business, a negative
$72.6 million movement in work in
progress during FY17 and the impact of
underperformance across the business.
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 2017 gross debt was
$780.9 million and net debt
$747.7 million.
On 17 March 2017, the Company
advised the ASX that in excess of 94%
of its debt facility had traded from
its original syndicate of par lenders
to secondary debt buyers (the ‘New
Senior Lenders’) and that the New
Senior Lenders intended to implement
a solvent restructure of the Company.
Later in March the New Senior
Lenders agreed further amendments
to the bank facilities including the
capitalisation of A$32 million of
interest payments otherwise due
for payment on 28 June 2017.
As outlined above, on 31 August 2017
the Company announced that it had
entered into an amended binding
restructure support deed (RSD) with
100% of its secured senior lenders
(Senior Lenders) in relation to the
recapitalisation of the Company.
Outstanding secured debt will
be permanently reduced by a
combination of releasing, refinancing
and restating debt. The key terms
of the recapitalisation and liquidity
support are detailed in note 5.2
Financing Arrangements.
Dividends
Directors have not declared a dividend
for the 2017 financial year.
Review of Operations –
Segment Performance
A summary of revenue and earnings
by segment is provided below.
Fee and services revenue 1
SGL Australia
SGL UK
SGS
Group
1. Fee and services revenue is revenue from contracts with customers less movement in WIP.
(Loss) before tax and net finance expense
SGL Australia
SGL UK
SGS
Group
EBITDAW – normalised
SGL Australia
SGL UK
SGS
Group
12 | Slater and Gordon Limited | Annual Report 2017
FY17
A$m
226.7
157.8
268.8
653.3
FY17
A$m
(67.2)
(98.5)
(334.7)
(500.4)
FY17
A$m
15.5
(16.4)
16.6
15.7
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
Variance
%
(14.6)
(31.4)
(38.5)
(30.0)
Variance
%
(33.4)
52.7
(59.3)
(49.3)
Variance
%
(56.8)
530.8
403.0
(57.1)
Slater and Gordon Lawyers
Australia (SGL Australia)
Overview of Operations
SGL Australia is a leading provider
of consumer legal services in Personal
Injury Law and General Law. SGL
Australia employs 1,140 staff across
51 locations.
The Australian Personal Injury Law
(PIL) business provides legal services
to clients in a range of areas including
motor vehicle accidents, workers
compensation and civil liability law.
The PIL practice contributed 75.8%
of SGL Australia’s FY17 fee and
services revenue.
The Australian General Law (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, 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
24.2% of SGL Australia’s FY17 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 successfully
respond to legislative change as and
when it arises.
FY17 Performance Review
• SGL Australia fee and services
revenue decline of 14.6% was
comprised of declines in both
Personal Injury Law (PIL) and
General Law (GL).
• PIL underperformance was due to
a decline in case resolution rates.
• GL fee and services revenue was
impacted by the closure of the
conveyancing practice in late
2016, partly offset by a strong
performance in class actions.
• Normalised EBITDAW was lower
due to the decline in revenue partly
offset by a reduction in operating
expenditure.
• The net loss before tax and interest of
$67.2 million includes a $15.5 million
adverse movement in WIP, $11.0
million of intangibles impairment
and $50.3 million of non-recurring
restructuring costs, payments to
former owners and provisioning.
Slater and Gordon UK
Slater and Gordon operates in the
UK as Slater and Gordon Lawyers
(SGL UK) and Slater Gordon Solutions
(SGS) employing 3,070 staff across
20 locations.
In February 2016, the Group commenced
a major UK performance improvement
program. A key component of this
program was a business reorganisation
focused on establishing centres of
excellence in serious and specialised
personal injury, fast track personal
injury and general law services as
well as rationalising the provision
of shared services across the UK.
This business reorganisation is now
largely complete, and performance
improvement activities are now focused
on productivity improvements.
SGL UK
Overview of Operations
SGL UK focuses on the provision
of serious and specialised personal
injury law and general law services.
The Serious and Specialised Practice
(SSP) provides legal services to clients
in a range of personal injury law
practice areas including road traffic
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 70.6% of SGL
UK’s FY17 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.
FY17 Performance Review
• SGL UK fee and services revenue
declined 17.0% in GBP terms due
in part to the reduction in size of
business following the business
rationalisation program.
• Normalised EBITDAW declined
in GBP terms due to fee decline,
partly offset by reduced labour
and advertising costs.
• The net loss before tax and interest of
$98.5 million includes a $16.6 million
adverse movement in WIP connected
with the planned transition of fast
track claims from SGL UK to SGS
Claims and $16.7 million of non-
recurring restructuring costs.
• Despite a reduction in overall
marketing investment, prompted
brand awareness has continued
to strengthen, with the SGL brand
now recognised by 35% of UK
survey respondents.
Slater and Gordon Limited | Annual Report 2017 | 13
Operating and Financial Review continued
Review of Operations – Profit
and Financial Position continued
FY17 Performance Review
• SGS fee and services revenue was
down 25.5% in local currency terms
compared to FY16 due mainly to
reduced revenue from the Motor
Services business after the loss of two
(previously announced) key contracts
and reduced fees from SGS Claims
due to the deliberate reduction of road
traffic accident (RTA) case intake.
• SGS delivered $16.6 million normalised
EBITDAW in FY17. The improvement
on FY16 performance was due mainly
to improved performance in the noise
induced hearing loss practice.
• The FY17 SGS net loss before tax and
finance costs was $334.7 million. The
primary driver of this was the first half
goodwill impairment charge.
Business Strategy and Prospects
Business Strategy
The Group’s core strategy is to execute
an organisational transformation
program, which will position both
the UK and Australian operations for
profitable growth. Comprehensive
strategic and operational reviews are
underway and operational efficiency
programs are being executed in the
UK and Australia.
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.
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 Services business
provides accident management services
to affinity groups for the benefit of
road users. The services include co-
ordination of the provision of temporary
replacement vehicles and automotive
repairs. The Health Services business
provides rehabilitation and medical
reporting solutions that may be required
as part of a personal injury claim.
SGS is also currently progressing
a legacy portfolio of noise induced
hearing loss (NIHL) claims acquired
as part of the SGS acquisition.
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 ensure,
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.
14 | Slater and Gordon Limited | Annual Report 2017
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.
Settlement of Class Actions,
Recapitalisation, and Restructure
Risk
The in principle agreement to
settle class actions, recapitalisation
and restructuring of the Board and
shareholdings as announced in the
ASX announcements of 29 June,
11 July and 31 August 2017 are major
changes to the structure and to the
operating model of the Group. Major
changes of this nature carry high
levels of implementation risk.
The Board and senior management
are working closely with all
stakeholders to ensure these changes
are implemented with minimal
disruption to the ongoing operations.
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.
Operational Risk
There are a number of key risks
which 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.
Financial Risk
There is risk that the Group will
have a liquidity problem with
insufficient funds to meet short term
cash requirements in the months
leading up to the recapitalisation.
While the underlying cause of pressure
in this area in FY16 and FY17 is that fee
collection has not matched budget,
the immediate risk is now assessed
to be largely timing related for matters
such as the collection of fees related
to the Manus Island case.
Management is working with the
Group’s lenders to ensure that
liquidity needs are monitored closely
and arrangements are put in place
where necessary to tide over short
term liquidity needs.
Competition and Market Share
The Group operates in a competitive
market which may adversely impact its
financial performance and poses risk.
Relationship managers conduct
proactive campaigns of reassurance
and information sharing with our
business partners that are deemed to be
of high importance in terms of current
business and securing future business.
Slater and Gordon Limited | Annual Report 2017 | 15
Financial Statements
17 Directors’ Report
43 Auditor’s Independence Declaration
44 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 30 June 2017
45 Consolidated Statement of Financial Position as at 30 June 2017
46 Consolidated Statement of Changes in Equity for the Year Ended 30 June 2017
47 Consolidated Statement of Cash Flows for the Year Ended 30 June 2017
48 Notes to the Financial Statements for the Year Ended 30 June 2017
88 Slater and Gordon Limited Directors’ Declaration
89 Independent Auditor’s Report
96 Additional ASX Information
97 Corporate Directory
16 | Slater and Gordon Limited | Annual Report 2017
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 2017 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 (ceased as Group Managing Director 29 June 2017, continuing as Non-Executive Director)
• James M. Millar
• Tom Brown (appointed 1 September 2016)
•
Ian Court (ceased as director 30 August 2016)
• Ken Fowlie – Chief Executive Officer, UK (ceased as director 30 August 2016)
• Erica Lane (ceased as director 30 August 2016)
• Rhonda O’Donnell (ceased as director 27 February 2017)
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”) providing legal services in two main areas of consumer law – Personal Injury Law and General
Law.
Results
The loss after income tax of the Group was $546.8m (2016: net loss after tax of $1,017.6m).
Review of Operations
The review of operations is contained in the Operating and Financial Review as set out on pages 2-9.
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.
Events Subsequent to Reporting Date
Other than the matters detailed in Note 1.1, Note 5.2 and Note 8 to the financial statements, there have not been any
matters or circumstances that have significantly affected, or may significantly affect, the results reported in the financial
statements.
For clarification, the implementation of the recapitalisation and Board renewal as contained in the Operating and
Financial Review and the financial statements will occur subsequent to the Reporting Date.
Likely Developments
As part of the recapitalisation agreement, subject to the approval of the proposed scheme of arrangement, the Group will
undertake a structural separation of the UK business from the Australian business. This is expected to occur in
December 2017. Further details are included in the Operating and Financial Review.
The core strategy in Australia and the UK both prior to and after the proposed separation, is to implement an
organisational transformation programme which will position both the Australian and UK operations for profitable growth.
Comprehensive strategic and operational reviews are underway and operational efficiency programmes are being
implemented.
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 does not consider that the
operations are materially exposed to environmental or social sustainability risk.
Information identifying risks related to the recapitalisation and restructure and legislative change and financial risks faced
by the Company is contained in the Operating and Financial Review as set out on page 9.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 17
Page 10
Directors’ Report
Environmental, Social and Corporate Governance (continued)
The Group will undertake a Board renewal process as part of the recapitalisation. All existing directors have agreed to
resign in due course as new directors are appointed as nominated by the new lending group who will own approximately
95% of the Company’s equity on implementation of the recapitalisation.
Dividends Paid, Recommended and Declared
The Group has not declared or paid any dividends in respect of the 30 June 2017 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 2017 (2016: No interim dividend paid)
No final dividend for 2016
(2015: 5.50 cents partially franked (40%) at the tax rate of 30%)
2017
$’000
-
-
-
2016
$’000
-
19,330
19,330
Share Options
Other than 2.3 million share options and 1.2 million performance rights granted to the Group Chief Financial Officer on 5
August 2016 as part of his Board approved retention plan (refer section 5.2.1 of 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.
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.
Information on Directors and Company Secretaries
The skills, experience, expertise and special responsibilities of each person who has been a Director of the Company at
any time during or since the end of the financial year is provided below, together with details of the company secretaries
as at the year end.
John Skippen
ACA
Chair
Non-Executive Director
Experience
John has been a Board member since 2010 and Chair of the Board since 2012.
John has over 30 years’ experience as a chartered accountant and was the former
Executive Finance Director of Harvey Norman Holdings Ltd. John brings to the Board
extensive financial, public company and retail experience and skills in financial
management, general management, mergers and acquisitions and strategy.
Other Current Directorships
Non-Executive Director of Flexigroup Limited (ASX: FLX) (appointed November 2006)
Former Directorships
Non-Executive Director of Super Retail Group Ltd (ASX: SUL) (2008-2016)
Special Responsibilities
Chair – Board (current)
Member – Audit, Compliance and Risk Management Committee (current)
Member – Remuneration Committee (current)
Chair – Nomination Committee (current)
18 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 11
Directors’ Report
Information on Directors and Company Secretaries (continued)
Andrew Grech
LLB MAICD
Group Managing Director
Experience
Andrew joined Slater and Gordon in 1994 and was appointed 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. Andrew commenced as a Non-Executive Director on 29 June 2017 upon
ceasing as Group Managing Director.
Other Current Directorships
None
Former Directorships
None
Other Positions
Member of the Advisory Council of the Melbourne Law School (current)
Special Responsibilities
Member – Audit, Compliance and Risk Management Committee (current)
Member – Remuneration Committee (current)
Member – Nomination Committee (current)
James M. Millar AM
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)
Non-Executive 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)
Member – Remuneration Committee (appointed 27 February 2017 – current)
Member – Nomination Committee (appointed 27 February 2017 – current)
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 19
Page 12
Directors’ Report
Information on Directors and Company Secretaries (continued)
Tom Brown
Experience
MA
Non-Executive Director
Tom Brown commenced as a Non-Executive Director on 1 September 2016 and Chair of
the Remuneration Committee.
Tom Brown is one of Australia’s most senior HR Directors with more than 20 years’ Board
level experience across multiple industrial sectors.
Tom has held senior executive positions in global listed companies including Mobil, BHP
Billiton, Allied Domecq, Brambles and Rolls Royce in Europe, Africa, the USA and
Australia including Board level experience across multiple industrial sectors including Oil
and Gas, Mining, FMCG, Industrial Services, Utilities, Aeronautical and Marine.
Tom has led transformation programs in both high growth and turnaround environments.
Other Current Directorships
Nil
Former Directorships
Board Member of Aero Engine Controls
Chair of Rolls-Royce PLC’s Common Support Functions Theme Board and its Community
Investment and Sponsorships Board
Advisory Board Member of Quest
Non-Executive Director of the Homeless World Cup
Special Responsibilities
Chair – Remuneration Committee (current)
Member – Audit, Compliance and Risk Management Committee (current)
Member – Nomination Committee (current)
Ken Fowlie
Experience
LLB BCom (NSW)
MSc (with distinction) (LBS)
MAICD
Executive Director – ceased
30 August 2016
Ken ceased as an Executive Director on 1 September 2016 and continued as Chief
Executive Officer, UK.
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
20 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 13
Directors’ Report
Information on Directors and Company Secretaries (continued)
Ian Court
FAICD
Non-Executive Director –
ceased 30 August 2016
Experience
Ian ceased as a Non-Executive Director and Member of the Remuneration Committee on
30 August 2016.
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 (ceased 30 August 2016)
Member – Remuneration Committee (ceased August 2016)
Erica Lane
Experience
B App Sc, Grad Dip Comp,
MBA (Melbourne),
Erica ceased as a Non-Executive Director, Chair Remuneration Committee and Member of
the Audit Compliance and Risk Management Committee on 30 August 2016.
MBA (Chicago),
Erica joined the Board of the Company in 2008.
MAICD
Non-Executive Director –
ceased 30 August 2016
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 – ceased 30 August 2016)
Member – Audit, Compliance and Risk Management Committee (ceased 30 August 2016)
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 21
Page 14
Directors’ Report
Information on Directors and Company Secretaries (continued)
Rhonda O’Donnell
Experience
M App Sc, MBA (Melbourne)
Non-Executive Director –
ceased 27 February 2017
Rhonda ceased as a Non-Executive Director and Member of the Remuneration,
Nomination, and Audit Compliance & Risk Management Committees on 27 February 2017.
Rhonda joined the Board of the Company in 2013.
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 (ceased 27 February
2017)
Member – Remuneration Committee (ceased 27 February 2017)
Member – Nomination Committee (ceased 27 February 2017)
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
22 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 15
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
T Brown
22
3
22
3
3
14
22
19
22
3
22
3
3
14
22
18
-
-
5
1
1
3
5
2
Directors’ Interests in Shares
-
-
5
1
1
3
5
2
-
-
4
1
1
4
1
4
-
-
4
1
1
4
1
4
-
-
3
-
-
2
3
1
-
-
3
-
-
2
3
1
10
2
10
-
-
-
10
-
10
2
10
-
-
-
10
-
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
Tom Brown
7,000,656
35,804
5,646,221
170,000
100,000
25,000
20,000
-
-
-
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
Slater and Gordon Limited | Annual Report 2017 | 23
Page 16
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, and its related practices:
Other Advisory
• Ernst & Young
Total remuneration for non-audit services
Rounding of Amounts
2017
$
19,923
19,923
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
31 August 2017
24 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 17
Directors’ Report
Audited Remuneration Report
Contents
Section Title
1.0
Introduction
2.0
3.0
Remuneration
Governance
Non-Executive Director
Remuneration
4.0
Executive Remuneration
Key Management
Personnel Equity
5.0
6.0
Description
Describes the scope of the Remuneration Report and the individual Board and
executive Key Management Personnel (“executive KMP”) whose remuneration details
are disclosed.
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.
Provides details regarding the fees paid to Non-Executive Directors (“NEDs”).
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.
Provides details regarding the Group’s executive KMP equity plans and KMP
shareholdings, 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
Slater and Gordon Limited | Annual Report 2017 | 25
Page 18
Directors’ Report
Audited Remuneration Report (Continued)
1.
Introduction
The Group is a leading international consumer law firm employing 4,210 people across more than 70 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 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 aligned to business performance.
The remuneration policies in respect of the Group’s executive KMP are reviewed annually. In reviewing remuneration for
the Board and executive KMP for FY17, changes have been made to address both shareholder concerns following the
first strike in relation to the remuneration report at the 2016 AGM, and also, to ensure that remuneration policy is aligned
with the business priorities necessary for continued transformation, successful financial restructure, and achievement of
financial performance targets, within the new business environment.
This past year has again been challenging for the Group given the performance of the business, the decline in
shareholder value, and the renegotiation of the Group’s financial arrangements. This environment has had a direct
impact on the reward of executive key management personnel (KMP), many of whom are also significant shareholders.
Within this context, the Board believes the Group’s approach to remuneration is balanced, fair and equitable. The Group
has balanced the need for the conservative approach in recognition of the current challenges, with the need to retain key
personnel who are central to driving the transformation of the business as it goes through a major capital restructure. The
future success for the Group, during what represents a challenging period, will continue to rely upon the capability,
motivation and performance of our staff.
1.1. Scope
This Remuneration Report sets out the remuneration arrangements in place for the Board and executive KMP of the
Group during FY17, in accordance with the relevant provisions of the Corporations Act 2001 and the applicable
accounting standard requirements.
1.2. Actions Taken in Relation to First Strike in 2016
At the Annual General Meeting (AGM) in November 2016, 44.8% of votes were cast against acceptance of the
remuneration report for FY16. Based on feedback received, and consideration of the position of the Group following the
AGM, the following changes were adopted during FY17:
• At the November 2016 AGM, shareholders approved the granting of performance rights to the Group Managing
Director (GMD). Subsequent to the AGM, the executive KMP elected not to accept any allocations of performance
rights, and as a result the Board decided not to grant any rights to the GMD, or other executive KMP for FY17
• At the November 2016 AGM, shareholders approved the design of the Deferred Service Rights Plan which may
provide an allocation of deferred service rights to the GMD. Following the AGM, the executive KMP requested not to
receive equity allocations for FY17, therefore, participation in this plan was not offered to the GMD, or to other
executive KMP
• Significant changes were made to FY17 STI plan, increasing the focus on financial measures and enhancing the
relationship between executive reward and financial performance / shareholder value.
During FY18, the Group is undertaking a major financial restructure of the business. In conjunction with this, there will be
a focus on the strong alignment of the future reward arrangements for executive KMP with the future performance of the
Group.
26 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 19
Directors’ Report
Audited Remuneration Report (Continued)
1.3. Key Management Personnel (KMP)
KMP have authority and responsibility for planning, directing and controlling the activities of the Group and comprise the
Non-Executive Directors (NED) and executive KMP (being the executive director and other senior executives named in
this report). All KMP are based in Australia, except for Ken Fowlie who is based in the United Kingdom. Details of the
KMP during FY17 are set out below:
Name
Title
Non-Executive Directors
John Skippen
Tom (Thomas) Brown
• Chair of the Board
• Non-Executive Director
• Chair – Nomination Committee
• Member – Audit Compliance and
Risk Management Committee
• Member – Remuneration Committee
• Non-Executive Director
• Chair – Remuneration Committee
• Member – Audit Compliance and
Risk Management Committee
• Member – Nomination Committee
James M. Millar
Erica Lane
Ian Court
Rhonda O’Donnell
Andrew Grech
• Non-Executive Director
• Chair – Audit Compliance and Risk
Management Committee
• Member – Remuneration Committee
• Member – Nomination Committee
• Non-Executive Director
• Chair – Remuneration Committee
• Member – Audit Compliance and
Risk Management Committee
• Non-Executive Director
• Member – Remuneration Committee
• Non-Executive Director
• Member – Audit Compliance and
Risk Management Committee
• Member– Remuneration Committee
• Member – Nomination Committee
• Non-Executive Director
Executive Directors
Andrew Grech
Group Managing Director
Ken Fowlie
Chief Executive Officer, UK
Other Executive KMP
Ken Fowlie
Chief Executive Officer, UK
Change during FY17
Country of
Residence
Became member of the Remuneration
Committee on 22 September 2016
Australia
Commenced as Non-Executive
Director and appointed as Chair,
Remuneration Committee on 1
September 2016
Australia
Became member Audit, Compliance
and Risk Management Committee and
the Nomination Committee from 27
February 2017
Became member of the Remuneration
Committee on 27 February 2017
Australia
Retired as Non-Executive Director,
Chair Remuneration Committee, and
Member of Audit Compliance and Risk
Management Committee on 30 August
2016
Retired as Non-Executive Director and
Member, Remuneration Committee on
30 August 2016
Retired as Non-Executive Director and
Member of the Remuneration,
Nomination, and Audit Compliance
and Risk Management Committees on
27 February 2017
Australia
Australia
Australia
Commenced as Non-Executive
Director on 29 June 2017 upon
ceasing as Group Managing Director
Australia
Ceased as Group Managing Director
and Executive Director on 29 June
2017. Commenced as a Non-
Executive Director on same date.
Australia
Retired as Executive Director on 30
August 2016. Remains CEO UK
United
Kingdom
Bryce Houghton
Group Chief Financial Officer
Full year
Hayden Stephens
Chief Executive Officer, Australia
Full year
Continued as CEO UK from 1
September 2016
United
Kingdom
Australia
Australia
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 27
Page 20
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 Slater and Gordon’s remuneration strategy and policy. Consistent with this
responsibility, the Board has established the RC, comprised solely of independent NEDs.
Full details of the role, responsibilities, membership, and terms of reference of the RC is set out in its Charter, which can
be viewed in the Governance section of the Company’s website, www.slatergordon.com.au. As part of the annual review
process, the Charter was last revised and approved by the Board on 24 February 2017.
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 the Group meets the requirements of the ASX Corporate Governance Council’s Guidelines, including
gender diversity principles and recommendations;
• ensuring that the Group adopts, monitors and applies appropriate remuneration policies and procedures;
• ensuring that reporting disclosures related to remuneration meet the Board’s disclosure objectives and all relevant
legal requirements;
• developing, maintaining and monitoring appropriate talent management programs and policies, including succession
planning, diversity, recruitment, development, retention, 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 FY17, 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
considered necessary to
enable it to make
recommendations to the
Board.
External consultants
When requested, 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 & design remuneration, talent
management, and diversity policies and
practices. Design features of employee
and executive STI and LTI plan awards,
including proposal for performance and
other vesting criteria.
28 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 21
Directors’ Report
Audited Remuneration Report (Continued)
2.2. Use of Remuneration Consultants
During FY17, a remuneration consultancy contract was entered into by the Group for the provision of general support to
the Remuneration Committee and the Board, however no remuneration recommendations were requested, or received
by the Board. Details of this consultancy are set out as follows:
Advisor / Consultant – FY17
Services Provided
Crichton & Associates Pty Limited,
Independent Remuneration Consultant
Provided general support to the RC in
reviewing
No
remuneration recommendations were
provided during FY17
agenda
items.
Remuneration consultant for the
purpose of the Corporations Act
No
If the Group had sought independent remuneration advice, it 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 FY17, the Board did not receive any written report containing remuneration recommendations
from Crichton & Associates. The Board is satisfied that the remuneration information provided was free from any undue
influence from executive KMP, as the protocol for procuring advice relating to KMP remuneration has been followed.
Crichton & Associates was paid $13,734 for remuneration services provided during FY17.
3. Non-Executive Director (NED) Remuneration
3.1. NED Remuneration
Principle
Comment
Fees are set by reference
to key considerations
Fees for NEDs were set and approved at the 2015 AGM, and 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.
Remuneration is structured
to preserve independence
while creating alignment
To preserve independence and impartiality, NEDs are not entitled to any form of incentive
payments including options and the level of their fees is not set with reference to measures
of the Group’s performance.
Aggregate Board and
Committee fees are
approved by shareholders
Shareholders approve the aggregate amount available for the remuneration of NEDs. The
current aggregate Board and Committee fee pool is unchanged from that approved by
shareholders at the 2015 AGM. The total amount of fees paid to NEDs in FY17 was
$722,231 in total which is 76% of the approved aggregate annual fee pool.
3.2. NED Fees and Other Benefits
The aggregate board fee pool is unchanged from that approved by shareholders at the 2015 AGM, and has applied from
1 July 2015, with chair and member fees for FY17 (inclusive of superannuation) on an annualised basis as detailed in the
following table. There was no change in NED fees for FY17.
Board
Audit, Compliance & Risk
Management Committee
Nomination Committee
Remuneration Committee
Board Chair Fee
$240,000(1)
Board Director Fee
$120,000
Committee Chair Fees
Committee Member Fees
$20,000
- (2)
$10,000
$5,000
$5,000
$5,000
Annual Fee Pool
$950,000
(1) Committee fees are not paid to the Chair of the Board
(2) The Chairman of the Board fulfils the role of Chair of the Nomination Committee, and does not receive additional fees for this role
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 29
Page 22
Directors’ Report
Audited Remuneration Report (Continued)
Post-Employment Benefits
Superannuation
Other Benefits
Equity instruments
Other fees/benefits
Included in the stated fees, superannuation contributions are 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 the Group business.
3.3. NED Total Remuneration
Short-Term Benefits
Post-Employment Benefits
Fees
Superannuation
Total
Amounts $
Current NEDs
John Skippen (Chair)
Thomas Brown (1)
James M. Millar
Former NEDs
Ian Court (2)
Erica Lane (2)
Rhonda O’Donnell (3)
Year
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
220,384
221,573
102,248
-
134,151
76,396
48,272
117,287
61,644
123,608
80,611
123,713
Total
647,310
662,577
(1) Mr Brown commenced as a Non-Executive director on 1 September 2016
(2) Mr Court and Ms Lane ceased as Non-Executive Directors on 30 August 2016
(3) Ms O’Donnell ceased as a Non-Executive Director on 27 February 2017
FY17
FY16
19,616
19,308
9,714
-
12,580
7,451
19,497
12,526
5,856
11,743
7,658
11,753
74,921
62,781
240,000
240,881
111,962
-
146,731
83,847
67,769
129,813
67,500
135,351
88,269
135,466
722,231
725,358
4. Executive Remuneration
4.1. Executive KMP Remuneration
The Group’s executive remuneration policies are intended to fairly remunerate executives for their contribution to the
Group. They are also designed to attract, motivate and retain qualified and experienced executives employed across
diverse businesses and geographic locations. For FY17, executive KMP remuneration was designed to include the
following components:
• Fixed Remuneration
• Short Term Incentive
o Cash
o Deferred Service Rights
• Long Term Incentive
Each of these elements is described further in the following sections.
As disclosed in the FY16 Remuneration Report, specific retention arrangements were introduced for the Group Chief
Financial Officer (GCFO) for FY17. Details of these arrangements are provided in Section 4.6.
4.2. Total Fixed Remuneration
What is Total Fixed Remuneration (TFR)?
TFR includes all remuneration and benefits paid to an executive KMP calculated on a total employment cost basis. In
addition to base salary, 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.
TFR is not “at risk”.
30 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 23
Directors’ Report
Audited Remuneration Report (Continued)
How is TFR determined?
Remuneration levels are considered annually through a remuneration review that considers market data, insights into
remuneration trends, the performance of the Group and individual, the broader economic environment, and the
executives’ responsibilities, performance, qualifications, experience and geographic location. Increases in job role or
responsibility, promotion, and changing market circumstances, as reflected
independent benchmark
assessments, would suggest adjustments may be necessary. Adjustments to executive KMP remuneration are
approved by the Board, based on RC and Group Managing Director input and recommendations.
through
4.3. Short Term Incentive (STI) Plan
4.3.1. Short Term Incentive Plan (Cash)
How does the STI Plan operate?
Executive KMP (excluding the Group CFO, refer to Section 4.6) are eligible to participate in the Group’s STI Plan which
places a significant proportion of remuneration “at risk” subject to the achievement of financial outcomes and individual
performance measures. This provides a tangible link between the interests of executives and the financial performance
of the Group and aligns executives’ behaviours with the Group’s short and medium term performance.
The STI plan has a cash component which may be paid once per year, following the announcement of the audited
financial results at year end. The minimum payout for financial and individual performance is 0%, and the maximum
payout is 100% for achievement of stretch targets. For FY17, the Deferred Service Rights Plan (DSRP) was introduced,
with allocations intended to be made through this plan based on the STI outcomes for the financial year. As disclosed in
Section 1.2, while shareholders approved the design of the Deferred Service Rights Plan at the November 2016 AGM,
which may have provided an allocation of deferred service rights to the GMD, subsequently, participation in this plan was
not offered to the GMD, or to other executive KMP. Further details on the DSRP is provided in Section 4.3.2.
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.
The STI program is reviewed annually by the RC and approved by the Board.
What changes were made to the STI Plan during the year?
The following changes were made to the STI Plan during FY17:
• The design of the plan was changed to provide a stronger linkage to Group and Regional financial performance.
• The financial budgets set were challenging, and achievement would represent a significant uplift in performance. As
a result, the Board set a gateway level of EBITDAW performance that needed to be achieved before any STI would
be paid. A linear scale was adopted for performance between target and stretch.
What were the STI performance measures for the year ended 30 June 2017?
The performance measures for executive KMP were designed to align reward with achieving Group and Regional
Financial and Non-Financial Measures. The FY17 measures reflected the short to medium priorities of the Group, with a
significant portion weighted to financial measures. The three measures included under the STI Plan are weighted for
each participant. The weighting varies according to the individual’s functional responsibilities and their ability to influence
the measurement outcomes. For the year ended 30 June 2017 the relative weightings were as follows:
Group Financial
Regional Financial
Gross Cash
Flow less
CAPEX
EBITDAW
Group Managing Director
CEO, UK
CEO, Australia
35%
-
-
35%
-
-
Gross Cash
Flow less
CAPEX
-
35%
35%
EBITDAW
-
35%
35%
Non-
Financial
TOTAL
30%
30%
30%
100%
100%
100%
For financial measures, 50% of the above weightings may have been received for achievement of target performance,
with straight line vesting between Target (50%) and Cap (100%).
Who sets the STI performance measures?
Financial performance targets are set by the Board, based on the recommendation of the RC. Individual KPIs are set
and measured for each executive KMP by the Group Managing Director, then reviewed and endorsed by the RC and
approved by the Board. The RC set and measure the individual KPIs for the Group Managing Director, which are
approved by the Board.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 31
Page 24
Directors’ Report
Audited Remuneration Report (Continued)
What are the individual key performance indicators (KPIs) and why are they used as an STI performance measure?
The use of individual KPIs for each executive creates a set of personal measures specific to each executive. For FY17,
these related to delivery of key business initiatives in the areas of client, business and people. The use of individual KPI
measures support the alignment of leadership behaviours with the Group’s corporate philosophy and objectives.
Payment of the individual non-financial component of the STI is subject to achievement of the financial gateway, unless
the Board determines otherwise.
How is performance assessed?
Performance against individual KPIs are validated and approved by the Board following the preparation of the financial
statements each financial year.
What if an executive KMP ceases employment?
The following details the treatment of short term incentives on termination:
• Resignation: Any potential STI payment is forfeited if an employee tenders their resignation. If an employee has given
notice, but not actually ceased employment, their unpaid incentives are forfeit irrespective of when the performance
period ended.
• Dismissal: Any potential STI payment is forfeited if an employee is given notice of dismissal.
• Death: Payments will be made to the estate of a deceased employee pro-rated for the eligible period. Payment will be
calculated in accordance with the normal timetable and based on the end of year results.
• Total & Permanent Incapacity: Employees will be eligible for payments pro-rated for the eligible period. Payment will
be calculated in accordance with the normal timetable and based on the end of year results.
• Retrenchment or other Company initiated termination: At the discretion of the Board.
When are the performance conditions tested and payments made?
For the executive KMP (excluding Group CFO), performance is tested and paid following the preparation of the financial
statements, with payments generally made in September, following financial year end.
Details of STI outcomes for FY17 are provided in Section 4.10.2.
4.3.2. Deferred Service Rights Plan
For FY17, the introduction of a Deferred Service Rights Plan (DSRP) was approved by the Board. Executive KMP
(excluding the GCFO) were to be invited to participate in the DSRP. Under this plan executive KMP may have been
granted an allocation of Deferred Service Rights, with the quantum being based on the results of the STI for FY17. These
rights would then be held in trust for a period of two years.
Subsequently, the Board decided that this plan would not be implemented due to the environment facing the Company,
and therefore, no Deferred Service Rights were granted.
4.4. Long Term Incentives (LTI)
In accordance with the Group remuneration framework, it had been intended to offer LTI allocations to executive KMP
during FY17. However, following the first strike vote against the remuneration report at the 2016 AGM, and the
challenges facing the Group, and feedback received from the executive team, the Board decided that no allocation would
be made to executive KMP during FY17. However, during FY17, a grant of equity was made to the GCFO under his
retention plan. Further details of this plan are provided in Section 4.6.2.
During FY16, an offer was made to executive KMP in November 2015, and was accepted by those executives. This offer
was subsequently placed on hold, and then cancelled, with no performance rights being allocated to the executives for
that year.
32 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 25
Directors’ Report
Audited Remuneration Report (Continued)
4.4.1. FY15 Long Term Incentive Plan
Three of the executive KMP are participants in the FY15 LTI.
Grant Date
Performance
Conditions
Vesting Schedule
Tranche 1
EPS Compound
Annual Growth Rate
Performance Period:
1 July 2014 to 30
June 2017
Vesting Schedule
Tranche 2
Relative TSR
Performance Period:
1 September 2014 to
31 August 2017
Equity Type
Expiry Date
Current Status
31 October 2014 (Australian executive KMP)
12 December 2014 (UK executive KMP)
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 at the end of the three year performance period. 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 Director (1)
Compound annual growth in EPS
(3 Years)
Other executive KMP
Compound annual growth in EPS
(3 Years)
% CAGR in EPS
% of equity to vest % CAGR in EPS
% of equity to vest
< 10%
0%
< 7%
0%
10% to 15%
50% to 100% pro-
rata
7% to 10%
50% to 100% pro-
rata
> 15%
100%
> 10%
100%
(1) FY14 Basic EPS is 33.8 cents. The Board imposed higher performance expectations on the then two
Executive Directors, Messrs Grech and Fowlie. Mr Fowlie resigned as an Executive Director in
August 2016, however, he continued as an executive KMP in the role of CEO, UK for the full year.
Ranking of the Group TSR against S&P/ASX 300 (excluding resources)
Performance
% of equity to vest
< 50th percentile
0%
50th to 75th percentile
50% to 100% pro-rata
> 75th percentile
Performance Rights
30 October 2017
100%
Both tranches will be assessed in September 2017 following the completion of the relevant
performance period, being, EPS at 30 June 2017, and RTSR at 31 August 2017. It is
anticipated that neither performance hurdle will be achieved.
4.5. Group Managing Director Remuneration
4.5.1. Cessation as Group Managing Director
As disclosed to the ASX on 29 June 2017, Mr Grech stood down as Group Managing Director as part of the
Recapitalisation Agreement for the company announced on that date. He remains a Non-Executive Director of the Group
until the proposed balance sheet restructuring of the Group has been completed, and at such time that the Group
appoints a replacement legal practitioner director as required by the relevant provisions of the Legal Professions Act
2007 (Victoria) and equivalent provisions in the jurisdictions in which the Company conducts legal practices. It is
important that Mr Grech continue as the legal practitioner director for the immediate future, and to support the Board
during this period. Therefore, the following arrangements will apply:
• From 30 June 2017 until he ceases as a Non-Executive Director of the Group, he will continue to receive fees
equivalent to his base salary as Group Managing Director, which is $560,384.
• When he ceases as a Non-Executive Director, as detailed above, he will receive the following:
o 3 months salary in lieu of notice (rather than the 6 months to which he was contractually entitled);
o 13 weeks salary as a termination payment; and
o Untaken annual leave and long service leave accrued until he ceased as the Group Managing Director.
He received no STI payments for the FY17 year and forfeited 40,000 Performance Rights previously granted under the
FY15 Long Term Incentive plan.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 33
Page 26
Directors’ Report
Audited Remuneration Report (Continued)
4.5.2. Relocation Allowance
During FY17, the Board approved an expatriate allowance for the Group Managing Director for the period of his
assignment to the UK. Over the past 18 months Mr Grech has spent a substantial proportion of his time in the UK
focused on the ongoing restructuring of UK operations. This allowance covered the additional costs incurred for living
expenses while in the UK, while maintaining a family residence in Australia. This was a temporary allowance, and did
not represent an ongoing increase to TFR. Details of this payment are included in “other benefits” in the executive
remuneration table in Section 4.10.1. The amount shown in the remuneration table in 4.10.1 covers the additional living
costs while on assignment to the UK from 18 January 2016 to 29 June 2017 which is included under “Other Benefits”.
4.6. Group Chief Financial Officer Remuneration
The Group Chief Financial Officer (GCFO) was assessed by the Board as being critical to managing the financial
restructure of the Group. Accordingly, in FY16, the Board approved a “one off” short term incentive and retention plan.
Details of these arrangements were disclosed in the FY16 Remuneration Report, and are described below. On the
effective date of the Scheme of Arrangement, or 15 November 2017, whichever is the earlier, the GCFO role will no
longer be required and he will cease with the Group. Details of his termination arrangements are also provided below.
4.6.1. GCFO Short Term Incentive Plan
As part of the retention arrangements introduced for the GCFO for FY17 he participated in a quarterly STI plan for the
financial year. Results were assessed at the end of each quarter against performance milestones approved by the
Board. These provided alignment between key performance outcomes for the Group and the reward for the GCFO. The
weightings and measures were as follows:
Measure
EBITDAW
Gross Operating Cash Flow less CAPEX
Non-Financial milestones
TOTAL
Q1
6%
6%
8%
20%
Q2
6%
6%
8%
20%
Q3
6%
6%
8%
20%
Q4
12%
12%
16%
40%
Full Year
30%
30%
40%
100%
The Board determined the financial and non-financial measures for each quarter, and reviewed the results at the end of
each quarter.
The resulting payments were reviewed by the RC prior to being referred to the Board for approval. Details are provided in
the following table:
Assessment
Quarter 1: 30 Sept 2016
Quarter 2: 31 Dec 2016
Quarter 3: 31 Mar 2017
Quarter 4: 30 Jun 2017
TOTAL
Weighting
Target STI Value ($)
Actual STI Payment (S)
20%
20%
20%
40%
100%
$65,000
$65,000
$65,000
$130,000
$325,000
$45,500
$26,000
$26,000
$0
$97,500
Based on the Board’s assessment of the GCFO’s performance against the KPIs he was paid 30% of his maximum
potential STI value. Of this, 24% related to his contribution and efforts in improving the financial systems of the Group
and as a major contributor to the negotiations of the recapitalisation of the Group. 6% of the payment related to
achievement of the EBITDAW target in Quarter 1.
34 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 27
Directors’ Report
Audited Remuneration Report (Continued)
4.6.2. GCFO Retention Plan
The GCFO retention plan was implemented in place of his participation in any other Group equity plan. The plan
comprised an allocation of performance rights and options based on the following:
Grant Date
5 August 2016
Performance Period
1 May 2016 to 30 June 2017
Equity on Issue
1.2 million performance rights
2.3 million options
Performance Condition Relative Total Shareholder Return (TSR) ranking against the S&P/ASX 300 (excluding
resources)
Vesting Schedule
Ranking of the Group TSR against S&P/ASX 300 (excluding resources)
Performance
% of equity to vest
Vesting Conditions
Treatment of Vested
Equity
< 50th percentile
0%
50th to 75th percentile
50% to 100% pro-rata
> 75th percentile
100%
In addition to achieving the required performance for vesting, the participant was also
required to meet the service condition and the Board must resolve that the hurdle had been
achieved. If the performance conditions were not satisfied, the Performance Rights and
Options lapse, and no value will have been received by the participant.
Performance rights: 50% of vested and exercised Performance Rights may have been
converted to ordinary shares and transferred to the participant immediately. The remaining
50% may have been converted to shares and held in trust until 31 December 2018.
Options: may have been exercised once the performance hurdle had been achieved, or the
participant may have deferred exercising the Options for up to 3 years from the Grant Date.
If the GCFO had elected to exercise some, or all of the vested Options, they would have
been converted into shares. Fifty percent of the resulting shares may have been 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.
Expiry Date
Vested options that have not been exercised would have lapsed on 4 August 2019.
Fair Value of
Instrument at Grant
Performance rights:
Options:
$0.35
$0.21
Option Exercise Price
$0.2763 (VWAP for the 20 business days prior to 1 May 2016 and as agreed in the
Syndicated Facility Agreement).
Current Status
The GCFO Retention Plan has been assessed by the Board following the vesting date of
30 June 2017. The hurdle was not achieved and all performance rights and options have
now lapsed.
4.6.3. Cessation as GCFO
On the effective date of the Scheme of Arrangement, or 15 November 2017, whichever is the earlier, the GCFO role will
no longer be required and he will cease with the Group. As a result he will receive the following termination payments, all
less applicable Tax in accordance with his employment agreement:
(i).
(ii).
6 months’ salary in lieu of notice; and
untaken annual leave accrued to the Employment Termination Date.
4.7. Remuneration Composition Mix & Executive Remuneration Components
The Group endeavours to provide an appropriate and competitive mix of remuneration components balanced between
fixed and at risk and potentially paid in both cash and equity. The following table provides the intended remuneration mix
across the remuneration components:
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 35
Page 28
Directors’ Report
Audited Remuneration Report (Continued)
Target Remuneration Policy Mix for FY17
Policy Total Remuneration % (annualised at target) for FY17
Fixed
Variable (at risk)
Total Fixed
Remuneration
Short Term
Incentive
Deferred Service
Rights
Long Term
Incentive
48.1%
54.3%
60.6%
34.8%
18.7%
20.9%
18.2%
17.4%
16.6%
12.4%
10.6%
-
16.6%
12.4%
10.6%
47.8%(1)
Position
Group Managing Director
CEO UK
CEO Australia
Group Chief Financial Officer
(1) GCFO Retention Plan
Following the first strike at the 2016 AGM, and the environment facing the Company during FY17, no long term incentive
or deferred service right grants were made to executive KMP during the year ended 30 June 2017. As a result the
relative weightings between the remaining remuneration components were as follows:
Actual Target Remuneration Mix for FY17 (excluding DSRP and LTI which was not granted)
Position
Group Managing Director
CEO UK
CEO Australia
Group Chief Financial Officer
Actual Total Remuneration % (annualised at target) for FY17
Fixed
Variable (at risk)
Total Fixed
Remuneration
Short Term
Incentive
Deferred Service
Rights
Long Term
Incentive
72.0%
72.2%
76.9%
34.8%
28.0%
27.8%
23.1%
17.4%
The Deferred
Service
Rights Plan
was not
implemented
-
No LTI
grants were
made during
FY17
47.8%
4.8.
Relationship between the Group’s Performance and Executive KMP Remuneration
4.8.1. The Group’s Financial Performance (FY13 to FY17)
Company Performance
2013
2014
Restated
2015
Restated
2016
2017
Revenue ($'000)
297,963
438,228
598,185
908,185
611,485
Profit before tax ($'000)
61,341
95,747
85,408
(1,029,468)
(551,149)
Profit after tax ($'000)
41,521
68,236
62,374
(1,017,595)
(546,831)
Basic earnings per share (cents)
23.90
33.80
26.46
(289.1)
(155.6)
Diluted earnings per share (cents)
23.30
33.20
26.27
(289.1)
(155.6)
EBITDAW
33,362
63,321
92,586
(49,343)
(76,095)
Gross Operating Cash Flow
less CAPEX
Dividends per share - paid during
financial year (cents)
Total dividends paid during
financial year ($'000)
36,820
62,615
33,666
(96,383)
(34,308)
6.30
6.85
8.50
5.50
10,647
13,770
17,620
19,330
-
-
Share price at 30 June ($)
2.78
5.16
3.56
0.39
0.081
36 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 29
Directors’ Report
Audited Remuneration Report (Continued)
4.8.2. Group Performance and Relationship to Executive KMP Remuneration
The underperformance of the group as discussed in the Operating and Financial Review is reflected in the KMP STI
outcomes.
FY17 Short Term Incentive outcomes
The resulting STI outcomes for the executive KMP are provided in the following table. One executive KMP, Mr Houghton,
GCFO, received an STI payment for FY17. This amount was based on his “one off” STI described in Section 4.6.1. No
other executive KMP received an STI payment for FY17.
Actual STI Awarded for FY17 Compared to STI Opportunity
Executive
KMP
Position
Andrew Grech Group Managing Director
Ken Fowlie
Chief Executive Officer, UK
Bryce
Houghton
Hayden
Stephens
Group Chief Financial Officer
Chief Executive Officer,
Australia
Target STI as
a % of FY17
TTR (1)
STI awarded
as a % of
Target STI
STI forfeited
for FY17 as a
% of Target
STI
Accrued STI
to be
awarded in
FY18 ($)
28.0%
27.8%
33.3%
23.1%
0%
0%
30%
0%
100%
100%
70%
100%
$0
$0
$0
$0
(1) TTR is Total Target Remuneration, excluding DSRP and LTI
Overall, there has been direct 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 make any grants under the long term incentive plan
and the deferred service rights plan during FY17. The exception was a 30% payment to the GCFO based on
performance against his quarterly targets, as part of his retention and incentive arrangements, as described in section
4.6.1.
Long Term Incentive Outcomes
The FY15 LTI plan is the only active long term incentive plan and utilises EPS CAGR and relative 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. Final assessment of this plan
will occur in September 2017.
It was planned to offer key executives the opportunity to participate in a FY17 LTI Plan. However, due to the challenges
facing the company the Board decided not to make any offer during the year.
No performance rights vested during FY17, and equity allocated under the GCFO retention plan lapsed as the
performance conditions were not achieved.
4.9. Other Remuneration Elements and Disclosures relevant to Executive KMP
4.9.1. Clawback
The clawback policy was introduced in June 2016 to apply onwards from FY17. The policy enables the Group to
clawback certain elements of an executive's remuneration if there has been a misstatement of the Group’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 executive
KMP with the long-term interests of the Group and to ensure that excessive risk taking is not rewarded.
4.9.2. Hedging and Margin Lending Prohibition
The Group’s Share Trading Policy continued in FY17. Directors and executive KMP must not engage in dealings based
on short term fluctuations in the Group’s securities. If a Director or executive KMP acquires securities in the Group, they
should not sell or agree to sell any Slater and Gordon securities of that class for at least 30 days.
Directors are prohibited from entering into margin loans under the Group’s Share Trading Policy. Other executive KMP
require prior approval to enter into a margin loan 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 the Group 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 the Group’s securities during a prohibited trading period.
Directors and executive KMP must not enter into hedging arrangements in relation to securities in the Group 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.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 37
Page 30
Directors’ Report
Audited Remuneration Report (Continued)
The Group, in line with good corporate governance, has a Share Trading Policy setting down how and when employees
may deal in Slater and Gordon securities. The Group’s Share Trading Policy is available on the Slater and Gordon
website www.slatergordon.com.au under the Firm, and then Governance tab.
4.9.3. Minimum Shareholding Guidelines
As at 30 June 2017, two executive KMP (Messrs Fowlie and Stephens) 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.
38 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 31
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Slater and Gordon Limited | Annual Report 2017 | 39
Directors’ Report
Audited Remuneration Report (Continued)
4.10.2. 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 Share based payments (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
Year
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
Former Executive KMP
Wayne Brown
Cath Evans
Neil Kinsella
Felicity Pantelidis
Total
Total
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
Fixed
Remuneration
(1)
Cash
Incentives
received for
previous year
performance
Cash
Incentives
received for
current year
performance
866,490
587,515
552,231
670,998
654,035
411,352
495,961
431,490
-
154,861
-
338,682
-
238,011
-
403,361
2,568,717
3,236,270
-
35,000
-
30,000
90,000
-
-
30,000
-
25,000
-
100,000
-
28,298
-
80,000
90,000
328,298
-
-
-
-
97,500
100,000
-
-
-
-
-
25,000
-
-
-
-
97,500
125,000
Total Cash
866,490
622,515
552,231
700,998
841,535
511,352
495,961
461,490
-
179,861
-
463,682
-
266,309
-
483,361
2,756,217
3,689,568
Future at risk
remuneration
received
during the
year (LTI) (2)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Represents the value of base salary, non-monetary benefits, other benefits and superannuation received during the year (excludes
the accrued value of long leave)
(2) No LTI was offered to executive KMP during FY17 (refer Section 4.4)
5. Key Management Personnel Equity
5.1. Executive KMP Equity Plans
As described in Section 4.4, as a result of the FY16 and FY17 LTI plans being cancelled and not offered respectively, the
FY15 LTI, and the GCFO FY16 Retention plan are the only equity plans in which executive KMP continued to participate
during FY17.
The FY15 LTI has two testing dates to determine if any performance rights may vest, being 30 June 2017 for EPS, and
31 August 2017 for RTSR. Formal assessment of performance of these plans will be undertaken in September 2017.
The GCFO FY16 Retention plan had a vesting date of 30 June 2017 for both performance rights and options.
Performance of this plan has been assessed and all performance rights and options have lapsed.
5.2. Vesting and Exercise of Performance Rights granted as Remuneration
During FY17, no performance rights or options were vested, exercised, or granted.
40 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 33
Directors’ Report
Audited Remuneration Report (Continued)
5.2.1. Analysis of Movement in Performance Rights
During the financial year, the movement in the number and value of performance rights over ordinary shares of Slater
and Gordon Limited acquired under LTI, and GCFO Retention Plan, held by executive KMP is detailed below:
Number held
at 1 July
2016
Number
offered in
year (1)
Offer Value
($)
Number
exercised in
year
Intrinsic
Value ($)
Number
cancelled /
forfeited
during year
Number held
at 30 June
2017
Andrew
Grech
Ken
Fowlie
Bryce
Houghton
Hayden
Stephens
40,000
16,000
-
-
-
-
-
1,200,000
418,560
16,000
-
-
Total
72,000
1,200,000
418,560
(1) No offer was made during FY17, refer Section 4.4
-
-
-
-
-
-
-
-
-
-
40,000
-
-
16,000
1,200,000
-
-
16,000
1,240,000
32,000
During the financial year, the movement in the number and value of Options over ordinary shares of Slater and Gordon
Limited acquired under GCFO Retention Plan held by executive KMP is detailed below:
Number held
at 1 July
2016
Number
offered in
year
Offer Value
($)
Number
exercised in
year
Intrinsic
Value ($)
Number
cancelled /
forfeited
during year
Number held
at 30 June
2017
Bryce
Houghton
Total
-
-
2,300,000
2,300,000
475,870
475,870
-
-
-
-
2,300,000
2,300,000
-
-
5.3. KMP Equity Interests
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 4.9.2 Hedging and margin lending prohibition for more information.
The table below indicates shareholdings of the Group KMP:
Acquisitions
Disposals
Number held at 30
June 2017
John Skippen
Thomas Brown
James M. Millar
Andrew Grech
Ken Fowlie
Bryce Houghton
Hayden Stephens
Number held at 1
July 2016
60,000
-
20,000
6,750,656
5,646,221
-
4,804,115
Former Non-Executive Directors
40,000
-
-
250,000
-
-
-
-
-
-
-
-
-
-
Ian Court
Erica Lane
Rhonda O’Donnell
Total
69,804
170,000
25,000
25,000
59,000
-
-
-
-
17,545,796
315,000
59,000
17,801,796
100,000
-
20,000
7,000,656
5,646,221
-
4,804,115
35,804
170,000
25,000
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 41
Page 34
Directors’ Report
Audited Remuneration Report (Continued)
6. Service Contracts and Employment Agreements
6.1. Employment Agreements: Executive Directors & Other Executive KMP
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
Death or Total and
Permanent
Disability
Termination for
Serious
Misconduct
Statutory
Entitlements
Vendor
Shareholders
In order to terminate the employment arrangements, executive KMP are required to provide
the Company with six (6) months’ written notice.
On resignation, unless the Board determines otherwise, all unvested STI or LTI benefits are
forfeited.
The Company may terminate employment by providing six (6) months’ written notice or
payment in lieu of the notice period based on TFR.
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.
On death or total and permanent disability, payment will be made on a pro-rata basis and will
be calculated in accordance with the normal timetable and end of year results.
The Company may immediately terminate employment at any time in the case of serious
misconduct, and executive directors and other executive KMP will only be entitled to payment
of TFR up to the date of termination.
Payment of statutory entitlements of long service leave and annual leave applies in all events
of separation.
Any executive who was one of the seven Vendor Shareholders is a party to the Vendor
Shareholder Agreement released to the ASX on 21 May 2007, and is subject to minimum
shareholding requirements and the consequences which flow from the cessation of their
employment as a term of that agreement.
Post-Employment
Restraints
The employment agreement contains a restraint of trade provision which applies for a period of
between 6 months and 12 months.
End of Remuneration Report
42 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 35
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 audit of Slater and Gordon Limited and Controlled Entities for the financial year
ended 30 June 2017, 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 Controlled Entities it controlled during the
financial year.
Ernst & Young
Christopher George
Partner
Melbourne
31 August 2017
Slater and Gordon Limited | Annual Report 2017 | 43
36
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
For the Year Ended 30 June 2017
Revenue
Fee revenue
Net movement in work in progress
Services revenue
Revenue from contracts with customers
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, marketing and new business development expense
Administration and office expense
Consultant fees
Finance costs
Bad and doubtful debts
Depreciation and amortisation expense
Other expenses
Impairment of intangible assets
Loss before income tax expense
Income tax benefit
Loss 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 for the year, net of tax
Total comprehensive loss for the year, net of tax
Loss for the year attributed to:
Owners of the Company
Non-controlling interests
Total comprehensive loss for the year attributed to:
Owners of the Company
Non-controlling interests
Basic loss per share (cents)
Diluted loss per share (cents)
The accompanying notes form an integral part of these financial statements.
Note
3.1
3.2
3.2
3.2
3.2
4.1
3.4
2017
$’000
532,460
(51,845)
120,844
601,459
10,026
611,485
325,304
4,453
7,170
79,946
29,161
87,850
90,290
33,470
51,911
47,885
11,228
32,701
361,265
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
35,244
879,506
(551,149)
(4,318)
(546,831)
(1,029,468)
(11,873)
(1,017,595)
(8,188)
1,721
(6,467)
(6,467)
(35,013)
(1,130)
(36,143)
(36,143)
(553,298)
(1,053,738)
(546,549)
(282)
(546,831)
(1,017,306)
(289)
(1,017,595)
(553,014)
(284)
(553,298)
(1,053,426)
(312)
(1,053,738)
3.6
3.6
(155.6) cents
(155.6) cents
(289.1) cents
(289.1) cents
44 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 37
Consolidated Statement of Financial Position
As at 30 June 2017
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 (liabilities) /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.
Note
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
2017
$’000
33,303
395,466
294,871
3
21,144
744,787
26,555
91,492
220,094
13,112
34,718
536
2016
$’000
82,494
472,377
361,898
16,803
24,217
957,789
33,207
65,391
225,635
393,970
46,725
11,314
386,507
1,131,294
776,242
1,734,031
418,619
466,240
8,250
1,815
54,532
949,456
-
314,702
93,361
1,419
21,172
463,570
3,642
9,301
7,490
52,455
536,458
510
761,138
112,950
2,841
15,037
430,654
1,380,110
(248,816)
892,476
1,428,934
305,097
5.5
1,119,235
1,116,048
44,023
(1,411,897)
(248,639)
(177)
(248,816)
54,290
(865,348)
304,990
107
305,097
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 45
Page 38
Consolidated Statement of Changes In Equity
For the Year Ended 30 June 2017
2017
Balance as at 1 July 2016
Net loss after tax for the year
Total other comprehensive loss for the year
Total comprehensive loss for the year
Transactions with owners in their capacity
as owners
Ordinary and VCR shares issued / (bought
back)
5.5
Cancellation of VCR shares
Transfer from share based payments reserve
5.5
Recognition of share based payments expense
to former owners
Costs of share registry
5.5
Issue of warrants
Performance rights
Total transactions with owners in their
capacity as owners
Balance as at 30 June 2017
Note Contributed
Equity
Retained
Profits
Cash Flow
Hedging
Reserve
Foreign
Currency
Translation
Reserve
Share-based
Payment
Reserve
Total
Non-
controlling
interest
Total
Equity
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
1,116,048
(865,348)
(2,319)
35,699
20,910
304,990
107
305,097
(546,549)
(282)
(546,831)
(6,465)
(2)
(6,467)
(553,014)
(284)
(553,298)
-
-
-
-
(9,232)
525
11,907
-
(13)
-
-
3,187
(546,549)
-
-
-
1,721
(8,186)
(546,549)
1,721
(8,186)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11,907)
(9,232)
525
-
7,170
7,170
-
-
935
(13)
-
935
(3,802)
(615)
-
-
-
-
-
-
-
(9,232)
525
-
7,170
(13)
-
935
(615)
1,119,235
(1,411,897)
(598)
27,513
17,108
(248,639)
(177)
(248,816)
2016
Note Contributed
Equity
Retained
Profits
Cash Flow
Hedging
Reserve
Foreign
Currency
Translation
Reserve
Share-based
Payment
Reserve
Total
Non-
controlling
interest
Total
Equity
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Balance as at 1 July 2015 (restated*)
1,098,345
171,288
(1,189)
70,689
10,619
1,349,752
419
1,350,171
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
-
(1,017,306)
-
-
-
(1,017,306)
(289) (1,017,595)
-
-
-
(1,130)
(34,990)
(1,017,306)
(1,130)
(34,990)
(36,120)
(23)
(36,143)
(1,053,426)
(312) (1,053,738)
-
-
-
-
3.5
5.5
5.5
3,128
-
-
(19,330)
11,808
-
2,767
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Total transactions with owners in their
capacity as owners
17,703
(19,330)
Balance as at 30 June 2016
1,116,048
(865,348)
(2,319)
35,699
20,910
304,990
107
305,097
The accompanying notes form an integral part of these financial statements.
46 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 39
Consolidated Statement of Cash Flows
For the Year Ended 30 June 2017
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Payments to former owners
Interest received
Borrowing costs
Net income tax refunded
Note
2017
$’000
2016
$’000
777,457
(803,574)
(17,657)
339
(6,740)
11,087
1,056,757
(1,135,083)
(14,211)
381
(35,263)
23,175
Net cash used in operating activities
3.3
(39,088)
(104,244)
Cash flow from investing activities
Payment for software development
Payment for plant and equipment
Costs associated with acquisition of businesses
Proceeds from disposal of businesses
Repayment of cash consideration for SGS acquisition
Payment for acquisition of businesses – deferred consideration
Net cash used in investing activities
Cash flow from financing activities
Costs of share registry management
Loans/payments to related parties and employees
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash provided by financing activities
Net decrease in cash held
Net foreign exchange differences
Cash at beginning of financial year
Cash at end of financial year
The accompanying notes form an integral part of these financial statements.
(5,959)
(2,232)
(3)
(1,501)
-
(2,074)
(11,769)
(14)
(5,697)
15,000
(3,640)
-
5,649
(45,207)
(3,984)
82,494
33,303
(5,314)
(12,743)
(738)
168
2,386
(12,002)
(28,243)
(85)
(5,353)
192,787
(44,759)
(17,060)
125,530
(6,957)
(7,534)
96,985
82,494
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 47
Page 40
Notes to the Financial Statements
For the Year Ended 30 June 2017
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.
The consolidated financial statements provide comparative information in respect of the previous period.
Where necessary, comparative figures have been reclassified and repositioned for consistency with current year
disclosures.
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 statements have been prepared on a going concern basis.
During the year ended 30 June 2017, the Group incurred a net loss after tax of $546.8m (including $361.3m of intangible
asset impairment) and generated negative net cash flow from operating activities of $39.1m. At 30 June 2017 the
Group’s total liabilities exceed its total assets by $248.8m. The Group’s Syndicated Facility Agreement (“SFA”) banking
facilities were fully drawn with borrowings of $761.6m as at 30 June 2017. Based on exchange rates as at year end,
$450.2m is repayable in May 2018 and $311.4m is repayable in March 2019. The Group will not have sufficient free
cash flow to pay interest and repay the facilities in May 2018, or earlier, accordingly, the Group requires the ongoing
support of its lenders to continue as a going concern.
On 29 June 2017, the Group announced it had entered into a binding recapitalisation agreement with its lenders and
subsequently, on 31 August 2017, the Group announced it had signed an amended binding restructuring support deed
with 100% of its secured lenders in relation to the recapitalisation. The recapitalisation is intended to provide the Group
with a sustainable level of debt and support a stable platform for its future operations.
The terms of the recapitalisation agreement also provide the Group with additional liquidity support for its continued
operation prior to and post the implementation of the recapitalisation in the form of an increase of $50m to the Group’s
$40m working capital facility which will be available prior to the recapitalisation. Key terms of the recapitalisation and
liquidity support are detailed in note 5.2 Financing Arrangements.
The recapitalisation is expected to be completed in early December 2017 and is subject to a number of conditions
precedent which are detailed at note 5.2.4 Recapitalisation Agreement. These include shareholder approval of the
recapitalisation and the settlement of the shareholder class action detailed in note 8 Subsequent Events.
In addition to the reliance on the recapitalisation and additional liquidity support, to continue as a going concern, the
Group has drawn down a further $12.5m of its current working capital facility on 15 August 2017 and will require an
additional $12.5m in September 2017. This additional drawdown is subject to a number of conditions precedent which
are included in note 5.2.5 Working Capital Facility. Following the recapitalisation the Group may remain dependent upon
its lenders until it stabilises its trading results and sufficiently improves operating cash flows.
The above matters present a material uncertainty in relation to the Group’s ability to continue as a going concern and
therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts
stated in the financial report.
After taking into account all available information, the Directors have concluded that there are currently reasonable
grounds to believe:
•
•
•
•
•
the Group will continue to receive the support of its lenders;
the conditions precedent to the recapitalisation agreement will be satisfied;
the conditions precedent to drawing down on the remainder of the working capital facility will be satisfied;
the recapitalisation agreement will be approved by shareholders; and as such
the preparation of the 30 June 2017 financial report on a going concern basis is appropriate.
48 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 41
Notes to the Financial Statements
For the Year Ended 30 June 2017
The Directors have formed this view based on a number of factors including:
•
•
•
•
the support that lenders have afforded the Group to date in ensuring a stable platform for the business to re-establish
itself;
the absence of advice from lenders of a withdrawal of their support;
the in principle conditional agreement to settle the shareholder class action as announced on 11 July 2017; and
the recapitalisation plan produces a better return to shareholders and creditors than any other alternative.
The financial report does not include any adjustments relating to the recoverability and classification of recorded asset
amounts or to the amounts and classification of liabilities that might be necessary should the consolidated entity not
continue as a going concern.
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.
1.2. 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 or disclosures
of the Group as they did not result in any changes to the Group’s existing accounting policies.
1.3. 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.
1.4. 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 in profit or loss 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
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 49
Page 42
Notes to the Financial Statements
For the Year Ended 30 June 2017
of the transactions are used. All resulting exchange differences are recognised in Other Comprehensive Income and
accumulated 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.
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. For the year ended 30 June 2017, all operating segment results were regularly reviewed by the Group’s
Managing Director, who was 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 represent 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”) – offers fast track personal injury legal services in the UK relating to road traffic
accidents, employee liability, noise induced hearing loss, health and motor services.
Segment assets and liabilities are allocated to countries based on where the assets are located.
AUS
SGL UK
SGS
TOTAL
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Revenue
Fee and services revenue
Movement in WIP
Revenue from contracts with
customers
Other income
Total revenue and other
income
Result
EBITDA*
226,747 265,629 157,784 229,958 268,773 437,201
3,921
(15,474)
(17,391) (19,801)
(16,570)
(27,848)
653,304
(51,845)
932,788
(41,318)
211,273 237,781 141,214 212,567 248,972 441,122
601,459
891,470
10,026
16,715
611,485
908,185
(50,337)
(35,506)
(51,881)
(49,053) (25,721)
(6,102)
(127,939)
(90,661)
Depreciation and amortisation
Impairment of intangible assets
(5,892)
(10,959)
(9,578)
(55,803)
(3,874)
(42,744)
(5,952)
(2,213)
(1,462)
(9,458) (307,562) (814,245)
(11,228)
(361,265)
(17,743)
(879,506)
Loss before tax and net finance
expense
Net finance expense
Loss before income tax
Income tax (expense)/benefit
Net loss after income tax
(67,188) (100,887)
(98,499)
(64,463) (334,745) (822,560)
(500,432)
(987,910)
(50,717)
(41,558)
(551,149)
(1,029,468)
4,318
11,873
(546,831)
(1,017,595)
EBITDAW**
(34,864)
(7,657)
(35,311)
(31,663)
(5,920) (10,023)
(76,095)
(49,343)
Total segment assets
Total segment liabilities
400,124 429,675 443,268 512,157 287,902 792,199 1,131,294
355,683 316,555 802,335 794,308 222,092 318,071 1,380,110
1,734,031
1,428,934
Net assets/(liabilities) per
statement of financial position
44,441 113,120 (359,067) (282,151)
65,810 474,128
(248,816)
305,097
*EBITDA = Earnings before net interest, taxes, depreciation, amortisation and impairment.
**EBITDAW = Earnings before net interest, taxes, depreciation, amortisation, impairment and movement in WIP.
50 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 43
Notes to the Financial Statements
For the Year Ended 30 June 2017
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 base. 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
Slater and Gordon Limited | Annual Report 2017 | 51
Page 44
Notes to the Financial Statements
For the Year Ended 30 June 2017
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.
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.
52 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 45
Notes to the Financial Statements
For the Year Ended 30 June 2017
3.1.1 Accounting Policies (continued)
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.
Critical Accounting Estimate and Judgements
(i).
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). 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.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 53
Page 46
Notes to the Financial Statements
For the Year Ended 30 June 2017
3.1.1 Accounting Policies (continued)
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.
(iii). 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.
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:
Year ended 30 June 2017
Type of contract:
Fixed price
Time and Materials
No Win – No Fee
Revenue from contracts
with customers
Year ended 30 June 2016
Type of contract:
Fixed price
Time and Materials
No Win – No Fee
Revenue from contracts
with customers
Australia
PIL
$’000
GL
$’000
-
-
155,430
15,875
22,608
17,360
PIL
$’000
1,373
6,351
87,417
UK
GL
$’000
SGS
$’000
Total
$’000
8,952
36,507
41,724
80,266
67,924
145,732
614
126,982
387,803
155,430
55,843
95,141
46,073
248,972
601,459
-
-
173,721
22,448
29,532
12,080
1,862
5,025
151,417
10,066
41,733
2,464
72,098
164,761
204,263
106,474
241,051
543,945
173,721
64,060
158,304
54,263
441,122
891,470
54 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 47
Notes to the Financial Statements
For the Year Ended 30 June 2017
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, prior to their full impairment during the current year, that have
been assessed as having a finite useful life were amortised over the useful life of 3 years.
Share Based Payments
The accounting policy for share based payments is included in Note 5.6.
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
2017
$’000
51,361
96
454
51,911
309,941
14,813
550
325,304
61,446
18,500
79,946
7,033
4,068
127
2016
$’000
41,293
623
632
42,548
398,747
16,290
1,257
416,294
147,806
22,491
170,297
8,195
4,489
5,059
11,228
17,743
-
255
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 55
Page 48
Notes to the Financial Statements
For the Year Ended 30 June 2017
3.3. Cash Flow Information
Reconciliation of profit for the period to cash flows from operating activities
Loss after income tax
Non-cash flows in profit from ordinary activities
Notional interest on VCR share loans
Depreciation and amortisation
Impairment of intangibles
Share based payment expenses
Accrual for payments to former owners
Notional interest on deferred consideration
Bad and doubtful debts
Deferred costs of borrowing
Notional FX (gain) / loss
Interest Rate Swap Expense
Interest Expense Capitalised
Other non-cash items
Items shown in investing activities
Costs associated with acquisition
Proceeds from disposal of businesses
Changes in assets and liabilities
Increase in receivables
Decrease / (increase) in other assets
Decrease in work in progress
Decrease in payables
Increase in income tax payable
(Decrease) / increase in net deferred tax
Increase in deferred borrowings costs
Decrease in vendor liabilities
Increase / (decrease) in provisions
Cash flows used in operating activities
3.4.
Income and Other Taxes
3.4.1. Accounting Policies
2017
$’000
(546,831)
2016
$’000
(1,017,595)
(859)
11,228
361,265
7,720
4,453
96
47,885
12,313
(1,354)
566
31,404
(3,106)
3
(3)
(2,234)
3,511
52,323
(33,944)
15,435
(1,183)
-
(189)
2,413
(39,088)
(611)
17,743
879,506
15,957
18,529
623
39,342
10,850
2,323
-
-
-
738
(168)
(37,241)
(1,972)
40,486
(70,146)
6,702
6,698
(4,172)
(3,878)
(7,958)
(104,244)
Income and other taxes consist of income tax, Goods and Services Tax and Value Added 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.
56 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 49
Notes to the Financial Statements
For the Year Ended 30 June 2017
3.4.1. Accounting Policies (continued)
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.
3.4.2. Income Tax Expense
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
2017
$’000
3,636
364
(8,318)
(4,318)
266
105
371
-
-
2016
$’000
(9,482)
(12,167)
9,776
(11,873)
(144)
(310)
(454)
(26)
(26)
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 57
Page 50
Notes to the Financial Statements
For the Year Ended 30 June 2017
Deferred income tax (benefit) /expense included in income tax expense
(Increase)/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 in deferred tax liabilities
Change in tax rates
Deferred tax from prior periods
Derecognition of deferred tax asset on tax losses
Derecognition of deferred tax liability on impairment of brand names
Exchange differences
2017
$’000
2016
$’000
(15,483)
(371)
-
(9,836)
(945)
882
25,362
(7,927)
-
(8,318)
41,505
454
26
(31,138)
-
-
-
-
(1,071)
9,776
The prima facie tax payable on profit before tax differs from the income tax expense
as follows:
Accounting loss before tax
At the Australian statutory income tax rate of 30% (2016: 30%)
(551,149)
(1,029,468)
(165,344)
(308,840)
Non-deductible expenses
Non-assessable income
Adjustments in respect to prior periods
Difference in overseas tax rate
Utilisation of tax losses and reversal of short term timing differences on which no deferred
tax asset was previously recognised
Deferred tax charged at lower rate
Change in tax rates on deferred tax balances
Write off of deferred tax liability on impairment of brand names
Deferred tax assets not recognised
Income tax benefit
3.4.3. Recognised Tax Assets and Liabilities
Current tax assets
Balance at the beginning of the year
Tax refunded
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
Current income tax benefit/(expense)
Tax paid
Adjustments in respect of prior periods
Losses utilised
Balance at the end of the year
74,929
(872)
1,246
45,508
2,833
1,156
(945)
(7,927)
45,098
(4,318)
2017
$’000
16,803
(16,138)
(2)
(660)
3
(9,301)
(3,636)
5,051
(364)
-
(8,250)
212,724
(3,016)
175
74,116
5,327
-
-
-
7,641
(11,873)
2016
$’000
34,636
(29,464)
9,215
2,416
16,803
(23,412)
9,482
6,289
2,937
(4,597)
(9,301)
58 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 51
Notes to the Financial Statements
For the Year Ended 30 June 2017
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
Other
Property, plant and equipment
Revenue losses carried forward
Advanced Company Income Tax (“ACIT”) refund in Malta
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
2017
$’000
5,532
6,828
896
9,818
487
256
-
1,282
2,630
696
6,293
34,718
2016
$’000
3,521
6,931
552
2,788
144
521
326
1,577
-
26,811
3,554
46,725
(971)
(72,227)
(13,689)
-
(6,529)
55
(93,361)
(629)
(77,987)
(12,156)
(17,179)
(6,424)
1,425
(112,950)
At 30 June 2017 the Group has unrecognised deferred tax assets of $160.8m (2016: $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.
The majority of the deferred tax assets on tax losses carried forward are also unrecognised.
3.5. Dividends
Dividends paid during the year
Dividends on ordinary shares
No interim dividend paid for 2017 (2016: No interim dividend paid)
No final dividend for 2016 (2015: 5.50 cents, partially franked (40%))
Total dividends paid during the year
Dividends proposed and not recognised as a liability
Dividends on ordinary shares
No final dividend proposed for 2017 (2016: No final dividend paid)
Franking credits available
Franking credits at year end are adjusted for credits arising from payment of
provision for income tax and after deducting franking credits to be used in payment
of proposed dividends:
2017
$’000
2016
$’000
-
-
-
-
-
-
19,330
19,330
-
844
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 59
Page 52
Notes to the Financial Statements
For the Year Ended 30 June 2017
3.6. Loss per Share
The following reflects the loss and share data used in the calculations of basic and diluted loss per share:
Loss used in calculating basic and diluted earnings per share
Weighted average number of ordinary shares used in calculating basic loss per
share (‘000’s)
Adjusted weighted average number of ordinary shares used in calculating
diluted loss per share (‘000’s)
Note 4: Assets and Liabilities
2017
$’000
2016
$’000
(546,549)
(1,017,306)
351,351
351,907
351,351
352,085
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 was 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 was not amortised, but was tested annually for impairment or more frequently if events or changes in
circumstances indicated that it might be impaired. Prior to being fully impaired during the current year, goodwill was
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.
60 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 53
Notes to the Financial Statements
For the Year Ended 30 June 2017
4.1.1 Accounting Policies (continued)
Trademarks and Brand Names
Trademarks acquired in a business combination and recognised separately from goodwill were initially recognised at
their fair value at the acquisition date (which is regarded as their cost). The fair value of trademarks was based on the
discounted estimated royalty payments that have been avoided as a result of the trademark being owned.
Prior to their full impairment during the current year, trademarks were carried at cost less accumulated amortisation and
any accumulated impairment losses.
Gross Cost
Accumulated amortisation
Accumulated impairment loss
At 30 June 2016
Gross Cost
Accumulated amortisation
Accumulated impairment loss
At 30 June 2017
Movement in carrying amounts
Balance at 1 July 2015
Additions
Exchange differences
Amortisation expense
Impairment expense
Disposals
Balance at 30 June 2016
Additions
Reclassifications from property, plant and equipment
plantandandandeeequipment
Exchange differences
Amortisation expense
Impairment expense
Disposals
Balance at 30 June 2017
Goodwill
$’000
1,119,599
-
(786,731)
332,868
1,119,599
-
(1,119,599)
-
1,269,456
-
(57,082)
-
(879,506)
-
332,868
-
-
(17,922)
-
(314,946)
-
-
Software
Development
$’000
38,006
(20,597)
-
17,409
Trademarks &
Brand Names
$’000
53,452
(9,759)
-
43,693
Total
$’000
1,211,057
(30,356)
(786,731)
393,970
41,605
(23,427)
(5,066)
13,112
53,452
(12,199)
(41,253)
1,214,656
(35,626)
(1,165,918)
-
13,112
19,076
5,314
(2,437)
(4,489)
-
(55)
17,409
5,959
(52)
(790)
(4,068)
(5,066)
(280)
13,112
54,692
-
(5,940)
(5,059)
-
-
43,693
-
-
(2,313)
(127)
(41,253)
-
1,343,224
5,314
(65,459)
(9,548)
(879,506)
(55)
393,970
5,959
(52)
(21,025)
(4,195)
(361,265)
(280)
-
13,112
4.1.2. Impairment Testing of Goodwill and Indefinite Life Intangible Assets
For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately
identifiable, largely independent cash inflows (cash generating units “CGU’s”). Goodwill and indefinite life intangible
assets are allocated to CGU’s according to applicable business operations as follows:
AUS
AUS
PIL
GL
UK
PIL
UK
GL
UK
SGS
Total
2017
Goodwill recognised ($’000)
Indefinite life intangibles ($’000)
-
-
2016
Goodwill recognised ($’000)
Indefinite life intangibles ($’000)
5,893
57
-
-
-
-
-
-
43,532
1,715
-
-
-
-
-
-
-
-
283,443
41,921
332,868
43,693
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.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 61
Page 54
Notes to the Financial Statements
For the Year Ended 30 June 2017
4.1.2
Impairment Testing of Goodwill and Indefinite Life Intangible Assets (continued)
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.
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
As at 31 December 2016, the Group considered the performance of the UK businesses which had underperformed
against budget and previous forecasts. Whilst the Group’s UK business had shown signs of improvement, recovery had
been slower than anticipated and given this, it was considered that the UK business showed indicators of being further
impaired. As a result, management performed an impairment test as at 31 December 2016 for all CGUs in the UK. The
impairment test was based on a fair value less costs of disposal methodology which resulted in all remaining UK goodwill
and indefinite life intangibles being fully impaired as at 31 December 2016 and an impairment expense of $350.3m being
recognised for the period.
As at 30 June 2017, the remaining goodwill relating to the Australian CGU was tested for impairment. The impairment
test was based on a value-in-use methodology and an impairment expense of $5.9m was recognised for the period. This
additional impairment resulted in a total impairment relating to goodwill for the year ended 30 June 2017 of $356.2m.
As the carrying value of the Australian CGU (specifically Victorian PIL) was in excess of the recoverable amount, the
excess was applied to corporate assets of the Australian business. As a result, the software assets of the Australian
business were fully impaired at 30 June 2017 and an impairment expense of $5.1m was also recognised for the year.
Goodwill in the following CGUs were impaired during the year ended 30 June 2017:
CGU
Impairment loss
$’000
Recoverable amount
$’000
Slater & Gordon Solutions (SGS) (31 December 2016)
UK – PIL (31 December 2016)
Australia (30 June 2017)
307,560
42,744
5,893
4.1.4. Key Assumptions used in the recoverable amount calculations
UK CGUs
70,181
42,794
94,541
A fair value less costs of disposal approach was used to calculate the recoverable amount of the UK CGUs. It was
calculated using a discounted cash flow model and is considered to be a Level 3 valuation in the fair value hierarchy.
The calculated recoverable amount was based on valuations performed by an external consultant using a statistical
simulation of a range of future cash flow assumptions and scenarios. The scenarios modelled used a range of discount
rates between 15% and 22% which took into account the current risks and circumstances of the UK operations. The
forecast cash flows were projected over a period of 10.5 years, beyond which period a terminal growth rate of 2% was
used to extrapolate cash flow projections. The recoverable amount of the UK CGUs was measured using a value-in-use
basis in the prior year.
In the year ended 30 June 2017, an external consultant was engaged to perform a valuation for financing purposes and
the Directors considered this valuation to be the most reliable measure of recoverable amount for the CGUs.
The goodwill and indefinite life intangibles in all UK CGUs are now fully impaired as at 30 June 2017.
Australian CGU
A value in use model was used to calculate the recoverable amount of the Australian CGU (specifically Victorian PIL).
The calculated recoverable amount was based on internally prepared future cash flow forecasts which took into account
the current risks and circumstances of the operations. The cash flow model used a discount rate of 15% reflecting the
uncertainty surrounding the business at 30 June 2017. The forecast cash flows were projected over a period of 5 years,
beyond which period a terminal growth rate of 2% was used to extrapolate cash flow projections.
The recoverable amount of the Australian CGU (specifically Victorian PIL) was measured using a value–in-use basis.
The goodwill and indefinite life intangibles in the Australian CGU are now fully impaired as at 30 June 2017.
62 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 55
Notes to the Financial Statements
For the Year Ended 30 June 2017
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.
Current
Trade receivables
Impairment of trade receivables
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
Release of provisions
Movement in provision for discount
Foreign exchange translation differences
Balance at end of the year
2017
$’000
226,412
(69,437)
156,975
301,291
(65,694)
235,597
2016
$’000
299,502
(92,824)
206,678
340,605
(76,573)
264,032
2,894
1,667
395,466
472,377
119,847
(28,355)
91,492
(92,824)
29,647
(7,114)
4,853
(9,126)
5,127
(69,437)
88,991
(23,600)
65,391
(104,327)
835
(9,059)
-
7,856
11,871
(92,824)
The comparative for the allowance for non-recovery of non-current disbursements has been decreased by $56.5m with
an offsetting reclassification to the allowance for non-recovery of current disbursements.
As at 30 June, the ageing analysis of trade receivables is as follows:
2017
2016
Total
<30 days
30-60 days
61-90 days
91-180 days
>180 days
226,412
299,502
91,107
98,654
20,743
26,349
12,136
18,613
24,135
31,558
78,291
124,328
See note 5.4.4 regarding credit risk of trade receivables, which explains how the Group manages and measures credit
quality of trade receivables.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 63
Page 56
Notes to the Financial Statements
For the Year Ended 30 June 2017
4.3. Work in Progress
4.3.1. Accounting Policies
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
Personal injury
Project litigation
Other
Non-current
Personal injury
Project litigation
2017
$’000
2016
$’000
268,424
14,324
12,123
294,871
219,855
239
220,094
333,792
10,613
17,493
361,898
224,174
1,461
225,635
64 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 57
Notes to the Financial Statements
For the Year Ended 30 June 2017
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 profit or loss.
Gains and losses on disposal are determined by comparing proceeds with the carrying amount. These gains and losses
are included in profit or loss when the asset is derecognised.
Plant &
Equipment
$’000
Land &
Buildings
$’000
Low Value
Asset Pool
$’000
Gross Cost
Less accumulated depreciation
At 30 June 2016
Gross Cost
Less accumulated depreciation
At 30 June 2017
Movement in carrying amounts
Balance at 1 July 2015
Additions
Reclassification of plant & equipment
Exchange differences
Depreciation expense
Disposals
Balance at 30 June 2016
Additions
Exchange differences
Depreciation expense
Disposals
Balance at 30 June 2017
77,345
(45,173)
32,172
77,624
(51,903)
25,721
30,836
12,443
(40)
(2,478)
(7,825)
(764)
32,172
1,858
(920)
(6,730)
(659)
25,721
265
-
265
249
-
249
302
-
-
(37)
-
-
265
-
(16)
-
-
249
Total
$’000
80,487
(47,280)
33,207
80,868
(54,313)
26,555
31,959
12,743
-
(2,536)
(8,195)
(764)
2,877
(2,107)
770
2,995
(2,410)
585
821
300
40
(21)
(370)
-
770
33,207
139
-
(303)
(21)
585
1,997
(936)
(7,033)
(680)
26,555
The carrying amount of plant and equipment under finance lease included above amounted to $4,533,000 (30 June
2016: $6,784,000).
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 65
Page 58
Notes to the Financial Statements
For the Year Ended 30 June 2017
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.
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
2017
$’000
2016
$’000
150,026
268,009
584
418,619
173,672
287,655
2,243
463,570
-
510
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 high quality 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. For leased premises, the provision also includes any
costs associated with remediating the premises to the condition agreed in the contract. Before a provision is established,
the Group recognises any impairment loss on the assets associated with that contract if applicable.
66 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 59
Notes to the Financial Statements
For the Year Ended 30 June 2017
Third Party disbursements
The Group has an agreement with a third party disbursement funder, who funds disbursements in respect of individual
matters and is reimbursed out of any settlement proceeds on the matter. The Group has provided a financial guarantee
to the funder for the repayment of clients’ obligations. The provision for third party disbursements reflects the value of
clients’ obligations that are not expected to be recovered by the disbursement funder.
4.6.2. Provisions
Current
Employee benefits
Solicitor liability claims
Provision for third party disbursements
Provision for onerous contracts
Provision for payments to former owners
Other provisions
Non-current
Employee benefits
Provision for onerous contacts
Provision for dilapidations
Other
4.7. Fair Value Measurements
4.7.1. Accounting Policies
Critical Accounting Estimates and Judgements
2017
$’000
19,176
12,479
880
5,294
5,550
11,153
54,532
3,429
3,286
7,475
6,982
2016
$’000
19,700
9,158
-
4,160
19,437
-
52,455
3,404
3,804
7,829
-
21,172
15,037
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. 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 below.
4.7.2. Fair Value Hierarchy
30 June 2017
Recurring fair value measurements
Financial liabilities
Derivative financial instruments – interest rate swaps
Contingent consideration *
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
1,419
-
1,419
-
455
455
30 June 2016
Recurring fair value measurements
Level 1
$’000
Level 2
$’000
Level 3
$’000
Financial liabilities
Derivative financial instruments – interest rate swaps
Contingent consideration *
-
-
-
2,841
-
2,841
-
2,068
2,068
* Part of Vendor Liabilities which are included in Payables in the Statement of Financial Position
Total
$’000
1,419
455
1,874
Total
$’000
2,841
2,068
4,909
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 67
Page 60
Notes to the Financial Statements
For the Year Ended 30 June 2017
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 prior business combinations were measured with reference to
current fee and performance forecasts which were used to estimate future cash flows. The key inputs into this valuation
were the estimated future cash flows and the average discount rate of 9% was used to determine the present value of
the future cash flows. The last tranche of contingent consideration is now current and payable in December 2017.
4.7.4. Reconciliation of recurring Level 3 Fair Value Movements
Opening balance
Payments relating to contingent consideration
Fair value movement on contingent consideration*
Closing balance
2017
$’000
2,068
(1,505)
(108)
455
2016
$’000
6,090
(3,584)
(438)
2,068
* Unrealised (gains)/losses are recognised in the Statement of Profit or Loss and Other Comprehensive Income within Other Income
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.
68 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 61
Notes to the Financial Statements
For the Year Ended 30 June 2017
5.2.2. Financing Arrangements
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.
During the year ended 30 June 2017 $31.4m of interest payments, equating to 88% of the interest due under this facility,
were capitalised into the loans.
Under the amended SFA the Group was required to pay a deferred restructuring fee to its lenders in the form of cash or
warrants at the irrevocable election of the lenders. The fee, totalling $17.8m, has been treated as a transaction cost
relating to the underlying borrowing and is being amortised to the income statement over the term of the facility. Refer to
note 5.6.6 for further details on how this deferred fee has been accounted for.
The bills of exchange and other ancillary facilities have been used to fund previous business acquisitions, to meet 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 2017 the Group remains in compliance with all its undertakings under the SFA and the Directors are of the
view that the Group will continue to comply with the obligations under the SFA.
To support the Group’s ongoing liquidity requirements, in May 2017 the Group entered into a $40m working capital
facility with its lenders. The facility will provide the Group with working capital headroom as it continues to execute its
plan to restore its financial performance. This facility will be increased subsequent to year end as part of the
recapitalisation. Refer to note 5.2.5 below.
Net Debt
The Group has drawings of $761.6m (30 June 2016: $765.6m) under the SFA, against limits of $761.6m at 30 June
2017; and drawings of $15.0m (30 June 2016: $nil) under the working capital facility, against a limit of $40.0m (30 June
2016: $nil).
The Group has cash on hand of $33.3m (30 June 2016: $82.5m), other borrowings of $5.1m (30 June 2016: $8.5m),
offset by deferred debt raising costs of $0.7m (30 June 2016: $9.6m) resulting in net debt of $747.7m (30 June 2016:
$682.3m) and available liquidity of $60.0m (30 June 2016: $88.3m). The Group’s net debt position has increased since
30 June 2016 by $65.4m, reflecting underlying cash requirements in the business and the capitalisation of interest.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 69
Page 62
Notes to the Financial Statements
For the Year Ended 30 June 2017
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
Super senior facility
Bills of exchange
Finance lease facility
Total credit facilities
Facilities utilised
Current
Super senior facility
Bills of exchange(1)
Debt raising costs under the SFA facility(2)
Finance lease liability
Non-current
Bills of exchange(1)
Debt raising costs under the SFA facility(2)
Finance lease liability
2017
$’000
1,691
40,000
761,599
6,800
810,090
15,000
450,192
(749)
1,797
466,240
311,407
-
3,295
314,702
2016
$’000
5,799
-
765,893
10,000
781,692
-
280
-
3,362
3,642
765,613
(9,567)
5,092
761,138
(1) Includes capitalised interest costs of $31.4m (30 June 2016: $nil) as agreed with the lenders.
(2) Comprises the unamortised value of borrowing costs on establishment of $4.4m (30 June 2016: $3.7m) and refinance of net debt facilities of $(3.6m) (30
June 2016: $5.9m). These costs are deferred on the balance sheet and amortised to the Statement of Profit or Loss and Comprehensive Income (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.
The bank overdraft facility is arranged with Royal Bank of Scotland (National Westminster Bank) with the general terms
and conditions being set and agreed to annually. The current facility is £1.0m (30 June 2016: £1.0m). Interest rates on
the bank overdraft are charged at variable rates plus an agreed margin, subject to adjustment.
5.2.4. Recapitalisation Agreement
On 29 June 2017, the Group announced that it had entered into a binding recapitalisation agreement with its Senior
Lenders. The key terms of the agreement at that date were the restatement of debt to $30m in exchange for 95% of the
issued capital of the company, creation of a £250m convertible note in the UK and the establishment of a $5m facility in
exchange for the issuance of warrants over a further 1% of the issued capital.
On 31 August 2017, the Group announced that it had entered into an amended binding restructure support deed (“RSD”)
with its Senior Lenders with revised terms. The Group will seek to implement the recapitalisation via a creditors’ scheme
of arrangement (“Senior Lender Scheme”). The key terms of the revised recapitalisation are now as follows:
Increased Working Capital Facility
The Group’s Senior Lenders have committed to increase the Group’s working capital facility by $50m (refer to note
5.2.5), which will be available for drawdown prior to implementation of the recapitalisation. The additional funding will
comprise a $25m AUD denominated tranche and a $25m GBP denominated tranche. This funding will be used for
general corporate purposes, including costs incurred in connection with the recapitalisation.
Separation of UK operations
On implementation of the creditors’ scheme of arrangement to give effect to the recapitalisation, all UK operations and
UK subsidiaries will be separated from the Group and transferred to a new UK holding company (“UK HoldCo”). UK
HoldCo will be wholly owned by the Senior Lenders. Subsequently, existing shareholders of the Group will cease to
have any interest in the Group’s existing UK operations or UK subsidiaries. As a result of this, the increase to the
working capital facility referred to above will be separated into a $25m AUD denominated facility for the Australian
business and a $25m GBP denominated facility for the UK business. The Australian business will also retain its $40m
current working capital facility (refer to note 5.2.5) bringing the Australian business facility to $65m.
The Company believes the separation of the UK operations provides the best option to enable both the Australian and
UK operations to succeed in their own right.
70 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 63
Notes to the Financial Statements
For the Year Ended 30 June 2017
Issue of shares in the Company to Senior Lenders
On implementation of the Senior Lender Scheme, Senior Lenders will be issued with approximately 95% of the equity of
the Australian parent company and 100% of UK HoldCo. Existing shareholders will hold approximately 5% of the
Australian parent company post the recapitalisation. The number of shares to be issued to each Senior Lender will
depend on their commitments in respect of the increased working capital facilities and the refinancing of the Company’s
facilities under the recapitalisation.
New Debt Facilities
Outstanding secured debt will be permanently reduced by a combination of releasing, refinancing and restating debt.
The debt facilities of the Australian company on implementation of the recapitalisation will be as follows:
a)
b)
Super Senior Secured Debt Facility ($65m): The $65m facility will have a 3 year term and will be used for working
capital purposes.
Restated Debt Facility ($60m): $60m of senior secured debt under the Company’s existing Syndicated Facility
Agreement will be restated on substantially the same terms but amended with a 5 year term and interest not
payable in cash until the Senior Secured Debt Facility has been repaid, amongst other changes.
c)
Existing lease facilities of less than $5m.
In respect of the UK company debt facilities on implementation of the recapitalisation will be as follows:
a)
b)
Super Senior Secured Debt Facility ($25m): The $25m facility will be denominated in GBP, will have a 3 year term
and will be used for working capital purposes.
Convertible Notes (£250m): S&G UK will issue interest-free convertible notes to Senior Lenders. The convertible
notes will entitle the holders to payment of any amounts, up to £250m, received by S&G UK in respect of the net
proceeds of Watchstone-related claims above $40m and certain net proceeds of any asset divestments and
insurance proceeds received in respect of the UK operations.
Watchstone Receivable
In addition to the above arrangements, as partial consideration for the transfer of S&G UK shares from the Company to
UK HoldCo, the Company will have recourse to the first $40m of any proceeds that S&G UK receives from Watchstone-
related claims (refer to note 7.4.1). These will be applied first to reduction of the Super Senior Secured Debt Facility.
Conditions Precedent
The recapitalisation is conditional upon the satisfaction or waiver (if applicable) of certain conditions precedent, including:
• FIRB Approval – the Treasurer of the Commonwealth has provided written advice or confirmation to the effect there
are no objections under the Foreign Acquisitions and Takeovers Act 1975 (Cth) to the restructure, or is otherwise
precluded from making an order in respect of the recapitalisation;
• Shareholders of the Company approving the required resolutions at the general meeting by the requisite majorities (if
required);
• The approval of the Senior Lender Scheme and Shareholder Creditor Scheme (as described in note 8.1) at the
scheme meetings by the requisite majorities of the respective creditors;
• Court approval of the Senior Lender Scheme, the Shareholder Creditor Scheme and the settlement of the Hall
Proceeding;
• The Company obtaining all other relevant regulatory approvals, authorisations, consents or waivers, including from
ASX and ASIC;
• Each party to a ‘Business Separation and Transitional Arrangements Agreement’ (or similar document) in respect of
the separation of the S&G Group’s Australian and UK operations (in a form to be agreed between the Company and
the Senior Lenders) duly executing their counterpart and delivering it to the Company such that the agreement has
come into effect conditional on implementation of the Senior Lender Scheme;
• Without waiving privilege, the Company receiving written notice from the Lenders that the tax opinion received by the
Company is reasonably acceptable to the Lenders;
• The Company receiving cash proceeds in relation to project litigation matters substantially in accordance with
budgeted quantum and timing in the period between the date of the RSD and the Scheme Meeting;
• The Company obtaining the consent from each person who is entitled to exercise any right under any provision of
any material contract that entitles the person to terminate or modify the contract as a result of the recapitalisation and
in respect of which the Majority Supporting Lenders require the Company to seek such consent;
• Deeds poll entered into by certain third parties continue to benefit the beneficiaries named in those deeds poll, and
those deeds poll have not been terminated.
Each party must use its respective reasonable endeavours to procure that each of the conditions precedent is satisfied
as soon as reasonably practicable.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 71
Page 64
Notes to the Financial Statements
For the Year Ended 30 June 2017
The Company or the Majority Supporting Lenders may, if any other condition precedent is not satisfied or waived, or
becomes incapable of satisfaction, by 31 December 2017, terminate the RSD if the parties are not able to reach
agreement on how to proceed with the recapitalisation following a period of consultation.
The Group believes the recapitalisation will be executed successfully.
5.2.5. Super Senior Secured Debt Facility
To support the Group’s ongoing liquidity requirements, up to and beyond the debt recapitalisation, the Group entered into
a $40m working capital facility in May 2017, of which $15m was drawn prior to year end. The working capital facility is
funded by a subset of the Group’s lenders, referred to here as “Majority Lenders”.
In conjunction with the recapitalisation (note 5.2.4) and as part of the RSD, the working capital facility will be expanded to
$65m for the Australian business and $25m for the UK business.
The expanded working capital facility is for a 3 year period with drawn amounts payable if the recapitalisation agreement
is not finalised by 31 January 2018. Interest is charged on the facility at an agreed fixed rate, although not payable in
cash until maturity.
The Group has drawn down $12.5m on 15 August 2017 and expects to require a further drawdown under this facility of
$12.5m in September 2017.
Prior to the final $12.5m drawdown of the remainder of the $40m working capital facility in September 2017, there are
several conditions precedent to be satisfied as follows:
• Approval of the Group’s FY18-FY20 forecasts by the Majority Lenders;
• Satisfactory evidence that the cost-out initiatives implemented by restructuring firms introduced to the business by the
Majority Lenders have made sufficient progress as determined by the Majority Lenders;
• Confirmation by the agent of the Majority Lenders that a review of the FY17 audit process and accounts has
concluded that appropriate and satisfactory accounting standards consistent with GAAP have been adopted and
applied by the company in respect of all its financial reporting obligations;
• Approval by the Majority Lenders of the business plans for priority practice areas in both the UK business and
Australian business; and
• Continuation of the weekly updates and ad hoc updates provided to the Majority Lenders by the CFO and CEO of the
Australian and UK businesses on key liquidity and working capital drivers within the Group.
The Group believes the conditions precedent to drawdown will be satisfied.
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, at 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 2016: 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 2016: 3.96% to 9.25%) per annum.
72 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 65
Notes to the Financial Statements
For the Year Ended 30 June 2017
Future minimum rentals payable under finance leases as at 30 June are, as follows:
2017
$’000
2016
$’000
Minimum
payments
Interest
Present
value of
payments
Minimum
payments Interest
2,053
3,484
5,537
(256)
(189)
(445)
1,797
3,295
5,092
3,808
5,536
(446)
(444)
9,344
(890)
Present
value of
payments
3,362
5,092
8,454
Within one year
One year or later and not later 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
2017
$’000
25,665
62,194
49,717
2016
$’000
33,731
80,470
52,632
137,576
166,833
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 73
Page 66
Notes to the Financial Statements
For the Year Ended 30 June 2017
5.4. Financial Risk Management
5.4.1. Accounting Policies
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.
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 and accumulated 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.
74 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 67
Notes to the Financial Statements
For the Year Ended 30 June 2017
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:
Financial assets
Cash
Total financial assets
Financial liabilities
Other current liabilities
Finance lease liability
Super senior facility
Bills of exchange
Total financial liabilities
Variable interest rate
Fixed interest rate
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Total
2017
$’000
2016
$’000
33,303
33,303
82,494
82,494
1,815
-
15,000
674,312
691,127
7,490
-
-
675,913
683,403
-
-
-
5,092
-
87,287
92,379
-
-
33,303
33,303
82,494
82,494
-
8,454
-
89,980
98,434
1,815
5,092
15,000
761,599
783,506
7,490
8,454
-
765,893
781,837
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 2016: 12%) of the Group’s outstanding
borrowings on the bills of exchange at 30 June 2017. 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
2017
2.39%
2.32%
2016
2.06%
2.47%
2017
$’000
68,830
18,457
87,287
2016
$’000
27,992
61,988
89,980
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 Profit or Loss and
Other 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
2017
$’000
-
1,168
2016
$’000
-
2,121
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.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 75
Page 68
Notes to the Financial Statements
For the Year Ended 30 June 2017
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 and
accumulated in the foreign currency translation reserve which forms part of equity.
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 $33.3m at 30 June 2017 (30 June 2016: $82.5m). 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.
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.
76 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 69
Notes to the Financial Statements
For the Year Ended 30 June 2017
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.
2017
Non-derivative financial liabilities
Payables
Borrowings
Other current liabilities
Financial liability maturities
2016
Non-derivative financial liabilities
Payables
Borrowings
Other current liabilities
Financial liability maturities
< 12 Months
$’000
418,619
499,121
1,815
919,555
1-5 years
$’000
-
322,287
-
322,287
Total contractual
cash flows
$’000
418,619
821,408
1,815
Carrying
amount
$’000
418,619
780,942
1,815
1,241,842
1,201,376
463,570
43,736
7,490
514,796
510
841,326
-
841,836
464,080
885,062
7,490
464,080
764,780
7,490
1,356,632
1,236,350
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.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 77
Page 70
Notes to the Financial Statements
For the Year Ended 30 June 2017
5.5. Contributed Equity
Ordinary shares fully paid
VCR Shares
2017
Shares
2017
$’000
2016
Shares
347,245,601
-
1,119,235
-
352,377,933
-
2016
$’000
1,116,573
(525)
Balance at the end of the year
347,245,601
1,119,235
352,377,933
1,116,048
Movement in Ordinary Share Capital
352,377,933
Balance at the beginning of the year
1,116,573
350,719,894
1,097,928
Issued during the year
• EOP Share Buy Back
• Conversion of vested VCR shares
• Dividend Reinvestment Plan
• Equity Incentive Plan
• Transfer from share-based payment reserve
• Costs of share registry management
• Reversal of capital raising costs, net of tax
Balance at the end of the year
VCR Share Capital balance at the end of the
year
Total Share Capital balance at the end of the
year
Ordinary Shares
(5,132,332)
-
-
-
-
-
-
(9,232)
-
-
-
11,907
(13)
-
-
728,334
786,949
142,756
-
-
-
-
1,399
2,270
401
11,808
-
2,767
347,245,601
1,119,235
352,377,933
1,116,573
-
-
-
(525)
347,245,601
1,119,235
352,377,933
1,116,048
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 the financial year ended 30 June 2017, the Company did not pay a dividend (30 June 2016: $19,330,000).
As referred to in note 5.2.4, the Company has entered into a binding restructure support deed with its lenders. On
implementation, subsequent to reporting date, the company will be separated into its Australian and UK Operations.
Secured lenders will be issued with approximately 95% of the Australian Company’s equity and 100% of the UK
Company’s equity. Existing shareholders will hold approximately 5% of the Australian Company immediately post the
recapitalisation.
VCR Shares
As at 30 June 2017 there were nil VCR shares on issue (30 June 2016: nil VCR shares), with the Employee Ownership
Plan (EOP) being discontinued during the current year due to it no longer fulfilling its intended purpose.
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.
78 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 71
Notes to the Financial Statements
For the Year Ended 30 June 2017
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.
(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. There was no issue of shares under this scheme in the current year
ended 30 June 2017 (30 June 2016: 142,756 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
2017 (30 June 2016: nil 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 2016: S&P/ASX200) index
(excluding resources) over the Measurement Period.
• 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.
FY17 EEIS Offer
There was no offer or issue of performance rights under this scheme in the current year ended 30 June 2017
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.
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.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 79
Page 72
Notes to the Financial Statements
For the Year Ended 30 June 2017
5.6.2 Employee Equity Incentive Plan (“EIP”) (continued)
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.
Total number of rights granted under both the FY16 and FY17 plan:
Grant date
Balance at
beginning
of the year
18 December 2015
-
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
-
(547,128)
-
-
(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. GCFO Retention Plan
During the year, the Board implemented a one off retention plan for the Group Chief Financial Officer (“GCFO”) in place
of his participation in any other Group equity plan. The GCFO Retention Plan has been assessed by the Board following
the vesting date of 30 June 2017. The hurdle was not achieved and all performance rights and options have now lapsed.
5.6.4. Employee Ownership Plan (“EOP”)
The EOP was replaced by the EIP (refer 5.6.2 above) and was therefore currently in run-off with no new shares being
issued under the EOP during the year ended 30 June 2017.
During the year, the Company cancelled the remaining 5,132,332 restricted ordinary shares under the EOP via a buy-
back completed in April 2017. The buy-back price set in accordance with the EOP was applied against outstanding EOP
loan amounts with a cash impact of $238,404 to reimburse a limited number of employees who had made part pre-
payments of EOP loans. No Key Management Personnel participated in the buy back. The EOP has been discontinued
as it ceased to fulfil its intended purpose.
5.6.5. Share Based Payment Arrangements to Former Owners
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.
5.6.6. Share Based Payment Arrangements under the Syndicated Facility Agreement (“SFA”)
As referred to in note 5.2.2, in May 2016, the terms of the multicurrency SFA were revised. Under the revised terms, the
Group 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 6.24% of any uplift in the market capitalisation of the Group from the effective date of the SFA amendment to such
refinancing or maturity.
80 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 73
Notes to the Financial Statements
For the Year Ended 30 June 2017
5.6.6. 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.
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.
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
re-measurement of $1.1m (30 June 2016: $0.1m) are presented within finance costs for the year ended 30 June 2017.
The liability recognised for the remaining cash component as at 30 June 2017 is $11.7m (30 June 2016: $10.4m) and is
included in the net long term borrowings amounts as detailed in Note 5.2.3.
On 29 June 2017, as described in note 1.1, the Group has entered into a recapitalisation agreement which represents a
full extinguishment of the SFA debt. The recapitalisation agreement is expected to come into effect subsequent to year
end, at which time the SFA deferred restructure fee will be immediately expensed to the profit and loss and the warrants
will be cancelled. The balance of the warrants in the Share-based Payment Reserve will be transferred to equity at the
date of the recapitalisation agreement.
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
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
Malta
Overland Limited
Overland Health Limited
Slater and Gordon 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
React Medical Management Limited
Medicalaw Limited
Abstract Legal Holdings Limited
Accident Advice Helpline Direct Limited
Legal Facilities & Management Services Limited
Access to Compensation Limited
Liberty Protect Limited
Slater Gordon Solutions Legal Services Limited
SGS Business Process Services (UK) Limited
Overland Malta (Trading) Limited
Slater and Gordon Limited | Annual Report 2017 | 81
Page 74
Notes to the Financial Statements
For the Year Ended 30 June 2017
Crusader Assistance Group Holdings Limited along with its subsidiaries Crusader Uninsured Loss Recovery Service
Limited and Crusader Connect Limited was disposed of, and Quindell ACH Limited was dissolved during the current
year.
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 Corporations Instrument 2016/785 dated 17 December 2016 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
2017
$
2016
$
2,924,235
177,750
43,502
879,381
949,550
4,056,725
213,254
60,741
73,548
499,331
4,974,418
4,903,599
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 2017 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 for the year
Other comprehensive loss
Total comprehensive loss for the year
2017
$’000
2016
$’000
(174,247)
619
(173,628)
(1,133,848)
(334)
(1,134,182)
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
127,393
283,756
134,306
412,799
197,382
335,788
91,857
290,813
1,119,180
31,745
(1,202,958)
1,115,993
34,705
(1,028,712)
(52,033)
121,986
82 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 75
Notes to the Financial Statements
For the Year Ended 30 June 2017
6.3. Auditor’s Remuneration
The auditor of the Group for the year ended 30 June 2017 is Ernst & Young (30 June 2016: Ernst & Young).
Audit Services
Ernst & Young
Audit and review of financial reports
Other regulatory services
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
Other Auditor
Other – consulting services
Due diligence investigations
2017
$
2016
$
767,000
100,450
700,000
-
1,689,076
42,017
2,797,090
57,446
-
-
218,553
51,531
2,598,543
3,824,620
19,923
257,000
-
-
282,033
16,125
2,618,466
4,379,778
6.4. Accounting Standards issued but not yet effective at 30 June 2017
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 and detailed assessment of the expected impacts
of these standards and interpretations is currently underway with the initial findings for each new accounting standard
noted in the relevant sections below. The Group early adopted AASB 15 Revenue from Contracts with Customers in the
prior year.
Reference
AASB 9
Application date of
Title
Standard Application date for Group
Financial Instruments
1 January 2018
1 July 2018
AASB 9 as issued replaces AASB 139 and includes a logical model for classification, measurement and derecognition of
financial assets, a single, forward-looking “expected loss” impairment model and a substantially reformed approach to
hedge accounting. The main changes to the classification and measurement of financial assets and liabilities 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.
• 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 attributable to changes in credit risk is
presented in other comprehensive income, and the remaining change is presented in profit or loss.
An assessment of the impact of AASB 9 on the position of the Group is ongoing, however there are no expected material
changes in the classification of financial assets and liabilities. Fair value changes resulting from credit risk are not
expected to have a significant impact on future results. The introduction of the expected loss impairment model for
determining credit provisions has not yet been determined. There is no change anticipated in relation to hedge
accounting.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 83
Page 76
Notes to the Financial Statements
For the Year Ended 30 June 2017
6.4
Accounting Standards issued but not yet effective at 30 June 2017 (continued)
Reference
AASB 2016-3
Application date of
Title
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, none of
which is expected to affect the Group’s revenue recognition process.
Reference
IFRIC 23
Application date of
Title
Standard Application date for Group
Uncertainty over Income Tax
Treatments
1 January 2019
1 July 2019
The interpretation clarifies the application of the recognition and measurement criteria in IAS 12 Income Taxes when
there is uncertainty over income tax treatments. The interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatment by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• How an entity considers changes in facts and circumstances
The Group has not yet assessed the impact of IFRIC 23.
Reference
AASB 16
The key features of AASB 16 are as follows:
Lessee Accounting
Application date of
Title
Leases
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.
An assessment of the impact of AASB 16 on the financial performance and position of the Group is ongoing with a view
to informing the transition decisions to be made before adoption of the new standard. It is not yet possible to make a
reliable estimate of the impact of the standard on the Consolidated Financial Statements. Although the impact is yet to be
quantified, given that at 30 June 17 the Group is lessee to a number of operating leases, in particular in relation to
properties, it is expected that the adoption of the standard will result in a material impact on the statement of financial
position.
Currently, the Group does not expect to early adopt AASB 16.
84 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 77
Notes to the Financial Statements
For the Year Ended 30 June 2017
Note 7: Unrecognised Items
7.1. Guarantees
The Group has entered into lease rental guarantees and performance guarantees with a face value of $12.1m (30 June
2016: $12.5m).
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 Note 4.7.
7.3. Other Commitments and Contingencies
The Group has an agreement with third party disbursement funder, Equal Access Funding Proprietary Limited (‘the
funder”), who funds disbursements in respect of individual matters and is reimbursed out of any settlement proceeds on
the matter. The Group has provided a financial guarantee to the funder for the repayment of clients’ obligations.
The total amount funded by the funder to the Group’s clients at 30 June 2017 is $16m (30 June 2016: $19m). The
maximum exposure of the Group at 30 June 2017 is $16m (30 June 2016: $19m) if the disbursements on client matters
are not recovered from any other party.
7.4. Contingent Asset
7.4.1. Claims against Watchstone plc (Watchstone – formerly Quindell plc)
On 19 September 2016, the Group notified Watchstone of various claims it intends to bring against Watchstone arising
from its acquisition of Watchstone’s Professional Services Division (PSD) in May 2015. On 29 November 2016 the
Group obtained a positive merits based opinion of its claims from an independent barrister, in accordance with the
provisions of the Share Purchase Agreement (SPA) between the Group and Watchstone. Having met this threshold
requirement, under the SPA provisions, the escrow amount of £50m will not be released to Watchstone until such time
as the claim made against Watchstone is resolved (through proceedings or settlement). On 14 June 2017 the Company
filed and served a claim in the High Court against Watchstone Group Plc for approximately £600m. The claim is based
upon serious allegations against Watchstone and its then senior management, including fraud, concerning the purchase
by Slater and Gordon of Watchstone’s Professional Services Division in 2015.
7.5. Contingent Liabilities
7.5.1. Class Action Proceedings
On 12 October 2016 legal proceedings were filed against the Company in the Federal Court of Australia on behalf of an
open class of Slater and Gordon shareholders. The class claimants are represented by Maurice Blackburn.
The class proceeding asserts that the Company engaged in misleading and deceptive conduct and breached its
continuous disclosure obligations during the period from 30 March 2015 to 24 February 2016. The class claimants seek
orders that the Company pay statutory compensation or compensate them for damage suffered by them which resulted
from the Company’s contraventions or refund all monies paid by the Applicant and Group Members pursuant to the
Watchstone PSD entitlement offer, plus interest and costs.
On 20 June 2017 the Company announced that legal proceedings were filed against it by Babscay Pty Ltd on behalf of
persons who acquired an interest in shares of the Company between 24 August 2012 and 19 November 2015. The
statement of claim asserts that the Company’s financial statements for the financial years ended 30 June 2013, 2014 and
2015 contained false and/or misleading statements. The allegations focus on the way in which the Company recognised
revenue and, in financial year 2015, accounted for acquisitions in accordance with Australian Accounting Standards.
On 11 July 2017, the Company announced it had entered into an in principle conditional agreement to settle the class
action proceeding through a mediation process facilitated by the Federal Court. The settlement pursuant to this
agreement will resolve any and all potential shareholder claims against the Company and its directors and officers. The
settlement remains subject to court, lender and shareholder approval and further details are available in note 8.1
Subsequent Events. An amount relating to the company’s contribution to the in principle settlement has been recognised
as a provision at 30 June 2017.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 85
Page 78
Notes to the Financial Statements
For the Year Ended 30 June 2017
Note 8: Subsequent Events
8.1. Shareholder Class Action
As outlined in note 7.5 above, during the year ended 30 June 2017, the Company announced two shareholder class
action proceedings had been filed against the Company. The Company also received notification of one other potential
class action proceeding by former and existing shareholders.
On 11 July 2017, the Company announced it had reached an in principle conditional agreement to settle the class action
proceeding brought on behalf of Mr Matthew Hall through a mediation process facilitated by the Federal Court. The
agreement will resolve any and all potential shareholder claims against the Company and its directors and officers. The
settlement of all other shareholder claims will be effected by a shareholder creditors’ scheme of arrangement
(“Shareholder Creditor Scheme”). The settlement is subject to completion of formal legal documentation and will also
require approval by the Federal Court of the settlement terms. It is also subject to shareholder and lender approval via
vote at a meeting to be held in November 2017.
The terms include the following:
•
•
•
•
•
•
•
an agreed settlement amount relating to all Shareholder Creditor claims of $32.5m (“Shareholder Creditor Scheme
Fund”) comprising proceeds from responsive directors and officers liability insurance policies held by the Company
will be made available by agreement in principle reached with the Company’s insurers;
$4m will be made available by the Company’s Lenders to fund a further payment by the Company for the benefit of
the Hall Proceeding claimants;
releases will be given in favour of those insurers;
various other provisions releasing, resolving and insulating the Company and its current and former officers from the
impact of claims by Shareholder Creditors in connection with the Company’s affairs;
payment of approved legal costs incurred by the Hall Proceeding claimants out of the Shareholder Creditor Scheme
Fund;
the Hall Proceeding will be dismissed with no orders as to costs; and
the settlement is without admission of liability by the Company.
8.2. Separation of Businesses
On 31 August 2017, the Group entered into a binding restructure support deed with its Senior Lenders in relation to the
recapitalisation of the Group (refer to note 5.2.4). The recapitalisation is intended to provide the Group with a
sustainable level of debt and a stable platform for its future operations, and additional liquidity support for its continued
operation prior to the implementation of the recapitalisation
On implementation of the recapitalisation, all UK operations and UK subsidiaries (including Slater & Gordon (UK) 1 Ltd
(“S&G UK”)) will be separated from the Australian parent company (Slater and Gordon Limited) and transferred to a new
UK holding company (“UK HoldCo”). UK HoldCo will be wholly owned by the Senior Lenders. Following separation,
existing shareholders of the Company will cease to have any interest in the Company’s existing UK operations or UK
subsidiaries.
The Company believes the separation of the UK operations provides the best option to enable both the Australian and
UK operations to succeed in their own right.
86 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 79
Notes to the Financial Statements
For the Year Ended 30 June 2017
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 2017.
9.3. Prior Period Business Combinations
There were no business combinations during the year ended 30 June 2016.
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 87
Page 80
Slater and Gordon Limited
Directors’ Declaration
The directors declare that the financial statements and notes set out on pages 37 to 80 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 2017 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 Corporations Instrument 2016/785.
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 2017.
This declaration is made in accordance with a resolution of the directors.
John Skippen
Chair
Melbourne
31 August 2017
88 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 81
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 Audit of the Financial Report
Opinion
We have audited the financial report of Slater and Gordon Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
2017, the consolidated statement of profit or loss and other comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended, notes
to the financial statements, including a summary of significant accounting policies, and the directors'
declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a)
b)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Material Uncertainty Related to Going Concern
Without qualifying our opinion, we draw attention to Note 1.1 in the financial report which indicates that
the consolidated entity incurred a net loss after tax of $546.8 million, negative net cash flow from
operating activities of $39.1 million and, as at 30 June 2017 the Group’s total liabilities exceeded its total
assets by $248.8 million. The note also details that the Group’s Syndicated Facility Agreement is fully
drawn, with $450.2 million of the drawings repayable in May 2018 in accordance with the agreement.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Slater and Gordon Limited | Annual Report 2017 | 89
82
Note 1.1 describes the conditions that raise uncertainty regarding the consolidated entity’s ability to
continue as a going concern. It details uncertainties relating to cash flows which will not be sufficient to
repay a portion of the Group’s consolidated entity’s borrowing facilities of $450.2 million due in May 2018,
or earlier, if that was required. It also details that the Group has reached agreement with its lenders to
provide additional liquidity support required for it to remain able to pay debts as and when they fall due
through to the proposed date of the recapitalisation of the Group and also details the consolidated entity’s
reliance on the recapitalisation and the ongoing support of its lenders to continue as a going concern.
Note 1.1 references Note 5.2 and Note 8 that detail the recapitalisation agreement entered into by the
Group with its lenders and the settlement of shareholder class actions that both remain subject to
conditions precedent and approvals as detailed in Note 5.2 and Note 8.
These conditions along with other matters as set forth in Note 1.1 indicate the existence of material
uncertainties that may cast significant doubt about the consolidated entity’s ability to continue as a going
concern and therefore, whether the consolidated entity may be unable to realise its assets and discharge
its liabilities in the normal course of business. The financial report does not include any adjustments
relating to the recoverability and classification of recorded asset amounts or to the amounts and
classification of liabilities that might be necessary should the consolidated entity not continue as a going
concern.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context. In addition to the matter described in the Material Uncertainty Related to
Going Concern section, we have determined the matters described below to be the key audit matters to
be communicated in our report.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
Carrying Value of Goodwill and Other Indefinite Life Intangible Assets and Associated Impairment
Why significant
How our audit addressed the key audit matter
The Group is required to annually test the
carrying value of goodwill and other intangible
assets with an indefinite life for impairment.
Disclosures about goodwill and intangible assets
are included in Note 4.1 to the financial report.
Our procedures included the following:
►
Considered whether the methodology used in
preparing the value-in-use model and fair value
less costs of disposals calculations used by the
Group to test for impairment meets the
requirements of Australian Accounting Standard
AASB 136 Impairment of Assets.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
90 | Slater and Gordon Limited | Annual Report 2017
83
Why significant
How our audit addressed the key audit matter
As disclosed in Note 4.1.3 and Note 4.1.4, the
Directors’ assessment of goodwill and other
identifiable intangible assets for impairment,
involves critical accounting estimates and
assumptions, specifically concerning future
discounted cash flows.
These estimates and assumptions are impacted
by future performance, market and economic
conditions in both Australia and the United
Kingdom.
An impairment charge of $361.2 million was
recorded against these assets in the year ended
30 June 2017.
Given the estimates and assumptions involved in
the impairment test, the recent performance of
the Group and the magnitude of impairment
charges taken in the past, this was considered to
be a key audit matter.
►
►
►
►
►
►
►
Tested whether the impairment models used
were mathematically accurate.
Assessed whether the cash flows used in the
impairment models accurately reflected budgets
approved by the Board at 31 December 2016
and prepared by the Group and submitted to
representatives of its lenders and the forecast
financial information provided by the Group to
its lenders to support the Recapitalisation
Agreement at 30 June 2017.
Considered the historical reliability of the
Group’s cash flow forecasting process.
Considered the impact of a range of assumption
sensitivities on the impairment models.
Assessed the external inputs and assumptions
within the cash flow forecasting models by
comparing them to assumptions and estimates
used elsewhere in the preparation of the
financial report and benchmarked them against
market observable external data.
Considered the adequacy of the financial report
disclosures contained in Note 4.1, Note 4.1.3
and Note 4.1.4, in particular those regarding
assumptions.
As impairment testing relies upon business
valuation principles, we involved our valuation
specialists to assist in the work outlined above
where we considered such expertise was
required.
Work in Progress (WIP) and Associated Revenue Recognition
Why significant
How our audit addressed the key audit matter
WIP is significant to the Group, comprising 45%
of total assets and movements are included in
revenue recognised for the year. The Group’s
disclosures regarding WIP and the associated
revenue recognised are included in Note 3.1 and
Note 4.3 to the financial report.
Our procedures included the following:
►
Considered whether the Groups’ accounting
policy for complied with Australian Accounting
Standards, in particular AASB15 Revenue.
► Obtained details of WIP recognised for each
revenue stream at balance date and applied
statistical sampling techniques to select
individual legal matters (“cases”) for testing.
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84
Why significant
How our audit addressed the key audit matter
The Directors’ determination of the carrying
value of WIP and its associated revenue streams
involves significant judgement, data analysis and
complexity and accordingly has been considered
a key audit matter.
► Obtained evidence to support the case status
that had been allocated to each case file by the
responsible professional. Evidence obtained was
assessed against the coding guidelines of the
Group.
The Group considers each revenue stream in
isolation and makes judgements in relation to:
►
►
►
►
►
The identification of a contract
The identification of the performance
obligations as part or within a contract
Determination of the transaction price,
particularly for revenue streams accounted
under a “no win no fee” basis
Allocation of the transaction price
Recognition of revenue when a performance
obligation is satisfied
To validate the judgements made in relation to
WIP, the Group develops a series of data models
based on historical information over a two year
period. Data included in these models provides a
methodological approach to determine the
valuation status.
Accordingly, this has been considered a key audit
matter.
►
►
►
►
Assessed the data that supports the judgements
noted that were included in the data models.
Assessed the movements in the cases profile
including changes in status and ageing.
Involved our data quality specialists to assess
the accuracy and integrity of both the data
(historical information over a two year period)
and the workings of the models. This was
completed using data analytic procedures to re-
perform, re-calculate and validate key
calculations.
Considered the adequacy of the financial report
disclosures contained in Note 3.1 and Note 4.3,
in particular those regarding assumptions to
which the outcome of the data models is most
sensitive.
Recoverability of Trade Receivables and Disbursements and Associated Provisioning
Why significant
How our audit addressed the key audit matter
Trade receivables and disbursements are
significant to the Group, comprising 43% of total
assets, net of provisions for impairment.
The recoverability of trade receivables and
disbursements is a highly subjective area due to
the nature of the legal case profile and the level
of judgement applied by the Group in
determining provisions. Accordingly, this has
been considered a key audit matter.
Our procedures included the following:
► We assessed the assumptions used to calculate
the trade receivables and disbursements
provisions for impairment.
► We performed analyses of ageing of receivables
and disbursements, collection history, future
collections strategies and assessment of
significant overdue individual trade receivables
and disbursements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
92 | Slater and Gordon Limited | Annual Report 2017
85
Litigation Matters and Subsequent Events
Why significant
How our audit addressed the key audit matter
The Group is and has been subject to a number
of Shareholder Class Actions and other legal
proceedings. These matters are detailed in Note
7.4, Note 7.5 and Note 8.1.
These matters are subject to a number of
pending approvals and the settlement of the
Class Action matters are a condition precedent
of the proposed debt restructure as detailed in
Note 8.1.
Accordingly, our consideration of these matters
and the related disclosures was considered a key
audit matter.
Our procedures included the following:
► Obtained all proposed settlement and claim
documentation in relation to the Class Action
and other legal proceedings.
► Met with the Group’s internal General Counsel in
relation to the status of the legal proceedings.
►
Considered the conditions noted in Note 7.4,
Note 7.5 and Note 8.1 for factual accuracy.
Considered the adequacy of the financial report
disclosures contained in Note 7.4, Note 7.5 and Note
8.1.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2017 Annual Report other than the financial report and our auditor’s report
thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date
of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the
date of this auditor’s report.
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
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Slater and Gordon Limited | Annual Report 2017 | 93
86
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
94 | Slater and Gordon Limited | Annual Report 2017
87
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 18 to 35 of the directors' report for the year
ended 30 June 2017.
In our opinion, the Remuneration Report of Slater and Gordon Limited for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Christopher George
Partner
Melbourne
31 August 2017
A member firm of Ernst & Young Global Limited
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Slater and Gordon Limited | Annual Report 2017 | 95
88
Additional ASX Information
In accordance with the Australian Stock Exchange Limited Listing Rules, the Directors provide the following information
as at 31 August 2017.
(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
4,011
6,288
2,651
3,695
513
17,158
-
14
17
19
-
50
There are 10,950 shareholders holding less than a marketable parcel of 6,173 shares each (i.e. less than $500
per parcel of shares).
(b).
Twenty largest shareholders
Shareholder
Number of
Shares held
%
Held
1 CITICORP NOMINEES PTY LIMITED
2 MR ANDREW GRECH
3 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
4 MR KEN FOWLIE
5 JBWERE (NZ) NOMINEES LIMITED <43941 A/C>
6 MR HAYDEN STEPHENS
7 J P MORGAN NOMINEES AUSTRALIA LIMITED
8 COMSEC NOMINEES PTY LIMITED
7,138,314
6,383,238
5,681,219
5,096,221
4,297,564
4,255,115
4,239,548
3,937,049
9 BNP PARIBAS NOMINEES PTY LTD
3,684,700
10 MR PENG REN
11 BNP PARIBAS NOMS PTY LTD
12
MR JAKE JOHN RUTTEN + MRS DINAH ANN RUTTEN
13 MR DANIEL WONG
14 MR MING CHENG + MS LEI SONG
15 DEANSGATE 123 LLP
16 MR PETER JOHN KLASEN
17 THEOFAM NOMINEES PTY LTD
18 NATIONAL NOMINEES LIMITED
19 MR HAN ZHONG
20 MR HARRY HATCH
2,800,000
2,314,181
1,610,000
1,590,050
1,480,000
1,411,864
1,318,000
1,250,000
1,195,024
1,125,111
1,118,888
2.06
1.84
1.64
1.47
1.24
1.23
1.22
1.13
1.06
0.81
0.67
0.46
0.46
0.43
0.41
0.38
0.36
0.34
0.32
0.32
(c).
Substantial Shareholders
(d).
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:
61,926,086
17.85
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.
(e).
Voting Rights
All issued ordinary shares carry one vote per share.
VCR shares and performance rights do not carry any voting rights.
96 | Slater and Gordon Limited | Annual Report 2017
Slater and Gordon Limited
Page 89
Corporate Directory
Directors
John Skippen, Chair
Andrew Grech
James M. Millar
Thomas Brown
Company Secretary
Kirsten Morrison
Registered Office and
Corporate Office
Level 12
485 La Trobe Street
Melbourne Victoria 3000
Telephone: (03) 9602 6888
Facsimile: (03) 9600 0290
Company Website
www.slatergordon.com.au
Company Numbers
ACN 097 297 400
ABN 93 097 297 400
Auditors
Ernst & Young
8 Exhibition Street
Melbourne Victoria 3000
Solicitors
Arnold Bloch Leibler
Level 21
333 Collins Street
Melbourne Victoria 3000
Securities Exchange Listing
Slater and Gordon Limited shares
are listed on the Australian
Securities Exchange. The Home
Exchange is Melbourne.
ASX Code: SGH
Share/Security Registers
The Registrar
Computershare Investor
Services Pty Ltd
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
GPO Box 2975
Melbourne Victoria 3001
Telephone
Toll Free 1300 850 505
(Australia)
+61 3 9415 4000
(Overseas)
Investor Centre Website:
www.computershare.com.au
Email:
web.queries@computershare.com.au
Slater and Gordon Limited
Slater and Gordon Limited | Annual Report 2017 | 97
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