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Annual Report 2020
CONTENTS
Chair’s Report ............................................................................................... 03
Chief Executive Officer´s Report ..................................................................... 04
People and Culture ........................................................................................ 06
Social Responsibility ....................................................................................... 08
Financial Statements ....................................................................................... 10
Directors’ Report ............................................................................................. 11
Auditor’s Independence Declaration ............................................................... 29
Consolidated Statement of Profit or Loss and Other Comprehensive Income ...... 30
Consolidated Statement of Financial Position .................................................... 31
Consolidated Statement of Changes in Equity .................................................. 32
Consolidated Statement of Cash Flows ............................................................ 33
Notes to the Financial Statements ................................................................... 34
Slater & Gordon Limited Directors’ Declaration ............................................... 65
Independent Auditor’s Report ......................................................................... 66
Additional ASX Information ............................................................................ 72
Corporate Directory ...................................................................................... 73
Slater & Gordon Limited | Annual Report 2020
We have a shared purpose with our clients
– their success is our success.
01
Slater & Gordon Limited | Annual Report 2020 We are united in our purpose to make tomorrow
better than today for the thousands of Australians
who need our help to access justice.
02
Slater & Gordon Limited | Annual Report 2020 CHAIR’S REPORT
I would like to start my report this
year by thanking our people for their
incredible efforts during the disruption
caused by the COVID-19 pandemic.
Their dedication to the Company’s
clients and to continuing to achieve
great outcomes for them during this
period goes to the very core of who
we are at Slater & Gordon.
The Company has responded well
to the COVID-19 pandemic and has
taken actions to protect the health and
wellbeing of its employees and clients
and to protect its business. There are
more details about this in the CEO’s
Report and the Directors’ Report.
The Board and Executive Leadership
Team continue to monitor the COVID
situation closely and to take actions
in response as appropriate and as
recommended by governments and
health authorities.
The FY20 results show the ongoing
work to transform the Company is
delivering continued improvement,
despite reporting a net loss after tax
for the full year ended 30 June 2020
of $1.2 million. This result includes
transformation costs, as well as the
cost of incentive programs. This result
compares to a net profit after tax for
the full year ended 30 June 2019 (PCP)
of $31.3 million which was positively
impacted by a deferred tax asset of
$31.5 million.
Although the Company reported
a small net loss after tax, it also
reported improved revenue, EBITDA
and cashflow performance, driven
largely by strong organic growth
and increasing active file stock.
The Company has benefited from
stronger management of its working
capital and a strengthened balance
sheet, including the completion of
a $75.6 million, fully underwritten,
non-renounceable entitlement offer,
repaying the Company’s $64.4 million
syndicated facility and associated
fees; and in April 2020 executing the
extension of the Company’s Super
Senior Facility from December 2020
to 31 July 2023. These actions show
we continue to take sensible steps to
strengthen the Company’s balance
sheet for the long term.
As I said at the beginning of my report,
none of this progress would be possible
without our people, our clients and
our many supporters. I would like to
thank our people, leadership team
and Board for their care and deep
commitment to our clients, to justice
and to the labour movement. It is that
care and commitment that sets Slater
& Gordon apart and is determining
our future. Most importantly we
are united in our purpose to make
tomorrow better than today for the
thousands of everyday Australians
who need our help to access justice.
The Company
continues to
make positive
progress as we
execute on our
transformation
program and
build and shape
the Slater &
Gordon of
the future.
I would also like to thank our
unions, regulators, industry bodies,
sponsorship partners and business
partners for their ongoing support.
This year Slater & Gordon celebrated
its 85-year anniversary. While the
COVID-19 pandemic prevented us
from the celebrations we had planned,
we are grateful to the many people
who reached out to provide their
best wishes and support and to share
with us what Slater & Gordon has
meant to them.
Our 85th year is a time to celebrate
our proud history and embrace
the future. Our shared history, our
purpose and our values run deep
within our people and these are
shaping the next 85 years.
In April 2020, the Company also
completed an opt-out unmarketable
parcel sale facility for shareholders
who owned less than $500 of fully
paid ordinary SGH shares, enabling
those shareholders to sell their shares,
simplifying the Company’s share
register and saving costs.
The Company continues to make
positive progress as we execute on our
transformation program and build
and shape the Slater & Gordon of the
future. We know we have more to
do, but we are on the right track and
making good progress.
James MacKenzie
Chair
03
Slater & Gordon Limited | Annual Report 2020 CHIEF EXECUTIVE OFFICER´S REPORT
I start by thanking our people for
their efforts for the whole year and
particularly during the COVID-19
pandemic. The way they came
together to support each other, our
clients and the business demonstrates
the commitment of our people to our
values and our clients. What’s more,
the significant progress we have made
over the past 12 months is a direct
result of their hard work on behalf
of, and commitment to, our clients.
The financial report shows
continued improvement for the
Company despite reporting a net
loss after tax for the full year ended
30 June 2020 of $1.2 million,
which includes the costs invested in
transforming the Company, as well
as the cost of normalising its incentive
programs. This compares to a net
profit after tax for the full year ended
30 June 2019 (PCP) of $31.3 million
which was positively impacted by
the requirement to recognise a
deferred tax asset of $31.5 million.
The Company also reported EBITDA1
before specified items2 of $28.1 million,
compared to $17.5 million in FY19.
Revenue on this basis increased by
12%, and costs increased by 6%.
At the same time, the Company
has benefited from stronger
management of its working capital
and a strengthened balance sheet.
Gross Operating Cashflow1,2 was
$24.1 million, compared to $16.4 million
in FY19.
The Company also reported:
• Total revenue and other income
from continuing operations of
$178.3 million, compared to
$160.4 million in the PCP.
• Expenses relating to continuing
operations of $178.5 million,
compared to $160.5 million in
the PCP, the increase primarily
reflecting the recognition of the
value of the Slater & Gordon Rights
Plan, finance costs, an uplift in
labour expenses and depreciation
and amortisation.
• A net loss from continuing
operations before tax of $199,000
(PCP: net loss of $141,000).
• Operating cash inflows generated
from continuing operations of
$20 million, which is up from the
PCP of $2.1 million due to improved
management of the Company’s
working capital.
• A net asset position of $162.3 million
(PCP: $84.2 million).
We have made
good progress
over the past
12 months but
there is still
more work for us
to do in building
the legal firm of
the future.
We have further strengthened our
services for our clients and have
invested in new digital platforms and
innovation. We have also continued
to shape and strengthen our balance
sheet to improve our sustainability
through the extension of the
Company’s Super Senior Facility
(executed in April 2020) and the
successful entitlement offer completed
in September 2019. Furthermore,
we have seen strong organic growth
across our practice groups and we
continue to attract highly talented
people to our business. However, we
still have more work to do as we evolve
and shape the Company to lead the
legal services market of tomorrow.
In March 2020, in response to
the COVID-19 pandemic, all
Australian state and territory
governments imposed restrictions
on the movement of people, which
impacted the operations of businesses
and organisations. As a result of
the investments we had made in
technology, we were able to move
early and quickly to enable our people
to work from home and ensure that
our clients’ matters continued to
progress smoothly. A small skeleton
staff continued to work in one
Victorian office to deal with banking,
mail and document retrieval.
In responding to COVID-19 our priorities
at all times were, and continue to be:
• the health and wellbeing of
our people;
• the health and wellbeing of our clients
and the progress of their matters;
• protecting Slater & Gordon jobs; and
• business resilience.
In April, the Company’s Directors,
CEO and Executive Leadership Team
volunteered to temporarily reduce
their base pay to assist the Company’s
cashflow and its flexibility to respond
to the impacts of the COVID-19
pandemic. In May, a small number
of employees were temporarily stood
down as they were unable to undertake
any meaningful work from home.
By the end of the financial year all
stood down employees had returned
to work.
Looking forward, the COVID situation
creates considerable uncertainty for the
broader economy. While the Company
1. Normalised for the impact of adopting AASB 16 on 1 July 2019.
2. Adjusted for specified items which are certain cash and non-cash items relating to transformation and normalisation of the Company.
04
Slater & Gordon Limited | Annual Report 2020 Our history brings with it the courage to act, the courage
to innovate and the courage to drive forward.
has managed the impact of the
COVID situation to minimise business
disruption to date, the implications
of this continuing situation on our
business are uncertain. We will
continue to monitor events and make
decisions as the situation changes.
Despite the challenges of the
COVID-19 pandemic we have
delivered outstanding results for
our clients over the past 12 months.
During this period, we estimate we
have delivered over $700 million
in personal injury compensation to
everyday Australians. Further,
we have seen growing Work in
Progress as a result of organic
growth in active matters.
We filed seven new class actions,
including two further class actions
as part of our Get Your Super Back
campaign on behalf of thousands of
Australians whose retirement savings
have been gouged by bank-managed
superannuation funds. We also filed
a further three actions on behalf of
tens of thousands of customers who
were sold junk insurance by the major
banks. We announced $250 million in
class action settlements on behalf of
more than 55,000 Australians who
were victims of corporate dishonesty
and wrongdoing.
Australia’s class actions regime
delivers justice for everyday
Australians and keeps corporate giants
honest. Corporations who rip people
off or who compromise their safety
should be held to account and their
victims should be able to seek justice,
where they otherwise would not
have the means or the power to do so.
That is why we were proud to lead the
formation of the Keep Corporations
Honest campaign. Slater & Gordon
will always stand up to protect the
rights of Australians against those
who seek to harm or exploit them.
It is also why we have joined the Save
Our CTP Coalition to protect the
rights of Queensland road users.
We were also proud to introduce paid
superannuation for all employees
while on unpaid parental leave and
a new flexible working policy which
enshrines trust, flexibility and work-
life balance for our people.
In 2020 Slater & Gordon celebrated
its 85-year anniversary, albeit
remotely, and I am proud to say our
commitment to access to justice and
championing the voices of Australians
who are struggling to be heard is
stronger than ever.
Our history brings with it the courage
to act, the courage to innovate and the
courage to drive forward. That is what
is shaping our future. As we celebrate
our past we are looking to the future
– to how we build on the legacy of
our past to shape the next 85 years.
We have made good progress over
the past 12 months but there is still
more work for us to do in building
the legal firm of the future. It goes
without saying that we could not
have made this progress without
the passion and determination of
our people and the care and
commitment every person at Slater
& Gordon provides to our clients.
Collectively we are looking forward,
we are shaping our future and we
are committed to ensuring that
all Australians have access to high
quality, affordable legal help in their
time of need. We help make tomorrow
better than today for our clients.
John Somerville
Chief Executive Officer
05
Slater & Gordon Limited | Annual Report 2020 PEOPLE AND CULTURE
Our people are our greatest asset.
We have over 800 purpose driven
employees in 49 offices throughout
Victoria, New South Wales,
Queensland, the ACT and
Western Australia who proudly
put our clients first.
Culture and Capability
This year the Company made
significant inroads towards enhancing
our culture and growing our capability
for now and into the future through:
• Implementing a targeted
engagement action plan in response
to feedback provided in the 2019
employee engagement survey.
Management focused on executing
on our strategy, enhancing our
focus on internal communications,
and investing in our people to build
a workplace we are proud of. This
saw a 4% increase in employees
who responded to the engagement
survey (77% in FY19 compared
to 81% in FY20). Pleasingly the
Company experienced increased
firm-wide engagement levels
which are now comparable with the
Australian Legal Industry norm.
• Supporting a group of our senior
leaders to participate in the LEaP
(Leading, Engaging and Performing)
Program. The program was
designed to help our senior leaders
to understand their role in delivering
our Looking Forward Strategy as
well as deepen their relationships
across the Company and equip them
to be great people leaders.
• Deepening the reach of our talent
and succession planning to identify
the internal pipeline of talent for
future leadership roles.
engagement survey shows 91% of
employees agreed that we have a
work environment that is open and
accepts individual differences.
• Launching the Company’s new
• Supporting our people to balance
Capability Framework to provide
a consistent understanding of the
knowledge, skills and attributes
required to build a career at
Slater & Gordon.
Diversity and Inclusion
This year has seen a focus on practical
and pragmatic initiatives designed
to drive an inclusive, supportive and
collaborative culture by:
• Establishing an Inclusion Committee
whose role it is to provide advice
and thought leadership to assist
in ensuring that we are actively
creating a culture that promotes and
addresses issues of inclusion across
gender, gender identity, sexuality,
ethnicity, race, religion, age and
disability. Our FY20 employee
Gender Participation Levels
work life and home life by launching
a Flexible Workplace Policy that
takes an ‘If not, why not?’ approach
to flexible working arrangements.
Remote working has also been made
possible as part of flexible working
arrangements through the purchase
of laptops for employees and
improvements to make working
with key systems easier.
• Doing our part to address systemic
inequity by ensuring the retirement
savings of our employees are not
impacted by taking time out to have
a family through announcing our
commitment to pay superannuation
to all eligible employees while on
unpaid parental leave.
• The endorsement of the People
and Culture Committee to adopt
targets of ‘40/40/20’ for all
levels, where 40% of roles are
held by women or gender diverse
individuals, 40% are held by men
or gender diverse individuals and
20% are open to all genders.
• Gender parity reviews continue to
be conducted as part of the annual
promotions, remuneration review
and incentive programs. Insights
and recommendations are shared
with management for review and
implementation. These reviews
demonstrate that Slater & Gordon’s
gender parity is generally strong
against industry standards.
June 2020
June 2019
Employment level
Female
Board
Executive Management
Senior Management
Non-Management
Overall Organisation
29%
54%
55%
82%
77%
Male
71%
46%
45%
18%
23%
Female
29%
54%
54%
83%
77%
Male
71%
46%
46%
17%
23%
06
Slater & Gordon Limited | Annual Report 2020 Workplace Health & Safety
Over the last year, the Company has
expanded the Safety Starts With Me
campaign to launch a health, safety
and wellness plan that identifies
initiatives and targets in four key areas:
safety culture, collaboration and
communication, wellbeing resources
and support, as well as hazard and
risk management.
COVID-19
The COVID-19 pandemic has
presented and continues to present
challenges for all of society in
unanticipated ways. Management’s
response to COVID-19 has and
continues to be focused on five key
areas – client care, people wellbeing,
operational stability, communication,
and Company financial stability.
In March 2020, in response to the
COVID-19 pandemic, all Australian
state and territory governments
imposed restrictions on the movement
of people, which impacted the
operations of businesses and
organisations. From May 2020,
some states and territories started
to ease their restrictions.
In response, the Company immediately
undertook several actions to protect the
health and wellbeing of its employees
and clients and to protect its business.
All offices were closed in late March
and almost all employees commenced
working from home. As restrictions
eased in various states, offices were
re-opened in a staged manner, in line
with recommendations from state
governments and health officers.
Employees were surveyed on four
occasions from March to June.
Throughout the survey windows
more than 95% of employees agreed
that Slater & Gordon was supporting
them during COVID-19 and more
than 94% were confident in the
Company’s ability to support our
clients through COVID-19.
A more detailed description of the
Company’s COVID-19 response is
contained in the Directors’ Report.
Safety Culture
Collaboration &
Communication
Wellbeing Resources
& Support
Hazard & Risk
Management
This year has seen a focus on practical
and pragmatic initiatives designed to
drive an inclusive, supportive and
collaborative culture.
07
Slater & Gordon Limited | Annual Report 2020 SOCIAL RESPONSIBILITY
Our unique in-house social work team has provided
free assistance to more than 3,000 clients since
it was established in 2009.
Slater & Gordon is built on social
justice values and we are committed
to giving back. Our social responsibility
program has three key areas of focus
– assisting people with disease and
disability, addressing inequality
and disadvantage, and encouraging
people to engage in healthy activity
and lifestyles.
One of the defining features of our
Company is our relationship with
the local communities in which we
operate. We encourage and support
that relationship through volunteering
activities and pro bono legal support,
as well as giving staff the opportunity
to donate a portion of their wage
to our Staff Giving Program, which
goes towards funding local projects
throughout Australia via the Slater
& Gordon Community Fund.
The Company also gives back through
its commitment to philanthropic
activity, having established a
Community Fund in 2001 and an
Asbestos Research Fund in 2004.
In 2014, the Company broadened its
commitment to achieving outcomes
for people suffering disease and
disability by establishing the Health
Projects and Research Fund.
The Slater & Gordon
Community Fund
Our Community Fund is a philanthropic
fund which offers grants to community
groups in three key areas of focus:
• assisting people with disease and
disability and promoting their
participation and inclusion;
• addressing inequality and
disadvantage; and
• encouraging young people
to engage in healthy activity
and lifestyles.
Financial support is given to projects
and initiatives which further these
objectives. The fund is supported by
donations from Slater & Gordon staff
via our Staff Giving Program as well as
from the Company itself.
Health Projects and Research Fund
The Slater & Gordon Health Projects
and Research Fund is a philanthropic
grants initiative focused on improving
care and treatment for people with
asbestos-related illnesses, occupation-
caused cancers or with significant
disability caused by a catastrophic
injury. The Fund also provides
small ongoing education grants to
medical and health professionals
who are dedicated to the prevention,
08
Slater & Gordon Limited | Annual Report 2020 treatment, care and support of people
who have an asbestos-related disease,
work-related cancer or a catastrophic
spinal or brain injury.
Pro Bono Work
The Company has a proud history
of providing pro bono and public
interest legal work in Australia.
Our lawyers undertake pro bono
work in many areas of law and
through that have assisted members
of the community, including people
with severe disabilities, charities,
community and indigenous groups,
as well as volunteering at community
legal centres.
Social Work Services
We understand that obtaining the
correct legal entitlements is only one
of the many issues people have to
face on their journey through a life-
changing incident such as personal
injury. As a caring and community-
minded company, we have long
recognised the value of providing
free social work services to address
these issues and help improve clients’
wellbeing. While it has become
increasingly common for lawyers and
social workers to work together for
better client outcomes, we are the
only law firm in Australia that has a
dedicated social work team on staff to
assist our clients. Our unique in-house
social work team has provided free
assistance to more than 3,000 clients
since it was established in 2009. Our
team of four social workers are highly
experienced with more than 85 years
of experience between them, working
in health and welfare settings with
a broad range of clients, often with
complex issues.
Slater & Gordon
is built on social
justice values and
we are committed
to giving back.
09
Slater & Gordon Limited | Annual Report 2020 FINANCIAL STATEMENTS
Directors’ Report .............................................................................................11
Auditor’s Independence Declaration ............................................................... 29
Consolidated Statement of Profit or Loss and Other Comprehensive Income ...... 30
Consolidated Statement of Financial Position .................................................... 3 1
Consolidated Statement of Changes in Equity .................................................. 32
Consolidated Statement of Cash Flows ............................................................ 33
Notes to the Financial Statements ................................................................... 34
Slater & Gordon Limited Directors’ Declaration ............................................... 65
Independent Auditor’s Report ......................................................................... 66
Additional ASX Information .............................................................................72
Corporate Directory ...................................................................................... 73
10
Slater & Gordon Limited | Annual Report 2020 DIRECTORS REPORT
The Directors present their report, together with the financial report of the consolidated entity consisting of Slater & Gordon
Limited (“the Company”) and its controlled entities (jointly referred to as “the Group”), for the financial year ended 30 June
2020 (“FY20”) 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:
• James MacKenzie – Chair
• Mark Dewar
• Merrick Howes
• Michael Neilson
• Elana Rubin
• John Somerville
• Jacqui Walters
Details of the skills, experience, expertise and special responsibilities of each Director are set out in the “Information on
Directors and Company Secretary” section of this report.
Principal Activities
The principal activity of the Group during the financial year was the operation of legal practices in Australia.
Review of Operations
The Slater and Gordon vision
The Company’s vision is to help everyday Australians secure a better future by accessing justice and championing those
who struggle to have their voices heard. The Company is united in its purpose to make tomorrow better than today and
treats every client with care and commitment.
The Company helps unlock justice for everyday Australians who it believes have a right of redress or compensation, where
there is a considerable power imbalance. The Company’s clients come to the Company at what is often the most vulnerable
time of their lives. Without the Company’s services, many of the Company’s clients would not be able to access justice.
The Company treats clients with compassion and respect and prides itself on being trusted legal advocates for, and
delivering the highest quality legal services to, clients. This absolute focus on client care and results makes the Company
fierce in its representation and permeates the firm.
The Company has a history of innovating and is active in protecting and enhancing the legal rights of clients. The
Company’s advocacy extends beyond individual cases to include the issues of social justice and individual rights more
broadly.
The Company’s diversity mirrors the diversity of its clients and its communities.
The Company has three core values:
+ Do it right – we are passionate about the quality of the work and always achieve the highest professional standards
in order to deliver the best outcome for our clients.
+ Work well with others – we share knowledge, experience and ideas. We encourage respect and collaboration
within the firm and the community.
+
Take the lead – we challenge ourselves to be the best, we strive for innovation and we are committed to doing
everything that can be done to help our clients.
Managing risks
The following details some of the material business risks that could affect the growth of the Company’s core services.
These are not listed in order of significance and do not comprise every risk that the Company may be exposed to.
Description of key risk
Key risk mitigation
Regulatory & Industry Reform
The Company’s operations are subject to extensive
regulation. Adverse regulatory or legislative changes
may adversely impact the Company’s operations,
financial performance and position.
Proactive and comprehensive stakeholder and community
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 the Company
uses to monitor, manage and protect against potential
legislative changes.
Slater & Gordon
Page 1
11
Slater & Gordon Limited | Annual Report 2020
DIRECTORS REPORT
Description of key risk
Key risk mitigation
Operations and Systems
There are a number of key operational risks which arise
directly from the operations of the Company as a major
participant in the Australian legal services industry and
more recently impacted by the COVID-19 pandemic
environment. These include strategic and business
decisions, technology and cyber risk, reputation risk,
fraud, supplier disruption, increased digitisation and
changed employee working conditions, compliance with
legal and regulatory obligations, counterparty
performance under outsourcing and referral
arrangements, business continuity planning, legal risk,
data privacy and integrity risk, client default risk, key
personnel risk and external events.
The Company’s financial performance and position
have been, and in the future may continue to be,
impacted by these risks.
Growth Strategy, Competition and Market Share
The Company operates in a competitive market,
competing for its offering of personal injury and/or other
legal services. Competition is on the basis of a number
of factors, including the quality of advice and service,
innovation, reputation and price. the Company’s service
offerings may not attract clients to support our growth
strategy.
The financial performance may be adversely impacted
as a result of these risks.
People
The Company may be unable to attract, retain and
develop talented people which may limit its ability to
deliver its growth initiatives.
Capital Management
Funding and management of capital and liquidity
remains a key focus following the recapitalisation and
associated with significant work in progress receivable
maintained on the Company’s balance sheet. Additional
funds may need to be obtained through capital raisings
or cash flow may need to be managed through seeking
to negotiate current debt arrangements.
The Company has business performance improvement
programs in place designed to standardise, centralise,
optimise and promote efficient and innovative operating
platforms, IT systems and people strategies.
Periodic assessments are undertaken by subject matter
experts on the Company’s processes and systems to support
the development and implementation of required action plans.
Business continuity and crisis management oversight and
response activities are in place for the health and safety of the
Company’s people and protection of critical business functions.
Initiatives are being undertaken to strengthen our information
security framework to enhance our resilience to cyber-attacks
and for the protection and privacy of the Company’s data.
Strategic initiatives are designed and implemented to support
the Company’s growth strategy, including diversification of
service offerings and digitisation. Monitoring of competitive
markets to understand competitive activities and the ongoing
demand for the Company’s services and continued expansion
of marketing and business development initiatives. Protecting
and strengthening the Company’s brand to maintain long-
standing relationships with trade unions and professional
groups which provide a consistent source of new client
referrals.
People, culture and remuneration initiatives are undertaken to
support, engage and develop the Company’s people.
Implementation of a working capital management program and
close involvement of the Company’s lenders to ensure liquidity
needs are monitored closely and arrangements are put in
place where necessary to bridge short term liquidity needs.
Refer to the Company’s Corporate Governance Statement for details of the Company’s risk management framework.
Financial review
The Group reported a net loss before tax from continuing operations of $199,000 for the year ended 30 June 2020, an
increase in loss of $58,000 from the prior year. This was driven by the incremental costs for employee benefit expense
and write-off of bad debts as a result of the on-going review and efforts in reducing doubtful debts.
The Group reduced its outstanding secured debt and improved working capital through restructuring of the borrowing
facilities. As at 30 June 2020, the Group’s total borrowings were $91,850k (excluding lease liabilities), a significant
reduction of $66,799k from prior year. The Group has a positive net current asset balance of $118,471k and positive
overall net asset balance of $162,333k.
Significant Changes in the State of Affairs
Entitlement Offer
On 19 September 2019, the Company announced the completion of a $75.6 million fully underwritten 1 for 1.05752 pro
rata accelerated non-renounceable entitlement offer (“Entitlement Offer”). The Entitlement Offer raised cash proceeds
(after debt repayment) of $243,824.15 (representing approximately 6.4% of new shares available under the retail
component of the Entitlement Offer) with the balance of approximately $75.4 million (representing the remaining new
Slater & Gordon
12
Page 2
Slater & Gordon Limited | Annual Report 2020 DIRECTORS REPORT
shares available under the institutional component of the Entitlement Offer and the retail component of the Entitlement
Offer) being allotted to the sub-underwriters of the Entitlement Offer which comprised the lenders under the Company's
Syndicated Facility Agreement ("SFA") and resulted in all amounts owing under the SFA being repaid.
COVID-19
In March 2020, in response to the COVID-19 pandemic, all Australian state and territory governments imposed restrictions
on the movement of people, which impacted the operations of businesses and organisations. From May 2020, some states
and territories started to ease their restrictions.
In response, the Company immediately undertook action to protect the health and wellbeing of its employees and clients
and to protect its business, including the following:
•
•
•
•
•
•
All offices were closed in late March and most employees commenced working from home.
A small skeleton staff continued work out of one Victorian office to deal with mail, banking and document retrieval.
Further laptops and software licenses were acquired to allow employees to continue to support clients and operate
the Company’s business with minimal disruption.
In May a small number of employees were temporarily stood down as they were unable to undertake any meaningful
work from home. By the end of the financial year all stood down employees had returned to work.
To assist with cash flow:
• Directors, including Executive Directors, agreed to a voluntary reduction in base pay of 15% and the Executive
Leadership Team agreed to a voluntary reduction in base pay of 10% from 20 April to 29 June 2020.
•
•
The Company drew down on one of its working capital facilities to ensure it had an adequate cash reserve.
The Company took advantage of the Federal Government’s offer to defer tax instalments. All deferred tax was
paid by 30 June 2020.
• A number of landlords agreed to defer a part of the rent on some of the Company’s offices. As at 30 June 2020
approximately $400,000 of rent had been deferred.
As restrictions eased in various states, offices were re-opened in a staged manner, in line with recommendations
from state governments and health officers.
The COVID-19 pandemic does not appear to have had a material impact on the Company’s financial performance during
FY20. There has been no impact to asset values and revenue has been in line with the Company’s pre-COVID-19 budget.
The Company did not qualify for, apply for or receive any support under the Federal Government’s JobKeeper support
scheme.
However, the continued impact of the COVID-19 pandemic, including in particular the continued imposition of government
restrictions and the broader impacts on the Australian economy, may impact the Company’s performance in FY21. That
impact (if any) cannot currently be determined with certainty.
The Board and Executive Leadership Team continues to monitor the situation closely and to take actions in response as
appropriate and as recommended by governments and health authorities.
Super Senior Facility
On 20 April 2020, the Company announced that an extension and amendment to its Super Senior Facility (SSF) had been
executed with the senior lenders, whereby the maturity date of the SSF was extended from December 2020 to 31 July
2023.
Events Subsequent to Reporting Date
In July 2020, the Company executed a revision to the term loan agreement with an increased facility size from $10m to
$20m. The facility is secured against a broadened borrowing base of eligible receivables with a termination date of 6
February 2023. Of the $20m facility size, $3m is revolving credit and $17m are term loan.
In July 2020, lockdowns commenced across Victoria in relation to the COVID-19 pandemic. Management have performed
an assessment and concluded that the lockdowns have had no material impact on the measurement of assets and liabilities
at 30 June 2020.
Likely Developments
The Group is focused on organically growing its core service areas of Personal Injury Law, Class Actions and Industrial
and Employment Law in Australia.
The continued impact of the COVID-19 pandemic, including in particular the continued imposition of government
restrictions and the broader impacts on the Australian economy, may impact the Company’s performance in FY21. That
impact (if any) cannot currently be determined with certainty.
The Board and Executive Leadership Team continues to monitor the situation closely and to take actions in response as
appropriate and as recommended by governments and health authorities.
Slater & Gordon
Page 3
13
Slater & Gordon Limited | Annual Report 2020
DIRECTORS REPORT
Environmental Regulation
The Group’s operations are not subject to any significant environmental regulations or laws in Australia.
Environmental, Social and Corporate Governance
Pursuant to ASX Corporate Governance Principle and Recommendation 7.4, which provides that companies disclose any
material exposure to environmental or social risks, the Company does not consider that the operations are materially
exposed to such risk.
Dividends Paid, Recommended and Declared
The Group has not declared or paid any dividends in respect of the 30 June 2020 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 2020 (2019: No interim dividend paid)
No final dividend for 2019 (2018: No final dividend paid)
2020
$’000
-
-
-
2019
$’000
-
-
-
Share Options
As reported in the Remuneration Report, as part of the Long Term Incentive Plan (LTIP) and as approved by shareholders
at the 2019 Annual General Meeting, the Company agreed to award 15,573,180 performance rights (Rights) to certain
Directors and members of the Executive Leadership Team subject to the satisfaction of specified vesting and other
conditions. Once vesting conditions of awarded Rights are met and an Exit Event has occurred those Rights are effectively
zero priced options. A full description of the LTIP, including the numbers of Rights agreed to be awarded to Directors and
other KMP, is contained in the Remuneration Report. All 15,573,180 Rights remained 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 Group 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 Secretary
The skills, experience, expertise and special responsibilities of each person who has been a Director of the Company at
any time during or since the end of the financial year is provided below, together with details of the Company Secretary as
at the year end.
James MacKenzie
B.Bus, FCA, FAICD
Chair
Independent Non-
Executive Director
Experience
James is the Chair of Slater & Gordon, having joined the organisation in December 2017.
James is an experienced Australian company director. He is currently the Chairman of
Victorian Funds Management Corporation, Development Victoria and the Suburban Rail
Loop Authority Advisory Board. He is also a Member of the MCG Trust.
James was previously serving as the President of the Victorian Arts Centre Trust, Chair of
the Transport Accident Commission (TAC) and Worksafe Victoria, Managing Director of
Funds Management and Insurance at the ANZ Banking Group, Chief Executive Officer of
Norwich Union Australia, and TAC Chief Executive Officer. He has been a member of the
COAG Business Advisory Forum and a previous director of VFMC.
James has a Bachelor of Business from Swinburne University, and is a Fellow of the
Australian Institute of Company Directors and the Institute of Chartered Accountants in
Australia.
In 2001, he was awarded the Centenary Medal for services to Public Administration.
James is Chair of the Board and is also a member of the Audit and Risk Committee and the
People and Culture Committee.
Other directorships of listed companies held in the last three years
None
Slater & Gordon
14
Page 4
Slater & Gordon Limited | Annual Report 2020
DIRECTORS REPORT
Mark Dewar
B.Bus. Accounting
Chartered Accountant
Non-Independent Non-
Executive Director
Merrick Howes
BA LLB
Non-Independent Non-
Executive Director
Experience
Mark joined the Board of Slater & Gordon in May 2019 and comes from a Consulting
background as well as being a Non-Executive Director for other PE backed companies.
Mark is the Australian Practice Leader and is a Senior Managing Director in the Corporate
Finance segment at FTI Consulting. His experience is typically focussed in helping clients
who are undergoing significant change or embarking on a transformation and specialises in
advising companies, private equity investors or lenders across a range of industries
including financial services, mining, telecommunications, software, retail, engineering,
building and construction, and automotive.
Prior to joining FTI Consulting, Mark spent almost ten years with Ernst & Young, where he
commenced his career in Australia in the Audit practice before moving to London where he
was a director in the Corporate Finance practice.
Mark is a Chartered Accountant and a member of the Institute of Chartered Accountants
of Australia.
Other directorships of listed companies held in the last three years
None
Experience
Merrick joined Anchorage Capital Group in Sydney in November 2011. Prior to joining
Anchorage, he worked at Aviron Capital, a firm based in Sydney, Australia. Prior to Aviron,
Merrick was the Co-founder and Managing Director at Shearwater Capital, where he focused
on special situations and distressed debt investments. Prior to Shearwater, he was a Partner
and Managing Director in the Principal Investment Area at Goldman Sachs in Australia.
Merrick was also a Managing Director and European Head of Global Structured Products at
Merrill Lynch in Hong Kong and London. He also worked at Macquarie Bank Limited from
1989 to 1998.
Merrick received a BA in Accounting and a Bachelor of Laws from the Australian National
University.
Merrick is Chair of Slater & Gordon’s People and Culture Committee.
Other directorships of listed companies held in the last three years
None
Michael Neilson
Experience
BA LLB GAICD FGIA
Executive Director and
Company Secretary
Michael is the Executive Director, Legal and Governance, having commenced at Slater and
Gordon in April 2018.
Prior to joining Slater & Gordon, Michael was at Crown Resorts Limited, where he was Group
General Counsel and Company Secretary for almost ten years and, prior to that, he was
General Counsel for Crown Melbourne.
From 1997 to 2004, Michael was at the Lend Lease Group where he was General Counsel
and Company Secretary of General Property Trust (which was then managed by Lend
Lease) and prior to that General Counsel of Lend Lease Property Management.
Michael started his career in the commercial practice at Herbert Geer & Rundle where he
spent ten years before moving in house.
Michael has a strong track record in implementing governance, legal and regulatory
frameworks in complex, multinational businesses as well as deep experience managing risk
and compliance in challenging environments.
Other directorships of listed companies held in the last three years
None
Elana Rubin
Experience
BA(Hons) MA FFin FAICD
FIML
Elana is a non-executive director at Slater & Gordon, and was appointed to the Board in
March 2018.
Independent Non-
Executive Director
Elana has over 20 years’ experience as a non-executive company director, across diverse
sectors. She is currently a director of Afterpay and Telstra, as well as a number of unlisted
companies and government boards.
Elana was previously the chair of Australian Super and WorkSafe Victoria, and a director of
the Transport Accident Commission (TAC) in Victoria. Other previous board roles covered
Slater & Gordon
Page 5
15
Slater & Gordon Limited | Annual Report 2020
DIRECTORS REPORT
the financial services, insurance, infrastructure, professional services, and not-for-profit
sectors.
Before becoming a full time non-executive director, Elana worked for one of the (then) largest
industry funds and the Australian Council of Trade Unions (ACTU). She is a member of Chief
Executive Women and Women Corporate Directors International. Her career reflects an
understanding of corporate social licence to operate and a deep commitment to culture,
diversity, social equity and participation.
Elana is a member of the Audit and Risk Committee and the People and Culture Committee.
Other directorships of listed companies held in the last three years
Afterpay Limited (ASX:APT) (2017 to current)
Telstra Limited (ASX: TLS) (Feb 2020 to current)
Mirvac Limited (ASX:MGR) (2010 to Nov 2019)
Touchcorp Limited (ASX:TCH) (2015 to 2017)
John Somerville
Experience
BSC GDip Applied
Information Systems MBA
Chief Executive Officer and
Managing Director
John is the CEO of Slater & Gordon, having joined the organisation in February 2018.
John is a passionate leader with a history of building and leading successful teams that
deliver strong business outcomes and people engagement, most recently as the National
Managing Partner of KPMG (Advisory) Australia.
Over the last 25 years, he has developed a career advising some of Australia’s largest
corporations and governments combined with growing and leading businesses within
KPMG.
He believes business thrives when people help others be successful. This orientation
translates into delivering better outcomes for clients. He is passionate about getting the most
from diversity by creating an inclusive workforce.
John’s career has involved regional and global activity, including work in Europe, the US,
Asia as well as Australia.
Other directorships of listed companies held in the last three years
None
Jacqui Walters
Experience
BCom (Accounting and
Finance) GAICD
Independent Non-
Executive Director
Jacqui joined the Slater & Gordon Board in March 2018 and chairs the Audit and Risk
Committee. She has international experience across many industry sectors. Her work has
ranged from whole of organisation transformation and restructuring to highly specific areas
such as major capital project delivery, new product introduction, professional services
strategy and performance, and post-merger culture alignment.
Jacqui is a Partner of Era Innovation, an advisory firm enabling long-term resilience in
Australian organisations by creating systematic, disciplined innovation capability.
Jacqui is Chair of CleanCo Queensland Ltd, a non-executive Director of Development
Victoria, Chair of the Citytrain Response Unit for the Queensland Government and is also on
the Queensland Advisory Committee for the not-for-profit organisation, Second Bite.
Other directorships of listed companies held in the last three years
None
Company Secretary
Michael Neilson
See above
Slater & Gordon
16
Page 6
Slater & Gordon Limited | Annual Report 2020
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 and Risk Committee
Eligible to
attend
Attended
Eligible to
attend
Attended
People and Culture
Committee
Eligible to
attend
Attended
17
17
17
17
17
17
17
17
17
17
17
17
17
17
4
-
-
-
4
-
4
4
-
-
-
4
-
4
4
-
4
-
4
-
-
4
-
4
-
3
-
-
J MacKenzie
M Dewar
M Howes
M Neilson
E Rubin
J Somerville
J Walters
Directors’ Interests in Shares
Directors’ relevant interests in shares of the Company as at the date of this report are detailed below.
Ordinary Shares of the Company
Performance Rights
J MacKenzie1
M Dewar
M Howes
M Neilson
E Rubin
J Somerville
J Walters
-
-
-
-
-
-
-
1,245,840
-
-
1,245,840
415,280
3,322,240
415,280
1 James Mackenzie’s Rights have been agreed to be awarded to a company controlled by him, JACM Pty Ltd.
Directors’ Interest in Contracts
Directors’ interests in contracts are disclosed in Note 22 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 and Risk Committee and approval is notified
to the Board of Directors. There were no non-audit services provided by the auditors of the Group during the year, therefore
auditor independence was not compromised.
Rounding of Amounts
The amounts contained in the Directors’ Report and Financial Report have been rounded to the nearest thousand dollars
(where rounding is applicable) under the option available to the Company under ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191.The Company is an entity to which the Class Order applies.
The Directors’ Report and accompanying Audited Remuneration Report is signed in accordance with a resolution of the
Directors.
James MacKenzie
Chair
27 August 2020
Slater & Gordon
John Somerville
Managing Director and CEO
Page 7
17
Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
1.0 Introduction
The FY20 results show a significant improvement for the Company which continues to improve its position. Reflecting this
Executive KMP were awarded in FY20 an average of 120% of their Short Term Incentive Plan (STIP) target bonus for
performance against a balance scorecard of measures compared to FY19 where an average of 103% of the Short Term
Incentive was paid. During FY20, a new Long Term Incentive Plan (LTIP) was implemented and awards were agreed to
be made.
Changes to Remuneration
The Company has evolved its remuneration strategy over the past two years. Key changes include:
• A new STIP was introduced in FY19 to create greater alignment of Company and individual performance. In FY20,
STIP target opportunities were increased for the Executive Leadership Team except for the CEO. The increase
was made to ensure executives Total Target Remuneration remains market appropriate while considering
affordability.
• An LTIP was approved by shareholders at the 2019 Annual General Meeting. Subsequently, participation in the
LTIP was offered to the independent Directors and certain members of the Executive Leadership Team, including
the Executive Directors, in the form of rights to receive ordinary shares (Rights). The addition of an LTIP further:
•
•
•
•
encourages participants to focus on creating value for shareholders;
links reward with the achievement of long-term performance in the Company;
encourages participants to remain with the Company by providing them with the opportunity to hold a financial
stake in the Company; and
assists in the Company attracting high calibre Directors, Executives and employees.
The Company is confident that the inclusion of an LTIP will support the Company’s financial and strategic goals and
remuneration framework. Management remains committed to transparency and an ongoing dialogue with shareholders on
remuneration.
As disclosed to the ASX on 20 April 2020, the Directors, CEO and Executive Leadership Team (ELT) agreed to a voluntary
reduction to their base pay to assist the Company’s cash flow flexibility to respond to the potential impacts of the COVID-
19 pandemic. Directors1 including the Executive Directors agreed to a voluntary reduction in their base remuneration of
15% and the Executive Leadership Team agreed to a voluntary reduction in base pay of 10% from 20 April to 29 June
2020.
2.0 Remuneration Report Overview
The Directors present the Remuneration Report (the Report) for the Company and its controlled entities for FY20. This
Report forms part of the Director’s Report and has been audited in accordance with section 300A of the Corporations Act
2001. The Report details the remuneration arrangements for the Company’s Key Management Personnel (KMP) which is
comprised of:
• Non-Executive Directors (NEDs)
• Executive Directors
• Other Executive KMP
KMP are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling
the major activities of the Company.
1 Non-Executive Director Merrick Howes does not receive any salary or Director’s fees from the Company.
Slater & Gordon
18
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
The table below outlines the KMP for FY20:
Name
Position
Term as KMP
Non-Executive Directors
James MacKenzie
• Chair of the Board
• Non-Executive Director (Independent)
Mark Dewar
• Non-Executive Director
Merrick Howes
• Non-Executive Director
Elana Rubin
• Non-Executive Director (Independent)
Jacqui Walters
• Non-Executive Director (Independent)
Executive Directors
John Somerville
• Chief Executive Officer & Managing
Director
Michael Neilson
• Executive Director, Legal &
Governance
Other Executive KMP
•
•
•
•
•
•
•
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Scott Butterworth
• Chief Financial Officer
•
Full financial year
3.0 How remuneration is governed
The People and Culture Committee assists the Board to oversee the establishment and operation of appropriate policies
and strategies that provide the Company with the capability to achieve its short and long-term business objectives, including
recommending remuneration changes to the Board for NEDs, Executive Directors and Other Executive KMP.
3.1
Use of remuneration advisors
During FY20, the Company did not use remuneration advisors as defined under the Corporations Act 2001.
3.2
Claw back of remuneration
The claw back policy was introduced in June 2016. This policy enables the Company to claw back certain elements of an
Executive Director’s or Other Executive KMP’s (collectively Executive KMP) remuneration if there has been a misstatement
of the financial statements which resulted in the Executive KMP receiving a reward which exceeds the outcome that would
have been achieved had the misstatement not been made.
3.3
Share Trading Policy
The Company’s Share Trading Policy (Policy) applies to all Directors, officers, employees, contractors and consultants.
The Share Trading Policy outlines how and when Directors, officers, employees, contractors and consultants may deal in
Company securities.
Restricted Persons (as defined in the Policy) may only deal in securities in the Company during defined trading windows
and provided they do not possess inside information.
If a Relevant Person (as defined in the Policy) acquires securities in the Company (other than via an employee share plan),
they should not sell or agree to sell any Company securities of that class for at least 30 days.
Directors are prohibited from entering margin loans under the Company’s Share Trading Policy. Relevant Persons 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 Company at the relevant time. A Restricted
Persons 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 Company’s securities during a prohibited trading period.
Relevant Persons must not enter into hedging arrangements in relation to securities in the Company that are unvested or
subject to disposal restrictions or minimum shareholding requirements.
The Company’s Share Trading Policy is available on the Company’s website www.slatergordon.com.au.
Slater & Gordon
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
3.4
Executive KMP employment agreements
The following sets out details of the employment agreements relating to Executive KMP:
Length of Contract
Executive KMP are on rolling contracts, which are ongoing employment
contracts until notice is given by either party.
Resignation
Termination for
cause
Termination in
case of
retirement,
redundancy or
notice without
cause
Termination
payment
CEO and Managing Director notice
period
Executive Director, Legal and
Governance notice period
CFO notice period
Six (6) months
None
Six (6) months
Six (6) months
Six (6) months
None
Six (6) months
Six (6) months
Six (6) months
None
Six (6) months
Six (6) months
Statutory
Entitlements
Post-Employment
Restraints
Payment of statutory entitlements of long service leave and annual leave
applies in all events of separation.
The employment agreement contains a restraint of trade provision which
applies for a period of 9 months and 12 months.
3.5
Cessation and movement of Executive KMP
During FY20, there were no cessations or movement of NEDs or Executive KMP.
3.6 Other transactions and balances with KMP and their related parties
During FY20, there were no additional transactions for Executive KMP and their related parties.
4.0 Overview of Executive KMP Remuneration
This section of the Remuneration Report 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.
4.1
How Executive KMP remuneration policies and structures are determined
The Company’s remuneration strategy aims to ensure that fixed and variable reward relates directly to the:
• Performance of individuals and the operation or function in which they manage; and
• Overall performance and growth of the Company and the interests of clients, employees and shareholders.
The Company applies a disciplined set of guiding principles to fixed and variable reward that provides a level and mix that:
• Will attract, retain and engage employees with the requisite skills, expertise and capabilities that fosters a high-
performance culture;
• Aligns company and individual performance outcomes;
• Aligns the interests of shareholders, clients and employees to enhance the Company’s performance in a manner
that supports the long-term financial soundness of the Company;
• Maintains the integrity of the Company’s remuneration principles, strategies and practices;
•
Is compliant with current governance and legislative requirements related to remuneration practices; and
• Promotes pay parity and equity.
4.2
Executive KMP Remuneration Structures
The Company rewards Executive KMP with a level and mix of remuneration that provides an equitable, motivating,
competitive and affordable remuneration package in a way that secures quality executives for the long-term success of the
Company while fostering a performance-oriented and risk management culture.
Executive KMP receive fixed remuneration and variable remuneration consisting of short term and long-term incentive
opportunities. Executive KMP remuneration levels are reviewed annually by the People and Culture Committee with
reference to the Company’s remuneration principles and market movements.
Slater & Gordon
20
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
4.3
Elements of remuneration
Fixed remuneration
Fixed remuneration is determined based on the size, scope, complexity and responsibility of the role and is set to attract,
retain and engage employees, while also considering Company affordability. Fixed remuneration consists of base
remuneration, superannuation (based on and up to the maximum of the statutory guarantee level) and other non-monetary
benefits.
Fixed remuneration is reviewed annually with approved changes effective 1 July or such other date as the Board may
nominate. The following factors are taken into consideration when reviewing executive remuneration:
• Company performance and affordability;
•
•
Individual performance tied to an annual Performance and Development Review;
The Total Target Reward (fixed remuneration and incentive opportunity) of an individual, including the pay mix of
fixed and variable reward;
• Economic climate;
• External market movement;
• Company and social responsibility; and
• Pay parity and equity.
Adjustments to Executive KMP remuneration are reviewed by the People and Culture Committee and approved by the
Board.
STIP
Under the STIP, all Executive KMP have the opportunity to earn an annual incentive award. The plan includes two
measures, Company performance and individual performance. Company performance centres the executive’s focus on
sustainable and progressive financial success and individual performance rewards the employee’s own contribution
towards Key Performance Indicators (KPIs) and Company success.
How are bonuses paid?
STIP bonuses are paid in cash.
How much can executives earn?
Executive KMP have a defined on-target STIP opportunity between 23% - 50% of their Full Time Equivalent base
remuneration and a maximum STIP opportunity of 200% of their on-target opportunity.
Executive KMP
STIP On -Target1
John Somerville
Michael Neilson
Scott Butterworth
1Represents on-target for full plan year.
$264,499
$93,380
$104,535
% of Base
Remuneration
50%
23%
23%
Executive KMP’s Total Remuneration Pay Mix% (annualised at target) for FY20 is set out below.
Executive KMP
John Somerville
Michael Neilson
Scott Butterworth
1 Includes superannuation
Total Fixed
Remuneration1
67.5%
82.1%
82.0%
How is performance measured?
Short Term
Incentive
32.5%
17.9%
18.0%
The STIP performance measures were chosen based on their ability to deliver sustainable Company performance and
results for shareholders and clients. Company performance against financial targets (EBITDA and cashflow) act as a
gateway for rewarding individual performance against individually set KPI’s. For each individual KPI, a target is set.
Performance measures are validated and approved by the Board.
Slater & Gordon
Page 11
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
FY20 performance measures are set out below:
Executive KMP
Chief Executive Officer and
Managing Director
Executive Director, Legal and
Governance
Chief Financial Officer
Company Financial
Performance
Client Measure
People Measure
Operational
Measure
50%
50%
50%
20%
20%
20%
20%
20%
20%
10%
10%
10%
EBITDA and cashflow targets are the measures against which the Board and management assess the Company’s short
term financial performance.
Who sets STIP performance measures?
Financial performance measures are set by the Board, based on the recommendation of the People and Culture
Committee.
KPIs are set for the CFO and Executive Director, Legal and Governance by the CEO & Managing Director, then reviewed
and endorsed by the People and Culture Committee and Board.
CEO and Managing Director KPIs are set and approved by the Board.
When are STIP bonuses paid?
The STIP outcome is determined after the end of the financial year and after release of the Financial Report. The Board
approves the final STIP award for the Executive KMP, which is generally paid approximately three months after the end of
the performance period. There are no deferral components
What happens if an Executive KMP leaves?
The following details the treatment of STIP on termination:
Resignation:
Any potential STIP payment is forfeited if an employee tenders their resignation prior to payment being made.
Dismissal:
Any potential STIP payment is forfeited if an employee’s employment is terminated for cause prior to payment being made.
Retirement:
Any potential STIP will be calculated on a pro-rated basis for portion of year worked within the plan year. Payment will be
calculated in accordance with the normal timetable and based on the end of year results.
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 and 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.
Redundancy:
If redundancy occurs during:
quarter 1 or 2, any potential STIP will be forfeited.
quarter 3 or 4, any potential STIP will be calculated on a pro-rated basis for portion of year worked within the
plan year. Payment will be calculated in accordance with the normal timetable and based on the end of year
results.
•
•
LTIP
The LTIP and the award of Rights to the independent NEDs and the Executive Directors was approved by shareholders at
the 2019 Annual General Meeting.
How is LTIP paid?
Under the terms of the LTIP, eligible participants were offered rights (Rights) to acquire ordinary shares in the Company
at no cost to them. Participants can acquire shares if they remain employed by the Company and the vesting conditions
and exercise conditions of the Rights are satisfied or waived. While the Rights remain unexercised the participants do not
have the same benefits as holders of shares in the Company, such as dividend and voting rights. However, once vesting
conditions and the exercise conditions satisfied or waived and a participant exercises their Rights, then, as holders of
shares, participants have the same benefits as other holders of shares in the Company, such as dividend and voting rights.
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
In FY20, all Executive KMP were offered a specified number of Rights.
How much can executives earn?
The number of Rights offered to participants in the LTIP was determined by the Board. Five Directors (including two
Executive Directors) and nine members of the Executive Leadership Team were offered a specified number of Rights
from a pool of 15,573,000 Rights, or 75% of the pool of Rights available to be awarded under the LTIP.
Executive KMP LTIP opportunities were determined using a combination of factors, including scope, complexity and
responsibility of role, relative seniority, relative base remuneration and length of service with the Company post the
recapitalisation in December 2017. Set out below are the Rights awarded to Executive KMP in FY20;
Executive KMP
John Somerville
Michael Neilson
Scott Butterworth
Number of Rights
Offered
3,322,240
1,245,840
1,453,480
How is performance measured?
Under the LTIP rules, the nature and content of any vesting conditions (including the vesting period) are determined by the
Board and may include conditions relating to any or all of:
•
•
•
•
•
•
continuing employment;
performance of the Participant;
performance of the Company;
the Company's share price;
the achievement of specific targets; or
the occurrence of specific events
The Rights offered to independent NEDs, Executive Directors and certain members of the Executive Leadership Team
vest in accordance with the following schedule, subject to continuing employment/engagement of services.
Vesting Date
Tranche A: 30 June 2020
Tranche B: 30 June 2021
Tranche C: 30 June 2022
Tranche D: Date of ‘Exit Event’
Vesting Percentage
22%
22%
22%
34%
Vested Rights are subject to and may only be exercised, i.e. converted to shares in the Company, after an Exit Event
occurs. The terms of the award provide that an Exit Event will occur if (a) the Company’s underlying Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) reaches the target specified by the Board and as evidenced by
the audited Financial Statements for that financial year and (b) the Board being satisfied that the Company’s approved
Budget for the following Financial Year shows underlying EBITDA forecast at or better than the target set by the Board,
subject always to the Board’s discretion to ignore or waive any one off transactions or circumstances in calculating
underlying EBITDA for this purpose. The relevant financial year must end on or after the date of grant of Rights.
If an Exit Event has not occurred before the seventh anniversary of the initial offer of the Rights, then the Rights will expire.
When is performance measured?
Vesting conditions and the Exit Event are measured at the end of each financial year during the term of the LTIP.
What happens if a participant leaves?
If a participant resigns or is terminated for cause, any unvested Rights are forfeited, unless otherwise determined by the
Board. If a participant ceases employment by reason of redundancy, ill health, death, or other circumstances approved by
the Board, unvested Rights will vest pro-rata based on the portion of the Vesting Period that has elapsed as at the date
cessation date. The vested portion may be retained provided the participant exercises their vested Rights by delivering a
signed Exercise Notice to the Company by the earlier of: (i) the expiry date of the Rights; and (ii) the date which is three
months after the participant receives notification from the Company that the Exit Event has been achieved.
What happens if there is a change of control?
If there is a ‘Change of Control’ (as defined in the LTIP rules), all unvested Rights will automatically vest and the Exit Event
will be deemed to be satisfied so that participants can elect to either request the Company to buy-back their Rights or
exercise the vested Rights and dispose of the shares delivered to the participant.
Are executives eligible for dividends?
Participants are not eligible to receive dividends on Rights, vested or unvested.
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
Can further awards be made under the LTIP?
There remains a pool of further Rights available for award under the LTIP at the Company’s discretion. To date no further
awards have been made.
4.4
Changes for FY20
The material changes to Executive Remuneration during FY20 were:
•
The increase in potential on-target STIP bonus awards for the Executive Leadership Team, the Executive Director,
Legal and Governance and the Chief Financial Officer by 3%.
• A new LTIP was introduced in FY20. The new LTIP and the FY20 outcomes for that LTIP are described in detail
above.
5.0 FY20 Executive KMP Performance and Remuneration Outcomes
5.1
Actual Remuneration earned by Executive KMP in FY20:
The actual remuneration earned by Executive KMPs in FY20 is set out in section 7 below.
As disclosed to the ASX on 20 April 2020, the Directors, CEO and ELT agreed to a voluntary reduction to their base pay
to assist the Company’s cash flow flexibility to respond to the potential impacts of the COVID-19 pandemic. Directors2
including the Executive Directors agreed to a voluntary reduction in their base remuneration of 15% and the Executive
Leadership Team agreed to a voluntary reduction in base pay of 10% from 20 April to 29 June 2020.
The FY20 cash bonus STIP and LTIP Rights awarded to Executive KMP is set out in section 7 below. The table represents
what has been awarded to Executive KMP under the STIP and LTIP, although the STIP has not yet been paid.
5.2
STIP Performance Measures for FY20
A combination of financial and non-financial measures is used to measure Executive KMP performance for STIP awards
which are underpinned by the Company’s values and behaviours. A summary and performance against each measure is
as follows:
Key: Between threshold and target At target Exceed target
Chief Executive Officer and
Managing Director
Company Financial
Performance
Cash Generation &
Business Performance
Executive Director, Legal and
Governance
Cash Generation &
Business Performance
Client satisfaction
Chief Financial Officer
Cash Generation &
Business Performance
Client satisfaction
Client Measure
People Measure
Client satisfaction
Engagement &
compliance to people
activities
Engagement &
compliance to people
activities
Engagement &
compliance to people
activities
Operational
Measure
Strategic initiatives
Strategic initiatives
Strategic initiatives
In addition, the impact of the voluntary reduction to Executive KMP base remuneration was taken into consideration in
determining the FY20 STIP payment. Based on this assessment, the average STIP bonus awarded to Executive KMP in
FY20 as a percent of target was 120%. The table in section 7.1 discloses actual FY20 STIP awarded to Executive KMP.
5.3
LTIP Performance Measures and Vesting outcomes for FY20
On 30 June 2020, Tranche A of the LTIP vested in accordance with the terms of the award to independent NEDs, Executive
Directors and Other Executive KMP.
Given the uncertainty around the impact of the COVID-19 pandemic on Australia’s economy and, in turn, the Company’s
financial performance in FY21, the Board has deferred its consideration of whether an Exit Event has occurred under the
LTIP Rules. The Board will re-consider the position before 31 December 2020. This means that the Exit Event has not
occurred. As a result, Tranche D has not vested and Tranche A, although vested, are subject to an outstanding condition
and may not yet be exercised by participants.
The Company has valued the benefit to independent NEDs and Executive KMP of their participation in the LTIP in FY20
using the Black Scholes valuation method and that value has been added to each NED and Executive KMP’s remuneration
in the tables in sections 6.3 and 7.1. The value of these benefits do not represent cash received by the relevant participant
and these values may need to be adjusted over time, based on performance and LTIP outcomes.
2 Non-Executive Director Merrick Howes does not receive any salary or Director’s fees from the Company.
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24
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
5.4 Overview of Company performance (FY16 to FY20)
The table below sets out information about the Company’s earnings and movements in shareholder wealth for the past
five years up to and including the current financial year.
Company Performance
Revenue ($'000)
Profit before tax ($'000)
Profit after tax ($'000)
Basic earnings per share
(dollars)
Diluted earnings per share
(dollars) 2
Gross Operating Cash Flow less
CAPEX
Dividends per share - paid during
financial year (cents)
Total dividends paid during
financial year (cents)
20161
908,185
(1,029,468)
(1,017,595)
20171
611,485
(551,149)
(546,831)
20181
162,501
(29,044)
(31,722)
2019
160,372
(141)
33,010
2020
178,339
(199)
(1,660)
(28,877.50)
(15,542.50)
(0.84)
0.425
(0.013)
(28,877.50)
(15,542.50)
(0.84)
0.405
(0.013)
(96,383)
(34,308)
(682)
5,230
24,921
5.5
19,330
-
-
-
-
-
-
-
-
1. Financial performances were not restated for the discontinued operations that occurred in FY2018. However, the basic earnings per share, diluted
earnings per share and share price at 30 June have been restated for the 100 to 1 share consolidation that took place on 8 December 2017.
2. Basic earnings per share and diluted earnings per share were restated for the impact of the 100 to 1 share consolidation that took place on 8
December 2017. 2018 earnings per share is shown excluding discontinued operations. Prior years are shown for the overall business and have not
been restated for discontinued operations.
6.0 Overview of Non-Executive Director remuneration
6.1 Overview of Non-Executive Director remuneration
The Company’s NED fees are designed to attract and retain high caliber directors who can discharge their roles and
responsibilities required in terms of good governance, strong oversight, independence and objectivity.
NED remuneration is based on fixed director fees and superannuation contributions and is reviewed annually by the People
and Culture Committee. The chairs of the Board and each Committee do not receive any additional committee fees in
addition to base fees.
6.2 Maximum aggregate NED fee pool
The maximum aggregate fee amount that may be paid to NEDs for their services is $950,000 during any financial year, as
approved by shareholders at the 2015 AGM held in November 2015.The table below summarises Board and Committee
fees paid to NEDs for FY20 (inclusive of superannuation).
1 July 2019 - 30 June 2020
Board Chair Fee
Board Director Fee
Committee Fees
Audit, Compliance & Risk
People and Culture Committee
Annual Fee Pool
Chair
Member
Chair
Member
$250,000
$175,0001
Nil
Nil
Nil
Nil
$950,000
1 Non- Executive Director Merrick Howes and Executive Directors John Somerville and Michael Neilson do not receive payment of Board director fees from
the Company.
6.3
FY20 NED Remuneration
The table below sets out the FY20 NED remuneration. The table includes an entry for short term benefits to Merrick Howes,
an executive employed by Anchorage Capital Group LLC. The Company does not pay any remuneration to Merrick Howes.
Australian Accounting Standards require disclosure of fees for his role as a Director of the Company, where he is paid by
his employer, which is the parent entity of the Group. The fees paid by the Company to other Directors are considered
representative of this. The Executive Directors do not receive Board director’s fees. Their remuneration does not count
towards the total NED Annual Fee Pool. Please refer to table 7.1 KMP Remuneration: Statutory Remuneration Outcomes
for Executive Director remuneration.
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Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
Amounts $
Current NEDs
James MacKenzie (Chair)
Mark Dewar
Merrick Howes 1
Disclosure required by Australian Accounting Standards – no remuneration was actually paid by the
Company
Elana Rubin 2
Jacqui Walters
Total3
Short-term
benefits
Fees3
Post-employment
benefits
Superannuation
benefits
LTIP Value4
Rights
Total
221,927
229,951
155,207
16,596
158,375
158,375
162,361
159,817
155,207
159,817
-
694,702
566,181
20,520
20,049
14,745
1,577
-
-
7,591
15,183
14,745
15,183
-
57,601
51,992
384,341
-
-
-
-
-
128,114
-
128,114
-
-
626,788
250,000
169,952
18,173
158,375
158,375
298,066
175,000
298,066
175,000
-
640,569
1,392,872
-
618,173
Year
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY19
FY20
FY19
1 M Howes is not remunerated by the Company for his service as Non-Executive Director. The Company was not charged for his service. Amounts in this table are
not included in the total NED Annual Fee Pool.
2 E Rubin received an exemption certificate from receiving SGC contributions paid by the Company during FY20.
3 The fee shown attributable to M Howes is not counted towards the maximum aggregate NED Fee Pool.
4 The Company has valued the benefit to independent NEDs of their participation in the LTIP in FY20 using the Black Scholes valuation method. The value of these
benefits does not represent cash received by the relevant participant. The value of the benefit under the LTIP does not count towards the total NED Annual Fee
Pool.
Three of the NEDs were awarded Rights under the Company’s LTIP, as follows:
NED
James MacKenzie1
Elana Rubin
Jacqui Walters
Number of Rights
Offered
1,245,840
415,280
415,280
1 James Mackenzie’s Rights were awarded to a company controlled by him, JACM Pty Ltd.
These awards were approved by shareholders at the Company’s 2019 Annual General Meeting. Section 4.3 and 5.3 contains
a description of the LTIP.
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26
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Slater & Gordon Limited | Annual Report 2020
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27
Slater & Gordon Limited | Annual Report 2020
Directors’ Report
Audited Remuneration Report
7.2
Executive KMP Equity Plans
As described in section 4.3, the LTIP is the only equity plan in which Executive KMP participated in during FY20.
7.3
Vesting and Exercise of Performance Rights granted as Remuneration
During FY20, no options were vested, exercised, or granted. As described in section 5.3, Tranche A of the LTIP vested on
30 June 2020, but an Exit Event has not yet occurred so participants in the LTIP, including the Executive KMP, may not
exercise their vested Rights by applying to have their Rights converted to shares.
7.4 Shareholding of Executive KMP and NEDs
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 3.3 for
more information on prohibition on hedging and margin lending.
The table below indicates shareholdings of the Executive KMP and NEDs:
KMP
Number held at
1 July 2019
Acquisitions
Disposals
Number held at 30
June 2020
James MacKenzie
Mark Dewar
Merrick Howes
Elana Rubin
Jacqui Walters
John Somerville
Michael Neilson
Scott Butterworth
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7.5
Movement in Executive KMP Holdings: Performance rights over ordinary shares
During the financial year, the movement in the number and value of performance rights over ordinary shares of the
Company offered under the LTIP, and to which Executive KMP and NEDs are entitled is detailed below:
KMP
James
MacKenzie1
Mark Dewar
Merrick Howes
Elana Rubin
Jacqui Walters
John Somerville
Michael Neilson
Scott Butterworth
Total
Number of
Rights at 1 July
2019
Acquisitions
Rights Vested2
Rights Exercisable
Rights Exercised
-
1,245,840
274,085
-
-
-
-
-
-
-
-
-
-
415,280
415,280
3,322,240
1,245,840
1,453,480
-
-
91,362
91,362
730,893
274,085
319,766
8,097,960
1,781,553
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 James Mackenzie’s Rights were offered to a Company controlled by him, JACM Pty Ltd.
2 Rights vested include Tranche A only as at 30 June 2020.
End of Remuneration Report
28
Slater & Gordon
Page 18
Slater & Gordon Limited | Annual Report 2020
29
A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 19 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 2020, 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 David Shewring Partner Melbourne 27 August 2020 Slater & Gordon Limited | Annual Report 2020 Consolidated Statement of Profit or Loss and Other
Comprehensive Income
For the Year Ended 30 June 2020
Revenue
Fee revenue
Net movement in work in progress
Revenue from contracts with customers
Other income
Total revenue and other income
Less expenses
Salaries and employee benefit expense
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
Total expenses
Loss before income tax (expense) / benefit from continuing operations
Income tax (expense) / benefit
Profit / (Loss) after income tax (expense) / benefit from continuing operations
Profit / (Loss) after income tax expense from discontinued operations
Profit / (Loss) after income tax (expense) / benefit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Continuing operations
Discontinued operations
Total comprehensive income for the year
Earnings per share for profit/(loss) from continuing operations
Basic earnings per share
Diluted earnings per share
Earnings per share for profit/(loss) from discontinued operations
Basic earnings per share
Diluted earnings per share
Earnings per share for profit/(loss)
Basic earnings per share
Diluted earnings per share
Note
3
4
4
4
6
28
8
8
8
8
8
8
2020
$'000
161,407
15,839
177,246
1,093
178,339
107,969
1,766
11,207
17,992
7,680
12,713
4,849
9,444
4,918
178,538
(199)
(1,461)
(1,660)
475
(1,185)
-
(1,185)
(1,660)
475
(1,185)
2019
$'000
156,092
3,369
159,461
911
160,372
93,696
8,744
9,584
18,375
8,158
11,884
(1,290)
4,402
6,960
160,513
(141)
33,151
33,010
(1,750)
31,260
-
31,260
33,010
(1,750)
31,260
Cents
Cents
(1.3)
(1.3)
0.4
0.4
(0.9)
(0.9)
42.5
40.5
(2.3)
(2.2)
40.2
38.3
Slater & Gordon
30
Page 20
Slater & Gordon Limited | Annual Report 2020
Consolidated Statement of Financial Position
As at 30 June 2020
Current assets
Cash and cash equivalents
Receivables
Work in progress
Other assets
Assets held for sale
Total current assets
Non-current assets
Property, plant and equipment
Receivables
Work in progress
Right-of-use assets
Intangible assets
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Payables
Financing arrangements
Leases
Provisions
Total current liabilities
Non-current liabilities
Payables
Financing arrangements
Leases
Deferred tax
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
Note
16
10
11
12
13
10
11
18
9
14
17
18
15
14
17
18
6
15
20
2020
$'000
26,461
63,894
107,460
11,047
1,375
210,237
3,643
21,288
131,753
19,705
1,618
318
178,325
388,562
54,833
8,415
8,185
20,333
91,766
8,889
83,435
24,110
15,219
2,810
134,463
226,229
162,333
2019
$'000
12,633
64,968
105,512
9,383
-
192,496
6,630
19,019
118,143
-
2,155
319
146,266
338,762
53,576
9,852
-
17,953
81,381
4,890
148,797
-
13,901
5,641
173,229
254,610
84,152
1,434,793
6,025
(1,278,485)
162,333
1,351,533
9,933
(1,277,314)
84,152
Slater & Gordon
Page 21
31
Slater & Gordon Limited | Annual Report 2020
Consolidated Statement of Changes In Equity
For the Year Ended 30 June 2020
Balance at 1 July 2018
Adjustment for change in accounting policy in relation to AASB 9
Balance at 1 July 2018 - restated
Profit after income tax benefit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transfer from share based payments reserve
Balance at 30 June 2019
Balance at 1 July 2019
Loss after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transfer from share based payments reserve
Issuance of shares under rights offer
Performance rights granted under LTIP
Balance at 30 June 2020
Contributed
Equity
$'000
Share-based
Payment
Reserve
$'000
Accumulated
losses
$'000
Total equity
$'000
1,348,581
-
1,348,581
-
-
-
2,952
1,351,533
12,885
-
12,885
-
-
-
(2,952)
9,933
(1,298,171)
(10,403)
(1,308,574)
31,260
-
31,260
-
(1,277,314)
63,295
(10,403)
52,892
31,260
-
31,260
-
84,152
Contributed
Equity
$'000
Share-based
Payment
Reserve
$'000
Accumulated
losses
$'000
Total equity
$'000
1,351,533
-
-
-
8,698
74,562
-
1,434,793
9,933
-
-
-
(8,712)
-
4,804
6,025
(1,277,314)
(1,185)
-
(1,185)
14
-
-
(1,278,485)
84,152
(1,185)
-
(1,185)
-
74,562
4,804
162,333
Slater & Gordon
32
Page 22
Slater & Gordon Limited | Annual Report 2020
Consolidated Statement of Cash flows
For the Year Ended 30 June 2020
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Net cash provided by operating activities of continuing operations
Net cash provided by / (used in) operating activities of discontinued operations
Total net cash provided by operating activities
Cash flows from investing activities
Payment for software development
Payment for plant and equipment
Costs associated with acquisition of businesses
Deposits for bank guarantees
Proceeds from disposal of business
Proceeds from disposal of intangible asset
Total net cash (used in) / provided by investing activities
Cash flows from financing activities
Loans repaid / (advanced) to related parties and employees
Proceeds from borrowings
Repayment of borrowings
Payment of principal portion of lease liabilities
Transaction costs of rights issue
Total net cash (used in) / provided by financing activities
Net (decrease) / increase in cash held
Cash at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
Note
5
16
2020
$'000
234,116
(208,848)
174
(5,451)
19,991
750
20,741
(45)
(304)
-
-
884
1,000
1,535
-
19,500
(19,372)
(7,106)
(1,470)
(8,448)
13,828
12,633
26,461
2019
$'000
229,295
(222,197)
261
(5,299)
2,060
(1,772)
288
(722)
(1,146)
(24)
143
964
(982)
(1,767)
139
11,605
(16,410)
-
-
(4,666)
(6,145)
18,778
12,633
Slater & Gordon
Page 23
33
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 1. Basis of Preparation
This note sets out the accounting policies adopted by Slater & Gordon Limited (the “Company”) 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 on 27 August 2020.
The Company is 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 & 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.
This is the first set of the Group’s annual financial statements in which AASB16 Leases has been applied. Changes to significant accounting
policies are described in Note 1.4.
Going Concern
The financial statements have been prepared using the going concern assumption which contemplates the realisation of assets and the
settlement of liabilities in the ordinary course of business.
As at 30 June 2020, the Group’s total borrowings were $91.9m (2019: $158.7m). Of this, $8.4m (2019: $9.9m) is presented as current
liabilities, being due for repayment in the next 12 months. The remaining $83.4m (2019: $148.8m) of debt is non-current. Furthermore, as
at 30 June 2020, the Group has a positive net current asset balance of $118.5m (2019: $111.1m) and a positive overall net asset balance
of $162.3m (2019: $84.2m).
In addition, at 30 June 2020, the Group had available a total of $12.8 million of undrawn debt facilities and $26.5 million of cash.
The Directors have assessed the forecasted trading results and cash flows. In making this assessment, consideration has been given to
potential impacts of COVID-19 on the Group’s operations and forecasted cash flows based on best estimates within a range of future
market scenarios, noting that the rapidly evolving nature of COVID-19 makes it inherently difficult to forecast outcomes with certainty.
On this basis, the Directors have concluded that there are reasonable grounds to believe that the Group will continue to be able to pay its
debts as and when they become due and payable, and the preparation of the 30 June 2020 financial report on a going concern basis is
appropriate.
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. 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.
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.
Slater & Gordon
34
Page 24
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
1.2 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.
1.3 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.
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. Foreign currency monetary items that are outstanding at the reporting
date are translated using the spot rate at the end of 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.
1.4 Adoption of New and Amended standards
The Group has applied the following standards and amendments for the first time for the annual reporting period commencing on 1 July
2019:
●
AASB 16 Leases
As a result of adopting AASB 16 the Group has made certain adjustments to its financial statements, as outlined below. The adoption of
the remaining new amendments did not have any impact on amounts recognised in prior periods and are not expected to significantly
impact future periods.
Refer to Note 25 for further details on Accounting Standards issued but not yet effective at 30 June 2020.
AASB 16 Leases
AASB 16 supersedes AASB 117 Leases and IFRIC 4 Determining whether an Arrangement contains a Lease. The standard sets out the
principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the
balance sheet.
Impact of adoption
The Group adopted AASB 16 using the modified retrospective transition approach, with the date of initial application of 1 July 2019. The
Group has elected to use the option to measure right-of-use assets at an amount equal to the lease liability. For onerous leases, the Group
has adopted the policy choice of offsetting the value of the onerous lease provisions as at 30 June 2019 against the value of the right-of-
use assets as at 1 July 2019.
The Group elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at 1 January 2019.
Instead, the Group applied the standard only to contracts that were previously identified as leases applying AASB 117 and IFRIC 4 at the
date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date,
have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the
underlying asset is of low value (low-value assets).
On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under the principles of AASB 117 Leases. These liabilities were measured at the present value of the remaining lease payments,
discounted using the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate
was applied to the lease liabilities. The Group determined the applicable incremental borrowing rates in a range of 6% to 11%.
Slater & Gordon
Page 25
35
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Operating lease commitments as at 30 June 2019
Discounted using Group’s incremental borrowing rate
Lease liability recognised as at 1 July 2019
$'000
46,263
39,104
39,104
The associated right-of-use assets for property leases were measured on a modified retrospective basis at the amount equal to the lease
liability, adjusted by the amount of any prepaid or accrued lease payments and onerous lease provisions relating to that lease recognised
in the balance sheet as at 30 June 2019. On 1 July 2019, the right-of-use asset was calculated as follows:
Lease liability recognised as at 1 July 2019
Less: Provision for onerous leases
Less: Lease accruals at the date of transition
Less: Lease receivable recognised for sub-leases
Right-of-use asset recognised as at 1 July 2019
Note 2. Segment Reporting
$'000
39,104
(3,082)
(4,574)
(6,412)
25,036
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenue and expenses that relate to transactions with any of the Group's other components.
The Group has one reportable segment, which provides legal services in Australia. Information provided to the chief operating decision
maker for the purposes of making decisions about allocating resources to the segment and assessing its performance is consistent with
amounts presented in the Consolidated Financial Statements. The Group’s revenues and non-current assets are wholly based in Australia.
The Group is not reliant on any single customer.
Note 3. Revenue from Contracts with Customers
3.1 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, 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.
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Page 26
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
The No Win - No Fee basis for billing introduces variability in the consideration receivable as the fees receivable under a contract are
generally only known when a matter is concluded. 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 the Group has sufficient historical experience in similar contracts 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 basis. The estimated 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 the historical performance of similar matters.
An additional risk adjustment is applied to the expected amount, which considers the variability of the final outcomes of contracts in a
particular group of matters, and determines a percentage adjustment that is required to be applied to the expected outcome in order to
satisfy that it is ‘highly probable that a significant reversal of revenue recognised will not occur’ when the uncertainty associated with the
variable consideration is resolved. This risk adjustment is simulated at each reporting period using a Monte Carlo method.
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. When an
invoice is raised, the amount receivable is transferred from ‘Work in progress’ to ‘Accounts receivable’.
The Company arranges for the disbursement activities provided by third parties 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 certain court filings, therefore no profit
margin is recognised on the activities when 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.
Provision of Legal Services – Litigation and Emerging 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. Revenue recognised is carried as ‘Work in progress’ until
the matter is finalised and a client invoice raised.
Fee arrangements from general legal services include fixed fee arrangements, No Win – No Fee arrangements, and funded 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, as explained above.
The Group estimates fees for No Win – No 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 a significant reversal will not occur.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Where project litigation matters are undertaken on a partially or fully funded basis, the Group enters into 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 Litigation and Emerging Services revenue
streams. This has been determined on fixed and funded fee arrangements as the period between when the Group 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 and
partially funded 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. When an invoice is raised, the amount receivable
is transferred from ‘Work in progress’ to ‘Accounts receivable’.
Contract Costs
Applying the practical expedient in paragraph 94 of AASB 15 Revenue from Contracts with Customers, 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. As
referred above, 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 an appropriate depiction of the transfer of goods or services.
(ii). Estimating the Transaction Price: Variable Consideration – No Win – No Fee Arrangements
As referred to above, the Group provides various services on the basis of No Win – No Fee conditional fee arrangements. The uncertainty
around the fees ultimately receivable under these types of contracts is generally only fully resolved when a matter is concluded.
Where the Group has sufficient historical experience in similar contracts in order to be able to estimate the expected outcome of a group
of existing contracts reliably, revenue is estimated using the expected value method. Fees are only included in revenue to the extent that
it is highly probable that the cumulative amount of revenue recognised in respect of a contract at the end of a reporting period will not be
subject to significant reversal when a matter is concluded.
To determine the probability of success of a case using the expected value method, a level of judgement is required to be applied based
on past experience and historical performance of similar matters. The estimated amount of variable consideration is based on the expected
fee for the nature of the legal service provided with reference to internal historical fee levels and relative rates of successful and
unsuccessful outcomes.
Where historical averages are not predictive of the probability of outcomes for a given contract, or where the Group has limited historical
experience with similar contracts, the expected amount of variable consideration is estimated using a most likely amount approach on a
contract by contract basis. In such circumstances, a level of judgement is required to determine the likelihood of success of a given matter,
as well as the estimated amount of fees that will be recovered in respect of the matter.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
(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 of 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.
3.2 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 and Litigation and Emerging Services and the geographical region of Australia:
Personal
Injury Law
$'000
Litigation and
Emerging
Services
$'000
-
-
156,156
156,156
440
15,123
5,527
21,090
Personal
Injury Law
$'000
Litigation and
Emerging
Services
$'000
-
-
142,934
142,934
505
11,025
4,997
16,527
Total
$'000
440
15,123
161,683
177,246
Total
$'000
505
11,025
147,931
159,461
2020
Type of contract
Fixed price
Time and Materials
No Win - No Fee
Revenue from contracts with customers
2019
Type of contract
Fixed price
Time and Materials
No Win - No Fee
Revenue from contracts with customers
Note 4. Expenses
4.1 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 right of use assets are depreciated over the shorter of the lease term
and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term.
The depreciation rates used for each class of assets are:
Class of Fixed Asset
Depreciation Rates
Depreciation Method
Plant and equipment
Right of use asset
Low value asset pool
5.00 - 66.67%
10.00 - 50.00%
18.75 - 37.50%
Straight Line and Diminishing Value
Straight Line
Diminishing Value
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Amortisation
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.
The amortisation rates used for each class of assets are:
Class of Intangible Asset
Amortisation Rates
Amortisation Method
Software and development
Client lists
Share Based Payments
33.33%
33.33%
Straight Line and Diminishing Value
Straight Line and Diminishing Value
The accounting policy for share based payments is included in Note 21.
4.2 Expense Analysis by Nature
Loss before income tax from continuing operations includes the following specific expenses:
Finance costs
Interest and fees on bank overdraft and loans (includes costs of borrowing)
Interest on onerous leases
Interest on obligations under hire purchases
Salaries and employee benefit expense
Wages and salaries
Post-employment benefits
Redundancy costs
Depreciation and Amortisation
Property, plant and equipment
Software development
Right of use assets
2020
$'000
2019
$'000
10,273
4
2,436
12,713
100,847
7,122
-
107,969
3,246
555
5,643
9,444
11,781
79
24
11,884
86,889
6,790
17
93,696
4,056
346
-
4,402
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Page 30
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 5. Cash Flow Information
Reconciliation of profit for the period to cash flows from operating cash flows
Profit / (Loss) after income tax (expense) / benefit for the year
Adjustments for:
Depreciation and amortisation
Bad and doubtful debts
Notional foreign exchange (gain) / loss
Interest expense capitalised
Share based payment expenses
Change in operating assets and liabilities:
Decrease / (increase) in receivables
Decrease / (increase) in other assets
Decrease / (increase) in work in progress
Increase / (decrease) in payables
(Decrease) / increase in net deferred tax
Increase / (decrease) in provisions and other liabilities
Net cash from operating activities
2020
$'000
(1,185)
9,444
4,849
985
8,260
4,804
4,522
(2,133)
(15,834)
3,296
1,740
1,993
20,741
2019
$'000
31,260
4,402
(1,290)
113
7,954
-
648
(1,417)
(3,192)
(2,970)
(31,171)
(4,049)
288
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41
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 6. Income tax
6.1 Accounting Policies
Income and other taxes consist of income tax and Goods and Services Tax.
Income tax
Current income tax expense or benefit for the current and prior periods is measured at the amount expected to be recovered from or paid
to the tax authorities. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period in the countries where the Group operates.
Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets are expected to be
recovered or liabilities are settled. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred
tax is also not recognised if it arises from initial recognition of an asset or liability in a transaction that is not a business combination and
does not affect accounting profit or taxable profit.
Deferred tax assets are recognised for unused tax losses to the extent that management considers the similar business test to have been
satisfied and only if management considers it is probable that future taxable amounts will be available to utilise those temporary differences
and losses.
Deferred tax assets are reviewed at each reporting date. Unrecognised deferred tax assets are reassessed at each reporting date.
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.
Goods and Services Tax (“GST”)
Revenue and expenses are recognised net of the amount of GST, except where the GST incurred is not recoverable from the Australian
Taxation Office (“ATO”), 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.
The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables in the consolidated
statement of financial position.
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 in Australia
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.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
6.2 Income Tax Expense
The major components of income tax expense are:
Income tax expense / (benefit)
Current income tax expense
Adjustment for current tax (benefit) / expense relating to prior periods
Deferred income tax expense / (benefit)
Aggregate income tax expense/(benefit)
Income tax expense/(benefit) is attributable to:
Loss from continuing operations
Profit from discontinued operations
Aggregate income tax expense/(benefit)
The prima facie tax payable on profit before tax differs from the income tax expense as follows:
Loss before income tax (expense) / benefit from continuing operations
Profit before income tax expense from discontinued operations
Tax at the statutory tax rate of 30%
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Non-deductible expenses
Adjustment for current tax (benefit) / expense relating to prior periods
Recognition of prior years tax losses
Income tax expense/(benefit)
Deferred income tax (benefit) / expense included in income tax expense:
Decrease / (increase) in deferred tax assets
(Decrease) / increase in deferred tax liabilities
6.3 Recognised Tax Assets and Liabilities
Deferred tax assets
Provision for impairment
Employee benefits
Provision for legal costs
Accruals
Non-deducted business related costs
Unrendered WIP and disbursements not yet deducted
Other
Property, plant and equipment
Lease liabilities
Revenue losses carried forward
Total
Offset of deferred tax assets and deferred tax liabilities
Balance at the end of the year
2020
$'000
-
23
1,717
1,740
1,461
279
1,740
(199)
754
555
167
1,550
1,717
23
-
1,740
2020
$'000
(7,956)
9,696
1,740
2020
$'000
4,724
5,519
1,254
3,121
1,980
-
197
2,640
9,689
47,053
76,177
(76,177)
-
2019
$'000
374
-
(31,545)
(31,171)
(33,151)
1,980
(31,171)
(141)
230
89
27
347
374
-
(31,545)
(31,171)
2019
$'000
(30,574)
(597)
(31,171)
2019
$'000
6,082
4,920
977
3,313
2,357
7,428
2,675
2,431
-
37,616
67,799
(67,799)
-
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43
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Deferred tax liabilities
Prepayments
Work in progress
Unrendered disbursements
Intangibles / Goodwill
Right of use asset
Sub-lease receivable
Other
Total
Offset of deferred tax assets balance
Net deferred tax liability balance at the end of the year
6.4 Unrecognised Deferred Tax Assets
2020
$'000
(245)
(73,488)
(9,909)
80
(5,912)
(1,525)
(397)
(91,396)
76,177
(15,219)
2019
$'000
(287)
(68,735)
(12,325)
76
-
-
(429)
(81,700)
67,799
(13,901)
At 30 June 2020 and at 30 June 2019, the Group did not have unrecognised deferred tax assets relating to unrecognised tax losses.
Note 7. Dividends
No interim or final dividend was paid, declared or proposed for the years ended 30 June 2020 or 30 June 2019.
Note 8. Earnings / (Loss) per Share
The following reflects the loss and share data used in the calculations of basic and diluted loss per share:
Profit / (Loss) after income tax (expense) / benefit from continuing operations
Profit / (Loss) after income tax expense from discontinued operations
Profit / (Loss) after income tax (expense) / benefit for the year
Weighted average number of ordinary shares used in calculating basic earnings / (loss) per share
2020
$'000
(1,660)
475
(1,185)
20201
'000
124,810
2019
$'000
33,010
(1,750)
31,260
20192
'000
77,641
Adjusted weighted average number of ordinary shares used in calculating diluted earnings / (loss)
per share
124,810
81,451
(1) 2,984 potential ordinary shares in relation to the Company’s equity-based share-based payment are considered antidilutive. Refer to
Note 21.
(2) The earnings per share has been retrospectively adjusted for the prior period due to the rights issue in the current period.
Note 9. Intangible Assets
9.1 Accounting Policies
Goodwill
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for
non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed.
Goodwill is not amortised, but it is tested annually for impairment or more frequently if events or changes in circumstances indicate that it
might be impaired.
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44
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Software Development Costs
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. See Note 4 for amortisation policy.
Non-current assets
Goodwill - at cost
Software development - at cost
Less: Accumulated amortisation
Client Lists - at cost
Less: Accumulated amortisation
Total intangible assets
Movement in carrying amounts:
2020
$'000
2019
$'000
879
15,898
(15,221)
677
102
(40)
62
1,618
879
21,542
(20,363)
1,179
102
(5)
97
2,155
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below
Balance at 1 July 2018
Additions
Reclassification from assets in course of
construction
Amortisation expense
Balance at 30 June 2019
Additions
Amortisation expense
Disposals
Balance at 30 June 2020
Goodwill
$'000
-
879
Software
development
$'000
255
326
Client lists
$'000
-
102
Assets in
course of
construction
$'000
542
397
-
-
879
-
-
-
879
939
(341)
1,179
45
(521)
(26)
677
-
(5)
97
-
(35)
-
62
(939)
-
-
-
-
-
-
Total
$'000
797
1,704
-
(346)
2,155
45
(556)
(26)
1,618
9.2 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”).
Impairment testing is completed at least annually for goodwill, intangible assets not yet ready for use and indefinite life intangible assets,
or more frequently if events or changes in circumstances indicate that the asset may be impaired.
An impairment loss is recognised where the carrying amount of the asset or CGU exceeds its recoverable amount. The recoverable amount
of an asset or CGU is defined as the higher of its fair value less costs of disposal and value-in-use.
Critical Accounting Estimates and Judgements
Determining whether goodwill is impaired requires an estimation of the value-in-use or fair-value less cost of disposal 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. A material impairment loss may arise where the present value of future cash flows as
currently assessed are less than expected.
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45
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
9.3 Impairment Losses Recognised
As at 30 June 2020, the Group did not recognise an impairment expense (2019: nil).
Note 10. Receivables
10.1 Accounting Policies
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Other
receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If collection of
the amounts is expected in one year from the reporting date or less they are classified as current assets. If not, they are presented as non-
current assets.
Disbursements receivables 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 initially recognised at the amount disbursed. The disbursements are treated as a separate asset.
Current assets
Trade receivables
Provision for impairment
Disbursements
Provision for impairment
Other receivables
Total current assets
Non-current assets
Disbursements
Provision for impairment
Other receivables
Total non-current assets
2020
$'000
2019
$'000
39,984
(5,958)
34,026
31,104
(3,185)
27,919
1,949
63,894
30,429
(12,739)
17,690
3,598
21,288
44,751
(11,013)
33,738
32,386
(2,656)
29,730
1,500
64,968
29,601
(10,582)
19,019
-
19,019
Collectability of trade receivables is reviewed at each reporting period. The Group applies the AASB 9 simplified approach to measuring
the expected credit loss (ECL) for all receivables, which uses a lifetime expected loss allowance. Where there is no reasonable expectation
of recovery, receivables are written off.
The ECL is based on three main parameters: a probability of default (PD), a loss given default (LGD) and an exposure at default (EAD).
These parameters are generally derived from internally developed statistical models combined with historical, current and forward looking
information, including macro-economic data:
●
●
●
For accounting purposes, the lifetime PD represents the expected point-in-time probability of a default, based on conditions existing
at the balance sheet date and future economic conditions that affect credit risk. Debtors that roll into an above 90 days overdue
category are assumed to have a PD of 100%;
The LGD represents expected loss conditional on default;
The EAD represents the expected exposure at default, taking into account the repayment of outstanding amounts from the balance
sheet date to the default event.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
The provision matrix is initially based on the Group’s historical observed default rates. The Group calibrates the matrix to adjust the
historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated
and changes in the forward-looking estimates are analysed. The use of forward looking information such as macro-economic forecasts
increases the degree of judgement required to assess how changes in these data points will affect ECLs. The assumptions, including any
forecasts of future economic conditions, are reviewed regularly.
In addition, the Group maintains a provision to take account of potential errors in the data input of the WIP of the personal injury law
practice.
Disbursements and WIP (Note 11) relate to unbilled work in progress and have substantially the same risk characteristics as zero days
past due trade receivables for the same types of contracts. ECLs related to Disbursements and WIP are discounted at the risk free rate.
The recoverability of debtors at 30 June 2020 has been assessed to consider the impact of the COVID-19 pandemic. The methodology of
the Group's ECL calculation was updated as at 30 June 2020 and the discount factor utilised has been revised to take into consideration
the additional credit risk of the Group's counterparties. No material recoverability issues have been identified.
The ECL as at 30 June 2020 and 30 June 2019 was determined as follows:
Total
$'000
<30 days
$'000
30-60 days
$'000
61-90 days
$'000
91-180 days
$'000
>180 days
$'000
Trade receivables
30 June 2020
Gross carrying amount
Provision for impairment
30 June 2019
Gross carrying amount
Provision for impairment
39,984
5,958
44,751
11,013
19,560
359
20,469
1,668
8,076
775
8,198
751
4,403
798
2,857
264
Trade Receivables - provision for impairment
Opening balance as at 30 June - (2019: calculated under AASB 139)
Amounts restated through opening retained earnings
Opening provision for impairment as at 1 July - calculated under AASB 9
Receivables written off as uncollectible
Release of provisions
Closing Balance as at 30 June
See Note 19.4 regarding credit risk of trade receivables, which explains how the Group manages and measures credit quality of trade
receivables.
Note 11. Work in Progress
11.1 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 for further details.
Contracts for legal services are billed based on time incurred or regulated prices. As permitted under AASB 15 Revenue from Contracts
with Customers, 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.
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47
2,683
556
2,828
496
2020
$'000
(11,013)
-
(11,013)
4,524
531
(5,958)
5,262
3,470
10,399
7,834
2019
$'000
(9,749)
(5,695)
(15,444)
2,599
1,832
(11,013)
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Current assets
Personal Injury
Litigation and emerging services
Provision for impairment
Total current assets
Non-current assets
Personal injury
Litigation and emerging services
Provision for impairment
Total non-current assets
2020
$'000
2019
$'000
105,550
2,901
(991)
107,460
130,419
5,296
(3,962)
131,753
97,876
8,729
(1,093)
105,512
120,111
2,402
(4,370)
118,143
The closing provision for impairment for work in progress as at 30 June 2020 reconcile to the opening provision for impairment as follows:
Opening balance at 30 June - (2019: calculated under AASB 139)
Amounts restated through retained earnings
Opening provision for impairment as at 1 July - calculated under AASB 9
Release of provisions
Closing balance as at 30 June
Note 12. Assets held for sale
Current assets
Assets held for sale
2020
$'000
5,463
-
5,463
(510)
4,953
2019
$'000
-
7,744
7,744
(2,281)
5,463
2020
$'000
1,375
2019
$'000
-
In June 2020, the Group has performed a restructure of the Commercial and General Litigation, Estate Litigation, and Compulsory
Acquisition department. As part of the restructure, departing employees in the Estate Litigation and Commercial and General Litigation
practice areas are currently negotiating to purchase several of those departments’ client files. Work in progress for these practices was
valued at $1.4m at 30 June 2020. It is currently anticipated that sale agreements will be executed by or around 31 August 2020. The credit
risk associated with the transaction has been captured in the expected credit loss for WIP calculated according to AASB 9.
Note 13. Property, Plant and Equipment
13.1 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 – see Note 4.1 for depreciation policy.
Gains and losses on disposal are determined by comparing the proceeds obtained for the disposal with the carrying value of the relevant
asset. These gains and losses are included in profit or loss when the asset is derecognised.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
2020
$'000
2019
$'000
Non-current assets
Plant and equipment - at cost
Less: Accumulated depreciation
Carrying value
Low Value Asset Pool - at cost
Less: Accumulated depreciation
Carrying value
Total
26,707
(23,545)
3,162
3,107
(2,626)
481
3,643
Movements in the written down values at the beginning and end of the current and previous financial year are set out below:
Balance at 1 July 2018
Additions
Disposals
Depreciation expense
Balance at 30 June 2019
Additions
Disposals
Depreciation expense
Balance at 30 June 2020
Note 14. Payables
14.1 Accounting Policies
Plant &
Equipment
$'000
Low Value
Asset Pool
$'000
8,731
2,213
(1,233)
(3,766)
5,945
238
(44)
(2,977)
3,162
641
341
(7)
(290)
685
66
(1)
(269)
481
26,601
(20,656)
5,945
3,044
(2,359)
685
6,630
Total
$'000
9,372
2,554
(1,240)
(4,056)
6,630
304
(45)
(3,246)
3,643
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 amortised 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 liabilities
Trade creditors and accruals
Legal creditors
Third party disbursements
Balance at 30 June
Non-current liabilities
Third party disbursements
Balance at 30 June
2020
$'000
17,518
28,360
8,955
54,833
2019
$'000
18,836
29,635
5,105
53,576
8,889
8,889
4,890
4,890
The Group has an agreement with a third party disbursement funder, Equal Access Funding Proprietary Limited (‘EAF’), who funds
disbursements in respect of certain individual matters. They are reimbursed out of any settlement proceeds on the matter. The Group has
provided a financial guarantee to EAF for the repayment of clients’ obligations in certain circumstances.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
In July 2018, the Group entered into an Exclusive Service Provider Deed with MAF Credit Pty Ltd (‘MAF’) to provide disbursement funding
to clients. The funding facility is available for 30 months and can be extended for a further 18 months. The Group has provided a financial
guarantee to MAF for the repayment of clients’ obligations in certain circumstances.
Both disbursement funding facilities are presented in the statement of financial position within payables with a corresponding financial
asset in receivables. An assessment of the financial asset has been performed in line with AASB 9 and a provision has been recognised
against the asset in accordance with the impairment policy described.
Note 15. Provisions
15.1 Accounting Policies
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
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. The estimate 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.
The Group has reviewed its provisions for employee benefits in light of the economic environment created by COVID-19. As a result, the
Group has increased its provision for annual leave due to the lower attrition rates and lower leave rates that have been experienced during
the COVID-19 period.
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.
In the economic climate created by COVID-19, the Group has also considered whether existing contracts have become onerous. No
additional onerous contracts were identified as part of this review.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
15.2 Provisions
Current
Employee benefits
Solicitor liability claims
Provision for onerous contracts and make good
Balance at 30 June
Non-current
Employee benefits
Solicitor liability claims
Provision for onerous contracts and make good
Balance at 30 June
2020
$'000
2019
$'000
17,013
3,294
26
20,333
1,384
886
540
2,810
14,894
1,893
1,166
17,953
1,506
1,364
2,771
5,641
There have been no significant COVID-19 related provisions identified as a result of the assessment performed by Management for the
balances as at 30 June 2020.
Note 16. Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks and short-term deposits with an original maturity of
three months or less. 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 component of investing and financing
activities, which are disclosed as operating cash flows.
Note 17. Financing Arrangements
17.1 Accounting Policies
Borrowing Costs
Borrowing costs can include interest expense, finance charges in respect of finance leases, amortisation of loan 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.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
17.2 Financing Arrangements
Debt facilities
At the reporting date, the Group had the following debt facilities:
(a) Refinanced Super Senior Facility ($65m) with a termination date of 31 July 2023. The facility incurs fixed fees and a fixed interest
rate, with cash interest not payable until 1 January 2021. From 1 January 2021, a portion of the interest will be payable in cash at
regular intervals. The remaining interest owing will be capitalised to the loan balance. From 1 January 2023, all interest will be
payable in cash at regular intervals. The balance is $80.5m at 30 June 2020 (30 June 2019: $74.8m). The total undrawn amount of
the facility is nil at 30 June 2020 (30 June 2019: nil).
(b) Disbursement asset backed facility ($33m) secured against disbursement assets (security pool). Future receipts of the security pool
must be applied in repayment of the facility when they are received. Accordingly, the amount classified as current is based on
expected disbursement receipts. Any outstanding balance is fully repayable on 29 December 2020. The balance is $6.4m at 30 June
2020 (30 June 2019: $9.9m). Interest on the facility is payable annually in advance. Total undrawn facility is $8.3m as at 30 June
2020.
(c)
Term Loan ($10m) – this is a new facility entered during the financial year. It is secured against a borrowing base of eligible fee
receivables with a termination date of 6 February 2023. Of the $10m facility size, $3m is revolving credit and $7m is term loan. The
facility incurs fixed fees and a fixed interest rate, with interest payable monthly in arrears. The balance is $5.5m as at 30 June 2020
(30 June 2019: $nil). The total undrawn amount of the facility is $4.5m as at 30 June 2020 (30 June 2019: nil). Total undrawn facility
is $4.5m as at 30 June 2020.
Net Debt
As at 30 June 2020, the Group has fully drawn its Super Senior Facility.
The Group had cash on hand of $26,461,000 (30 June 2019: $12,633,000), offset by debt of $124,560,000 resulting in net debt of
$98,099,000 (30 June 2019: $146,016,000).
Covenants position
The Group was in compliance with all financial covenants as at 30 June 2020.
Debt reconciliation
Balance at 30 June 2019
Recognition of lease liability under
AASB 16
Balance at 1 July 2019
Drawdowns
Repayments
Lease non-cash movements
Accrued interest
Balance at 30 June 2020
Super
senior
facility
$'000
Syndicated
facility
agreement
$'000
74,788
63,805
-
74,788
-
(1,967)
-
7,686
80,507
-
63,805
-
(63,805)
-
-
-
Disburseme
nt asset
backed
facility
$'000
Term loan
$'000
-
-
-
4,896
-
-
-
4,896
9,852
-
9,852
15,000
(18,404)
-
-
6,448
Lease
liabilities
$'000
Deferred
restructure
fees
$'000
Total
$'000
-
10,204
158,649
39,104
39,104
-
10,204
39,104
197,753
-
(10,015)
295
2,910
32,294
-
(10,204)
-
-
-
19,895
(104,395)
295
10,596
124,145
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
17.3 Summary of Borrowing Arrangements
At reporting date, the following banking facilities had been executed and were available:
Total banking facilities
Super senior facility
Syndicated facility agreement
Disbursement asset backed facility
Term loan
Total credit facilities
Disbursement asset backed facility
Super senior facility
Total credit facilities - current
Super senior facility
Term loan
Syndicated facility agreement
Deferred restructure fee
Total credit facilities - non-current
Maturity
Ongoing until 29 Dec 2020
31 Jul 2023
31 Jul 2023
6 Feb 2023
22 Dec 2022
22 Dec 2022
2020
$'000
65,000
-
33,000
10,000
108,000
6,448
1,967
8,415
78,539
4,896
-
-
83,435
2019
$'000
65,000
60,000
28,000
-
153,000
9,852
-
9,852
74,788
-
63,805
10,204
148,797
During the year, the Super senior facility was extended from 22 Dec 2020 to 31 July 2023.
17.4 Watchstone receivable
The Financial Statements for the financial year ending 30 June 2019 referred to a contingent asset relating to litigation against Watchstone
plc (Watchstone). That litigation has now concluded, and no contingent asset remains.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 18. Leases
18.1 Accounting Policies
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in which it is the lessee. This approach excludes short-term leases
(defined as leases with a lease term of 12 months or less and leases of low value assets (such as laptop computers, small items of office
furniture and telephones)). For these leases, the Group recognises the lease payments as an operating expense.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
●
●
●
●
●
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
The amount expected to be payable by the lessee under residual value guarantees;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the
carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
●
●
●
The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of
exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a
revised discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value,
in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate
A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate
at the effective date of the modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset or restore the underlying asset to the condition
required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137. To the extent that the costs
relate to a right-of-use asset, the costs are included in the related right-of-use asset.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers
ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the
related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of
the lease.
The Group applies AASB 136 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as
described in the ‘Property, Plant and Equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset.
The related payments are recognised as an expense in the period in which the event occurs and are included in the line “Other expenses”
in profit or loss.
As a practical expedient, AASB 16 permits a lessee not to separate non-lease components, and instead account for any lease and
associated non-lease components as a single arrangement. The Group has not used this practical expedient.
In light of COVID-19, the Group has reassessed all of the assumptions contained within the impairment model for AASB 16 right-of-use
assets. No impairment was identified or recognised as at 30 June 2020 as a result of this process.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
18.2 Right of use assets
Cost
At 1 July 2019
Additions
Disposals
Lease adjustments
At 30 June 2020
Accumulated depreciation
At 1 July 2019
Amortisation charge
Amortisation charge - discontinued operations
At 30 June 2020
Carrying amount at 30 June 2020
18.3 Lease Liabilities
Buildings
$'000
25,036
23
(177)
485
25,367
-
(5,643)
(19)
(5,662)
19,705
The closing lease liability balances are shown below. Movements in the overall lease liabilities are outlined in Note 17 'Financing
Arrangements'.
Current liabilities
Lease liability
Total current
Non-current liabilities
Lease liability
Total non-current
Refer to note 19 for further information on financial risk management.
Amounts recognised in profit and loss
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expenses relating to short-term leases
Expenses relating to variable payments not included in lease liability
Income from sub-leasing of right-of-use assets
2020
$'000
8,185
8,185
24,110
24,110
2019
$'000
-
-
-
-
30 June 2020
$'000
5,643
2,436
457
1,454
475
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 19. Financial Risk Management
19.1 Accounting Policies
The Group’s principal financial instruments comprise cash and cash equivalents, receivables, work in progress, 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
Under AASB 9, the Group assesses which of its financial assets are measured at fair value through other comprehensive income, fair
value through profit or loss, or amortised cost. The classification is generally based on the business model in which a financial asset is
managed and its contractual cash flow characteristics. The determination of the business model within which a financial asset is held has
been made on the basis of the facts and circumstances that existed at the date of initial application.
Based on the necessary assessments, the Group has designated all its financial assets to be measured at amortised cost.
Receivables are non-interest bearing, non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. These are initially recognised based on fair value plus directly attributable transaction costs that are subsequently measured using
the effective interest method at amortised cost and are subject to impairment.
Financial assets are tested for impairment on a forward-looking basis to calculate the associated ECL and to establish whether there is
any objective evidence of resulting impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified
or impaired. The impairment loss is reversed through profit or loss if the amount of the impairment loss decreases in a subsequent period
and the decrease can be related objectively to an event occurring after the impairment was recognised.
Financial Liabilities
Under AASB 9, the Group assesses which of its financial liabilities are measured at either fair value through profit or loss or at amortised
cost. Financial liabilities include trade payables, other creditors and loans from third parties including loans from or other amounts due to
director-related entities.
Based on the necessary assessments, the Group has designated all its financial liabilities to be measured at amortised cost.
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. The implied interest expense is recognised in profit or loss.
19.2 Interest Rate Risk
The Group's exposure to interest rate risk and the effective interest rates of non-derivative financial assets and financial liabilities both
recognised and unrecognised at the end of the reporting period are as follows:
Variable interest rate
2020
2019
$'000
$'000
Fixed interest rate
2019
$'000
2020
$'000
2020
$'000
Total
2019
$'000
Financial assets
Financial assets held at amortised
cost
Cash and bank guarantees on
deposit
Total financial assets
Financial liabilities
Financial liabilities held at
amortised cost
Lease liabilities
Disbursement backed asset facility
Super senior facility
Term loan
Syndicated facility agreement
Debt raising costs under the SFA
Total financial liabilities
30,639
30,639
16,807
16,807
-
-
-
-
30,638
30,638
16,807
16,807
32,294
-
-
-
-
-
32,294
-
-
-
-
63,805
-
63,805
-
6,448
80,507
4,896
-
-
91,850
-
9,852
74,788
-
-
10,204
94,844
32,294
6,448
80,507
4,896
-
-
124,145
-
9,852
74,788
-
63,805
10,204
158,649
The group manages the exposure through the ongoing monitoring of interest rates.
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
In the current year, the Group has assessed the appropriateness of key assumptions used in determining ECLs as a result of COVID-19.
These updated assumptions have not resulted in a material change to recorded ECLs for the year ended 30 June 2020.
19.3 Foreign Exchange Risk
The Group has no significant exposures to foreign exchange risk.
19.4 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 the 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 and restricted bank guarantees on deposit of $30,638,000 at 30 June 2020 (30 June 2019:
$16,807,000). The credit risk associated with cash and cash equivalents is considered minimal as the cash and cash equivalents are held
with Authorised Deposit Institutions in Australia which are regulated by the Australian Prudential Regulatory Authority.
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 mainly by insurers and/or government bodies 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. The Group applies the AASB 9 simplified approach to measuring the ECL for receivables, which uses a lifetime expected loss
allowance for ECL for all receivables – see Note 10 for further details.
Management of Credit Risk
The Group actively manages its credit risk by:
●
●
●
●
●
●
where applicable, 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 Management key performance indicators (KPIs) measures in respect of debtors, disbursements and collections;
holding regular meetings with relevant teams on debtor profiling, including ageing of the 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 there can
be considerable time between initiation and settlement of a matter. While time increases in the ageing profile of receivables, particularly
disbursements, it 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.
Management has revisited the assumptions underlying the recoverability of receivables and calculation of provisions at 30 June 2020 in
light of the impact of the COVID-19 pandemic. No material changes to management’s assessment of credit risk have been identified.
19.5 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 5 'Cash Flow Information', for further information on the historical cash flows. Further information
in relation to debt facilities available and utilised are outlined in Note 17. KPIs are set for practitioners relating to budgeted fee events,
which are closely monitored by senior management.
Slater & Gordon
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
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. Cash flows for floating rate financial instruments have been presented based on the
rate prevailing at the balance date.
< 12 Months
$'000
1 - 5 years
$'000
Total
contractual
cash flows
$'000
Carrying
amount
$'000
54,833
9,653
10,329
74,815
53,576
8,909
62,485
8,889
108,118
26,767
143,774
63,722
117,771
38,517
220,010
63,722
91,850
32,294
187,866
4,890
170,972
175,862
58,466
179,881
238,347
58,466
158,649
217,115
2020
Non-derivative financial liabilities
Payables
Borrowings
Lease liabilities
Financial liability maturities
2019
Non-derivative financial liabilities
Payables
Borrowings
Financial liability maturities
Note 20. Contributed Equity
Ordinary shares - fully paid
138,428,817
69,527,235
1,434,793
1,351,533
2020
Shares
2019
Shares
2020
$'000
2019
$'000
Movements in ordinary share capital
Details
Balance
Transfer from share based payment reserve
Balance
Transfer from share based payment reserve
Conversion of warrants
Issuance of shares under rights issue
Balance
Ordinary shares
Date
1 July 2018
30 June 2019
30 June 2020
Shares
$'000
69,527,235
-
69,527,235
-
3,156,535
65,745,047
138,428,817
1,348,581
2,952
1,351,533
1,273
7,425
74,562
1,434,793
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 period, the Company issued 65,745,047 shares for $74,562,000 as part of a rights issue. The proceeds were used to repay
loans and associated fees owing under the syndicated facility agreement, thereby strengthening the balance sheet.
There were also 3,156,535 new shares issued on conversion of warrants issued under the Company’s syndicated facility agreement. As
a result of this $7,425,000 was transferred from the share-based payment reserve.
The Company did not pay any dividends during the financial year ended 30 June 2020 (30 June 2019: nil).
Slater & Gordon
58
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 21. Share-based payments
21.1 Accounting policies
The consolidated entity operates share-based payment employee share and option schemes.
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 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.
21.2 Employee Equity Incentive Plan
The Company has one employee Equity Incentive Plan (the Plan), which was approved by the shareholders of the Company at the Annual
General Meeting held on 14 November 2019.
The Plan provides participants with a nil-exercise price right to acquire shares in the Group which are subject to restrictions to be
determined by the Board. The Rights under the Plan are provided to participants in four tranches, A through D. The number of Rights that
will vest in Tranches A to C is based on the fulfillment of service conditions, while Rights vesting for Tranche D depend on the occurrence
of a performance-based exit event condition. That same exit event condition must be met for all tranches to become exercisable.
(i) Recognition
The Group’s Plan is an equity-based share-based payment, in accordance with the definition under AASB 2 Share-based Payment (AASB
2).
Equity-settled share-based payments are measured at the grant date fair value for employee services. Equity-settled share-based payment
transactions are not subsequently re-measured once the grant date fair value has been determined. Where unallocated Rights exist at
year end, these will not be recognised until the allocation occurs, as no obligation is attached to these rights as at 30 June 2020.
AASB 2 requires the fair value of equity instruments granted to be based on market price, if available, and to consider the terms and
conditions which those equity instruments were granted. The cost of the Rights issued is recognised as expense from the Grant date over
the defined vesting period. Management assumptions of service conditions (i.e. employment retention) are based on best estimate and
reflected in the employee expenses recognised for the respective financial year.
(ii) Valuation
Black Scholes option pricing model has been used to value Rights given the performance hurdle is a non-market hurdle, being the EBITDA.
The fair value of the Rights has been determined to be $9,000,000 as at 30 June 2020.
The group estimates that 7% of the participants will leave throughout the subsequent 2 year period, with no departure at the end of first
year (30 June 2020). The employment termination of the participant will forfeit his/her rights to the share options. The estimated percentage
of employee departure will be reassessed at the end of each respective financial year
(iii) Measurement
The Plan is a staged vesting plan, with the following ranches:
Vesting date
Tranche A
Tranche B
Tranche C
Tranche D
Event
30 June 2020
30 June 2021
30 June 2022
Date of "Exit Event"
Vesting percentage
22%
22%
22%
34%
Cumulative value of vested
award
1,980,000
3,960,000
5,940,000
9,000,000
Slater & Gordon
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
The following table illustrates the expected vesting of the LTIP, considering that estimates described under (ii) above:
Vesting Date
Tranche A
Tranche B
Tranche C
Tranche D
Total
30 June 2020
1,980,000
729,474
447,097
1,647,692
4,804,263
30 June 2021
-
1,161,203
711,705
1,412,308
3,285,216
30 June 2022 Total cumulative expense
1,980,000
1,890,677
1,870,507
3,060,000
8,801,184
-
-
711,705
-
711,705
A $4.8m share based payment expense was recognised at 30 June 2020.
Note 22. Related Party Disclosures
22.1 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:
Slater and Gordon (TML) Queensland Pty Ltd
Slater & Gordon Lawyers NSW Pty Limited
Conveyancing Works (Qld) Pty Limited
Schultz Toomey O'Brien Pty Ltd
All States Legal Co Pty Ltd
SG NSW Pty Ltd
% Equity % Equity
interest
2020
interest
2019
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The Immediate Parent Entity of the Group is AIO V Finance (Ireland) DAC, incorporated in Ireland. The Ultimate Parent Entity is Anchorage
Capital Group LLC incorporated in the United States of America.
Slater & Gordon
60
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
22.2 Guarantees for UK lease obligations
The Company and S&G UK entered into certain transitional arrangements that are governed by a business separation agreement (“BSA”)
to effect the separation of the Group’s UK operations and subsidiaries from its Australian operations under the Senior Lender Scheme
entered into in December 2017.
The transitional arrangements required the parties to the BSA to seek to procure that the Company is released from parent guarantees
and other forms of security and financial support that it has provided to the UK operations. Any potential material contingent liability relates
to parent guarantees for UK leases for the major office premises used by the UK operations.
The BSA provides that S&G UK must use reasonable endeavours to have the parent guarantees released and that this must be completed
within 18 months of the date of implementation of the Recapitalisation on 15 December 2017 (or such longer period as agreed between
the Company and S&G UK). This agreement was extended during the financial year ending 30 June 2019 for S&G UK’s remaining leases
for a further 12 months, until 22 June 2020. In June 2020, the Company and S&G UK agreed to extend this period by six further terms of
one month each in return for the payment of a guarantee fee equal to 5% of the monthly guaranteed amount, payable in advance of each
one month extension.
If, during the extended period of the parent guarantee, S&G UK defaults on the UK leases subject to the parent guarantees, and those
parent guarantees have not yet been released, the Company may be liable for any unpaid amounts under those leases at the time of
default. Any contingent liability has the potential to be material in the event that the UK operations were in default and the parent guarantees
were called upon and the Company was unable to take steps that are typically commercially available to mitigate its loss, such as sub-
leasing. At 30 June 2020, the aggregate unpaid amounts under these lease agreements for the remainder of the lease terms are
$82,200,842 (GBP 45,823,188), (30 June 2019: $89,105,366; GBP47,857,224).
It is not currently possible for the Company to estimate any liability or contingent liability under these guarantees as there would need to
be an event of default by the UK operations to cause any liability. In addition, numerous factors would impact the extent of any potential
liability in that event, such as when the guarantee would be called and the amounts outstanding at that time, the Company’s ability to take
steps to mitigate loss, including subleasing the premises, and its capacity to negotiate with the third parties who have the right to call on
those guarantees. Liability in respect of these guarantees will only arise if the UK operations default on their obligations under the leases
and other material contracts subject to a parent guarantee, prior to an agreement being made to release that guarantee.
22.3 Deed of Cross Guarantee
All Australian 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.
22.4 Key Management Personnel Compensation
Compensation by category
Short-term employee benefits
Post-employment benefits
Other long term employment benefits
Termination benefits
Share based payments
Other benefits
Total
22.5 Transactions with AIO V Finance (Ireland) DAC (Immediate Parent Entity)
Loans from Immediate Parent Entity
Opening balance
Repayments
Interest charged
Closing balance outstanding at 30 June
Slater & Gordon
2020
$'000
2019
$'000
2,591,626
120,608
16,720
-
1,857,648
-
4,586,603
2,691,503
107,691
6,982
544,435
-
15,255
3,365,866
2020
$'000
2019
$'000
42,008
(1,105)
4,317
45,220
39,046
(943)
3,905
42,008
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61
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
The loan facilities are advanced by the Immediate Parent Entity as one of the lenders under the super senior facility, on the same terms
as those agreed with the other lenders. The facilities are unsecured, and repayable in cash on maturity. Further details of the terms of the
facilities are provided in Note 17.2.
22.6 Transactions with Other Related Parties
The shareholdings of related parties and remuneration of KMP are disclosed in the Directors’ Report.
Note 23. Parent Entity Disclosures
As at, and throughout, the financial year ended 30 June 2020 the parent entity of the Group was Slater & Gordon Limited. Investments in
subsidiaries are accounted for at cost, less any impairment recognised since acquisition.
Statement of profit or loss and other comprehensive income
Profit / (Loss) after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Contributed Equity
Revaluation surplus reserve
Share-based payments reserve
Accumulated losses
Total equity
Note 24. Auditor's Remuneration
2020
$'000
(1,951)
(1,951)
2020
$'000
118,709
292,204
88,421
213,458
Parent
2019
$'000
(10,657)
(10,657)
Parent
2019
$'000
105,962
241,305
76,169
239,973
1,434,740
-
6,041
(1,362,035)
78,746
1,351,484
7,423
2,510
(1,360,085)
1,332
The auditor of the Group for the year ended 30 June 2020 is Ernst & Young (30 June 2019: Ernst & Young).
During the financial year the following fees were paid or payable for services provided by Ernst & Young, the auditor of the Company:
Audit services - Ernst & Young
Audit or review of the financial statements
Other audit services - Ernst & Young
Other assurance services - Trust account audits
Total
Slater & Gordon
62
2020
$
2019
$
585,000
560,000
92,000
677,000
89,800
649,800
Page 52
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
Note 25. Accounting Standards issued but not yet effective at 30 June 2020
At the date of authorisation of the financial statements, there are a number of amendments to accounting standards that become applicable
for annual reporting periods commencing on or after 1 January 2019, but they do not have a material effect on the Group's financial
statements.
Note 26. Unrecognised Items
26.1 Guarantees
The Group has entered into lease rental guarantees and performance guarantees with a face value of $4,177,712 (30 June 2019:
$4,174,000). Refer to Note 22 for details of the guarantees the Company has provided for the UK leases.
26.2 Contingent Liabilities – Class Action Proceedings
On 12 October 2016 legal proceedings were filed against the Company in the Federal Court of Australia (“Federal Court”) by Matthew Hall
on behalf of an open class of the Company’s shareholders (the “Hall proceeding”). The class action proceeding asserted that the Company
engaged in misleading or deceptive conduct and breached its continuous disclosure obligations during the period from 30 March 2015 to
24 February 2016 and sought compensation or refund of investments, plus interest and costs. This class action proceeding was settled by
agreement in July 2017 through a Federal Court mediation, subject to creditor, shareholder and Court approval of a shareholder claimant
and senior lender scheme of arrangement.
On 20 June 2017, the Company announced that legal proceedings were filed against it by Babscay Pty Ltd (the “Babscay proceeding”) 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 asserted that the Company’s financial statements for the financial years ended 30 June 2013, 2014 and 2015 contained false or
misleading statements. This claim was later amended to also include the Company’s financial statements for the financial year ended 30
June 2012. 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 14 December 2017 the Federal Court approved a scheme of arrangement between the Company and all shareholder claimants
(“Shareholder Claimant Scheme”), including claimants in the Hall and Babscay proceedings. The Shareholder Claimant Scheme resolves
and compromises all potential shareholder claims against the Company and its officers. The Shareholder Claimant Scheme became legally
effective on 15 December 2017. Under the Scheme, shareholder claimants have released the Company and officers from any shareholder
claims and the Scheme can be pleaded as a bar to any shareholder claim.
On 14 December 2017 the Federal Court also approved the settlement of the Hall proceeding and dismissed that proceeding. The
Company’s contribution to this settlement of $5.0m was recognised as a provision at 30 June 2017. The Hall proceeding settlement is
implemented by the Shareholder Claimant Scheme. The Babscay proceeding has not yet been formally dismissed or discontinued,
however the Shareholder Claimant Scheme releases the Company and its officers and bars the prosecution of that claim.
The Shareholder Claimant Scheme limits the ability of a shareholder claimant to bring proceedings against third parties and also provides
for an indemnity from the shareholder claimants in favour of the Company and its directors and officers in the event that a shareholder
claimant brings a permitted claim against a third party and that third party then brings a claim against the Company.
On 1 November 2017, class action legal proceedings were filed against the Company’s former auditors, Pitcher Partners, by Babscay Pty
Ltd (the “Babscay Pitcher proceeding”). On 23 February 2018, Pitcher Partners served a cross claim on the Company and certain former
directors and officers.
On 31 July 2018, further class action legal proceedings were filed against the Company’s former auditors, Pitcher Partners, by Matthew
Hall (the “Hall Pitcher proceedings”). On 26 October 2018 Pitcher Partners served a cross claim in the Hall Pitcher proceedings on the
Company and certain former directors and officers.
The Company has filed defences against both cross claims and has, in turn, filed cross claims against the plaintiffs, claiming the benefit of
the indemnity in the Shareholder Claimant Scheme.
In May 2019, Pitcher Partners brought a further cross claim against another party. The discovery process is now underway in both
proceedings.
In September 2019, class action proceedings were commenced against the Company’s former solicitors, Arnold Bloch Liebler, by Matthew
Hall (the “Hall ABL proceedings”). The Company is not a party to the Hall ABL proceedings.
Slater & Gordon
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Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
26.3 Contingent Liabilities – Solicitor liability
Entities within the Group are defendants from time to time in legal proceedings arising from the conduct of their business.
There are contingent liabilities in respect of claims, potential claims and court proceedings against entities of the Group.
26.4 Contingent Liabilities – Prior year acquisition (Pre-Legal)
As part of the Pre-Legal acquisition in May 2019, the seller was eligible for a subsequent payment capped at $1,00,000 depending on
meeting certain post acquisition Legal Cost Agreements Returned (LCAR) targets. In addition, to the extent that the post-acquisition LCAR
targets are exceeded, the seller is eligible to further payments. The Group has made provisions for the subsequent payment which remains
to be paid of $538,670, however, the further payments cannot be accurately assessed at this point.
25.5 Contingent assets - Watchstone
On 29 August 2019, Watchstone filed a counterclaim against S&G UK alleging breach of confidentiality. On 20 October 2019, S&G UK
and Watchstone agreed to settle the claim and counterclaim for a payment by Watchstone to S&G UK of £11 million. The settlement sum
was less than S&G UK’s costs of the litigation and so the Company did not receive any part of the proceeds. Refer to Note 17.4.
Note 27. Events after the reporting period
Subsequent events
In July 2020, the Company executed a revision to the term loan agreement with an increased facility size from $10m to $20m. The facility
is secured against a broadened borrowing base of eligible receivables with a termination date of 6 February 2023. Of the $20m facility
size, $3m is revolving credit and $17m are term loan.
In July 2020, lockdowns commenced across Victoria in relation to the COVID-19 pandemic. Management have performed an assessment
and concluded that the lockdowns have had no material impact on the measurement of assets and liabilities at 30 June 2020.
Note 28. Discontinued operations
Summary of financial performance of discontinued operations
This note shows the results of the discontinued operations. Discontinued results represent two major operations:
●
●
Following the implementation of Senior Lender Scheme, effective 15 December 2017, the Company separated from all UK operations
and UK subsidiaries including S&G UK; and
Downsize of General Law business, following the internal review on 7 February 2018.
For further information on the implementation of Senior Lender Scheme in relation to the UK operation and UK subsidiaries, refer to the
Financial Statements for the year ended 30 June 2018.
Revenue
Other income
Total revenue
Expenses
Profit before income tax expense
Income tax expense
Profit / (Loss) after income tax expense
Net gain/(loss) from disposal of discontinued operations
Income tax expense
Loss on disposal after income tax expense
Profit / (Loss) after income tax expense from discontinued operations
Slater & Gordon
64
2019
$'000
821
256
1,077
(745)
332
(1,980)
(1,648)
(102)
-
(102)
(1,750)
2020
$'000
81
12
93
838
931
(279)
652
(177)
-
(177)
475
Page 54
Slater & Gordon Limited | Annual Report 2020
Notes to the Financial Statements
For the Year Ended 30 June 2020
In the Directors' opinion:
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board as described in note 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2020 and of its
performance for the financial year ended on that date; and
●
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the Directors
James MacKenzie
Chair
27 August 2020
John Somerville
Managing Director and Chief Executive Officer
Slater & Gordon
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Slater & Gordon Limited | Annual Report 2020
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 2020, 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) giving a true and fair view of the consolidated financial position of the Group as at 30 June
2020 and of its consolidated financial performance for the year ended on that date; and
b) 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.
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. 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Slater & Gordon Limited | Annual Report 2020
Work in Progress and Associated Revenue Recognition
Why significant
How our audit addressed the key audit matter
Work in progress (WIP) is significant to the Group,
comprising 62% of total assets. Movements in WIP are
included in revenue recognised for the year.
The Group’s disclosures regarding WIP and the
associated revenue recognised are included in Notes 3
and Note 11 of the financial report.
The Directors’ determination of the carrying value of
WIP and its associated revenue streams involves
significant judgement, data analysis and complexity.
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 was considered a Key Audit Matter.
Our procedures included the following:
Considered whether the Groups’ accounting policy
for WIP complied with Australian Accounting
Standards, in particular AASB 15 Revenue from
Contracts with Customers.
Obtained details of WIP recognised for each
revenue stream at balance date and applied
sampling techniques to select individual legal
matters (“cases”) for testing.
Obtained evidence to support the case status that
had been allocated to each of these case files by
the responsible legal professional. Evidence
obtained was assessed against the coding
guidelines of the Group.
Considered the assumptions supporting the key
judgements that were made in the data models.
Assessed the movements in the legal case profile
including changes in status and ageing.
Involved our data quality specialists to assess the
mathematical accuracy of the models. This involved
data analytic procedures to reperform, re-calculate
and test key calculations.
Considered the adequacy of the disclosures
contained in Notes 3 and Note 11, of the financial
report, in particular those regarding assumptions
to which the outcome of the data models is most
sensitive.
Going concern
Why significant
As disclosed in Note 1.1 to the financial report the
Directors concluded that in their opinion, there are
reasonable grounds to believe that the Group has the
ability to pay its debts as and when they fall due. The
financial report has been prepared on a going concern
basis.
In making this assessment, consideration has been given
to potential impacts of COVID-19 on the Group’s
operations and forecast cash flows based on best
estimates within a range of future market scenarios,
noting that the rapidly evolving nature of COVID-19
makes it inherently difficult to forecast outcomes with
certainty.
How our audit addressed the key audit matter
Our procedures included the following:
Evaluated the assumptions made in the budget and
the cash flow forecasts approved by the Board.
Assessed the reasonableness of the assumptions
included in the cash flow model with statements
related to future plans and commitments contained
in the approved FY21 budget.
Considered the historical accuracy of the Group’s
cash flow forecasting by reference to actual results
in prior periods compared to Board approved
budgets.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Slater & Gordon Limited | Annual Report 2020
Going concern (continued)
Why significant
How our audit addressed the key audit matter
Considered the impact of a range of sensitivities to
the cash flow model to assess the breakeven
position, including reference to financial covenants
related to the Group’s borrowing facilities.
Assessed the adequacy of the going concern
disclosures contained in Note 1.1.
In September 2019, the Company completed a
recapitalisation of the Group with the implementation of
a fully underwritten pro rata accelerated non-
renounceable entitlement offer (“the Entitlement
Offer”).
As part of this transaction, the Company issued
65,745,047 shares for $74,562k. The proceeds of this
transaction were used to repay the syndicated facility
agreement and associated fees.
For the year ended 30 June 2020, the Group generated
a net loss after tax of $1.2m, had $26.5 million of cash
on hand and had $12.8 million of undrawn debt
facilities.
The going concern assumption is fundamental to the
basis of preparation of the financial report. Given the
judgment involved in the preparation of cash flow
forecasts to support the going concern conclusion, this
was considered a Key Audit Matter.
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 22% 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.
The timing of the recognition of disbursements is also
subject to judgement as it is related to the progress and
expectation of successful case outcomes.
The Group adopted Australian Accounting Standard
AASB 9 Financial Instruments, effective from 1 July
2018. As a result, a forward-looking expected credit
loss impairment model was applied by the Group. This
involved judgement as to expected credit losses.
The Group’s disclosures are included in Note 10.1 of the
financial report which outlines the accounting policy for
determining the allowance for doubtful debts and details
of the period on period movement in gross and net trade
receivables.
Accordingly, this was considered a Key Audit Matter.
Our procedures included the following:
Considered whether the Group’s provisioning policy
was in accordance with the requirements of AASB
9.
Assessed the assumptions used to calculate the
trade receivables and disbursements provisions for
impairment.
For a sample of disbursements we obtained
evidence to support the case status for ongoing
matters.
We performed analyses of the ageing of receivables
and disbursements, collection history, future
collections strategies and assessment of significant
overdue individual trade receivables and
disbursements.
We assessed the incremental overlay to the specific
and general ECL provisions to address the
additional and future credit risks on the Group’s
customer portfolio as a result of the current
economic downturn due to COVID-19.
Considered the adequacy of the associated
disclosures contained in Note 10.1 of the financial
report.
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Slater & Gordon Limited | Annual Report 2020
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 2020 Annual Report other than the financial report and our
auditor’s report thereon. The Company’s 2020 Annual Report is expected to be made available to us
after the date of this auditor’s report. 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, with the exception of the Remuneration Report
and our related assurance opinion.
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.
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.
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Slater & Gordon Limited | Annual Report 2020
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.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Slater & Gordon Limited | Annual Report 2020
71
A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Page 61 Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 8 to 18 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Slater and Gordon Limited for the year ended 30 June 2020, 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 David Shewring Partner Melbourne 27 August 2020 Slater & Gordon Limited | Annual Report 2020 Additional ASX Information
In accordance with the ASX Listing Rules, the Directors provide the following information as at 27 August 2020.
(a) Distribution of shareholders and option holders.
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – Over
Number of Ordinary Shareholders
1,183
507
115
106
12
There are 636 shareholders holding less than a marketable parcel of 410 shares each (i.e. less than $500 per parcel of shares).
(b) Twenty largest shareholders
Shareholder
AIO V FINANCE (IRELAND) DAC
CITICORP NOMINEES PTY LIMITED
TCA OPPORTUNITY INVESTMENTS SARL
PERPETUAL CORPORATE TRUST LIMITED
RIVER BIRCH MASTER FUND LP
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
NATIONAL NOMINEES LIMITED
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