Smartgroup Corporation Ltd
94
Market
Release
Market Release
21 February 2018
ASX Market Announcements Office
22 February 2017
ASX Limited
20 Bridge Street
ASX Market Announcements Office
Sydney, NSW, Australia, 2000
ASX Limited
20 Bridge Street
Sydney, NSW, Australia, 2000
Smartgroup Corporation Ltd - Results for announcement to the market.
Smartgroup Corporation Ltd - Results for announcement to the market
In accordance with the Listing Rules, Smartgroup Corporation Ltd encloses for immediate release the following information:
1. Appendix 4E, and
In accordance with the Listing Rules, Smartgroup Corporation Ltd encloses for immediate release the following information:
2. Smartgroup Corporation Ltd Annual Report 2017.
1. Appendix 4E, and
2. Smartgroup Corporation Ltd Annual Report 2016.
Smartgroup Corporation Ltd will conduct a briefing on the results from 9.00am (Sydney time) on 22 February 2018.
Smartgroup Corporation Ltd will conduct a briefing on the results from 9.00am (Sydney time) on 23 February 2017.
Amanda Morgan
General Counsel and Joint Company Secretary
Amanda Morgan
General Counsel and Joint Company Secretary.
Appendix 4E
Preliminary Final Report
1. Company details
Name of entity:
Smartgroup Corporation Ltd
ABN:
48 126 266 831
Reporting period: For the year ended 31 December 2017
Previous period:
For the year ended 31 December 2016
2. Results for announcement to the market
Revenues from ordinary activities
Profit from ordinary activities after tax attributable to the owners of Smartgroup Corporation Ltd
Profit for the year attributable to the owners of Smartgroup Corporation Ltd
$’000
$’000
up 57,483
38.9% to
205,443
up
up
8,525
26.0% to
41,313
8,525
26.0% to
41,313
Dividends
Amount per security
Cents
Franked
amount per security
Cents
Final dividend for the year ended 31 December 2016 (paid on 31 March 2017)
Interim dividend for the year ended 31 December 2017 (paid on 29 September 2017)
15.0
16.5
15.0
16.5
On 21 February 2018 the Directors declared a fully-franked dividend of 18.5 cents per ordinary share. The final dividend will be paid on
30 March 2018 to shareholders registered on 15 March 2018. There is no dividend reinvestment plan.
Comments
The profit for the Group after providing for income tax amounted to $41,309,000 (31 December 2016: $32,788,000).
Refer to Chairman’s Report and CEO’s ‘Report of operations’ for detailed commentary of the results.
3. Net tangible assets
Net tangible assets per ordinary security
(103.09)
(76.90)
Reporting period
Cents
Previous period
Cents
4. Control gained over entities
On 2 May 2017, the Group acquired 100% of the ordinary shares of AccessPay Pty Ltd, Fleet Solutions Pty Ltd and 50% of the ordinary
shares of AccessPay Payroll Solutions Pty Ltd (AccessPay Group).
On 23 August 2017, the Group acquired 100% of the ordinary shares of ABM Corporation Pty Ltd (Aspire).
On 20 October 2017, the Group acquired the assets of RACV Salary Solutions (Salary Solutions).
Refer to note 23 to the financial statements for further details of acquisitions.
5. Details of associates and joint venture entities
Name of associate / joint venture
Reporting entity’s percentage holding
Contribution to profit
Reporting period
%
Previous period
%
Reporting period
$’000
Previous period
$’000
Health-e Workforce Solutions Pty Ltd
50%
50%
Group’s aggregate share of associates and joint
venture entities’ profit
Profit from ordinary activities after income tax
-
-
348
348
513
513
6. Audit qualification or review
The financial statements have been audited and an unqualified opinion has been issued.
7. Attachments
Additional Appendix 4E disclosure requirements can be found in the attached Directors’ Report and the Financial Report.
Annual Report
2017
At Smartgroup, we simplify salary
packaging, fleet management
and a range of other employee
management services for
organisations across Australia.
In This Annual Report
Who We Are
2017 Company Snapshot
Chairman’s Report
2017 Financial Highlights
Managing Director and CEO
Report of Operations
What We Do
Who We Help
Environmental, Social and Governance Report
Directors’ Report
Financial Report
Shareholder Information
Four Year Summary
Corporate Directory
Glossary
2
3
4
5
6
10
11
12
15
37
94
96
97
98
Who
We Are
Smartgroup is an award-winning, ASX-listed company that provides specialist employee
management services including salary packaging, novated leasing, fleet management, payroll
administration, employee share plan administration and workforce optimisation.
Recognised leader for customer care and innovation
Smartgroup continues to be recognised as a leader for high standards of customer care and
innovation. The capability triangle reflects our company values and methods in pursuit of operational
excellence and overall business success.
Customer service – providing
and maintaining the highest levels
of service to ensure an optimal
experience for our customers
is paramount.
Innovation – striving for
continuous improvement and
process efficiency.
Staff engagement – ensuring
the foundation of operational
excellence at Smartgroup.
Customer Service
Smartsalary 2017 National Service Champion
2016 National Service Champion
2015 Highly Commended (National)
2011–2015 Winner (NSW State)
7
2012 Winner (National)
2017 Smartsalary #47
2016 Smartgroup #11
2016 Smartfleet #31
2014 Smartsalary #44
2013 Smartsalary #31
Lean
Agile
Innovation
Staff Engagement
2
2017
Company
Snapshot
Our Customers
3,900+
employer clients
325,000+ 80,000+
salary packaging
customers
novated and fleet
vehicles under
management
Our People
700+
Smartgroup employees
Specialist capabilities
in all salary packaging
sectors: education, health,
not-for-profit, government
and corporate.
National presence
in all States and Territories
in Australia.
Our Service
Our Community
s m a r t s a l a r y a c h i e v e m e n t s
+44
NET
PROMOTER
SCORE (NPS)
Placed among leading
service providers
globally and revealing
strong customer
propensity to recommend
our service.
Achieved the highest
ever audit score from
the Customer Service
Institute of Australia for
the third consecutive year.
Recognised as one of
the 2017 Australian
Financial Review
50 Most Innovative
Companies for processes
that improve customer
experience.
300,000+ trees planted.
We were the highest
contributor to Greenfleet
through the Smartleasing
customer carbon offset
program.
Autopia partnered
with UN Women to
raise awareness of
gender equality and
domestic violence, and
raised $57,000 for their
National Committee
Australia Tax Appeal.
Local causes supported.
We supported numerous
staff-initiated awareness
and fund-raising activities
in aid of local charities.
3
Chairman’s
Report
It gives me great pleasure to present the Annual Report for Smartgroup Corporation for
the calendar year ending 31 December 2017.
Under the leadership of Deven Billimoria and the Smartgroup senior management team,
our financial results for 2017 reflect another year of strong growth, achieved through the
acquisition of new businesses, continued integration of previous acquisitions, new client
wins and improved sales to our existing client base.
Smartgroup has delivered:
• Revenues of $205.4 million, up 40 per cent on the prior year
• Operating EBITDA1 of $93.6 million, up 48 per cent on the prior year
• Operating NPATA2 of $64.1 million, up 46 per cent on the prior year
• Statutory Net Profit After Tax of $41.3 million, up 26 per cent on the prior year.
Throughout 2017, Smartgroup marched
forward as an industry leader in specialist
employee management services.
The Board is pleased to declare a fully franked final dividend of 18.5 cents per share,
taking the full-year dividends for 2017 to 35.0 cents per share.
Throughout 2017, Smartgroup marched forward as an industry leader in specialist
employee management services, expanding on our foundation salary packaging and
novated leasing activities with enhanced capabilities in fleet management, payroll
services, employee share plans and workforce optimisation solutions.
The company increased its footprint in the salary packaging and novated leasing
markets through both marked organic growth and the acquisitions of AccessPay,
Aspire and RACV Salary Solutions (now operating as Salary Solutions). These
acquisitions are being successfully integrated into the Smartgroup business, with
the achievement of forecast synergies tracking well.
In December, we expanded our fleet management offering, entering into an agreement
to acquire Perth-based specialist provider Fleet West. This acquisition was completed
in early January 2018, post year-end balance date.
The ongoing improvements of operations and customer service standards across
the group are deeply embedded in the Smartgroup culture and will continue to be a
key focus. On behalf of the Board, I sincerely thank our customers and shareholders
for their ongoing support, and our employees who continue to exceed the high
standards we set.
We look forward to continuing to deliver value for our shareholders, exceptional service
to our customers and an engaging and supportive workplace for employees.
Michael Carapiet
Chairman
4
The following highlights represent the financial performance
of Smartgroup for the year ended 31 December 2017.
2017
Financial
Highlights
Revenue
EBITDA1
$205.4m
up 40%
$93.6m
up 48%
NPATA2
$64.1m
up 46%
Operating cash flow3
Net debt4
99%
as a % of NPATA
$111.1m
Dividends declared
35.0cps
up 41%
After-tax profits (NPATA)
Dividends per share declared (fully franked)
64.1
44.0
2017
2016
35.0
24.8
26.2
2015
16.6
17.4
$m
2014
6.15
Cents per share
The 2017 Financial Highlights are presented on an adjusted basis and have been reconciled to the statutory 2017 Financial Report.
1 EBITDA is Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for significant non-operating items.
2 NPATA is Net Profit After Tax, adjusted to exclude the non-cash tax effected amortisation of intangibles and significant non-operating items.
3 Operating cash flow excludes receipts and payments from customers’ salary packaging accounts and significant non-operating items.
4 Net Debt is cash and cash equivalents less borrowings, adjusted to exclude capitalised borrowing costs.
5 Represents dividend declared only for H2 2014.
5
Managing Director
and CEO
Report of Operations
I’m pleased to announce Smartgroup
has enjoyed another period of
operational and financial success,
while continuing to provide the
highest levels of service to our
loyal customers.
Overview
We have achieved a number of positive operational and growth
outcomes in 2017 by enhancing our capabilities, growing our
client base and completing complementary acquisitions.
Growth through acquisition
Smartgroup acquired three salary packaging businesses during
2017, strengthening our presence and service capability across
all sectors.
Digital innovation to improve the quality of service and customer
experience, while reducing manual processes, has remained a
key imperative for our flagship brand, Smartsalary. Topping off
a great year of digital development, Smartsalary was recognised
as being among Australia and New Zealand’s 50 Most Innovative
Companies by the Australian Financial Review.
The high level of service at Smartsalary was again recognised
by our customers. We finished the year with an average Net
Promoter Score (NPS) of +44 on a scale of -100 to +100. A
company’s NPS is a measure of how likely a customer is to
provide a word-of-mouth referral. Once again, this places us
among leading service providers globally. In addition, Smartsalary
was recognised as the 2017 Service Champion by the Customer
Service Institute of Australia (CSIA).
These achievements are a fitting acknowledgement of the
ongoing commitment of our staff to put customers first, and are
indicative of the standards of service and operational efficiency
we set for all Smartgroup brands.
In May, Smartgroup acquired AccessPay, a salary packaging
provider to the Public Benevolent Institution (PBI) sector with
c.40,000 salary packages across c.500 employer clients.
Aspire Benefits Management, a novated leasing provider to
the corporate sector, joined the Group in August with c.1,500
novated leases across c.100 employer clients.
Smartgroup completed the acquisition of RACV Salary Solutions
in October. RACV Salary Solutions (now operating as Salary
Solutions) is a national provider of salary packaging and novated
leasing, delivering benefits including c.38,000 salary packages
and c.4,500 novated leases across c.700 employer clients.
In addition, in December we announced the acquisition of Fleet
West, expanding our fleet management capabilities. Fleet West
manages c.2,800 vehicles for c.180 employer clients in the not-
for-profit sector, and has joined Smartfleet to further extend the
Smartgroup fleet service offering.
These four acquisitions have added to our capacity and better
enable us to leverage best practice across all Smartgroup
businesses, for the benefit of both our customers and shareholders.
2017 acquisitions: building the presence of Smartgroup in the salary packaging market†
PBI Hospitals
Government
Corporate
Large
Corporate
SME
Rebatable
Smaller Corporate
clients transitioned
to Autopia
Acquisition
completion date
PBI Charities/
NFPs
N/A
Smaller PBI clients
transitioned
to Advantage
December 2015
July 2016
August 2016
PBI clients transitioned to Advantage
May 2017
August 2017
October 2017
Larger Corporate
clients transitioned
to Smartsalary
Smaller Corporate
clients transitioned
to Autopia
† Diagram excludes non-salary packaging and novated leasing offerings of Smartfleet, Smartequity, Smartsalary Payroll Solutions and Health-e Workforce Solutions
6
Expanding our client base
The number of Smartgroup clients has grown to c.3,900, up from c.2,400
clients at the end of 2016.
This has allowed us to continue to diversify our client portfolio, with 54%
of our revenue coming from a larger pool of small and medium-sized
clients, compared to 31% in 2013.
CY13 – CY17: Revenues by client mix
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
31%
18%
51%
54%
17%
29%
2013A
2017PF
Top 5
Top 6-20
Ex Top 20
7
Serving all sectors of the salary packaging market
We work with employers in all market segments to provide salary packaging to their employees. ‘Caring’ professions, including
the not-for-profit, hospitals 1 and education 2 sectors, account for more than half our overall salary packaging employer client
base, and 86% of our salary packaging customers.
Employer client segmentation
Employee customer segmentation
Education2
7%
Corporate
38%
Government
7%
Hospitals1
3%
Not-for-profit
45%
Corporate
4%
Government
10%
Hospitals1
33%
Education2
12%
Not-for-profit
41%
1. ‘Hospitals’ includes public and private not-for-profit hospitals.
2. ‘Education’ includes public and private not-for-profit educational institutions.
Broadening our service offering to the not-for-profit sector
Smartgroup has a large number of not-for-profit salary packaging clients, and is well positioned to build deeper relationships with this
sector through an expanded service offering.
26 overlapping clients
c.1,700 NFP salary
packaging clients
c.800 NFP fleet
management clients
60 overlapping clients
5 overlapping clients
c.180 NFP fleet
product extension
clients
8
Customers first
Our dedication to our clients and customers has meant that we’ve retained our standing as a leading customer service provider. For the
third consecutive year, Smartsalary achieved the highest ever audit score recorded by the Customer Service Industry Association (CSIA)
to be recognised as the 2017 Service Champion at the CSIA Australian Service Excellence Awards.
2012 National Winner
7.88
2013 State Winner
8.04
2011 State Winner
7.38
2014 State Winner
8.24
8.44
8.52
7
8.89
Highest
score
achieved
in CSIA
history
Highest
score
achieved
in CSIA
history
Highest
score
achieved
in CSIA
history
6.83
6.17
5.45
10
9
8
7
6
5
4
3
2
1
2006
2009
2010
2011
2012
2013
2014
2015
2016
2017
I would like to thank our entire team, from our incredibly loyal longer-term
employees to the new people who’ve joined us, for embracing the
customer-centric Smartgroup way. Our service-led culture, and the many
warm client references that flow, enable the company to continue to grow
and better serve our customers, our employees and our shareholders.
Deven Billimoria
Managing Director & Chief Executive Officer
9
What
We Do
Smartgroup has a strong presence in all segments of the salary packaging and novated leasing
market. We also deliver fleet management services to all market segments, workforce optimisation
solutions to the health sector, share plan administration to the corporate sector, and payroll
administration to the corporate and not-for-profit sectors.
FLEET
MANAGEMENT
NOVATED
LEASING
SHARE PLAN
ADMINISTRATION
SALARY
PACKAGING
ADMINISTRATION
PAYROLL
ADMINISTRATION
WORKFORCE
OPTIMISATION
10
Who
We Help
Not-for-profits
This sector includes charitable organisations with public
benevolent institution (PBI) status. We have a strong presence
in this sector through our existing brand Advantage Salary
Packaging, which was enhanced this year by the addition of
AccessPay to the group. Smartgroup-owned PBI Solutions retains
market leadership in the distribution of salary packaging cards.
Fleet West and Smartsalary Payroll Solutions provide services
specifically designed for not-for-profit organisations.
Hospitals
public and private
not-for-profit
A significant proportion of our salary packaging customers
are nurses and medical professionals located in the private
and public hospital sector. Health-e Workforce Solutions also
supports our many hospital clients with the provision of workforce
modelling and consultancy services to drive staffing efficiencies.
Education
public and private
not-for-profit
Smartgroup has developed specific expertise working with public,
private and religious education institutions, and our salary
packaging customers include teachers and other professionals
working in primary, secondary and tertiary education.
Government
organisations
Smartgroup retained Government sector coverage at local, State
and Federal level in 2017. Novated leasing continues to be a
popular benefit in this sector.
Private and
corporate
This sector includes private and public companies, from boutique
operations to large corporations. Sector specialist Autopia delivers
novated leasing solutions to small and medium-sized organisations,
while Smartleasing serves the larger clients within our portfolio.
Smartequity also provides flexible equity plan administration for
private, public, start-up and international companies.
11
Environmental, Social
and Governance Report
Environment
As an administrative services
company, Smartgroup has a
relatively low direct effect on
the environment. Our biggest
direct environmental impacts
come from travel, energy and
consumables (such as paper,
waste consumption and waste
management). We endeavour
to reduce these impacts as
explained here.
Benefits of new cars
Making cars more affordable for our
customers means that the majority buy
new rather than used cars. A new car
tends to be more fuel efficient, so over
its lifetime its fuel usage should have
a lower impact on the environment.
New cars have far more safety features
than a decade ago, with technology
improving dramatically. Better crash-test
ratings, more airbags, ABS, electronic
stability control and back-up cameras all
contribute to reducing the number and
severity of car accidents.
Transformation and
efficiency projects
We are committed to improving efficiency
in all aspects of our business, not just
to reduce cost and streamline our
processes, but also to minimise our
environmental impact. Wherever possible,
we replace print and paper-based
processes with online systems, both for
internal administration and finance, and
externally (for client-facing processes).
12
Greenfleet partnership
One of our two core businesses is novated leasing – enabling our clients’
employees to save money on car purchases. We take our corporate
responsibilities seriously and, as such, we have partnered with Greenfleet since
2008 to offset carbon emissions. Greenfleet is a carbon offset provider whose
mission is to protect the climate by restoring forests.
Smartgroup was Greenfleet’s largest contributor in 2017. Thanks to
Smartleasing customers donating funds to offset their novated leasing
emissions, 300,000 trees will be planted. Since 2008, Smartgroup and its
customers have contributed to have 1.7 million trees planted, offsetting
400,000 tonnes of CO2 emissions.
Our work with Greenfleet continues; reducing the carbon footprint of our
customers’ vehicles and supporting great initiatives such as the Low Glow
project – a joint initiative between Greenfleet, the Prince’s Trust Australia and
the Walt Disney Company (Australia) to protect the local endangered sea turtle
population in Bundaberg, Queensland.
Waste reduction
Air travel
In every office in Australia, we facilitate
waste separation and recycling. Through
various office initiatives, we continue to
strive to reduce electricity, office and print
waste across our business.
Smartgroup has offices in most States in
Australia, and also has a large remotely
based sales team. As such, air travel is a
necessary part of running our business.
We are continuing our focus on improving
technology and remote networking
capabilities for our staff with the aim
of enhancing workplace efficiencies,
lessening our travel spend and reducing
our travel-related carbon footprint.
We acknowledge and proactively manage issues that affect the long-term sustainability of our
business, the environment and the community. We know that our long-term success depends upon
maintaining our good reputation, enhancing employee morale, finding new revenue streams to
diversify our risks, and continuing our focus on efficiency.
Social, staff and
community
Smartgroup has always
been a very people-focused
business, both in relation to
staff and clients.
Volunteering
Employees are entitled to one
day of leave per year to volunteer
for charitable work. As a partner
of and donor to Greenfleet,
Smartgroup’s staff are invited to
attend tree-planting days, which
are popular and well-attended.
Employee engagement
Several times a year, with the assistance of an external consultant, we monitor
employee engagement and closely analyse the results. We see this as very important,
given the challenge of maintaining strong communication between employees
and senior management, and particularly so in the context of numerous business
acquisitions with offices across the country. Smartgroup has always undertaken
regular business briefings at which staff are briefed about strategy and corporate
developments.
UN Women National Committee (NC) Australia partnership
Autopia continued to partner with UN Women NC Australia in 2017, helping to raise over $57,000 for the UN Women
NC Australia Tax Appeal.
Autopia’s workplace response to domestic and family violence was published in UN Women NC Australia’s report Taking the
first step: Workplace Responses to Domestic and Family Violence.
The report is available here: unwomen.org.au/resource/taking-the-first-step-workplace-responses-to-domestic-and-family-violence/.
13
Environmental, Social
and Governance Report
continued
Royal Melbourne Hospital (RMH) Foundation
For the fifth consecutive year, Smartsalary was proud to support the RMH Foundation,
which delivers better health through research, innovation and education. In 2017,
we supported key RMH Foundation events and activities, including sponsoring
the Celebrating Excellence Awards in November, where Smartgroup CEO Deven
Billimoria presented the Chief Executive’s Leadership Award. We also supported the
foundation’s Prevention of Alcohol and Risk Related Trauma in Youth (PARTY) program.
Review of policies
Learning and development
Smartgroup continues to ensure that it,
and all the businesses that it has acquired
over the last three years, have high quality
policies in place, which are designed to
bolster employee morale, encourage
loyalty to the business and ensure all
employees have equal opportunities at
work. This year Smartgroup introduced
a Domestic Violence Policy, which was
well received across the business. Next
year Smartgroup will review other policies,
including its Parental Leave Policy.
Smartgroup knows that an employee’s
perception of their professional
development and career prospects is
key to their engagement. In response
to feedback that employees would like
more support and information regarding
career development, Smartgroup has
put in place various new learning and
development initiatives throughout 2017
to improve engagement and capitalise on
employees’ enthusiasm and commitment
to their work.
Employee share plan
Diversity and gender balance
To encourage share ownership, loyalty
and involvement in the business and
its direction, Smartgroup continues to
offer employees the ability to subscribe
for shares. Employees salary sacrifice
$500 and Smartgroup matches this with
a further $500, issuing the subscribing
employees with $1000 worth of
Smartgroup shares each year.
Smartgroup has several gender
objectives in place, supported by a
number of policies. We have reported
against those objectives in our
Corporate Governance Statement
(found at: ir.smartgroup.com.au/
Investors/?page=Corporate-Governance).
Supporting staff
with their causes
Throughout 2017, Smartgroup
supported several staff-initiated
awareness and fundraising
activities for worthy causes,
including Fighting Chance,
RSPCA, Cancer Council Victoria
and Cancer Council Tasmania.
Governance
Smartgroup believes that good corporate governance is key to maximising company performance and delivering high returns
to shareholders. Smartgroup has always had a strong corporate governance framework in place, which is reported on in
detail in the Corporate Governance Statement (found at: ir.smartgroup.com.au/Investors/?page=Corporate-Governance).
14
Directors’
Report
2017
Remuneration Report
Auditor’s Independence Declaration
21
34
Directors’
Report
The Directors present their report, together with the financial
statements, on the consolidated entity (referred to hereafter
as the ‘Group’) consisting of Smartgroup Corporation Ltd
(referred to hereafter as the ‘Company’ or ‘parent entity’) and
the entities it controlled at the end of, or during, the year ended
31 December 2017.
For the year ended 31 December 2017
Directors
The following people were Directors of the Company during the whole of the financial year and up to the date of this report, unless
otherwise stated:
Michael Carapiet
Deven Billimoria
John Prendiville
Gavin Bell
Andrew Bolam
Ian Watt
Deborah Homewood
Principal activities
During the financial year the principal activities of the Group consisted of outsourced administration, being primarily salary packaging,
novated leasing, payroll administration, fleet management and software, distribution and group services.
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 31 December 2016 of 15.0 cents (2015: 8.7 cents) per ordinary share
Consolidated
2017
$’000
18,223
2016
$’000
9,022
Interim dividend for the year ended 31 December 2017 of 16.5 cents (2016: 9.8 cents) per ordinary share
20,379
11,901
38,602
20,923
On 21 February 2018, the Directors declared a fully franked dividend of 18.5 cents per ordinary share. The final dividend will be paid
on 30 March 2018 to shareholders registered on 15 March 2018, resulting in a financial distribution of $22,794,000. The financial effect
of dividends declared after the reporting date is not reflected in the 31 December 2017 financial statements and will be recognised in
subsequent financial reports.
Review of operations
The profit for the Group after providing for income tax amounted to $41,309,000 (31 December 2016: profit of $32,788,000).
Refer to the Chairman’s Report and the Managing Director and CEO’s Report of Operations for further commentary on the results.
Business objectives and cash use
The Company has used cash and cash equivalents to fund its day-to-day operations, pay down debt and to acquire shares and assets of
three new businesses.
16
Significant changes in the state of affairs
The Group undertook three acquisitions of salary packaging businesses during 2017. Collectively these businesses were acquired for
$56,668,000 and contributed approximately 79,500 salary packages and 6,600 novated leases from around 1,300 employer clients.
A further acquisition of a fleet management company was completed in January 2018.
Acquisitions
Acquisition of AccessPay Pty Ltd (AccessPay)
On 2 May 2017, the Group acquired a 100% interest in the AccessPay Group for $15,000,000. AccessPay is based in Adelaide and
provides salary packaging services to clients in the PBI sector across Australia. It administers approximately 40,000 salary packages and
600 novated leases for around 500 employer clients. The consideration provided was $13,700,000 in cash (from cash reserves) plus
$1,000,000 retained in escrow until 9 November 2018 and 46,225 shares issued at a price of $6.49 each to a vendor of AccessPay.
Acquisition of ABM Corporation Pty Ltd (Aspire)
On 23 August 2017, the Group acquired a 100% interest in Aspire for $6,700,000 plus $500,000 retained in escrow. Aspire provides
novated leasing services to the corporate sector, administering approximately 1,500 novated leases and servicing over 100 employer
clients. The consideration was paid in cash from cash reserves.
Acquisition of RACV Salary Solutions (Salary Solutions)
On 20 October 2017, the Group acquired the Salary Solutions business from RACV for $27,468,000 plus $7,000,000 retained in
escrow. Salary Solutions is based in Adelaide and provides salary packaging and novated leasing services to all segments of the market.
It administers approximately 38,000 salary packages and 4,500 novated leases for around 700 employer clients. The consideration was
paid in cash and was funded from cash reserves and existing debt facilities.
There were no other significant changes in the state of affairs of the Group during the financial year.
Matters subsequent to the end of the financial year
On 4 January 2018, the Group completed the acquisition of 100% of the shares of Fleet West Pty Ltd (Fleet West) for $9,000,000. Fleet
West is based in Perth and provides fleet management services to clients in the not-for-profit sector. It manages approximately 3,000
vehicles for around 200 employer clients. The consideration paid was $8,000,000 in cash and 99,206 shares issued at a price of $10.08
each to the principal vendor.
On 21 February 2018, the Directors declared a fully-franked dividend of 18.5 cents per ordinary share. The final dividend will be paid on
30 March 2018 to shareholders registered on 15 March 2018, resulting in a financial distribution of $22,794,000.
No other matter or circumstance has arisen since 31 December 2017 that has significantly affected or may significantly affect the Group’s
operations, the results of those operations, or the Group’s state of affairs in future financial years.
Likely developments and expected results of operations
Likely developments in the operations of the Group and the expected results of those operations are contained in the Managing Director
and CEO’s Report of Operations.
Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law.
The glossary on page 98 contains a list of defined terms.
17
Board of
Directors
The following persons were directors of Smartgroup Corporation
Ltd during the whole of the financial year and up to the date of
this report, unless otherwise stated.
Michael Carapiet
Chairman and
Non-Executive Director
Deven Billimoria
Managing Director and
Chief Executive Officer
Ian Watt AC
Non-Executive Director
Qualifications:
Deven holds a Master of Business
Administration from Northwestern
University’s Kellogg School of
Management and a Bachelor
of Science in Mechanical
Engineering from the University of
California, Los Angeles.
Experience and expertise:
Deven has worked with
Smartgroup for 18 years. He was
appointed Managing Director and
CEO of Smartgroup Corporation
in 2014. Prior to that, Deven was
Managing Director and CEO of
Smartsalary Pty Ltd, a position
he held from 2001. Deven began
his career as an engineering
consultant, before moving
to management consulting
with Booz Allen Hamilton.
Former publicly listed directorships
(last 3 years): None
Special responsibilities: None
Interests in shares: 2,518,367
Interests in options: 1,208,504
Qualifications:
Michael holds a Master of Business
Administration from Macquarie
University.
Experience and expertise:
Michael has more than 30 years’
experience in the financial sector.
Michael is the Chairman of Link
Group (ASX:LNK), a global provider
of share registry, corporate
market data analytics and asset
management services and is the
largest provider of administration
services to the Australian
superannuation sector. Michael
is Chair of Insurance and Care
NSW (icare NSW), which includes
the activities of the NSW Workers
Compensation Scheme, Lifetime
Care & Support, Dust Diseases
and the NSW Government’s self
insurance activities. He is also
Chair of Adexum Capital Limited,
a private equity fund manager
and an Advisory Board Member
of Pyrolyx AG, a dual listed
company in Germany and Australia.
Previously Michael held numerous
senior roles at Macquarie Group,
until his retirement in 2011.
Former publicly listed directorships
(last 3 years): None
Special responsibilities:
Member of HRRC and Member of ITIC
Interests in shares: 2,047,816
Interests in options: None
Qualifications:
Ian holds a Bachelor of Commerce (Hons)
from the University of Melbourne, a Master
of Economics and PhD in Economics from
La Trobe University, and has completed
the Advanced Management Program at
Harvard Business School.
Experience and expertise:
Ian has worked for nearly 20 years at
very senior levels of the Australian public
service. His most recent appointment was
as Secretary of the Department of Prime
Minister and Cabinet and head of the
Australian Public Service, a position he held
from 2011 to 2014. Prior to that, he was
Secretary of the Departments of Defence,
Finance, and Communications, Information
Technology and the Arts between 2001
and 2011. Before that, Ian was Deputy
Secretary of the Department of the Prime
Minister and Cabinet. Ian is currently
the Chair of the International Centre for
Democratic Partnerships, BAE Systems
Australia Pty Ltd, the Smart Infrastructure
Facility of the University of Wollongong and
the Prader-Willi Research Foundation of
Australia. Ian is on the boards of Citigroup
Australia, the Grattan Institute (University
of Melbourne), the Australian Governance
Masters Index Fund and O’Connell Street
Associates Pty Ltd. Ian is also a member of
Male Champions of Change.
Former publicly listed directorships
(last 3 years): None
Special responsibilities: Chairman of ITIC and
Member of ARC
Interests in shares: 62,142
Interests in options: None
18
Andrew Bolam
Non-Executive Director
Deborah Homewood
Non-Executive Director
John Prendiville
Non-Executive Director
Gavin Bell
Non-Executive Director
Qualifications:
Andrew holds a Bachelor of
Commerce from the University
of Tasmania and is a Certified
Practising Accountant (CPA).
Experience and expertise:
Andrew has more than 20 years
of experience in financial and
general management. He is
currently the Chief Financial
Officer of Fetch TV Pty Ltd.
He was previously the Chief
Financial Officer of Usaha Tegas,
a private investment holding
company based in Malaysia.
He was also Commercial Director
of Bumi Armada Berhad, an
associate of Usaha Tegas group.
Andrew was the Chief Financial
Officer of Astro All Asia Networks
plc (the then holding company
of MEASAT Broadcast Network
Systems Sdn Bhd that launched
the Astro Pay-TV services) shortly
following its launch in late 1996.
Former publicly listed directorships
(last 3 years): None
Special responsibilities: Member of
ARC and Member of ITIC
Interests in shares: 200,000
Interests in options: None
Qualifications:
Deborah completed her
registered nurse training at
St Andrews Hospital (Qld), as
well as a Masters of Management
from Macquarie Graduate
School of Management.
Experience and expertise:
Deborah has many years of
experience in management
in various sectors, including
retail, the medical industry
and communications. She is
currently Managing Director
of MAX Solutions. Prior to
working for MAX Solutions,
Deborah was CEO of Pacnet,
Australia and New Zealand,
an Asian-headquartered
telecommunications carrier.
She was with Pacnet for
10 years and held various
senior roles including Vice
President Sales, South Asia.
She is a current member
of Chief Executive Women,
and chaired the Membership
Committee from 2010 to 2012.
Former publicly listed directorships
(last 3 years): None
Special responsibilities: Member of
ITIC and Member of HRRC
Interests in shares: 4,444
Interests in options: None
Qualifications:
John holds a Bachelor of
Science (Hons in Astrophysics)
from the Royal Military College,
Duntroon, and Master of
Business Administration from the
University of Western Australia
and the Institute for International
Finance in Japan.
Experience and expertise:
John is currently a Director
of the University of Notre
Dame (and Member of the
University’s Audit and Finance
Committee) and Chairman-elect
of the privately-owned Global
Advanced Metals Limited (and
Member of the company’s
Audit and Finance Committee).
John is also a director of 1300
Australia Limited and GetCapital
Pty Limited. Previously John
held numerous senior roles at
Macquarie Group, where he
worked until 2011.
Former publicly listed directorships
(last 3 years): None
Special responsibilities: Chairman of
ARC and Member of HRRC
Interests in shares: 852,902
Interests in options: None
Qualifications:
Gavin holds a Bachelor of
Laws from the University of
Sydney and Master of Business
Administration (Executive) from
the Australian Graduate School
of Management.
Experience and expertise:
Gavin is an experienced director,
CEO and lawyer. He is a Board
Member of icare NSW and a
Director of IVE Group Limited
(ASX:IGL). Gavin was Managing
Partner and Chief Executive
Officer of law firm Herbert Smith
Freehills (formerly Freehills). He
was also a partner in the firm for
25 years.
Former publicly listed directorships
(last 3 years): None
Special responsibilities:
Chairman of HRRC and Member of ARC
Interests in shares: 74,850
Interests in options: None
19
Company secretaries
General Counsel and Joint Company Secretary
Amanda Morgan was appointed General Counsel and Company Secretary in June 2014. Amanda previously worked for IRESS Limited as
General Counsel and prior to that for King & Wood Mallesons as a Senior Associate. Prior to that, she worked at Minter Ellison. Amanda
holds a Bachelor of Laws and Bachelor of Commerce from the University of Melbourne, a Graduate Diploma of Applied Finance from the
Securities Institute of Australia, and is a Graduate of the Australian Institute of Company Directors.
Chief Legal Officer and Joint Company Secretary
Sophie MacIntosh was appointed Chief Legal Officer on 7 November 2016 and was appointed Joint Company Secretary on 13 December
2016. Sophie previously worked for Ashurst as a Senior Associate. Prior to that, she worked at DLA Phillips Fox. Sophie holds a Master
of Laws from the University of Sydney and a Bachelor of Business and a Bachelor of Law (Honours) from the University of Technology
Sydney. She has also completed the Observership Program and the Not-for-Profit Directors course with the Australian Institute of
Company Directors.
Meetings of Directors
The number of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 31 December
2017, and the number of meetings attended by each Director were:
Full Board
Human Resources and
Remuneration
Committee (HRRC)
Audit and Risk
Committee (ARC)
IT and Innovation
Committee (ITIC)
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Michael Carapiet
Deven Billimoria
John Prendiville
Gavin Bell
Andrew Bolam
Ian Watt
Deborah Homewood
18
18
16
15
18
17
17
18
18
18
18
18
18
18
3
-
2
3
-
-
3
3
-
3
3
-
-
3
-
-
3
4
4
4
-
-
-
4
4
4
4
-
4
-
-
-
4
4
4
4
-
-
-
4
4
4
Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee.
20
Remuneration
Report
The remuneration report, which has been audited, describes
the remuneration arrangements for the Key Management
Personnel of the Group, in accordance with the requirements
of the Corporations Act 2001(Cth) and its regulations.
(Audited)
Introduction
The Remuneration Report is designed to provide shareholders with an understanding of Smartgroup’s remuneration policies and how
these are linked to the Group’s remuneration philosophy and strategy. The Remuneration Report specifically focuses on the Smartgroup
remuneration arrangements for 2017.
At the AGM held in May 2017, the remuneration framework received strong support from shareholders, with a very strong majority vote in
favour of the resolution to adopt the 2016 Remuneration Report.
Principles used to determine the nature and amount of remuneration
The Board ensures that executive reward satisfies the following key criteria for good governance practices:
• Competitiveness and reasonableness;
• Acceptability to shareholders;
• Performance linkage/alignment of executive compensation; and
• Transparency.
The Company has a Human Resources and Remuneration Committee (HRRC), whose role is to assist the Board in fulfilling its corporate
governance responsibilities and to review and make recommendations, in relation to the remuneration arrangements for its Directors and
executives. The HRRC must have at least three members, a majority of whom must be independent non-executive Directors.
The HRRC has structured an executive remuneration framework that is competitive with the market and complementary to the reward
strategy of the Group. In late 2017, the Board commissioned Minter Ellison to provide benchmarking advice in relation to executive
remuneration for 2018.
The Group’s remuneration policies and practices are designed to align the interests of staff and shareholders, while attracting and retaining
staff members who are critical to the organisation’s growth and success.
The remuneration strategy:
• Focuses on sustained growth in EBITDA and NPATA, as well as focusing the executive on key non-financial drivers of value;
• Is intended to attract, motivate and retain high-calibre executives;
• Rewards team and individual performance, capability and experience;
• Reflects competitive rewards for contribution to growth in shareholder wealth; and
• Provides a clear structure for earning rewards.
As the Company has grown, there has been a need to review and redesign the organisational structure to support and facilitate delivery of
the current and future strategic goals. Early 2017 saw the first phase of a group-wide reorganisation where all business support functions
were integrated to form a single Smartgroup structure. This included the finance, IT, human resources and risk and audit functions. The
prime goal was to ensure a common and consistent approach in functional support and service delivery, as well as driving efficiencies and
adopting best practice standards across the group. The reorganisation was very successful and is well on its way to realising the goals of
the structural changes.
October saw the second phase of organisational restructuring where business unit reporting lines moved from separate entities reporting
directly into the CEO, to all salary packaging business units reporting into the Chief Executive, Salary Packaging and all novated leasing
and fleet business units reporting into the Chief Executive, Novated Leasing and Fleet. This change is in line with the strategic goal of
driving efficiencies through the integration of common processes and removing duplication.
In accordance with best-practice corporate governance, separate structures apply to the remuneration of non-executive Directors
and executives.
21
A. Non-executive Directors’ remuneration
Fees and payments to non-executive Directors reflect the demands that are made on, and the responsibilities of, these Directors. The
Board decides the total amount paid to each non-executive Director as remuneration for their services as a Director. The total amount
of fees paid to all Directors for their services (excluding, for these purposes, the salary of any executive Director) must not exceed in
aggregate in any financial year the amount fixed by the Company at a general meeting. The aggregate remuneration for non-executive
Directors was set by shareholders at the AGM in May 2017 at $1,150,000. The fees paid are $210,000 per annum for the Chairman
of the Board and $100,000 per annum for each non-executive Director. In addition to the above, the Chairmen of the ITIC and HRRC
respectively are paid $20,000 annually for services provided to each of those committees. Each member of those two standing
committees (other than the committee Chairman) is paid $10,000 annually for the services provided to that committee. The Chairman of
the ARC is paid $25,000, and each other member of that committee is paid $12,500 per annum.
In addition to the fees, superannuation and GST, if applicable, are paid in each case. There are no retirement benefit schemes for non-
executive Directors, other than statutory superannuation contributions. Any change to the aggregate annual sum referred to above must
be approved by shareholders. The aggregate sum includes any special and additional remuneration for special exertions and additional
services performed by a Director as determined appropriate by the Board. Directors may be paid additional or substituted remuneration if
they, at the request of the Board and for the purpose of the Company, perform any additional or special duties.
B. Executive remuneration
The Group aims to reward executives with a level and mix of remuneration based on their position and responsibility. This remuneration
has both fixed and variable components.
The executive remuneration and reward framework consists of four components:
• Current base pay and non-monetary benefits;
• Short-term performance incentives;
• Long-term performance incentives; and
• Other statutory entitlements remuneration such as superannuation and long-service leave.
In combination, these comprise an executive’s total remuneration.
In alignment with its remuneration strategy, the Board’s policy on executive remuneration is that, broadly, it comprises a fixed component
and an ‘at-risk’ or performance-based component (STIP and LTIP), where a significant component of the executive remuneration is at risk.
The two charts below show the relative proportion of the executives’ total remuneration package for the 2017 financial year:
CEO
TFR
42%
Other executives
STIP
24%
STIP
18%
TFR
62%
LTIP
34%
LTIP
20%
In calculating the ‘at risk’ compensation as a proportion of total remuneration for the 2017 financial year for each executive, the maximum
entitlement that could potentially be awarded under the STIP or LTIP was taken into account.
a) Total fixed remuneration (TFR)
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, is reviewed annually by the HRRC, based on
individual and business unit performance, the overall performance of the Group and comparable market remuneration.
b) Short term incentive plan (STIP)
The Executive KMP are eligible to participate in the STIP in a manner determined by the Board. The STIP puts a proportion of the
remuneration ‘at risk’ subject to meeting specific, pre-determined performance measures linked to the Company’s objectives, which are
set annually. This aligns employee interests with the Group’s financial performance, as well as the Group’s organisational values. As with
fixed remuneration, the Board and the HRRC rely on comparative data from companies of a similar size. In addition, data from competitors
has been considered, to ensure that the STIP remains competitive and attractive, and to incentivise the executive team to stay and to
strive for exceptional performance.
22
Participants in the STIP have a target cash payment that is set every year as a percentage of their TFR. In 2017 it was subject to a
maximum target of 60% for the CEO and 30% for each other executive KMP.
Payments under the STIP in any given year depend on the achievement of a range of financial and non-financial key performance
indicators and objectives (KPIs) as approved by the Board on an annual basis. These KPIs are tested annually after the end of the relevant
year. The 2017 STIP provided for financial and non-financial KPIs, with the achievement of the financial KPI as the gateway to a STIP
payment. The 2017 STIP provided for financial and non-financial KPIs to be weighted at 50% each.
Year on year, the STIP and associated KPIs have been designed to compensate and reward the executive team for achieving the
Company’s short-term business strategy. The 2017 strategic goals were primarily designed to ensure ongoing business growth as
measured by the financial KPI. An emphasis on driving efficiencies across business units also featured strongly with other non-financial
KPIs. These KPIs ensured a focus on delivering efficiencies in IT systems, human resources, and operational and functional processes,
with best practice standards adopted consistently across the Group. A focus on excellence in customer service and maintaining optimal
standards around risk and audit were also important strategic drivers.
Financial KPI:
The financial KPI is required to be met by all members of the executive KMP. In 2017, the percentage of the payment was set to
vary depending on the Net Profit After Tax, adjusted to exclude the non-cash tax effected amortisation of intangibles and significant
non-operating items (NPATA) achieved by the Group. Table 1 below describes the arrangement.
Table 1: Financial KPI
NPATA for 2017
1.
2.
3.
4.
$60m or more
$58.5m or more but less than $60m
$57m or more but less than $58.5m
Less than $57m
% of STIP
50%
25%
12.5%
0%
This target range represented a significant increase over 2016 NPATA which was $44m.
The financial performance of the Group in 2017 saw a growth of 46% from 2016. NPATA for the year ended 31 December 2017 was
$64.1m compared to $44.0m in 2016. As a result, 50% of the STIP will be paid out in total to the executive KMP in relation to this KPI.
Unless NPATA was at least $57m (see number 4 in the table above), no STIP was payable for the non-financial KPIs below. As indicated
above, this requirement was satisfied.
23
Non-financial KPIs:
The non-financial KPIs are performance objectives that apply to the executive KMP and are summarised in Table 2 below. Actual
performance against objectives has also been provided.
The Board’s assessment of performance against KPIs in 2017 is presented in the following table.
Table 2: List of non-financial KPIs: who is subject to them, how they are measured and to what extent they were achieved
Non-financial KPI
Relevant executive How it is measured
Actual achievement
1. New business:
a) Win large clients
CESP, CENL
Targets set on number of new packages with stretch
targets in place
b) Increase B2B cross-sell CESP
Target set for achieving cross sell opportunities
2. Existing clients:
a) Retain 100% of key
CESP
Retention of identified key clients
clients
b) Increase package and
CEO, CESP, CENL
leasing uptake
3. Operational excellence:
Targets set for achieving organic growth with stretch
targets in place
a) Increase operational
CHRO, CENL
HR plan delivered and approved by HRRC Chairman
efficiency
b) Maintain IT capabilities
CIO
Specific operational efficiency projects delivered on time
and on budget
Delivery of the group IT security plan and achievement
of specific milestones
4. M&A:
a) Acquire new businesses
to grow and diversify
b) Integrate and manage
acquired businesses
5. Risk – Manage and embed
risk management and audit
All
Payment of STIP
CEO, CFO, CLO
As approved by Chairman
All except for CENL
Delivery of integration plan including the successful
organisational restructure across the Group and
delivery of the technology roadmap
Risk & Audit plan remediation plans closed in agreed
time period
100%
100%
100%
100%
100%
100%
100%
67%
80%
Any amount that may be paid to the participants under the STIP is subject to the absolute discretion of the Board, after taking into
account performance against KPIs and any other matters determined by the Board to be relevant to its discretion including, without
limitation, the participant’s conduct.
A total of $851,764 of the 2017 STIP will be paid to the CEO and other executive KMP upon finalisation of the Financial Report for the
year ended 31 December 2017. Of this amount, $304,983 will be paid to the CEO.
The table below shows the actual STIP outcome for each executive as a percentage of their maximum STIP opportunity.
Table 3: 2017 STIP outcomes
Name of Executive
Deven Billimoria – Chief Executive Officer
Clarence Yap – Chief Information Officer
Michael Ellies – Chief Executive Salary Packaging
Dave Adler – Chief Executive Novated Leasing & Fleet
Houda Lebbos – Chief Human Resources Officer
Sophie MacIntosh – Chief Legal Officer
Timothy Looi – Chief Financial Officer
2017
94%
95%
100%
100%
95%
94%
94%
c) Long-Term Incentive Plan (LTIP)
In early 2015 the Board established an LTIP for the CEO and executive KMP, which was approved for adoption by shareholders at the
2015 AGM. At the Company’s AGM in May 2017, the shareholders approved the issue of shares to the CEO pursuant to that plan.
24
The LTIP aligns rewards with shareholder value by tying this component of executive remuneration to the achievement of performance
measures that underpin sustainable long-term growth. It is proposed that LTIP grants will be made once a year. Each year the CEO’s grant
of LTIP shares will be put to a shareholder vote at the Company’s AGM. In 2018, in accordance with the ASX Listing Rules, the LTIP will be
put to shareholders for approval again.
The LTIP is a loan-funded share plan. Shares are purchased by the participant and funded by a loan provided by the Company. The
shares are held by the participant until they vest or are forfeited, and are eligible for dividends. All dividends paid or distributions made by
the Company to the participant are applied to repay the loan and to meet the tax liability on those dividends or distributions.
The loan is for a period of five years from issue, is subject to limited recourse and is interest-free, as required by ASIC Class Order
CO14/1000 and consistent with ASIC’s policy published in Regulatory Guide 49. The loan is repayable in full on the earlier of the
termination date of the loan or the date on which the shares are sold. If the vesting/performance conditions are not met and shares do not
vest for any other reason, the shares will be acquired by the Company for the value of the outstanding loan.
The shares are forfeited if the performance hurdles are not met or the participant ceases employment prior to vesting. It is not proposed
that the performance hurdles be re-tested. Where there is a change of control event, the Board may at its discretion determine that some
or all of a participant’s unvested shares may vest.
The Board may consider amending the vesting terms and the performance hurdles, from time to time, to ensure that they are aligned to
market practices and to ensure the best outcomes for the Company. It is envisaged that each year the LTIP grant will have an EPS and
TSR hurdle. Further, the Board has the absolute discretion to replace the LTIP in any one or more years with an equivalent STIP or any
other program.
2017 grant under the LTIP
The number of shares granted is based on a proportion of the relevant executive’s fixed remuneration. For 2017, the LTIP grant to the
CEO was 94% of TFR, and to the executive KMP was between 48% and 58% of TFR, as measured by the fair value of the shares on the
grant allocation date (i.e. when the number of shares to be issued was determined).
Under the 2017 LTIP grant, the executive KMP and the CEO purchased shares at $6.39 and $6.50 respectively, being the market value
on the date of issue. ‘Market value’ for the CEO’s shares was the 20-day VWAP of the shares, up to and including the trading day
immediately prior to the date of the AGM. ‘Market value’ for the executive KMP (other than the CEO) shares was the 20-day VWAP of
the shares, up to and including the trading day immediately prior to the date of issue, where in calculating the VWAP, the VWAP for the
period prior to the declared cum dividend date was reduced by the amount of the declared dividend relating to that cum dividend date.
Under the 2017 LTIP grant, the vesting period is three years ending on 31 December 2019. The vesting of the shares is subject to two
performance hurdles, being an earnings growth hurdle (based on NPATA per share) and a TSR hurdle, explained below.
The two performance hurdles are described below in relation to the 2017 grant, and were explained to shareholders in the 2017 Notice of
AGM, and subsequently approved by shareholders.
Because the shares awarded under the LTIP are economically equivalent to options, the principal value to the CEO and executive KMP
comes through the increase in market value of the shares above market value at the time of issue. This provides further alignment with
shareholder wealth and further links remuneration with Company performance.
Earnings per share (EPS) performance hurdle
The EPS performance hurdle applies to 75% of the total number of LTIP shares that may vest at the end of the vesting period. The
Board’s view is that the 2017 EPS performance hurdle set out below is a challenging target. In addition, the main benefit of the LTIP
shares arises from share price growth which, in effect, acts as a further performance requirement.
The following method was used to determine the EPS hurdle. It is based on achievement of the CAGR of EPS (measured on the
Company’s NPATA per share) from the 2016 audited financial results, adjusted to include the 2016 full year earnings of the acquisitions of
Autopia Group Pty Ltd and Selectus Pty Ltd (acquisitions that occurred in 2016). That is, the actual base year NPATA is increased so the
NPATA growth that must be achieved is higher than if the actual base year NPATA were used.
Table 4: EPS Performance Hurdle
EPS Performance Hurdle
Applies to a maximum of 75% of the total number of shares issued under the 2017 LTIP grant
Measure
Vesting period
EPS CAGR
EPS target
Loan-Funded Shares subject to vesting
EPS CAGR
The period of 3
calendar years ending
31 December 2019*
Below 10.0%
10.0%
$0.56
Nil
50%
Between 10.0% – 15%
Straight line between 50% and 100%
15% or greater
$0.64
100% (capped)
*Or such other date on which the Board decides whether the vesting condition has been met.
25
Total shareholder return (TSR) performance hurdle
The TSR performance hurdle applies to 25% of the total number of LTIP shares that may vest at the end of the relevant vesting period.
TSR measures the growth in the price of the shares plus cash distributions notionally reinvested in shares. Each of the companies in the
S&P/ASX Small Ordinaries Index are ranked from highest to lowest based on their TSR over the performance measurement period (which
is the same as the vesting period). For the purpose of calculating the TSR measurement, the relevant share prices are determined by
reference to the VWAP over the 20 trading days up to and including 1 January 2017 (the performance measurement period start-date for
the 2017 grant) and the 20 trading days up to and including the performance measurement period end-date (as specified in Table 5).
Accordingly, the TSR hurdle is based on the TSR performance (ranking) of the Company as determined over the vesting period compared
to the TSR of companies in the S&P/ASX Small Ordinaries Index (S&P-/-ASX 300 Index excluding S&P-/-ASX 100 Index) as explained in
Table 5.
The Board believes it is appropriate to have a proportion of the shares awarded under the LTIP to be subject to a TSR performance hurdle
to provide a market-based hurdle. In 2017 (as in previous years) it was restricted to 25% of the LTIP shares.
Note: The Small Ordinaries Index contains several companies outside the Company’s industry. The Board’s view was that Small Ordinaries
Index was an appropriate comparator group for the Company in 2017. However, given the growth in the Company’s market capitalisation,
the Board has re-assessed what is the most appropriate comparator group for the Company for the purposes of setting the TSR hurdle in
2018. The comparator group will be the ASX 200. The Board’s view is that there are not enough usefully comparable companies to create
a company-specific comparator group, which would require at least 10, and ideally 20, companies.
Table 5: Relative TSR Performance Hurdle
TSR Performance Hurdle
Applies to a maximum of 25% of the total number of shares issued under the 2017 LTIP grant
Measure
Vesting period
Smartgroup TSR performance compared
to Index
Loan-Funded Shares subject to vesting
Relative TSR
(ranking)
The period of 3
calendar years ending
31 December 2019*
0 to 49th percentile
50th percentile
51st to 74th percentile
75th to 100th percentile
Nil
50%
Straight line between 50% and 100%
100%
*Or such other date on which the Board makes a determination as to whether the vesting condition has been met.
The fair value used for grant allocation purposes included an estimate of the impact of the performance hurdles. For the shares subject to
the EPS performance hurdle, the best estimate of the vesting percentage for the shares subject to the 10% and 15% EPS CAGR hurdles
was assumed to be 100% and 75% respectively. For the shares subject to the TSR hurdle, a discount of approximately 10% was applied.
2015 grant under the LTIP – shares vesting as at 31 December 2017
The 2015 LTIP grant was split into two tranches, the first tranche (Tranche A) having a vesting period ending on 31 December 2016, and
the second tranche (Tranche B) having a vesting period ending on 31 December 2017. The vesting of both tranches of shares is subject
to the achievement of an EPS hurdle and a TSR hurdle.
EPS hurdle: The EPS hurdle applies to a maximum of 75% of this tranche of shares, and is based on achievement of a CAGR of EPS
(measured on the Company’s NPATA per share) from the 2014 audited financial results (adjusted to exclude the once-off expenses arising
from the initial public offer of shares in the Company). As at 31 December 2017, the EPS was 52.0 cents per share and therefore, the EPS
target of 21.1 cents per share was exceeded. Under the terms of the 2015 LTIP grant, that result entitles the relevant executives to receive
100% of that parcel of LTIP shares.
TSR hurdle: The TSR hurdle applies to 25% of the LTIP shares in the first tranche. The Company’s TSR performance was measured to be
in the top percentile (i.e. 100th percentile) of the index. Under the terms of the 2015 LTIP grant, that result entitles the relevant executives
to receive 100% of that parcel of LTIP shares.
The Company engaged Minter Ellison as remuneration consultants to provide external verification of the above calculations.
Accordingly, all five executives participating in the 2015 grant had Tranche B of their 2015 LTIP shares vest in full in accordance with the
column headed ‘Vested in Year’ in Table 13.
Remuneration outcomes in 2017 and link to 2017 financial year performance
In considering the Group’s performance, the benefit to shareholders and appropriate remuneration for the executives, the Board, through
the HRRC, has regard to financial and non-financial indices, including the indices shown in the below table in respect of the current
financial year and the previous two financial years.
26
Table 6 – Indices relevant to the Board’s assessment of the Group’s performance and the benefit to shareholders
Index
NPATA ($m)
EPS (cents)
Dividends declared in respect of the financial year – per share (cents)
Share price – year end ($)
3 year TSR performance compared to index (percentile)
2015
26.2
25.3
16.6
5.11
N/A
2016
44.0
36.2
24.8
6.28
N/A
2017
64.1
52.0
35.0
10.85
100%
As shown above, the Company’s 3 year TSR to 31 December 2017 was the highest of all companies in the Small Ordinaries Index.
The graph below illustrates the relationship between the Group’s performance and STIP awards in respect of the current financial year and
the preceding two financial years. In 2016 NPATA grew by 68% to $44.0m, and in 2017 NPATA grew by 46% to $64.1m, so in both these
years, the executive KMP earned awards in full in respect of this measure.
Relationship between Group performance and STIP outcomes
NPATA ($’000)
STIP paid ($’000)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
NPATA
STIP paid
1000
900
800
700
600
500
400
300
200
100
0
2015
2016
2017
The graph below illustrates the relationship between the Group’s performance and LTIP awards in respect of the current financial year and
the preceding two financial years. As explained in the previous sections describing the terms of the LTIP grants, the LTIP has two hurdles,
of which the most significant is EPS. In the last two years, the EPS achieved exceeded the relevant EPS hurdle and, as a consequence,
the LTIP fully vested for each of the relevant years.
Relationship between Group performance and LTIP outcomes
EPS (NPATA/shares)
$0.55
$0.50
$0.45
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
LTIP vested shares (000’s)
1,400
1,200
EPS
LTIP vested
1,000
800
600
400
200
0
2015
2016
2017
27
2017 remuneration structure
Use of remuneration consultants
As noted above, in late 2017 the Group engaged the remuneration consulting arm of Minter Ellison to undertake a benchmarking exercise,
to assist in setting executive remuneration for 2018. That remuneration will be reported in the 2018 Annual Report.
That engagement was arranged and supervised directly by the Chairman of the HRRC. Advice was discussed directly with the Chairman
and/or the Board.
Details of remuneration
Amounts of remuneration
Details of the remuneration of the KMP of the Group are set out in the following tables in accordance with the requirements of the
Corporation Act 2001 (Cth) and the Accounting Standards.
The KMP of the Group consisted of the Directors of Smartgroup Corporation Ltd and the following persons:
• Timothy Looi – Chief Financial Officer
• Dave Adler – Chief Executive Novated Leasing & Fleet
• Michael Ellies – Chief Executive Salary Packaging
• Houda Lebbos – Chief Human Resources Officer
• Clarence Yap – Chief Information Officer
• Sophie MacIntosh – Chief Legal Officer.
Table 7: 2017 Remuneration
Short-term benefits
Post-employment
benefits
Long-term benefits
Cash salary
and fees
$
Bonus
$
Superannuation
$
Change in
employee benefit
provision
$
Options
$
Total
$
2017
Non-Executive Directors:
Michael Carapiet
John Prendiville
Gavin Bell
Ian Watt
Andrew Bolam
Deborah Homewood
Executive KMP
Deven Billimoria
Timothy Looi
Dave Adler
Michael Ellies
Houda Lebbos
Clarence Yap
Sophie MacIntosh
230,000
135,000
132,500
132,500
122,500
120,000
-
-
-
-
-
-
21,850
12,825
12,588
12,588
11,638
11,400
518,837
304,983
22,391
302,669
291,806
289,444
286,617
293,490
305,366
91,495
94,245
94,245
88,065
85,671
93,060
22,391
22,391
26,238
22,391
18,525
19,757
-
-
-
-
-
-
-
-
-
-
-
-
5,305
(2,329)
438,382
146,552
10,765
125,279
13,333
125,279
(5,131)
20,648
2,398
123,564
49,725
49,952
251,850
147,825
145,088
145,088
134,138
131,400
1,289,898
560,778
544,486
548,539
515,506
468,059
470,533
Total
3,160,729
851,764
236,973
44,989
1,058,733
5,353,188
28
Table 8: 2016 Remuneration
2016
Non-Executive Directors:
Michael Carapiet
John Prendiville
Gavin Bell
Andrew Bolam
Ian Watt
Deborah Homewood*
Executive KMP
Deven Billimoria
Timothy Looi
Dave Adler
Michael Ellies
Houda Lebbos
Total
Short-term benefits
Post-employment
benefits
Long-term benefits
Cash salary
and fees
$
Bonus
$
Superannuation
$
Change in
employee benefit
provision
$
Options
$
Total
$
226,667
130,000
128,333
118,333
121,667
77,419
515,387
299,801
288,939
278,939
283,792
-
-
-
-
-
-
275,783
77,868
75,396
75,396
77,775
21,533
12,350
12,192
11,242
11,558
7,355
22,727
22,727
25,000
32,579
25,000
2,469,277
582,218
204,263
-
-
-
-
-
-
-
-
-
-
-
-
248,200
142,350
140,525
129,575
133,225
84,774
(13,839)
342,642
1,142,700
23,427
15,337
13,024
18,925
56,874
98,665
88,114
88,114
86,938
522,488
492,786
488,052
492,430
704,473
4,017,105
* Represents remuneration from 9 May 2016 (the date of appointment) to 31 December 2016.
The proportion of remuneration linked to performance is as follows:
Table 9: Proportion of Remuneration
Name
2017
2016
2017
2016
2017
2016
Fixed
remuneration
At risk – STIP
At risk – LTIP
Non-Executive Directors:
Michael Carapiet
John Prendiville
Gavin Bell
Ian Watt
Andrew Bolam
Deborah Homewood
Executive KMP:
Deven Billimoria
Timothy Looi
Dave Adler
Michael Ellies
Houda Lebbos
Clarence Yap
Sophie MacIntosh
100%
100%
100%
100%
100%
100%
42%
58%
60%
60%
59%
71%
69%
100%
100%
100%
100%
100%
100%
46%
66%
67%
67%
67%
-
-
-
-
-
-
-
-
24%
16%
17%
17%
17%
18%
20%
-
-
-
-
-
-
24%
15%
15%
15%
15%
-
-
-
-
-
-
-
-
34%
26%
23%
23%
24%
11%
11%
-
-
-
-
-
-
30%
19%
18%
18%
18%
-
-
29
Service agreements
Non-executive Directors
Non-executive Directors do not have fixed-term contracts with the Company. On appointment to the Board, all non-executive Directors
enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board policies and
terms, including compensation.
Remuneration and other terms of employment for the Executive Director are formalised in service agreements. Details of these
agreements are as follows:
Name:
Title:
Deven Billimoria
Managing Director & Chief Executive Officer
Agreement commenced:
1 June 2014
Term of agreement:
Open ended
Details:
Deven Billimoria is entitled to:
• Receive fixed annual remuneration of $540,750 inclusive of superannuation contributions, and
• Participate in the STIP with target participation under the STIP capped at a maximum of 60% of his fixed
annual remuneration. Payments under the STIP in any given year depend on the achievement of a range
of financial and non-financial KPIs as approved by the Board on an annual basis.
The employment contract may be terminated by either party giving 12 months’ written notice or in the case
of the Group by payment in lieu of notice. The Group may terminate the employment contract immediately
and without payment in lieu of notice in the event of serious misconduct or other specified circumstances.
There is no entitlement to termination payments in the event of termination. Non-compete provisions upon
termination of employment exist for a period of 12 months from the date of termination of employment,
as determined by the Board (in its sole discretion), depending on the circumstances of termination. The
enforceability of the restraint clause is subject to all usual legal requirements.
Other executive key management personnel
Other executive KMP have employment agreements setting out the terms and conditions of their employment. The agreements are not of
a fixed duration. These agreements provide for:
• Total compensation inclusive of a base salary and superannuation contribution;
• Eligibility to participate in the STIP, with target participation in the STIP capped at a maximum of 30% of total fixed annual remuneration;
• Termination by either party giving three months’ written notice, or in the case of the Group, payment in lieu of notice;
• Immediate termination by the Group without payment in lieu of notice in the event of serious misconduct or other specific
circumstances;
• No entitlement to termination payments in the event of termination; and
• Non-compete provisions upon termination of employment for a maximum of six months from the date of termination of employment,
as determined by the Board (in its sole discretion), depending on the circumstances of termination. The enforceability of the restraint
clause is subject to all usual legal requirements.
Share-based compensation
Bonus shares and cash offers
Details of shares issued to Directors and other KMP as part of compensation during the year ended 31 December 2017 are set out below:
Table 10: Bonus Shares and Cash Offers
2017
Nil
2016
Nil
30
LTIP or Loan Funded Share (LFS) Plan
As described above, the Board established an LTIP for the executive KMP and other senior management. The securities issued under
the LTIP are not options. However, the terms of the LTIP are such that the benefits to participants are similar to the benefits that would
be received had the participant been granted options – that is, the participant benefits from the increase in the market price over
the purchase price of the share. Accordingly, the Company provides a summary below of the terms of the LTIP for the purposes of
compliance with the Corporations Act in relation to the disclosure of details of options granted during 2017.
The terms and conditions of each LTIP grant affecting compensation in the current or a future reporting period are disclosed in Table 4 and
Table 5.
Table 11: Terms and Conditions of the shares granted under the LTIP in 2017
Issue date
of LFS
Vesting
period
Exercise
date
Expiry
date
Number
of shares
granted
Price
of shares
granted
Value of
option at
grant date*
17 Mar 2017
5 May 2017
3 calendar
years to 31
December
2019
3 calendar
years to 31
December
2019
1 Jan 2020 16 Mar 2022
1,208,501
$6.39
$1.65
1 Jan 2020
4 May 2022
338,628
$6.50
$1.67
* Reflects the fair value at the issue date as part of remuneration granted as valued by Minter Ellison.
% Vested at
31 December
2017
n/a
n/a
Performance
achieved
To be
determined
To be
determined
As noted above, the LFS issued under the LTIP are not options. However, for the purposes of compliance with the Corporations Act 2001,
the Company provides a summary below of the LFS issued under the LTIP in 2015 that have a vesting period ending on 31 December
2017.
Table 12: LTIP shares with a vesting period ending on 31 December 2017
Exercise
date
Expiry
date
Number
of shares
vesting (first
tranche)
Price
of shares
granted
Value of
option at
grant date
Performance
achieved
% Vested at
31 December
2017 †
1 Jan 2018 17 Mar 2020
602,262
$1.60
$0.31
yes
100%
1 Jan 2018
26 Apr 2020
516,224
$1.65
$0.40
yes
100%
Issue date
of LFS
18 Mar 2015
27 Apr 2015
Vesting
period (first
tranche)
3 calendar
years to 31
December
2017
3 calendar
years to 31
December
2017
† As determined by the Board on 21 February 2018.
31
Table 13: Shares granted under the LTIP in 2017 and the vesting profile of long term incentives granted as remuneration
Name and
grant dates
Deven Billimoria
Timothy Looi
Dave Adler
Michael Ellies
Houda Lebbos
Clarence Yap
Sophie MacIntosh
Balance at the
start of the year
(unvested)
Granted as
compensation
Vested
in year
Forfeited
in year
Balance at end of the year
Balance at
the end of
the year
(unvested)
LTIP vested
and not
exercised at
end of year
Total LTIP
(vested and
unvested)
869,876
283,325
257,471
257,471
253,861
-
-
338,628
124,792
105,374
105,374
103,646
105,996
106,480
(516,224)
(154,867)
(149,951)
(149,951)
(147,493)
-
-
-
-
-
-
-
-
-
-
692,280
253,250
212,894
212,894
210,014
105,996
106,480
516,224
154,867
149,951
149,951
147,493
-
-
1,208,504
408,117
362,845
362,845
357,507
105,996
106,480
1,793,808
1,118,486
2,912,294
Total executive KMP
1,922,004
990,290
(1,118,486)
Senior management
-
556,839
-
(313,507)
243,332
-
243,332
Total
1,922,004
1,547,129
(1,118,486)
(313,507)
2,037,140
1,118,486
3,155,626
There were no options over ordinary shares issued to Directors and other KMP as part of compensation as at 31 December 2017.
Additional disclosures relating to Key Management Personnel
In accordance with Class Order 14/632 issued by the Australian Securities and Investment Commission, relating to ‘Key management
personnel equity instrument disclosures’, the following disclosures relate only to the equity instruments in the Company and its
subsidiaries.
Equity instrument details relating to KMP
The number of shares in the Company held during the financial year by each Director and other KMP, including their personally related
parties, is set out below:
Table 14: Director and executive KMP shareholding
Balance at
start of the
year
2,022,816
852,902
74,850
159,284
52,142
-
Ordinary shares
Michael Carapiet
John Prendiville
Gavin Bell
Andrew Bolam
Ian Watt
Deborah Homewood
Deven Billimoria
2,002,142
Timothy Looi
Dave Adler
Michael Ellies
Houda Lebbos
Clarence Yap
Sophie MacIntosh
384,306
29,998
259,895
164,361
-
-
LTIP
exercised
Purchases /
(disposals)
Balance at end
of the year
LTIP vested and
not exercised at
end of year
Balance at end
of year including
vested LTIP
-
-
-
-
-
-
516,225
154,868
149,951
149,951
147,493
-
-
25,000
2,047,816
-
-
40,716
10,000
4,444
852,902
74,850
200,000
62,142
4,444
-
2,518,367
(188,421)
(79,949)
(102,142)
(164,361)
-
140
350,753
100,000
307,704
147,493
-
140
-
-
-
-
-
-
516,224
154,867
149,951
149,951
147,493
-
-
2,047,816
852,902
74,850
200,000
62,142
4,444
3,034,591
505,620
249,951
457,655
294,986
-
140
Total
6,002,696
1,118,488
(454,573)
6,666,611
1,118,486
7,785,097
This excludes shares from the LTIP that are not yet vested as at 31 December 2017.
This concludes the remuneration report, which has been audited.
32
Shares under option
As at 31 December 2017, there were 2,037,140 unvested shares issues to employees under the LTIP program. The LTIP shares are
legally held by the employees, however they cannot deal in the shares until the vesting conditions are satisfied and the loan is fully
repaid. These have been treated as options in accordance with AASB 2 ‘Share-based Payment’ issued by Australian Accounting
Standards Board.
Shares issued on the exercise of options
There were no ordinary shares of Smartgroup Corporation Ltd issued on the exercise of options during the year ended 31 December
2017 and up to the date of this report.
Indemnity and insurance of officers
The Company has indemnified the Directors and executives of the Company for costs incurred, in their capacity as a Director or executive,
for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Group paid a
premium in respect of a contract to insure the Directors and executives of the Company against a liability to the extent permitted by the
Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
Indemnity and insurance of auditor
The Company has not, during or since the end of the year, indemnified or agreed to indemnify the auditor of the Company or any related
entity against a liability incurred by the auditor. During the year, the Company has not paid a premium in respect of a contract to insure the
auditor of the Company or any related entity.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the
Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the
Company for all or part of those proceedings.
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in
note 40 to the financial statements.
The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on
the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.
The Directors are of the opinion that the services as disclosed in note 40 to the financial statements do not compromise the external
auditor’s independence requirements of the Corporations Act 2001 for the following reasons:
• All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor;
and
• None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the
auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or
jointly sharing economic risks and rewards.
Officers of the Company who are former partners of PricewaterhouseCoopers
There are no officers of the Company who are former partners of PricewaterhouseCoopers.
Rounding of amounts
The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’
report. Amounts in the Directors’ Report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in
certain cases, the nearest dollar.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on the
following page.
Auditor
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the Directors
Michael Carapiet, Chairman
21 February 2018, Sydney
33
Auditor’s Independence Declaration
As lead auditor for the audit of Smartgroup Corporation Ltd for the year ended 31 December 2017, I
Auditor’s Independence Declaration
declare that to the best of my knowledge and belief, there have been:
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
(a)
As lead auditor for the audit of Smartgroup Corporation Ltd for the year ended 31 December 2017, I
relation to the audit; and
declare that to the best of my knowledge and belief, there have been:
(b)
(a)
no contraventions of any applicable code of professional conduct in relation to the audit.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
This declaration is in respect of Smartgroup Corporation Ltd and the entities it controlled during the
period.
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Smartgroup Corporation Ltd and the entities it controlled during the
period.
Sam Hinchliffe
Partner
PricewaterhouseCoopers
Sam Hinchliffe
Partner
PricewaterhouseCoopers
Sydney
21 February 2018
Sydney
21 February 2018
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
PricewaterhouseCoopers, ABN 52 780 433 757
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
34
Liability limited by a scheme approved under Professional Standards Legislation.
Auditor’s Independence Declaration
As lead auditor for the audit of Smartgroup Corporation Ltd for the year ended 31 December 2017, I
declare that to the best of my knowledge and belief, there have been:
Auditor’s Independence Declaration
(a)
As lead auditor for the audit of Smartgroup Corporation Ltd for the year ended 31 December 2017, I
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
declare that to the best of my knowledge and belief, there have been:
relation to the audit; and
(b)
(a)
no contraventions of any applicable code of professional conduct in relation to the audit.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
This declaration is in respect of Smartgroup Corporation Ltd and the entities it controlled during the
period.
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Smartgroup Corporation Ltd and the entities it controlled during the
period.
PricewaterhouseCoopers
Sam Hinchliffe
Partner
Sam Hinchliffe
Partner
PricewaterhouseCoopers
Sydney
21 February 2018
Sydney
21 February 2018
This page has intentionally been left blank
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
PricewaterhouseCoopers, ABN 52 780 433 757
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
35
Reconciliation of Statutory Results
to Adjusted Results
$ mil
Revenue
Operating EBITDA
Joint venture contribution
EBITDA
Depreciation
Amortisation
Net finance costs
PBT
Income tax expense
NPAT
Add back:
Amortisation (tax effected)
Cash tax benefit
NPATA
Shares (#millions)
NPATA per share ($)
Statutory
Financials
CY 2017
Reclassify:
equity share
of
investments
Add back:
Acquisition
costs
Add back:
net fair
value
loss (1)
Add back:
GST
adjustment
Reclass
corporate
interest
revenue
Adjusted:
CY 2017
205.4
86.7
0.3
87.0
(1.6)
(17.7)
(5.6)
62.1
(20.8)
41.3
12.4
3.1
56.8
-
-
0.4
0.4
-
(0.3)
-
0.1
(0.1)
-
0.2
-
0.2
-
1.6
-
1.6
-
-
-
1.6
(0.3)
1.3
-
-
1.3
-
4.9
-
4.9
-
-
-
4.9
-
4.9
-
-
4.9
0.8
1.2
-
1.2
-
-
-
1.2
(0.3)
0.9
-
-
0.9
(0.8)
205.4
(0.8)
-
(0.8)
-
-
0.8
-
-
-
-
-
-
93.6
0.7
94.3
(1.6)
(18.0)
(4.8)
69.9
(21.5)
48.4
12.6
3.1
64.1
123.2
0.52
1 Includes $6.1m fair value loss from Selectus deferred consideration and a $1.2m fair value gain on the Smartequity deferred consideration.
36
Financial
Report
2017
Consolidated Statement of Profit or Loss and
other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Smartgroup Corporation Ltd
Directors’ Declaration
31 December 2017
ABN 48 126 266 831
Independent Auditor’s Report to the Members of
Smartgroup Corporation Ltd
Shareholder Information
Corporate Directory
38
39
40
41
42
85
86
94
97
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 31 December 2017
Consolidated
Revenue
Share of after tax profits of joint ventures accounted for using the equity method
Expenses
Product costs
Employee benefits expense
Administration and corporate expenses
Occupancy expenses
Advertising and marketing expenses
Depreciation expense
Amortisation of acquired intangible assets
Other expenses
Operating profit
Fair value (loss)/gain on revaluation of financial liabilities
Mergers and acquisitions transaction costs
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Net change in the fair value of cash flow hedges taken to equity, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit/(loss) for the year is attributable to:
Non-controlling interest
Owners of Smartgroup Corporation Ltd
Total comprehensive income for the year is attributable to:
Non-controlling interest
Owners of Smartgroup Corporation Ltd
Basic earnings per share
Diluted earnings per share
Restated *
2017
$’000
2016
$’000
Note
7
205,443
147,960
348
513
(4,826)
(75,024)
(24,187)
(4,107)
(3,027)
(1,589)
(3,599)
(56,323)
(17,721)
(3,152)
(2,667)
(1,412)
(17,741)
(12,512)
(1,114)
74,176
(4,906)
(1,624)
(5,571)
62,075
(20,766)
41,309
(302)
50,785
1,569
(2,074)
(4,106)
46,174
(13,386)
32,788
(65)
(65)
264
264
41,244
33,052
(4)
41,313
-
32,788
41,309
32,788
(4)
41,248
-
33,052
41,244
33,052
34.5
34.2
29.8
29.4
8
8
19
8
9
16
16
* Refer to note 6 for detailed information on Restatement of comparatives.
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
38
Consolidated Statement
of Financial Position
As at 31 December 2017
Assets
Current assets
Cash and cash equivalents
Restricted cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-current assets
Investments accounted for using the equity method
Derivative financial instruments
Deferred tax assets
Property and equipment
Intangible assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Customer salary packaging liability
Income tax payable
Provisions
Deferred consideration
Other current liabilities
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Provisions
Borrowings
Contingent consideration
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Equity attributable to the owners of Smartgroup Corporation Ltd
Non-controlling interest
Total equity
Consolidated
2017
$’000
2016
$’000
Note
10
39
18
20
24
21
9
35
5
36
39
9
37
19
22
9
38
11
19
12
13
30,876
67,644
21,959
4,770
79,990
39,493
15,885
7,025
125,249
142,393
6,348
226
1,879
3,155
326,736
516
338,860
464,109
30,883
67,644
6,827
8,296
-
2,758
116,408
-
1,995
140,853
-
142,848
259,256
6,751
307
-
3,150
285,523
508
296,239
438,632
26,427
39,493
8,848
5,550
9,541
1,336
91,195
175
1,636
150,118
1,244
153,173
244,368
204,853
194,264
176,883
4,570
23,370
204,823
30
170,940
2,631
20,693
194,264
-
204,853
194,264
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
39
Consolidated Statement
of Changes in Equity
For the year ended 31 December 2017
Consolidated
Issued
capital
$’000
Reserves
$’000
Retained
profits
$’000
Non-controlling
interest
$’000
Balance at 1 January 2016
62,013
11,664
8,828
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
-
-
-
-
264
264
32,788
-
32,788
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs (note 12)
108,927
(10,360)
Share-based payments (note 13)
Dividends paid (note 15)
-
-
1,063
-
(20,923)
-
-
Balance at 31 December 2016
170,940
2,631
20,693
-
-
-
-
-
-
-
-
Consolidated
Issued
capital
$’000
Reserves
$’000
Retained
profits
$’000
Non-controlling
interest
$’000
Balance at 1 January 2017
170,940
2,631
20,693
Profit/(loss) after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
-
-
-
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs (note 12)
5,943
Share-based payments (note 13)
Non-controlling interests arising on acquisition
Dividends paid (note 15)
-
-
-
-
(65)
(65)
-
2,004
41,313
-
41,313
-
-
-
-
(34)
(38,602)
Balance at 31 December 2017
176,883
4,570
23,370
-
(4)
-
(4)
-
-
34
-
30
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
40
Total
equity
$’000
82,505
32,788
264
33,052
98,567
1,063
(20,923)
194,264
Total
equity
$’000
194,264
41,309
(65)
41,244
5,943
2,004
-
(38,602)
204,853
Consolidated Statement
of Cash flows
For the year ended 31 December 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Transaction costs relating to business acquisitions
Interest received from operations
Interest paid
Income taxes paid
Net cash from operating activities excluding salary packaging receipts and payments
Receipts in restricted cash
Payments of customer salary packaging liability
Net cash from operating activities
Cash flows from investing activities
Payment for business acquisitions (net of cash acquired)
Contingent consideration on acquisition paid
Payments for joint venture capital invested
Payments for purchase of property and equipment
Proceeds from sale of property and equipment
Interest received from investments
Dividends received from joint venture
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from issuance of shares
Share issue transaction costs
Proceeds from long term incentive plan
Proceeds from borrowings (net of borrowing costs)
Repayments of borrowings
Dividends paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Restricted cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the beginning of the financial year
Restricted cash and cash equivalents at the end of the financial year
Cash and cash equivalents at the end of the financial year
Total
Consolidated
Note
2017
$’000
212,244
(117,811)
(3,276)
1,855
(4,734)
(27,845)
60,433
1,230,627
2016
$’000
154,446
(94,208)
(2,888)
1,639
(3,251)
(13,202)
42,536
950,862
(1,222,072)
(948,644)
68,988
44,754
(35,691)
(9,541)
-
(423)
-
909
751
(87,631)
-
(175)
(674)
11
784
-
(43,995)
(87,685)
-
-
2,646
22,000
(32,000)
(38,602)
(45,956)
(20,963)
39,493
79,990
67,644
30,876
98,520
66,915
(1,088)
359
100,495
(3,500)
(20,923)
142,258
99,327
749
19,407
39,493
79,990
119,483
41
33
23
24
15
39
10
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Notes to the Consolidated
Financial Statements
31 December 2017
Note 1. General information
The financial statements cover Smartgroup Corporation Ltd (referred to as the ‘Company’ or ‘parent entity’) and its subsidiaries
(collectively referred to as the ‘Group’). The financial statements are presented in Australian dollars, which is Smartgroup Corporation Ltd’s
functional and presentation currency.
Smartgroup Corporation Ltd is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Level 8, 133 Castlereagh Street
Sydney, Australia, 2000
A description of the nature of the Group’s operations and its principal activities is included in the Directors’ Report, which is not part of the
financial statements.
The financial statements were authorised for issue, in accordance with a resolution of Directors, on 21 February 2018. The Directors have
the power to amend and reissue the financial statements.
Note 2. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out in note 41 and in the respective notes.
These policies have been consistently applied to all the years presented, unless otherwise stated.
New or amended Accounting Standards and Interpretations adopted
The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting
Standards Board (AASB) that are mandatory for the current reporting period. The adoption of these Accounting Standards and
Interpretations did not have any significant impact on the financial performance or position of the Group.
Except for early adoption of AASB 15 ‘Revenue from Contracts with Customers’, any new or amended Accounting Standards or
Interpretations that are not yet mandatory have not been early adopted.
The following Accounting Standards and Interpretations are early adopted by the Group:
AASB 15 Revenue from contracts with customers
The AASB has issued a new standard for the recognition of revenue. AASB 15 outlines a single comprehensive model of accounting for
revenue arising from Contracts with Customers that supersedes the revenue recognition requirements that are included in AASB 118. The
new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard
is effective from annual reporting periods beginning on or after 1 January 2018 and permits either a full retrospective or a modified
retrospective approach for the adoption.
The Group has early adopted AASB 15 using the full retrospective approach with a date of initial application of 1 January 2016.
Basis of preparation
These general purpose consolidated financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the AASB and the Corporations Act 2001, as appropriate for for-profit oriented entities. These consolidated
financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial
assets and liabilities (including derivative instruments) at fair value through profit or loss.
42
Note 2. Significant accounting policies (continued)
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary
information about the parent entity is disclosed in note 26.
Rounding of amounts
The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments
Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to
the nearest thousand dollars, or in certain cases, the nearest dollar.
Note 3. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the
reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets,
liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical
experience and on other factors that management believes to be reasonable under the circumstances, including expectations of future
events. The resulting accounting judgements and estimates will seldom equal the eventual actual results. The judgements, estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
Goodwill and other indefinite life intangible assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired, in accordance with the
accounting policy stated in note 5 and note 41. The recoverable amounts of cash-generating units have been determined based on value-
in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of
capital and growth rates of the estimated future cash flows.
Operations provision
The Group exercises judgement in measuring and recognising provisions relating to the operations, including potential customer and
supplier disputes. Judgement is necessary in assessing the likelihood that a claim will arise, and to quantify the possible range of financial
settlement. Because of the inherent uncertainty in this evaluation process, actual losses may be different from the originally estimated
provision.
Note 4. Operating segments
Identification of reportable operating segments
The Group has identified its segments based on the internal reports that are reviewed and used by the Managing Director and Chief
Executive Officer and the Chief Financial Officer (who are identified as the Chief Operating Decision Makers (CODM) in assessing
performance and in determining the allocation of resources. There is no aggregation of operating segments.
The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal
reporting to the CODM are consistent with those adopted in the financial statements.
The information reported to the CODM is on at least a monthly basis.
Types of products and services
The principal products and services of each of these operating segments are as follows:
Outsourced administration (OA)
This part of the business provides outsourced salary packaging services, novated
leasing, share plan administration and outsourced payroll services.
Vehicle services (VS)
This part of the business provides end-to-end fleet management services.
Software, distribution and group services (SDGS)
This part of the business provides salary packaging software solutions, the
marketing of salary packaging debit cards, distribution of vehicle insurances and
workforce management software to the healthcare industry.
43
Note 4. Operating segments (continued)
Intersegment transactions
Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation.
Intersegment receivables, payables and loans
Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or
incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation.
Operating segment information
Consolidated – 2017
Revenue
Management and administrative fees
Products, services and commissions
Trailing commissions and rebates
Other revenue
Intersegment sales
Total revenue
Segment results (EBITDA)
Depreciation
Amortisation
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
OA
$’000
51,061
119,456
10,105
-
-
180,622
67,176
VS
$’000
3,907
-
726
-
2,435
7,068
3,684
SDGS
$’000
333
17,639
1,419
-
14,357
33,748
Intersegment
eliminations/
unallocated
-
-
-
797
(16,792)
(15,995)
21,934
(5,818)
185,779
12,761
19,856
245,713
101,640
5,154
7,700
144,762
Total
$’000
55,301
137,095
12,250
797
-
205,443
86,976
(1,589)
(17,741)
(5,571)
62,075
(20,766)
41,309
464,109
464,109
259,256
259,256
44
Note 4. Operating segments (continued)
Consolidated – 2016
Revenue (Restated)
Management and administrative fees
Products, services and commissions
Trailing commissions and rebates
Other revenue
Intersegment sales
Total revenue
Segment results (EBITDA)
Depreciation
Amortisation
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Assets
Segment assets
Total assets
Liabilities
Segment liabilities
Total liabilities
OA
$’000
41,848
79,209
6,793
-
-
127,850
49,473
VS
$’000
3,773
-
545
-
2,489
6,807
3,291
Intersegment
eliminations/
unallocated
$’000
-
-
-
897
(14,443)
(13,546)
SDGS
$’000
384
13,156
1,355
-
11,954
26,849
18,157
(6,717)
145,492
10,245
15,711
267,184
67,947
4,558
6,353
165,510
Total
$’000
46,005
92,365
8,693
897
-
147,960
64,204
(1,412)
(12,512)
(4,106)
46,174
(13,386)
32,788
438,632
438,632
244,368
244,368
Accounting policy for operating segments
Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the
internal reports provided to the CODM. The CODM is responsible for the allocation of resources to operating segments and assessing
their performance.
Note 5. Non-current assets – intangible assets
Consolidated
Goodwill – at cost
Customer contracts and relationships – at cost
Less: Accumulated amortisation
Software and website – at cost
Less: Accumulated amortisation
Brand names and logos – at cost
2017
$’000
260,646
60,829
(32,380)
28,449
73,761
(37,424)
36,337
1,304
326,736
2016
$’000
217,453
51,729
(25,045)
26,684
67,100
(27,018)
40,082
1,304
285,523
45
Note 5. Non-current assets – intangible assets (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Consolidated
Balance at 1 January 2016
Goodwill
$’000
90,867
Additions through business combinations (note 23)
126,586
Amortisation expense
Balance at 31 December 2016
-
217,453
Additions through business combinations (note 23)
43,193
Amortisation expense
-
Customer
contracts and
relationship
$’000
Software and
website
$’000
Brand names
and logos
$’000
Total
$’000
17,299
14,700
(5,315)
26,684
9,100
(7,335)
13,935
33,344
(7,197)
40,082
6,661
(10,406)
1,300
123,401
4
-
174,634
(12,512)
1,304
285,523
-
-
58,954
(17,741)
Balance at 31 December 2017
260,646
28,449
36,337
1,304
326,736
Impairment testing
The Group monitors its business through cash-generating units (CGU) being Outsourced administration, Vehicle services, Software
distribution and group services (SDGS), Advantage Salary Packaging (Advantage), Autopia Group Pty Ltd (Autopia), Selectus Pty Ltd
(Selectus), AccessPay Pty Ltd (AccessPay), ABM Corporation Pty Limited (Aspire) and Salary Solutions Australia Pty Ltd (Salary Solutions).
Goodwill acquired through business combinations have been allocated to the following CGUs:
Consolidated
Goodwill
CGU1: Outsourced administration
CGU2: Vehicle services
CGU3: SDGS
CGU4: Advantage
CGU5: Autopia
CGU6: Selectus
CGU7: AccessPay
CGU8: Aspire
CGU9: Salary Solutions
Total goodwill
2017
$’000
42,377
3,911
7,650
38,659
22,523
102,333
9,063
4,989
29,141
260,646
Brand names and logos have been allocated to the following CGUs:
Consolidated
Brand names and logos
CGU1: Outsourced administration
CGU2: Vehicle services
CGU6: Selectus
46
2017
$’000
1,285
15
4
1,304
2016
$’000
42,377
3,911
7,650
38,659
22,523
102,333
-
-
-
217,453
2016
$’000
1,285
15
4
1,304
Note 5. Non-current assets – intangible assets (continued)
The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The
calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows
beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates do not exceed the long-
term average growth rates for the country in which each CGU operates.
The following key assumptions were used in the discounted cash flow model for different CGUs:
Projected growth rate of 2.8% (2016: 2.8%) for all CGUs.
Discount rate:
CGU1: Outsourced administration
CGU2: Vehicle services
CGU3: SDGS
CGU4: Advantage
CGU5: Autopia
CGU6: Selectus
CGU7: AccessPay
CGU8: Aspire
CGU9: Salary Solutions
2017
$’000
17.9%
19.1%
18.4%
14.4%
18.9%
17.1%
16.7%
20.6%
17.1%
2016
$’000
14.4%
15.8%
14.9%
11.9%
12.9%
14.0%
-
-
-
In performing the value-in-use calculations for each CGU, the Group has applied post-tax discount rates to discount the estimated future
post-tax cash flows. The equivalent pre-tax discount rates are disclosed above. The recoverable amount of net assets of each CGU is
greater than the carrying value of the assets and, therefore, the intangible assets are not considered to be impaired.
Sensitivity analysis
For CGU’s 1, 3, 4, 5, 6, 7, 8 and 9: any reasonable possible change in the key assumptions on which the recoverable amount is based
would not cause the CGU’s carrying amount to exceed its recoverable amount. This assessment is on the assumption that there will be no
significant changes to legislation for the salary packaging concession. Should the relevant legislation change, depending on the impact of
the changes, there may be a different impairment testing conclusion.
For CGU2: Any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the
CGU’s carrying amount to exceed its recoverable amount.
Accounting policy for intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of
the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and
are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation
and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as
the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life
intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively
by changing the amortisation method or period. Internally generated intangible assets, excluding capitalised development costs, are
not capitalised and expenditure is recognised in the statement of profit or loss and other comprehensive income in the year in which the
expenditure is incurred.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more
frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment
losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.
Customer contracts and relationships
Customer contracts and relationships acquired in a business combination are amortised on a straight-line basis over the period of their
expected benefit, being their finite life of 5 to 6 years.
Software and website
Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that
the project will be a success considering its commercial and technical feasibility; the Group is able to use or sell the asset; and when
the Group has sufficient resources and intent to complete the internal development and their costs can be measured reliably. The
software costs are amortised on a straight-line basis over the period of their expected benefit, being their finite useful lives of between
2 and 5 years.
47
Note 5. Non-current assets – intangible assets (continued)
Brand names and logos
Brand names and logos acquired in a business combination are recognised separately to goodwill and included in other intangible assets.
They have been assessed as having an indefinite useful life on the basis that the asset is allocated to businesses that are expected to
continue into perpetuity.
Note 6. Restatement of comparatives
Change in basis of revenue recognition
The Group has changed its interpretation of the current accounting policy for certain salary packaging products to recognise revenue on
a gross rather than net basis. In respect of these products, the Group acts in the capacity of a principal rather than agent and the Group
is considered to have primary responsibility for contract fulfilment, which amongst others, are indicators that the Group meets the control
criteria under AASB 15 ‘Revenue from Contracts with Customers’.
In accordance with AASB 108 ‘Accounting Policies, Changes in Accounting Estimates, and Errors’, the change in interpretation of
accounting policy has been applied retrospectively and the quantitative impact for each financial statement line item is detailed below. The
change in the basis of revenue recognition has no impact on the consolidated statement of financial position.
The adjustment to periods before those presented below would be similarly to recognise revenue and expenses on a gross basis.
Statement of profit or loss and other comprehensive income
Consolidated
2016
$’000
$’000
2016
$’000
Reported
Adjustment
Restated
144,361
3,599
147,960
-
(3,599)
46,174
(13,386)
32,788
264
33,052
-
-
-
-
-
(3,599)
46,174
(13,386)
32,788
264
33,052
Cents
Cents
Cents
Reported
Adjustment
Restated
29.8
29.4
-
-
29.8
29.4
Extract
Revenue
Expenses
Product costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Basic earnings per share
Diluted earnings per share
48
Note 7. Revenue
Sales revenue
Management and administrative fees
Products, services and commissions
Trailing commissions and rebates
Other revenue
Other income
Revenue
Consolidated
2017
$’000
55,301
137,095
12,250
204,646
797
205,443
Restated
2016
$’000
46,005
92,365
8,693
147,063
897
147,960
Impact of change in accounting policy
As a result of the change in interpretation of the current accounting policy referred to in note 6, the revenue for the year ended 31
December 2017 increased by $4,826,000 (2016: $3,599,000) with a corresponding increase in product cost disclosed in the consolidated
statement of profit or loss and other comprehensive income.
Accounting policy for revenue recognition
The Group recognises revenue when it transfers control over a product or a service to a customer. Revenue is measured based on the
consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Amounts disclosed as
revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
Nature of goods and services
The following is a description of the principal activities, separated by reportable segments, from which the Group generates its revenue.
For more detailed information about reportable segments, see note 4.
Management and administration fees
The Group generates revenue from arranging and administering outsourced salary packaging and fleet management services on behalf of
employers. Administration fees for salary packaging are paid by the employers through amounts deducted from their employees’ pre-tax
salary. Revenue is recognised over the period of administration and includes interest earned from cash held on behalf of customers.
Fleet management fees are paid by employers in respect of fleet management services and revenue is recognised over the period of
administration.
Share plan administration revenue is recognised over the period of administration. Revenue on customer contributions is recognised when
contributions occur.
Revenue from the license of in-house salary packaging software is recognised monthly based on a monthly fee per user.
Products, services and commissions
The Group earns upfront commissions and rebates from suppliers relating to financing and sourcing of vehicles, sale of certain insurance
products and fees for the sale of certain auxiliary products. Revenue is recognised upon delivery of the service and product to the
customer.
Trailing commissions and rebates
The Group generates revenue from arranging and providing salary packaging products and services. The Group earns ongoing trailing
commissions and rebates from various suppliers relating to maintenance of a vehicle finance book, the arrangement of certain insurance
products, and fees for the arrangement or provision of ancillary vehicle consumables. The Group also acts as a distributor of salary
packaging debit cards for a major financial institution. Revenue is recognised in the period the services are rendered.
Other income
Interest income on corporate accounts is recognised as interest accrues using the effective interest method. This is a method of
calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest
rate, which is the rate that discounts estimated future cash receipts through the expected life of the financial asset to the net carrying
amount of the financial asset.
49
Note 7. Revenue (continued)
Contract balances
Contract assets primarily relate to the Group’s rights to consideration for products and services provided and not billed at the
reporting date.
Contract liabilities primarily relate to consideration received in advance from customer contracts for which revenue is recognised on
satisfaction of outstanding performance obligations.
Receivable and contract asset balances at the reporting date are disclosed in note 18 as trade receivables and accrued revenue,
respectively, and contract liability balances are disclosed in note 22 as income received in advance.
Significant changes in contract assets and liabilities during the period resulted from satisfaction of performance obligations. All opening
contract liability balance pertaining to income received in advance was recognised as revenue during the period.
Transaction price allocated to the remaining performance obligations
The Group applies the practical expedients available in AASB 15 and does not disclose information about its remaining performance
obligations, amount of the transaction price allocated to the remaining performance obligations and an explanation of when the Group
expects to recognise that amount as revenue for the year ended 31 December 2017.
Note 8. Expenses
Consolidated
2017
$’000
740
141
490
211
7
1,589
7,335
10,406
17,741
19,330
5,571
3,783
5,611
1,173
2016
$’000
789
176
304
135
8
1,412
5,315
7,197
12,512
13,924
4,106
2,908
4,151
704
Profit before income tax includes the following specific expenses:
Depreciation
Leasehold improvements
Furniture, fixtures and fittings
Computer equipment
Office equipment
Other assets
Total depreciation
Amortisation
Customer contracts and relationships
Software and website
Total amortisation
Total depreciation and amortisation
Finance costs
Interest and finance charges paid/payable
Rental expense relating to operating leases
Minimum lease payments
Superannuation expense
Defined contribution superannuation expense
Share-based payments expense
Share-based payments expense
50
Note 9. Income tax
Income tax expense
Current tax
Deferred tax – origination and reversal of temporary differences
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Share-based payments
Share of profits – joint venture
Non-deductible expenses
Fair value loss/(gain) on revaluation of financial liability
Sundry items
Prior year temporary differences not recognised now recognised
Prior year tax claims not recognised now recouped
Consolidated
2017
$’000
24,939
(4,173)
20,766
2016
$’000
15,777
(2,391)
13,386
4,173
2,391
62,075
18,623
352
(104)
422
1,472
(65)
20,700
240
(174)
46,174
13,852
211
(154)
550
(471)
23
14,011
(244)
(381)
Income tax expense
20,766
13,386
Amounts charged/(credited) directly to equity
Deferred tax assets
Consolidated
2017
$’000
(54)
2016
$’000
175
51
Note 9. Income tax (continued)
Deferred tax asset/(liability)
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Impairment of receivables
Property and equipment
Employee benefits
Accruals and other provisions
Revenue received in advance
Acquisition and transaction costs
Intangible assets
Prepayments
Accrued revenue
Derivative financial instruments
Sundry items
Total temporary differences
Amounts recognised in equity:
Share issue transaction costs
Derivative financial instruments
Total recognised in equity
Deferred tax asset/(liability)
Movements:
Opening balance
Credited to profit or loss
Credited/(charged) to equity
Additions through business combinations (note 23)
Closing balance
Consolidated
2017
$’000
2016
$’000
107
87
2,135
4,329
828
2,062
(7,392)
(10)
(151)
68
(130)
1,933
-
(54)
(54)
1,879
(175)
4,173
54
(2,173)
1,879
Consolidated
2017
$’000
82
71
1,645
2,911
391
2,472
(7,460)
(14)
(160)
(205)
(83)
(350)
62
113
175
(175)
1,135
2,391
(175)
(3,526)
(175)
2016
$’000
Income tax payable
Income tax payable
Accounting policy for income tax
6,827
8,848
The income tax expense for the year is the tax payable on the current period’s taxable income based on the applicable income tax rate for
each jurisdiction adjusted for changes in deferred tax assets and liabilities to temporary differences, unused tax losses and the adjustment
recognised for prior periods, when applicable. Current tax liabilities are measured at the amount expected to be recovered from or paid to
taxation authorities at the tax rates and tax laws enacted or substantively enacted at the reporting date.
52
Note 9. Income tax (continued)
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are
recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:
• when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is
not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or
• when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the
reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets is reviewed at each reporting date. Deferred tax assets
recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be
recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits
available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax
liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable
entity or different taxable entities which intend to settle simultaneously.
Current and deferred tax for the year
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Tax consolidation group
Smartgroup Corporation Ltd (the ‘head entity’) and its wholly owned Australian subsidiaries have formed an income tax consolidated
group under the tax consolidation regime, from 6 June 2012. The head entity and each subsidiary in the tax consolidated group continue
to account for their own current and deferred tax amounts. The tax consolidated group has applied the ‘separate taxpayer within group’
approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the
deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from
or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals
the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the
subsidiaries nor a distribution by the subsidiaries to the head entity.
Note 10. Current assets – cash and cash equivalents
Cash at bank
Term deposits
Consolidated
2017
$’000
30,283
593
30,876
2016
$’000
22,528
57,462
79,990
Accounting policy for cash and cash equivalents
Cash and cash equivalents includes cash on hand, term deposits held at call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to
an insignificant risk of changes in value.
53
Note 11. Non-current liabilities – borrowings
Bank loan
Borrowing costs prepaid
Refer to note 17 for further information on financial instruments.
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Bank loan
The following bank facilities are available to the Group:
• A three year facility of $142,000,000;
• A three year working capital facility of $3,000,000;
• A three year letter of credit facility of $3,000,000; and
• Ancillary facilities: credit card and electronic pay away facility of $12,500,000.
Consolidated
2017
$’000
142,000
(1,147)
140,853
2016
$’000
152,000
(1,882)
150,118
Consolidated
2017
$’000
2016
$’000
142,000
152,000
The banking facilities are guaranteed and secured by the Company and certain of the Company’s subsidiaries. The facilities are subject to a
variable interest rate, which is based on the BBSY plus a margin. The banking facilities mature on 29 July 2019.
The Group is subject to certain financing covenants and meeting these is given priority in all capital risk management decisions. These
covenants include leverage and interest cover ratios with reference to recurring earnings before interest, tax, depreciation and amortisation,
and with distribution restrictions on dividends. There have been no events of default on the financing arrangement during the year.
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Consolidated
Total facilities
Bank loan
Letter of credit facility
Used at the reporting date
Bank loan
Letter of credit facility
Unused at the reporting date
Bank loan
Letter of credit facility
54
2017
$’000
145,000
3,000
148,000
142,000
2,741
144,741
3,000
259
3,259
2016
$’000
155,000
3,000
158,000
152,000
1,901
153,901
3,000
1,099
4,099
Note 11. Non-current liabilities – borrowings (continued)
Accounting policy for borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are
subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities are
recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be
drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the years of the facility to which it relates.
Accounting for finance costs
Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in
which they are incurred, including interest on short-term and long-term borrowings.
Note 12. Equity – issued capital
Ordinary shares – fully paid
123,213,010
121,487,051
Less: Shares associated with the loan funded share plan (LFSP)
(3,155,626)
(3,040,492)
2017
Shares
2016
Shares
2017
$’000
189,224
(12,341)
2016
$’000
178,242
(7,302)
Consolidated
120,057,384
118,446,559
176,883
170,940
Movements in ordinary share capital
Details
Balance
Issuance of shares – LFSP
Issuance of shares
Share issue transaction costs, net of tax
Date
1 January 2016
18 March 2016
9 May 2016
18 March 2016
29 July 2016
2 August 2016
8 September 2016
19 September 2016
Shares
103,698,124
449,866
353,652
2,808,989
7,650,000
4,573,169
1,909,236
44,015
-
$’000
65,644
1,988
1,683
10,360
53,550
32,424
13,365
250
(1,022)
Balance
31 December 2016
121,487,051
178,242
Issuance of shares – LFSP
17 March 2017
5 May 2017
Buyback of shares – LFSP
6 December 2017
Issuance of shares
2 May 2017
23 August 2017
1,208,501
338,628
(313,507)
46,225
446,112
7,722
2,201
(3,069)
300
3,828
Balance
31 December 2017
123,213,010
189,224
55
Note 12. Equity – issued capital (continued)
Movements in loan funded share plan
Details
Balance
Shares issued for LFSP
Balance
Exercising of LFSP
Shares issued for LFSP
Shares of LFSP
Buyback of shares - LFSP
Balance
Ordinary shares
Date
1 January 2016
18 March 2016
9 May 2016
31 December 2016
15 February 2017
17 March 2017
5 May 2017
6 December 2017
31 December 2017
Shares
(2,236,974)
(449,866)
(353,652)
(3,040,492)
1,118,488
(1,208,501)
(338,628)
313,507
(3,155,626)
$’000
(3,631)
(1,988)
(1,683)
(7,302)
1,815
(7,722)
(2,201)
3,069
(12,341)
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the
number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a
limited amount of authorised capital.
On a show of hands, every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have
one vote.
Loan funded share plan (LFSP)
Shares are granted to the management team under the LFSP at the market price. The shares purchased as part of a LSFP are eligible for
dividends and are held by the participant until they vest or are forfeited. Should the Company pay dividends or make capital distributions
in the future, any dividends paid or distributions made to the participant will be applied to repay the loan and to meet the tax liability on
those dividends or distributions.
The vesting of the shares is subject to two performance hurdles, being an earnings growth hurdle based on NPATA (Net Profit After
Tax, adjusted to exclude the non-cash tax effect amortisation of intangibles and significant non-operating items) per share and a total
shareholder return hurdle.
The shares issued under the LFSP have been treated as contingently issuable as they have not been exercised at balance date. As
such, the shares issued under the LFSP are excluded from basic earnings per share and included in the calculation of diluted earnings
per share.
LFSP shares forfeited
For the year ended 31 December 2017, the Group paid $3,069,000 to buy back shares issued under the LFSP, because the vesting
conditions on those shares had not been met and the shares were forfeited. 313,507 shares were bought back and cancelled, resulting in
a reduction of ordinary shares on issue.
Share buy-back
There is no current on-market share buy-back of the Company’s shares.
Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for
shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. The Group’s
debt and capital includes ordinary share capital and financial liabilities, supported by financial assets.
Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total
borrowings excluding borrowing costs prepaid less cash and cash equivalents, and excludes restricted cash and cash equivalents.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a
business or company was seen as value adding relative to the current Company’s share price at the time of the investment.
The capital risk management policy remains unchanged from the 31 December 2016 Annual Report.
Accounting policy for issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from
the proceeds.
56
Note 13. Equity – reserves
Hedging reserve – cash flow hedges
Share-based payments reserve
Consolidated
2017
$’000
199
4,371
4,570
2016
$’000
264
2,367
2,631
Hedging reserve – cash flow hedges
The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an
effective hedge.
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to executive KMP and other senior management as part of their
remuneration.
Deferred share capital reserve
The reserve is used to recognise equity benefits provided to the vendors on acquisition of a business. This includes the fair value of shares
which are expected to be issued in the future.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 1 January 2016
Movement in hedges
Deferred tax
Share-based payments
Shares issued to vendors
Balance at 31 December 2016
Movement in hedges
Deferred tax
Share-based payments
LFSP exercised
LFSP forfeited
Balance at 31 December 2017
Cash flow
hedge
$’000
Share-based
payments
$’000
Deferred
share capital
$’000
-
397
(133)
-
-
264
(93)
28
-
-
-
199
1,304
10,360
-
-
1,063
-
2,367
-
-
3,904
(1,815)
(85)
4,371
-
-
-
(10,360)
-
-
-
-
-
-
-
Total
$’000
11,664
397
(133)
1,063
(10,360)
2,631
(93)
28
3,904
(1,815)
(85)
4,570
57
Note 14. Share-based payments
Loan Funded Share Plan (LFSP)
The LFSP is a long term incentive plan for the senior management team. Refer to note 12 for terms of LFSP. The LFSP shares are legally
held by the employees, however they cannot trade in the shares until the vesting conditions are satisfied and the loan is fully repaid. These
have been treated as options in accordance with AASB 2 ‘Share-based Payment’.
Set out below are summaries of loan funded shares granted under the Company’s LFSP:
2017
Grant date
Vesting date
25 Feb 2015
31 Dec 2016
25 Feb 2015
31 Dec 2017
27 Apr 2015
31 Dec 2016
27 Apr 2015
31 Dec 2017
18 Mar 2016
31 Dec 2018
09 May 2016
31 Dec 2018
17 Mar 2017
31 Dec 2019
05 May 2017
31 Dec 2019
Exercise
price
Balance
at the start
of the year
Granted
Exercised
Expired/
forfeited/
other
Balance
at the end
of the year
$1.60
$1.60
$1.65
$1.65
$4.42
$4.76
$6.39
$6.50
602,263
602,262
516,225
516,224
449,866
353,652
-
-
-
-
-
-
-
-
1,208,501
338,628
(602,263)
-
(516,225)
-
-
-
-
-
-
-
-
-
-
-
(313,507)
-
-
602,262
-
516,224
449,866
353,652
894,994
338,628
3,040,492
1,547,129
(1,118,488)
(313,507)
3,155,626
Weighted average exercise price
$2.40
$6.41
$1.62
$6.39
$4.25
2016
Grant date
Vesting date
25 Feb 2015
31 Dec 2016
25 Feb 2015
31 Dec 2017
27 Apr 2015
31 Dec 2016
27 Apr 2015
31 Dec 2017
18 Mar 2016
31 Dec 2018
09 May 2016
31 Dec 2018
Exercise
price
Balance
at the start
of the year
$1.60
$1.60
$1.65
$1.65
$4.42
$4.76
602,263
602,262
516,225
516,224
-
-
2,236,974
Granted
Exercised
Expired/
forfeited/
other
Balance
at the end
of the year
-
-
-
-
449,866
353,652
803,518
-
-
-
-
-
-
-
-
-
-
-
-
-
-
602,263
602,262
516,225
516,224
449,866
353,652
3,040,492
Weighted average exercise price
$1.62
$4.56
$0.00
$0.00
$2.40
The weighted average share price during the financial year was $7.87 (2016: $5.66).
The loan funded shares have an expiry date of 5 years from the date of issue and their weighted average remaining contractual life
outstanding at the end of the financial year was 3.3 years (2016: 3.5 years).
For the loan funded shares granted during the current financial year, the valuation model inputs used to determine the fair value at the
grant date, are as follows:
Grant date
Vesting date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
yield
Risk-free
interest rate
Fair value
at grant date
17 Mar 2017
31 Dec 2019
5 May 2017
31 Dec 2019
$6.62
$6.69
$6.39
$6.50
36.83%
37.09%
3.79%
3.67%
2.33%
2.18%
$1.65
$1.67
58
Note 15. Equity – dividends
Dividends
Dividends paid during the financial year were as follows:
Final dividend for the year ended 31 December 2016 of 15.0 cents (2016: 8.7 cents)
per ordinary share
Interim dividend for the year ended 31 December 2017 of 16.5 cents (2016: 9.8 cents)
per ordinary share
Consolidated
2017
$’000
18,223
20,379
38,602
2016
$’000
9,022
11,901
20,923
On 21 February 2018, the Directors declared a fully franked dividend of 18.5 cents per ordinary share. The final dividend will be paid on
30 March 2018 to shareholders registered on 15 March 2018 with an expected total distribution of $22,794,000. The financial effect
of dividends declared after the reporting date is not reflected in the 31 December 2017 financial statements and will be recognised in
subsequent financial reports.
Franking credits
Franking credits available at the reporting date based on a tax rate of 30%
Franking credits that will arise from the payment of the amount of the provision for
income tax at the reporting date based on a tax rate of 30%
Franking credits available for subsequent financial years based on a tax rate of 30%
Consolidated
2017
$’000
41,920
6,827
48,747
2016
$’000
31,311
8,848
40,159
Of the existing franking account balance $24,130,000 (2016: $24,130,000) is an exempt credit account and is not available to frank
dividends to new Australian shareholders.
Accounting policy for dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
59
Note 16. Earnings per share
Profit after income tax
Non-controlling interest
Profit after income tax attributable to the owners of Smartgroup Corporation Ltd
Consolidated
2017
$’000
41,309
4
41,313
2016
$’000
32,788
-
32,788
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
119,613,751
110,026,709
Adjustments for calculation of diluted earnings per share:
Options over ordinary shares
1,194,317
1,604,137
Weighted average number of ordinary shares used in calculating diluted earnings per share
120,808,068
111,630,846
Basic earnings per share
Diluted earnings per share
Accounting policy for earnings per share
Basic earnings per share
Cents
34.5
34.2
Cents
29.8
29.4
Basic earnings per share is calculated by dividing the profit attributable to the owners of Smartgroup Corporation Ltd, excluding any costs
of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding, excluding shares issued
under the LFSP, during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income
tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of
shares, including shares issued under the LFSP, assumed to have been issued for no consideration in relation to dilutive potential ordinary
shares.
Note 17. Financial instruments
Financial risk management objectives
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk),
credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks
to minimise potential adverse effects on the financial performance of the Group. The Group may use derivative financial instruments such
as interest rate swap contracts to hedge certain risk exposures. Derivatives are exclusively used for risk management purposes, i.e. not as
trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These
methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and
rolling cash flow forecasts for analysis of liquidity risk.
Risk management is carried out centrally by the management team under oversight from the Board. These policies include identification
and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. The management team identifies,
evaluates and may hedge financial risks within the Group’s operating units.
Market risk
Foreign currency risk
The Group is not exposed to any significant foreign currency risk.
Price risk
The Group is not exposed to any significant price risk.
60
Note 17. Financial instruments (continued)
Interest rate risk
The Group’s main interest rate risk arises from long-term borrowings, cash and cash equivalents, and restricted cash and cash
equivalents, which are subject to variable interest rates. The exposure to interest rate risk on long-term borrowings is managed through
the use of interest rate swaps.
As at the reporting date, the Group had the following variable rate borrowings, cash and cash equivalents, restricted cash and cash
equivalents and interest rate swap contracts outstanding:
2017
2016
Weighted average
interest rate
%
3.31%
1.54%
1.65%
1.84%
Weighted average
interest rate
%
3.84%
2.19%
2.05%
2.12%
Balance
$’000
142,000
(30,876)
(67,644)
(66,750)
(23,270)
Balance
$’000
152,000
(79,990)
(39,493)
(77,750)
(45,233)
Consolidated
Bank loans
Cash and cash equivalents
Restricted cash and cash equivalents
Interest rate swaps (notional principal amount)
Net exposure to cash flow interest rate risk
Sensitivity
An increase/decrease in interest rates of 100 (2016: 100) basis points would have a favourable/adverse effect on profit before tax and
equity of $233,000 (2016: $452,000) per annum. The percentage change is based on the expected volatility of interest rates using market
data and analysts’ forecasts.
Derivatives interest rate swap
The Group has entered into interest rate swap contracts with notional/principal value as at 31 December 2017 of $66,750,000 (2016:
$77,750,000). The interest rate contracts hedge the Group’s risk against an increase in variable interest rate. Weighted average fixed rate
is 1.84% (2016: 2.12%).
Sensitivity – derivative valuation
An increase/decrease in interest rates of 100 (2016:100) basis points would have a favourable/adverse effect on derivative financial
instruments value and total equity by $1,005,000 (2016: $1,739,000).
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group
has procedures in place to monitor credit risk, which include obtaining references and setting appropriate credit limits. The Group obtains
guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial
assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and
notes to the financial statements. The Group does not hold any collateral.
At 31 December 2017, the Group had 5 customers (2016: 6 customers) with trade receivables balances greater than $300,000 each and
accounted for approximately 43% (2016: 44%) of total trade receivables. This balance was within its terms of trade and no impairment
was made as at 31 December 2017. There are no guarantees against these receivables but management closely monitors the receivables
balance on a monthly basis and is in regular contact with these customers to mitigate risk.
Liquidity risk
Prudent liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available
borrowing facilities to be able to pay debts as and when they become due and payable.
The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring
actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
61
Note 17. Financial instruments (continued)
Financing arrangements
Unused borrowing facilities at the reporting date:
Bank loan
Letter of credit facility
Consolidated
2017
$’000
3,000
259
3,259
2016
$’000
3,000
1,099
4,099
Remaining contractual maturities
The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up
based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be
paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals
may differ from their carrying amount in the statement of financial position.
Consolidated – 2017
Non-derivatives
Non-interest bearing
Trade payables
Customer salary packaging liability
Interest-bearing – variable
Bank loans
Total non-derivatives
Consolidated – 2016
Non-derivatives
Non-interest bearing
Trade payables
Customer salary packaging liability
Deferred consideration
Contingent consideration on business combinations
Interest-bearing – variable
Bank loans
Total non-derivatives
1 year or less
$’000
>1 to 2 years
$’000
>2 to 5 years
$’000
5,617
67,644
-
-
14,700
87,961
133,996
133,996
-
-
-
-
1 year or less
$’000
>1 to 2 years
$’000
>2 to 5 years
$’000
Over
5 years
$’000
Remaining
contractual
maturities
$’000
-
-
-
-
Over
5 years
$’000
5,617
67,644
148,696
221,957
Remaining
contractual
maturities
$’000
4,711
39,493
9,541
-
10,835
64,580
-
-
-
1,244
5,646
6,890
-
-
-
-
149,478
149,478
-
-
-
-
-
-
4,711
39,493
9,541
1,244
165,959
220,948
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
62
Note 18. Current assets – trade and other receivables
Consolidated
Trade receivables
Less: Provision for impairment of receivables
Accrued revenue
Other receivables
Impairment of receivables
The ageing of the impaired receivables provided for above are as follows:
0 to 3 months overdue
Between 3 and 6 months overdue
Over 6 months overdue
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provisions recognised
Additions through business combinations
Unused amounts reversed
Closing balance
Past due but not impaired
2017
$’000
10,845
(358)
10,487
7,353
4,119
21,959
Consolidated
2017
$’000
200
45
113
358
Consolidated
2017
$’000
272
341
8
(263)
358
2016
$’000
6,533
(272)
6,261
7,023
2,601
15,885
2016
$’000
197
45
30
272
2016
$’000
63
458
2
(251)
272
Customers with balances past due but without provision for impairment of receivables amount to $2,110,000 as at 31 December 2017
($1,595,000 as at 31 December 2016).
The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent
collection practices.
The ageing of the past due but not impaired receivables are as follows:
0 to 3 months overdue
Between 3 and 6 months overdue
Over 6 months overdue
Consolidated
2017
$’000
2,061
49
-
2,110
2016
$’000
1,169
423
3
1,595
63
Note 18. Current assets – trade and other receivables (continued)
Accounting policy for trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method,
less any provision for impairment. Trade receivables are generally due for settlement within 14 days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing
the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days
overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference
between the asset’s carrying amount and the present value of management’s estimate of future cash flows, discounted at the original
effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
Note 19. Fair value measurement
Fair value hierarchy
The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the
lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: Unobservable inputs for the asset or liability.
Consolidated – 2017
Assets
Interest rate swap contracts – cash flow hedges
Total assets
Consolidated – 2016
Assets
Interest rate swap contracts – cash flow hedges
Total assets
Liabilities
Deferred consideration
Contingent consideration
Total liabilities
Level 1
$’000
-
-
Level 1
$’000
-
-
-
-
-
Level 2
$’000
226
226
Level 2
$’000
307
307
-
-
-
Level 3
$’000
-
-
Level 3
$’000
-
-
9,541
1,244
10,785
Total
$’000
226
226
Total
$’000
307
307
9,541
1,244
10,785
There were no transfers between levels during the financial year.
The carrying amounts of trade and other receivables and trade and other payables approximate their fair values due to their short-term
nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest
rate that is available for similar financial liabilities.
Valuation techniques for fair value measurements categorised within level 2 and level 3
Derivatives – interest rate swap contracts
Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable
market data where it is available and relies as little as possible on entity specific estimates.
Fair value (loss)/gain on revaluation of financial liabilities
For the year ended 31 December 2017, a net fair value loss of $4,906,000 is recognised in the profit and loss which is attributable to the
following:
(a) Deferred consideration – Selectus
For the 12 month period to 30 June 2017, Selectus achieved an Adjusted EBITDA of $14,737,000 and satisfied other operational
performance metrics which, together with the increase in the Company share price from $6.28 at 31 December 2016 to $8.58 at
settlement on 23 August 2017, increased the final consideration payable to $15,691,000. As a result, a fair value loss of $6,150,000 is
recognised in the profit and loss for the year ended 31 December 2017.
64
Note 19. Fair value measurement (continued)
The total deferred share entitlement of the Selectus vendors is 2,131,442 shares. On 23 August 2017, 79.07% of the total share
entitlement (1,685,331 shares) was settled in cash at $6.56 ($11,100,000) and the remaining 20.93% (446,111) was settled via the
issuance of Company shares at $8.58 per share ($3,800,000). In addition, cash in lieu of dividends foregone of $800,000 was paid to the
vendors of Selectus.
(b) Contingent consideration – Smartequity
In the event profit before tax (PBT) for Smartequity exceeds $864,000 for the year ended 31 December 2018, additional consideration
may be payable. The fair value of contingent consideration of $1,244,000 at the acquisition date was determined by calculating
a probability adjusted PBT for 31 December 2018 of between $1,100,000 and $1,300,000 and discounted to present value at
acquisition date.
Based on actual performance to date and forecast for the year ending 31 December 2018, Smartequity is not expected to exceed PBT of
$864,000 and on that basis the fair value of the liability is nil at 31 December 2017. As a result, fair value gain of $1,244,000 is recognised
in the profit and loss for the year ended 31 December 2017.
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the previous financial year are set out below:
Consolidated
Balance at 1 January 2016
Contingent consideration recognised on business combinations
Fair value loss on revaluation of financial liabilities
Balance at 31 December 2016
Fair value loss on revaluation of financial liabilities
Fair value loss on revaluation of financial liabilities – Smartequity contingent consideration
Deferred consideration settled – Selectus
Balance at 31 December 2017
Accounting policy for fair value measurement
Contingent
consideration
$’000
-
(12,354)
1,569
(10,785)
(6,150)
1,244
15,691
-
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based
on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date and assumes that the transaction will take place either in the principal market or, in the absence of a principal
market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset, or liability, assuming they act in
their economic best interests. Valuation techniques that are appropriate in the circumstances, and for which sufficient data is available to
measure fair value, are used maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined
based on a reassessment of the lowest level of input that is significant to the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used either when internal expertise is not available or
when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a
significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of
the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.
65
Note 20. Current assets – other current assets
Prepayments
Other current assets
Note 21. Derivative financial instruments
Non-current assets
Interest rate swap contracts – cash flow hedges
Refer to note 19 for further information on fair value measurement.
Accounting policy for derivative financial instruments
Consolidated
2017
$’000
3,553
1,217
4,770
Consolidated
2017
$’000
226
2016
$’000
5,672
1,353
7,025
2016
$’000
307
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as
a hedging instrument, and if so, the nature of the item being hedged.
Cash flow hedges
Cash flow hedges are used to cover the Group’s exposure to variability in cash flows that is attributable to particular risks associated
with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the
hedging instrument is recognised in other comprehensive income through the cash flow hedges reserve in equity, whilst the ineffective
portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the
hedged transaction when the forecast transaction occurs.
Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly
effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the amounts
recognised in equity are transferred to profit or loss.
If the hedging instrument is sold, terminated, expires, is exercised without replacement or rollover, or if the hedge becomes ineffective and
is no longer a designated hedge, the amounts previously recognised in equity remain in equity until the forecast transaction occurs.
Note 22. Current liabilities – other current liabilities
Consolidated
2017
$’000
2,758
2016
$’000
1,336
Income received in advance
Note 23. Business combinations
Current period acquisition
AccessPay Group (AccessPay)
On 2 May 2017, the Group acquired 100% of the ordinary shares of AccessPay Pty Ltd, Fleet Solutions Pty Ltd and 50% of the ordinary
shares of AccessPay Payroll Solutions Pty Ltd for the total consideration of $15,000,000. AccessPay, based in Adelaide, provides salary
packaging services principally to public benevolent institutions across Australia. The goodwill of $9,063,000 represents the synergies
expected to be obtained by the Group from this acquisition. The acquired business contributed revenues of $7,242,000 and profit after
tax of $1,527,000 to the Group for the period from 2 May 2017 to 31 December 2017. If the acquisition occurred on 1 January 2017, the
full year contributions would have been revenues of $9,993,000 and profit after tax of $1,951,000, subject to adjustments arising as a
result of purchase price allocation.
66
Note 23. Business combinations (continued)
ABM Corporation Pty Limited (Aspire)
On 23 August 2017, the Group acquired 100% of the ordinary shares of ABM Corporation Pty Limited for the total consideration of
$7,200,000. Aspire, based in Sydney, provides specialist novated leasing services. The goodwill of $4,989,000 represents the synergies
expected to be obtained by the Group from this acquisition. The acquired business contributed revenues of $923,000 and profit after tax
of $55,000 to the Group for the period from 23 August 2017 to 31 December 2017. If the acquisition occurred on 1 January 2017, the full
year contributions would have been revenues of $2,888,000 and profit after tax of $533,000, subject to adjustments arising as a result of
purchase price allocation.
RACV Salary Solutions (Salary Solutions)
On 20 October 2017, the Group acquired certain assets of RACV Salary Solutions for the total consideration of $34,468,000. Salary
Solutions, based in Adelaide, is a national provider of salary packaging and novated leasing services. The goodwill of $29,141,000
represents the synergies expected to be obtained by the Group from this acquisition. The acquired business contributed revenues of
$2,872,000 and profit after tax of $557,000 to the Group for the period from 20 October 2017 to 31 December 2017. If the acquisition
occurred on 1 January 2017, the full year contributions would have been revenues of $16,100,000 and profit after tax of $1,611,000
subject to adjustments arising as a result of purchase price allocation.
The values identified for the above acquisitions are provisional as at 31 December 2017.
Details of the acquisition are as follows:
Cash and cash equivalents
Restricted cash and cash equivalents
Trade receivables
Other current assets
Plant and equipment
Other intangible assets
Deferred tax liability
Trade and other payables
Customer salary packaging liability
Provision for income tax
Employee benefits
Other provisions
Net assets acquired
Goodwill
AccessPay
Fair value
$’000
12
-
121
156
757
7,261
(757)
(694)
-
(221)
(639)
(59)
5,937
9,063
Acquisition-date fair value of the total consideration transferred
15,000
Representing:
Cash paid or payable to vendor
Smartgroup Corporation Ltd shares issued to vendor
Acquisition costs expensed to profit or loss
Cash used to acquire business, net of cash acquired:
Cash paid to vendor
Less: cash and cash equivalents
Less: restricted cash and cash equivalents
14,700
300
15,000
172
14,700
(12)
-
Aspire
Fair value
$’000
1,069
-
30
44
13
1,500
(150)
(67)
-
(35)
(154)
(39)
2,211
4,989
7,200
7,200
-
7,200
304
7,200
(1,069)
Salary
Solutions
Fair value
$’000
Total
Fair value
$’000
-
19,596
-
867
407
7,000
(1,266)
(900)
1,081
19,596
151
1,067
1,177
15,761
(2,173)
(1,661)
(19,596)
(19,596)
-
(758)
(23)
5,327
29,141
34,468
34,468
-
34,468
798
34,468
-
(256)
(1,551)
(121)
13,475
43,193
56,668
56,368
300
56,668
1,274
56,368
(1,081)
(19,596)
Net cash used
14,688
6,131
14,872
35,691
67
-
(19,596)
Note 23. Business combinations (continued)
Comparative year acquisition
In the previous year, the Group acquired 100% interest in Autopia Group Pty Ltd (Autopia), Selectus Pty Ltd (Selectus) and selected assets
of Trinity Management Group (TMG) for the total consideration of $176,182,000.
The comparative year business combinations were finalised in the current financial year. Finalisation of provisional accounting did not
impact the comparative year statement of financial position, statement of profit or loss and other comprehensive income or opening
retained profits.
Details of the comparative year acquisitions are as follows:
Autopia
Fair value
$’000
Selectus
Fair value
$’000
TMG
Fair value
$’000
Total
Fair value
$’000
-
-
270
-
-
1,500
-
-
-
(523)
(25)
-
1,222
1,730
2,952
1,708
-
1,244
2,952
31
1,708
-
-
6,997
36,526
3,637
1,757
584
48,048
(4,428)
(36,526)
(1,414)
(3,526)
(843)
(1,216)
49,596
126,586
176,182
131,154
32,674
12,354
176,182
2,896
131,154
(6,997)
(36,526)
89,266
(74)
(28,605)
60,587
1,708
87,631
Cash and cash equivalents
Restricted cash and cash equivalents
Trade receivables
Other current assets
Plant and equipment
Other intangible assets
Trade and other payables
Customer salary packaging liability
Provision for income tax
Deferred tax liability
Employee benefits
Other provisions
Net assets acquired
Goodwill
6,923
7,921
668
-
139
13,897
(1,124)
(7,921)
(875)
(903)
(818)
-
17,907
22,523
74
28,605
2,699
1,757
445
32,651
(3,304)
(28,605)
(539)
(2,100)
-
(1,216)
30,467
102,333
Acquisition-date fair value of the total consideration transferred
40,430
132,800
Representing:
Cash paid or payable to vendor
Smartgroup Corporation Ltd shares issued to vendor
Contingent consideration
40,180
250
-
89,266
32,424
11,110
40,430
132,800
Acquisition costs expensed to profit or loss
572
2,293
Cash used to acquire business, net of cash acquired:
Cash paid to vendor
Less: cash and cash equivalents
Less: restricted cash and cash equivalents
Net cash used
40,180
(6,923)
(7,921)
25,336
68
Note 24. Non-current assets – investments accounted for using the equity method
Investment in joint venture – Health-e Workforce Solutions Pty Ltd
Consolidated
2017
$’000
6,348
2016
$’000
6,751
Interests in joint ventures
Interests in joint ventures are accounted for using the equity method of accounting. Information relating to joint ventures that are material
to the Group are set out below:
Name
Principal place of business/
Country of incorporation
Health-e Workforce Solutions Pty Ltd
Australia
Ownership interest
2017
%
50%
2016
%
50%
Summarised financial information
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
Net assets
Summarised statement of profit or loss and other comprehensive income
Revenue
Amortisation expense
Other expenses
Profit before income tax
Income tax expense
Profit after income tax
Other comprehensive income
Total comprehensive income
Reconciliation of the Group’s carrying amount
Opening carrying amount
Share of dividends paid
Investments during the year
Share of profit after income tax
Closing carrying amount
2017
$’000
2,031
1,783
3,814
423
423
3,391
3,626
(572)
(2,059)
995
(299)
696
-
696
6,751
(751)
-
348
6,348
Health-e Workforce
Solutions Pty Ltd
2016
$’000
2,438
2,363
4,801
548
548
4,253
3,756
(557)
(1,732)
1,467
(440)
1,027
-
1,027
6,029
-
209
513
6,751
69
Note 24. Non-current assets – investments accounted for using the equity method (continued)
Contingent liabilities
Share of contingent liabilities relating to joint venture as at 31 December 2017: $nil (2016: $nil).
Commitments
Share of commitments relating to joint venture as at 31 December 2017: $nil (2016: $nil).
Accounting policy for joint venture
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the
arrangement. Investments in joint ventures are accounted for using the equity method. Under the equity method, the share of the after tax
profits or losses of the joint venture is recognised in the statement of profit or loss and the share of the movements in equity is recognised
in other comprehensive income. Investments in joint ventures are carried in the statement of financial position at cost plus post-acquisition
changes in the Group’s share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount
of the investment and is neither amortised nor individually tested for impairment. Income earned from joint venture entities increase the
carrying amount of the investment.
Note 25. Related party transactions
Parent entity
Smartgroup Corporation Ltd is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 27.
Joint ventures
Interests in joint ventures are set out in note 24.
Key management personnel
Disclosures relating to key management personnel are set out in note 28 and the Remuneration Report included in the Directors’ Report.
Transactions with related parties
There were no transactions with related parties during the current and previous financial year.
Receivable from and payable to related parties
There were no trade receivables from or trade payables to related parties at the current and previous reporting date.
Loans to/from related parties
There were no loans to or from related parties at the current and previous reporting date.
Note 26. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Parent
2017
$’000
35,763
35,763
2016
$’000
18,713
18,713
Profit after income tax
Total comprehensive income
70
Note 26. Parent entity information (continued)
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Hedging reserve – cash flow hedges
Share-based payments reserve
Retained profits
Total equity
Parent
2017
$’000
335,947
426,483
85,911
226,771
176,883
199
4,243
18,390
199,715
2016
$’000
363,273
452,462
107,849
257,662
170,940
264
2,367
21,229
194,800
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity and certain of its subsidiaries are party to a deed of cross guarantee under which each company guarantees the debts
of the others. No deficiencies of assets exist in any of these subsidiaries. Refer to note 32 for further details.
The parent entity has also provided guarantees in respect of banking facilities provided to the Group.
Contingent liabilities
The parent entity has given bank guarantees as at 31 December 2017 of $1,255,000 (2016: $316,000).
Capital commitments – Property and equipment
The parent entity had no capital commitments for property and equipment as at 31 December 2017 and 31 December 2016.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2 and note 41, except for the
following:
• Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
• Dividends received from subsidiaries are recognised as other income by the parent entity.
71
Note 27. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy described throughout the financial statements:
Ownership interest
Name
Advantage Leasing Holdings Pty Ltd*
Australian Vehicle Consultants Pty Ltd
Autopia Group Pty Limited
Autopia Management Pty Limited
National Tax Manager Pty Ltd*
PBI Benefit Solutions Pty Limited
Salary Packaging Solutions Pty Ltd
Selectus Employee Benefits Pty Ltd
Selectus Financial Services Pty Ltd
Selectus Pty Ltd
Smartsalary Software Solutions Pty Ltd
Smartequity EIS Pty Ltd
Smartequity Pty Ltd
Smartfleet Management Pty Ltd
Smartgroup Benefits Pty Ltd
Smartsalary Pty Limited
Radiant Capital Pty Ltd
ABM Corporation Pty Limited
AccessPay Pty Ltd
Fleet Solutions Pty Ltd**
Salary Solutions Australia Pty Ltd
Smartsalary Payroll Solutions Pty Ltd***
* Denotes entity deregistered during the year.
** Denotes entity acquired and deregistered during the year.
Principal place of business/
Country of incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2017
%
-
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
50%
2016
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
*** The consolidated financial statements incorporate the assets, liabilities and results of Smartsalary Payroll Solutions Pty Ltd. SmartSalary Payroll Solutions Pty Ltd
is considered to be a subsidiary as the Group has control over the entity and therefore, the results of this entity are included in the consolidated results of the Group.
Summarised financial information of the subsidiary with non-controlling interests are not provided as they are not material to the Group.
Note 28. Key management personnel disclosures
Compensation
The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below:
Consolidated
2017
$
4,012,493
236,973
44,989
1,058,733
5,353,188
2016
$
3,051,495
204,263
56,874
704,473
4,017,105
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
72
Note 29. Contingent liabilities
The Group has given bank guarantees as at 31 December 2017 of $3,633,000 (2016: $2,595,000). The Group has given guarantees for
performance of contracts to its customers as at 31 December 2017 of $500,000 (2016: $500,000).
Note 30. Commitments
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities, payable:
Within 1 year
Between 1 and 5 years
Over 5 years
Consolidated
2017
$’000
5,098
8,668
119
13,885
2016
$’000
3,288
6,616
428
10,332
Operating lease commitments includes contracted amounts for various offices under non-cancellable operating leases expiring within
1 to 6 years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are
renegotiated.
Note 31. Events after the reporting period
On 4 January 2018, the Group completed the acquisition of 100% of the shares of Fleet West Pty Ltd (Fleet West) for $9,000,000.
Fleet West is based in Perth and provides fleet management services to clients in the not-for-profit sector. The consideration paid was
$8,000,000 in cash and 99,206 shares issued at a price of $10.08 each to the principal vendor.
Apart from the dividend declared as disclosed in note 15, no other matter or circumstance has arisen since 31 December 2017 that has
significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in
future financial years.
Note 32. Deed of cross guarantee
The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others:
Smartgroup Corporation Ltd
AccessPay Pty Ltd
Autopia Group Pty Limited
Autopia Management Pty Limited
Salary Packaging Solutions Pty Ltd
Salary Solutions Australia Pty Ltd
Selectus Pty Ltd
Smartfleet Management Pty Ltd
Smartgroup Benefits Pty Ltd
Smartsalary Pty Limited
By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and
Directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission.
The above companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, and as there are no other parties to
the deed of cross guarantee that are controlled by Smartgroup Corporation Ltd, they also represent the ‘Extended Closed Group’.
Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of the
‘Closed Group’.
73
Note 32. Deed of cross guarantee (continued)
Statement of profit or loss and other comprehensive income
Revenue
Product costs
Employee benefits expense
Administration and corporate expenses
Depreciation expense
Amortisation of acquired intangible assets
Advertising and marketing expenses
Occupancy expenses
Other expenses
Operating profit
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Other comprehensive income
Net change in the fair value of cash flow hedges taken to equity, net of tax
Other comprehensive income for the year, net of tax
2017
$’000
198,337
(4,819)
(73,591)
(23,631)
(1,588)
(17,560)
(3,016)
(4,015)
(6,535)
63,582
(5,571)
58,011
(19,887)
38,124
(65)
(65)
2016
$’000
142,719
(3,599)
(55,576)
(17,251)
(1,412)
(11,748)
(2,649)
(3,142)
(2,320)
45,022
(4,105)
40,917
(12,146)
28,771
264
264
Total comprehensive income for the year
38,059
29,035
Equity – retained profits
Retained profits at the beginning of the financial year
Profit after income tax expense
Dividends paid
Retained profits at the end of the financial year
2017
$’000
11,696
38,124
(38,602)
11,218
2016
$’000
3,848
28,771
(20,923)
11,696
74
Note 32. Deed of cross guarantee (continued)
Statement of financial position
Current assets
Cash and cash equivalents
Restricted cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-current assets
Investments
Derivative financial instruments
Deferred tax assets
Property and equipment
Intangible assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Customer salary packaging liability
Income tax payable
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
Provisions
Borrowings
Contingent consideration
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
2017
$’000
29,537
67,644
31,710
4,723
133,614
27,746
226
2,116
3,143
302,136
335,367
468,981
48,407
67,644
7,199
8,181
2,750
134,181
1,947
140,853
-
142,800
276,981
192,000
176,212
4,570
11,218
192,000
2016
$’000
78,767
39,493
16,425
7,024
141,709
45,361
307
69
3,151
240,871
289,759
431,468
30,176
39,493
8,848
5,518
9,631
93,666
1,623
150,118
1,244
152,985
246,651
184,817
170,490
2,631
11,696
184,817
75
Note 33. Reconciliation of profit after income tax to net cash from operating activities
Consolidated
2017
$’000
41,309
(348)
1,173
(61)
(909)
735
-
1,589
17,741
4,906
(5,782)
(4,227)
2,455
3,595
(2,277)
534
60,433
8,555
68,988
2016
$’000
32,788
(513)
704
(70)
(897)
368
28
1,412
12,512
(1,569)
(569)
(2,187)
(3,460)
323
2,371
1,295
42,536
2,218
44,754
Borrowings
$’000
52,756
100,495
(3,500)
367
150,118
22,000
(32,000)
735
140,853
Profit after income tax expense for the year
Adjustments for:
Share of profit – joint ventures
Share-based payments
Fair value change to derivative financial instruments
Finance revenue – disclosed under investing activities
Amortisation of borrowing costs
Loss on disposal of property and equipment
Depreciation
Amortisation
Fair value change to contingent consideration
Change in operating assets and liabilities:
(Increase) in trade and other receivables
(Increase) in net deferred tax assets
Decrease/(increase) in other current assets
Increase in trade and other payables
Increase/(decrease) in provision for income tax
Increase in provisions and other liabilities
Increase/(decrease) in customer salary packaging liability
Net cash from operating activities
Note 34. Changes in liabilities arising from financing activities
Consolidated
Balance at 1 January 2016
Proceeds from borrowings (net of transaction costs)
Repayments of borrowings
Amortisation of borrowing costs (non-cash)
Balance at 31 December 2016
Proceeds from borrowings (net of transaction costs)
Repayments of borrowings
Amortisation of borrowing costs (non-cash)
Balance at 31 December 2017
76
Note 35. Non-current assets – property and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Furniture, fixtures and fittings – at cost
Less: Accumulated depreciation
Computer equipment – at cost
Less: Accumulated depreciation
Office equipment – at cost
Less: Accumulated depreciation
Other assets – at cost
Less: Accumulated depreciation
2017
$’000
4,966
(3,399)
1,567
1,095
(735)
360
6,061
(5,271)
790
1,378
(971)
407
46
(15)
31
3,155
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:
Consolidated
Balance at 1 January 2016
Additions
Additions through business combinations (note 23)
Disposals
Write off of assets
Depreciation expense
Balance at 31 December 2016
Additions
Additions through business combinations (note 23)
Write off of assets
Depreciation expense
Balance at 31 December 2017
Leasehold
improvements
$’000
Furniture,
fixtures and
fittings
$’000
Computer
equipment
$’000
Office
equipment
$’000
Other
assets
$’000
2,092
493
28
-
(7)
(789)
1,817
65
425
-
(740)
1,567
564
26
11
(5)
(23)
(176)
397
101
3
-
(141)
360
262
269
379
-
-
244
29
166
(2)
(2)
(304)
(135)
606
197
480
(3)
(490)
790
300
52
269
(3)
(211)
407
21
22
-
-
(5)
(8)
30
8
-
-
(7)
31
2016
$’000
4,476
(2,659)
1,817
991
(594)
397
5,427
(4,821)
606
1,057
(757)
300
38
(8)
30
3,150
Total
$’000
3,183
839
584
(7)
(37)
(1,412)
3,150
423
1,177
(6)
(1,589)
3,155
77
Note 35. Non-current assets – property and equipment (continued)
Accounting policy for property and equipment
Property and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property and equipment over their expected
useful lives as follows:
Leasehold improvements
Furniture, fixtures and fittings
Computer equipment
Office equipment
Other assets
Over unexpired period of lease
5–10 years
2–3 years
3–6 years
4–8 years
The residual values, useful lives and depreciation methods are reviewed annually and adjusted if appropriate.
Property and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets,
whichever is shorter.
An item of property and equipment is de-recognised upon disposal or when there is no future economic benefit to the Group. Gains and
losses between the carrying amount and the disposal proceeds are taken to profit or loss.
Note 36. Current liabilities – trade and other payables
Trade payables
Accrued expenses
Other payables
Consolidated
2017
$’000
5,617
17,906
7,360
30,883
2016
$’000
4,711
14,994
6,722
26,427
Refer to note 17 for further information on financial instruments.
Accounting policy for trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are
unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are
usually paid within 30 days of recognition.
Note 37. Current liabilities – provisions
Employee benefits
Operations provision
Employee benefits
Consolidated
2017
$’000
6,000
2,296
8,296
2016
$’000
3,982
1,568
5,550
The provision for employee benefits relates to the Group’s liability for annual leave and long service leave.
Operations provision
The provision relates to negative employee salary packaging account balances which may be uncollectable, and customer and supplier
disputes.
78
Note 37. Current liabilities – provisions (continued)
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period
of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as
current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does
not expect all employees to take the full amount of accrued leave or require payment within the next 12 months.
The following amounts reflect leave that is not expected to be taken within the next 12 months:
Employee benefits obligation expected to be settled after 12 months
Consolidated
2017
$’000
727
2016
$’000
339
Accounting policy for provisions
Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable
the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount
recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking
into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted
using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a
finance cost.
Note 38. Non-current liabilities – provisions
Employee benefits
Make good provision
Make good provision
Consolidated
2017
$’000
1,298
697
1,995
2016
$’000
939
697
1,636
The provision represents the present value of the estimated costs to make good the premises leased by the Group at the end of the
respective lease terms.
Movements in provisions
Movements in each class of provision (current and non-current) during the current financial year, other than employee benefits, are set out
below:
Consolidated – 2017
Carrying amount at the start of the year
Additional provisions recognised
Additions through business combinations (note 23)
Carrying amount at the end of the year
Make good provision
$’000
Operations provision
$’000
697
-
-
697
1,568
607
121
2,296
79
Note 39. Cash held on behalf of customers and associated liabilities
Cash held on behalf of customers recognised in the statement of financial position:
Current assets – Restricted cash and cash equivalents
Restricted cash and cash equivalents
Current liabilities – Customer salary packaging liability
Customer salary packaging liability
Consolidated
2017
$’000
2016
$’000
67,644
39,493
Consolidated
2017
$’000
2016
$’000
(67,644)
(39,493)
The restricted cash accounts are held with Australia’s major financial institutions. Depending on commercial arrangements, the Group may
earn interest income from these accounts. The Group has recognised finance revenue of $593,000 (2016: $355,000) from restricted cash.
Refer to note 17 for interest rate sensitivity analysis on restricted cash balances.
Cash held on behalf of customers not recognised in the statement of financial position:
Accounts established by the Group as for cash held on behalf of
customers
Weighted
average
interest rate
1.70%
Consolidated
2017
$’000
87,207
Weighted
average
interest rate
1.66%
2016
$’000
84,678
Accounts established by customers directly
0.03%
74,794
0.03%
71,368
Total
162,001
156,046
Cash held on behalf of salary packaging and share plan administration customers is deposited by customers into segregated bank
accounts to be used only to settle their employees’ salary packaging obligations to suppliers or for contributions into share plans. The
Group cannot use these funds for any other purpose than as directed by its customers. Customers are liable to ensure adequate funds
are kept in the segregated bank accounts for salary packaging and share plan payments. The Group has assessed that these assets are
held in a fiduciary capacity rather than being assets of the Group and, as such, have excluded it from the statement of financial position.
The segregated bank accounts used for cash held on behalf of customers are with Australia’s major financial institutions. Depending
on commercial arrangements, the Group may earn interest income from these accounts. The Group recognised interest revenue of
$1,831,300 (2016: $1,280,000) from those accounts established by the Group as cash held on behalf of customers, and $25,000
(2016: $21,000) from those accounts established by customers directly. These amounts are recognised within management and
administration revenue.
Accounting policy for restricted cash and cash equivalents
The restricted cash and cash equivalents disclosed above and in the statement of cash flows represents funds held by the Group
on behalf of certain customers. The use of these funds is restricted to the making of salary packaging payments on behalf of those
customers only and therefore not available for general use. The Group recognises a liability for all restricted cash balances to reflect the
amounts owing to its customers.
80
Note 40. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by PricewaterhouseCoopers, the auditor of the
Company, and unrelated firms:
Audit services – PricewaterhouseCoopers
Audit or review of the financial statements
Other services – PricewaterhouseCoopers
Taxation services
Risk and governance
Audit services – unrelated firms
Audit or review of the financial statements
Other services – unrelated firms
Tax compliance services
Consolidated
2017
$
2016
$
457,500
381,000
26,000
142,000
168,000
625,500
-
-
-
37,000
121,000
158,000
539,000
55,000
12,500
67,500
Note 41. Other accounting policies
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Smartgroup Corporation Ltd as at
31 December 2017 and the results of all subsidiaries for the year then ended.
Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct
the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses
are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the
loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value
of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other
comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are
attributed to the non-controlling interest in full, even if that results in a deficit balance.
Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and noncontrolling interest
in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the
consideration received and the fair value of any investment retained, together with any gain or loss in profit or loss.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current classification.
An asset is current when: it is expected to be realised or intended to be sold or consumed in the entity’s normal operating cycle; it is held
primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash
equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other
assets are classified as non-current.
A liability is current when: it is expected to be settled in the entity’s normal operating cycle; it is held primarily for the purpose of trading; it
is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for
at least 12 months after the reporting period. All other liabilities are classified as noncurrent.
Deferred tax assets and liabilities are always classified as non-current.
81
Note 41. Other accounting policies (continued)
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an
assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits
incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and
benefits.
The Group does not have any finance leases. Operating lease payments, net of any incentives received from the lessor, are charged to
profit or loss on a straight-line basis over the term of the lease.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of
the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which
the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within
12 months of the reporting date are recognised in current liabilities in respect of employees’ services up to the reporting date and are
measured at the amounts expected to be paid when the liabilities are settled.
Other long-term employee benefits
The liability for long term employee benefits is measured as the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted
using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible,
the estimated future cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of
services.
The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently determined using the Black-
Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at
grant date, expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the
option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to
receive payment. No account is taken of any other vesting conditions.
The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. The
cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards
that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative
amount calculated at each reporting date, less amounts already recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are
considered to vest irrespective of whether that market condition has been met, provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional
expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based
compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If
the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for
the award is recognised over the remaining vesting period, unless the award is forfeited.
82
Note 41. Other accounting policies (continued)
If equity-settled awards are cancelled they are treated as if they have vested on the date of cancellation, and any remaining expense is
recognised immediately. If new replacement awards are substituted for the cancelled awards, the cancelled and new awards are treated
as if they were a modification.
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other
assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities
incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each
business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the
acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other
pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the
acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair
value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as
equity is not remeasured and its subsequent settlement is accounted for within equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the
acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised
as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired,
being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the
acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts
recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about
the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from
the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.
Goods and Services Tax (GST) and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the
tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or
payable to, the tax authority is included in other receivables or other payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are
recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been
early adopted by the Group, with the exception of AASB 15 ‘Revenue from Contracts with Customers’, for the annual reporting period
ended 31 December 2017. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations,
most relevant to the Group, are set out below.
AASB 9 Financial Instruments
AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules
for hedge accounting and a new impairment model for financial assets. The Group has decided not to adopt AASB 9 until it becomes
mandatory on 1 January 2018. The Group does not expect the new accounting standard to have a significant impact on the classification
and measurement of its financial assets and financial liabilities. The derecognition rules have been transferred from AASB 139 ‘Financial
Instruments: Recognition and Measurement’ and have not been changed. The new hedge accounting rules will align the accounting for
hedging instruments more closely with the Group’s risk management practices. The Group is currently assessing the potential impact of
the new impairment model.
83
Note 41. Other accounting policies (continued)
New Accounting Standards and Interpretations not yet mandatory or early adopted (continued)
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. For lessee accounting, the standard
eliminates the ‘operating lease’ and ‘finance lease’ classification required by AASB 117 ‘Leases’. Subject to exceptions, a ‘right-of-use’
asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments
to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such
as personal computers and office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised
or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised,
adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal
or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset
(included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). For classification within
the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating
or financing activities) components. For lessor accounting, the standard does not substantially change how a lessor accounts for leases.
The Group expects to adopt this standard from 1 January 2019 and the impact of its adoption will be that operating leases, such as those
detailed in note 30, will be brought onto the statement of financial position with a corresponding liability.
84
Directors’
Declaration
In the Directors’ opinion:
• the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting requirements;
• the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board as described in note 2 to the financial statements;
• the attached financial statements and notes give a true and fair view of the Group’s financial position as at 31 December 2017 and of
its performance for the financial year ended on that date;
• there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
and
• at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group will be able to
meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note
32 to the financial statements.
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
Michael Carapiet
Chairman
21 February 2018
Sydney
85
Independent Auditor’s Report
Independent auditor’s report
To the members of Smartgroup Corporation Ltd
Independent auditor’s report
Report on the audit of the financial report
To the members of Smartgroup Corporation Ltd
Report on the audit of the financial report
Our opinion
In our opinion:
Our opinion
The accompanying financial report of Smartgroup Corporation Ltd (the Company) and its controlled
In our opinion:
entities (together the Group) is in accordance with the Corporations Act 2001, including:
The accompanying financial report of Smartgroup Corporation Ltd (the Company) and its controlled
(a) giving a true and fair view of the Group's financial position as at 31 December 2017 and of its
entities (together the Group) is in accordance with the Corporations Act 2001, including:
financial performance for the year then ended
(a) giving a true and fair view of the Group's financial position as at 31 December 2017 and of its
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
What we have audited
The Group financial report comprises:
the consolidated statement of financial position as at 31 December 2017
the consolidated statement of changes in equity for the year then ended
the consolidated statement of financial position as at 31 December 2017
the consolidated statement of cash flows for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of profit or loss and other comprehensive income for the year then
the consolidated statement of cash flows for the year then ended
ended
the consolidated statement of profit or loss and other comprehensive income for the year then
the notes to the consolidated financial statements, which include a summary of significant
ended
accounting policies
the notes to the consolidated financial statements, which include a summary of significant
the directors’ declaration.
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Basis for opinion
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
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
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
report section of our report.
our opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
Independence
our opinion.
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
Independence
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
We are independent of the Group in accordance with the auditor independence requirements of the
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
in accordance with the Code.
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.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
PricewaterhouseCoopers, ABN 52 780 433 757
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
Liability limited by a scheme approved under Professional Standards Legislation.
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
86
Liability limited by a scheme approved under Professional Standards Legislation.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Smartgroup’s financial report consolidates the businesses of Smartsalary, Smartfleet, Advantage
Salary Packaging (Advantage), Autopia, Selectus, AccessPay, Royal Automobile Club of Victoria Salary
Solutions (RACVSS), Aspire and other smaller Smartgroup businesses located in Sydney, Adelaide
and Melbourne. The Group provides outsourced administration (primarily salary packaging
administration and novated leasing), vehicle services (fleet management) and software, distribution
and services to a wide range of government, health and corporate customers across Australia. The
group has a substantially centralised finance function with recent acquisitions still being integrated.
Materiality
For the purpose of our audit we used overall Group materiality of $3.1 million, which represents
approximately 5% of the Group’s profit before tax.
We applied this threshold, together with qualitative considerations, to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements on the financial report as a whole.
We chose Group profit before tax as the benchmark because, in our view, profit before tax
(which is a generally accepted benchmark for profit oriented entities) is a key metric against
which the performance of the Group is measured. We adjusted profit before tax for business
combination related costs as these were infrequently occurring items impacting the profit
before tax.
We selected 5% based on our professional judgement, noting that it is within the range of
commonly acceptable profit related materiality thresholds.
87
Audit Scope
Our audit focused on where the Group made subjective judgements; for example, significant
accounting estimates involving assumptions and inherently uncertain future events.
We ensured that the audit team possessed the appropriate skills and competencies which are
needed for the audit of the Group. This included adequate industry expertise, as well as the
involvement of valuation and taxation specialists.
Due to their financial significance, we performed an audit of the financial information of the
main operating entities of the following businesses: Smartsalary, Smartfleet and Selectus.
Due to their smaller size and contribution to the Group's results, we performed selected audit
procedures and analytical procedures over certain balances of non-trading holding entities and
remaining trading entities of the Group (Advantage, Autopia, AccessPay, RACVSS, Aspire and
Smartgroup Corporation).
At the Group level, we performed further audit procedures over the consolidation process and
the preparation of the financial report.
The combination of all these procedures provided us with sufficient and appropriate audit
evidence to express an opinion on the Group’s financial report as a whole.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit and Risk Committee.
Key audit matter
Business combinations
(Refer to note 23)
How our audit addressed the key audit
matter
During the year, the Group acquired three new
businesses: Royal Automobile Club of Victoria
Limited Salary Solutions (RACVSS), AccessPay
and Aspire Benefits Management. The Group
also finalised the accounting for the acquisition
of Selectus Limited, which was acquired in 2016.
The acquisition of a business is complex and the
accounting standards require the Group to
identify all assets and liabilities of the newly
acquired businesses and estimate the fair value
of each item.
We read the relevant sale and purchase
agreements and due diligence reports in relation
to the acquisitions. The accounting for the
acquisitions was consistent with the sale and
purchase agreements. For the provisional initial
accounting, we reviewed the take on balances
and confirmed these against the completion
statements and due diligence reports and
reviewed the financial statements for the
appropriate disclosures. We also assessed the
competency and objectivity of the external
valuers.
We focused on the accounting for these
acquisitions due to:
In relation to our assessment of the Group’s
accounting treatment for funds held on behalf of
customers, our procedures included:
88
Key audit matter
the judgement required to value the software
and customer contract assets acquired of
RACVSS, AccessPay and Aspire benefits
management. The Group accounted for the
acquisitions provisionally as the measurement
for intangible assets was still in progress.
the judgement required to determine
whether funds held on behalf of certain
customers represent an asset of the business
and thus should be recognised in the
statement of financial position. Accounting
appropriately for funds held on behalf of
customers is complex because it requires
detailed consideration of the substance and
legal form of relevant factors relating to
control and economic benefits of the asset.
the judgement required to estimate the fair
value of the contingent consideration for
Smartequity and the settlement for Selectus.
Key judgements included forecasts of
Smartequity’s Net Profit Before Tax and
assessment of Selectus final settlement based
on 2016 results.
How our audit addressed the key audit
matter
inspecting a sample of customer contracts
and assessing the key characteristics of
these contracts in relation to the
classification of the funds as either
restricted cash or cash held on behalf of
customers
developing an understanding of the relevant
transaction process flows and the key
differences between restricted cash and cash
held on behalf of customers
assessing the qualitative and quantitative
disclosures made in the financial report in
relation to each of the different types of
funds held on behalf of customers.
In relation to the valuation/settlement of the
contingent consideration in respect of the
Smartequity and Selectus businesses, and in
order to assess whether the conditions required
for the contingent consideration to be paid or
settlement paid were likely to be met in the
future, our procedures included:
assessing if the calculation of the contingent
consideration/settlement was in accordance
with the contractual arrangements and the
requirements of accounting standards
assessing the governance supporting the
Group’s forecasting process
assessing the Group’s forecasting accuracy
by comparing past forecasts with actual
performance and developing an
understanding of the causes of differences
developing an understanding of the Group’s
perspective on the future growth of the
Smartequity business.
considering the sensitivity of the deferred
consideration liability to reasonably possible
changes in key profit assumptions
Group’s goodwill and other indefinite
life intangible asset impairment
assessment
(Refer to note 5)
The Group’s goodwill and other indefinite life
intangible assets are required by Australian
Accounting Standards to be tested at year end
We considered the adequacy of the business
combination disclosures in light of the reporting
requirements.
.
Our audit procedures included:
assessing whether the Group’s identification
of CGUs was consistent with our knowledge
of the operations, internal reporting lines
89
Key audit matter
How our audit addressed the key audit
matter
for impairment at the cash generating unit
(CGU) level.
We focused on the impairment assessment due
to the size of the goodwill and other indefinite
life intangible assets balances and the
judgement involved in assessing whether an
impairment was required. The Group performed
an impairment assessment over goodwill and
other indefinite life intangible assets by
calculating the value in use for each CGU, using
discounted cash flow models (the models).
Key judgements in the models included discount
rates, annual revenue and terminal growth rates
and the assumption that there will be no
significant changes to the legislation governing
the provision of products and services within the
salary packaging administration and novated
leasing industries in the forecast periods
.
Restricted cash and cash equivalents
held on behalf of customers
(Refer to note 39)
and the level of integration of the newly
acquired businesses
evaluating the process by which the cash
flow forecasts were developed
comparing the cash flow forecasts to Board
approved budgets and confirming that key
assumptions in the forecasts were subject to
oversight from the directors
assessing the accuracy of the forecasts by
comparing previous forecasts with actual
business results
comparing these forecasts with forecasts
used in the contingent consideration
calculations for consistency
considering the sensitivity of the key
assumptions in the models by analysing the
impact on the recoverable amount from
changes in key assumptions. These
recalculations did not suggest an
impairment was required for the tested
CGUs
considering whether there had been any
published plans from mainstream
Australian political parties relating to any
potential changes to legislation governing
the provision of products and services
within the salary packaging administration
and novated leasing industries. We did not
identify plans for significant changes in this
area.
We also compared the Group’s net assets of
$204.9 million as at 31 December 2017 to its
market capitalisation of $1.2 billion on the same
date.
We also considered the adequacy of the Group’s
disclosures on goodwill and other infinite life
intangible assets impairment in light of the
requirements of Australian Accounting
Standards
.
As described in note 39, the provision of salary
packaging services involves the Group holding
funds on behalf of certain customers, either as
restricted cash or cash equivalents held on
behalf of customers. Considered to be a Key
Audit Matter as the Group may be responsible
Our audit procedures included:
performing tests over a sample of key
controls in the EUM cash transaction
process and assessing whether these
controls had been designed appropriately
and operated effectively during the year. We
90
Key audit matter
for any shortfall in these accounts, significant
volume of transactions impacting restricted cash
and cash held on behalf of customers’ accounts
throughout the year and due to the large volume
of accounts and employees under management
(EUM).
How our audit addressed the key audit
matter
determined that we could place reliance on
the tested controls for the purposes of our
audit
testing a sample of restricted cash and cash
held on behalf of customers bank account
reconciliations and obtaining confirmations
directly from banks of the outstanding
balances at year end
reading board minutes, enquiring with
management and obtaining a written
description from the Group’s lawyers of
current legal matters to understand whether
there were any material claims from EUMs
or employers.
We further considered the adequacy and
accuracy of the Group’s disclosures in relation to
restricted cash and cash held on behalf of
customer’s balances in the light of the
requirements of Australian Accounting
Standards.
Other information
The directors are responsible for the other information. The other information comprises: Who we
are, 2017 Company Snapshot, Chairman’s Report, 2017 Financial Highlights, Managing Director and
CEO Report of Operations, What We Do, Who We Help, Environmental, Social and Governance
Report, Directors’ Report, Shareholder Information, Four Year Summary, Corporate Directory and
Glossary included in the Group’s annual report for the year ended 31 December 2017 but does not
include the Financial Report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
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 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.
91
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or 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 the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 21 to 33 of the directors’ report for the
year ended 31 December 2017.
In our opinion, the remuneration report of Smartgroup Corporation Ltd for the year ended 31
December 2017 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Sam Hinchliffe
Partner
Sydney
21 February 2018
92
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93
Shareholder
Information
This section contains additional information required by the ASX Listing Rules not disclosed anywhere else in this report, as at 24
January 2018.
Shareholdings
Substantial Shareholders
The following information is extracted from the Company’s Register of Substantial Shareholders.
Name
SMART PACKAGES PTE LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
Number of ordinary
shares
Percentage of total
shares issued
32,608,245
19,951,889
12,568,928
8,532,962
7,742,107
7,282,013
26.44
16.18
10.19
6.92
6.28
5.91
Class of shares and voting rights
At 24 January 2018 there were 2,169 holders of ordinary shares in the Company.
The voting rights attached to the ordinary shares set out in the Company’s Constitution are that on a show of hands, every member
present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.
Distribution of shareholders of shares as at 24 January 2018
Ordinary shareholders
849
796
230
239
55
2,169
125
Size of holding
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total shareholders
Holding less than a marketable parcel
94
Twenty largest shareholders of ordinary shares as at 24 January 2018
Ordinary shares
SMART PACKAGES PTE LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
HEATHERWOOD COURT PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
APINTO PTY LTD
DEVENDRA BILLIMORIA
JENNY ELIZABETH GAUDRY
GENTILLY HOLDINGS 2 PTY LIMITED
ANTON JEROME GAUDRY
KPB ENTERPRISES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
UBS NOMINEES PTY LTD
POINT CAPITAL PTY LTD
AOTEAROA INVESTMENT COMPANY PTY LIMITED
TIMOTHY LOOI
AMP LIFE LIMITED
Total
Restricted securities or securities subject to voluntary escrow
The following are all fully paid ordinary shares.
Escrow release date
Date after the audited financial statements of the Company for the year ended 2017 are released
Date after the audited financial statements of the Company for the first half of 2018 are released
1 January 2019
Date after the audited financial statements of the Company for the year ended 2018 are released
Date after the audited financial statements of the Company for the first half of 2019 are released
1 January 2020
Date after the audited financial statements of the Company for the year ended 2019 are released
Total
Number
32,608,245
19,951,889
12,568,928
8,532,962
7,742,107
7,282,013
2,492,003
2,011,990
2,002,142
1,724,729
1,687,535
1,610,401
1,125,738
1,017,711
912,180
844,939
689,469
678,715
625,117
398,918
%
26.44
16.18
10.19
6.92
6.28
5.91
2.02
1.63
1.62
1.40
1.37
1.31
0.91
0.83
0.74
0.69
0.56
0.55
0.51
0.32
106,507,731
86.38
Number of shares
1,449,614
2,532,748
697,150
49,618
223,055
1,129,976
49,618
6,131,779
95
Four Year Summary
2017
2016
2015
2014
205.4
93.6
41.3
64.1
464.1
259.2
204.9
(111.1)
147.1
63.3
32.8
44.0
438.6
244.3
194.3
(72.0)
94.5
37.4
20.2
26.2
167.4
84.9
82.5
(33.5)
75.4
24.1
(1.0)
17.4
110.5
44.6
65.9
5.8
123.2
121.5
103.7
101.5
16.5
18.5
35.0
10.85
52.0
67%
99%
1.2
9.8
15.0
24.8
6.28
36.2
68%
103%
1.1
7.9
8.7
16.6
5.11
25.3
66%
106%
0.9
-
6.1
6.1
1.47
17.1
35%
138%
(0.2)
706
325,000
62,500
544
221,000
53,000
398
182,500
34,000
343
118,700
30,900
Income statement ($m)
Revenue
EBITDA
NPAT (statutory)
NPATA
Statement of financial position ($m)
Assets
Liabilities
Net assets
Net (debt)/cash
Share information
Ordinary shares (million shares)
Dividends per share (cents per share)
Interim
Final
Total dividends
Share price at 31 December ($)
NPATA/ordinary shares (cents per share)
Ratios
Dividend payout ratio
Operating cashflow/NPATA
Net debt/EBITDA
Operational metrics
FTEs
Packages
Novated leases under management
96
Corporate
Directory
Directors
Michael Carapiet
Deven Billimoria
Gavin Bell
Andrew Bolam
Deborah Homewood
John Prendiville
Ian Watt
Company
secretaries
Amanda Morgan
Sophie MacIntosh
Registered office
Smartgroup Corporation Ltd
Level 8, 133 Castlereagh Street
Sydney, Australia, 2000
Tel: 1300 665 855
Principal place
of business
Smartgroup Corporation Ltd
Level 8, 133 Castlereagh Street
Sydney, Australia, 2000
Tel: 1300 665 855
Share register
Link Market Services Limited
Level 12, 680 George Street,
Sydney, Australia, 2000
Tel: 1300 368 664
Annual general
meeting
2 May 2018 at 11am.
Please refer to the website
for further details.
Auditor
Solicitors
Bankers
PricewaterhouseCoopers
One International Towers
Watermans Quay, Barangaroo
Sydney, Australia, 2000
Minter Ellison Lawyers
Level 23, 525 Collins Street
Melbourne, Australia, 3000
Tel: +61 3 8608 2000
Australia and New Zealand Banking
Group Limited
242 Pitt Street
Sydney, NSW, 2000
Stock exchange
listing
Smartgroup Corporation Ltd shares are
listed on the Australian Securities Exchange
(ASX code: SIQ)
Website
smartgroup.com.au
Corporate
Governance
Statement
The Corporate Governance Statement,
which was approved at the same time
as the Annual Report, can be found at
http://ir.smartgroup.com.au/
Investors/?page=Corporate-Governance
97
Glossary
of Terms
AGM
ARC
Board
Annual General Meeting of the Company
Audit and Risk Committee
Board of Directors
Company
Smartgroup Corporation Ltd ABN 48 126 266 831
CAGR
CENL
CEO
CESP
CFO
CHRO
CIO
CGU
CLO
Director
EBITDA
EPS
ESG
Group
GST
HRRC
ITIC
KMP
KPI
LFS
LTIP
Compound Annual Growth Rate
Chief Executive, Novated Leasing and Fleet
Managing Director & Chief Executive Officer
Chief Executive, Salary Packaging
Chief Financial Officer
Chief Human Resources Officer
Chief Information Officer
Cash Generating Unit
Chief Legal Officer
Director means a director of the Company
Earnings Before Interest, Tax, Depreciation and Amortisation adjusted for significant non-operating items.
Earnings Per Share
Environmental, Social and Governance
The consolidated Smartgroup Corporation entity consisting of the Company and the entities it controlled at the
end of or during the year ended 31 December 2017
Goods and Services Tax
Human Resources and Remuneration Committee
IT and Innovation Committee
Key Management Personnel, being those employees who had authority and responsibility for planning, directing
and controlling the activities of the Group during the 2017 financial year, and includes the Directors.
Key Performance Indicator
Loan Funded Shares
Long Term Incentive Plan
Net debt
Cash and cash equivalents less borrowings, adjusted to exclude capitalised borrowing costs
NFP
NPAT
NPATA
NPS
Operating activities
Not-for-profit organisation
Net Profit After Tax
Net Profit After Tax, adjusted to exclude the non-cash tax effected Amortisation of intangibles and significant
non-operating items
Net Promoter Score, which is a measure of how likely a customer is to provide a word of mouth referral, mea-
sured on a scale of -100 to +100.
Cash flow excluding receipts and payments from customers’ salary packaging accounts and significant
non-operating items.
PBI
PBT
Public Benevolent Institution
Profit Before Tax
Smartgroup
Smartgroup Corporation Ltd ABN 48 126 266 831
STIP
TSR
VWAP
98
Short Term Incentive Plan
Total Shareholder Return
Volume-Weighted Average Price
Initial establishment
of Smartsalary.com
1999
2001
Investment by Macquarie Bank
and other investors;
Smartsalary Pty Ltd established
Launched vehicle lease
broking business
2004
2006
Acquired by Paxys
Australia Pty Ltd
Acquired Melbourne Systems
Group assets and Seqoya
2009
2010
Acquired Webfleet
Acquired Australian Vehicle
Consultants and creation of Smartfleet
2011
Acquired PBI Solutions
2012
2013
2014
2015
Paxys Australia sold to Smartgroup
Investments (currently known as
Smartgroup Corporation)
Smartgroup Corporation
lists on the ASX
Acquired Advantage
Salary Packaging
Acquired TAINS business
(Insurance products distribution)
Acquired 50% of
Health-e Workforce Solutions
Acquired Selectus
2016
Acquired Trinity Management Group
assets. Trading as Smartequity
Acquired Autopia
Acquired AccessPay
2017
Acquired RACV Salary Solutions
and renamed to Salary Solutions
Acquired Aspire
Benefits Management
Acquired Fleet West Fleet &
Finance Solutions
Smartgroup Corporation Ltd
National Head Office
Level 8, 133 Castlereagh Street
Sydney NSW 2000
smartgroup.com.au
Annual Report
2017