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03 Financial Statements

Note 2: Financial Performance

This section analyses the financial performance of the Group for the year ended 30 June 2018.

2.1: Expenses

  2018
$'000
2017
$'000
2.1A: Employee Benefits
Wages and salaries 22,929 19,353
Superannuation    
Defined contribution plans 1,413 1,209
Leave and other entitlements 512 462
Separations and redundancies 34
Total employee benefits 24,854 21,058

Accounting Policy

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of the end of reporting period are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Group is estimated to be less than the annual entitlement for sick leave.

When an employee has rendered service to the Group during the period, the Group recognises the undiscounted amount of short-term benefits expected to be paid in exchange for that service as a liability, calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the Group’s employer superannuation contribution rates.

The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. 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 national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

Separation and Redundancy

Provision is made for separation and redundancy benefit payments. The Group recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

Superannuation

The Group’s staff are members of various defined contribution plans to which the Group must contribute in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth). The liability for superannuation recognised as at 30 June represents outstanding contributions for the final payroll periods of the year.

  2018
$'000
2017
$'000
2.1B: Suppliers
Goods and services supplied or rendered    
Annual Report 117 117
Consultants 1,142 412
Contractors 419 148
Custody and facility fees 396 139
Data feeds and other subscriptions 419 385
Facility services and outgoings 261 236
Financial statement audit services 175 171
Information technology services 355 275
Insurance 165 144
Internal audit services 168 131
Legal fees 749 700
Marketing and communications 331 237
Recruitment services 478 768
Staff training and development 192 127
Telecommunications 118 116
Travel and incidentals 924 745
Other 414 223
Total goods and services supplied or rendered 6,823 5,074
Goods supplied 228 174
Services rendered 6,595 4,900
Total goods and services supplied or rendered 6,823 5,074
Other suppliers    
Operating lease rentals in connection with:    
Minimum lease payments for office premises – external parties 1,577 1,407
Workers compensation expenses 31 63
Total other suppliers 1,608 1,470
Total suppliers 8,431 6,544

Leasing commitments

The Group has entered into operating leases for office premises which expire between 28 February 2021 and 30 September 2022.

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

  2018
$'000
2017
$'000
Within 1 year 1,746 1,646
Between 1 to 5 years 4,657 5,716
After 5 years 223
Total operating lease commitments 6,403 7,585

Accounting Policy

The determination of whether an arrangement is a lease, 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.

Group as lessee

Leases that do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Contingent rental payable is recognised as an expense in the period in which it is incurred.

  2018
$'000
2017
$'000
2.1C: Concessional Loan Charges
Concessional loan charges 11,972 11,433
Total concessional loan charges 11,972 11,433

Accounting Policy

The Group is required to record a non-cash concessional loan charge when it makes a loan at a discount to the prevailing market equivalent rates or terms. This non-cash charge is recorded as a liability at loan origination and offset to loans and advances when the loan is drawn down. The charge will unwind over the term of the underlying loan and be shown as concessional loan income. Over the full life of the loan, the impact on the reported profit or loss of the Group from the charge and income will net to $Nil.

Accounting Judgements and Estimates

For each investment, the Group will attempt to maximise its return and provide only the level of discount from market rates/terms that is required to ensure the project proceeds; however, this may involve the Group taking a position that is not generally offered by other market participants (e.g. longer-term fixed-rate debt, subordinated debt, unsecured or mezzanine debt, lending to thinly capitalised entities or companies with less strong credit ratings, etc) and at rates that are below those that an equivalent market participant would demand if it were to participate in this market. The Group is required to record a concessional loan discount in relation to such loans and this requires extensive judgement in determining the ‘market equivalent rate’ so as to ascertain the extent of the implicit discount attached to the loan. This involves benchmarking to market rates for similar facilities and adjusting for specific differences in tenor, creditworthiness, security, etc. Further judgement is also required to be exercised in relation to the anticipated pattern under which loans will be drawn down, as well as the rate at which they are expected to amortise, so the extent of concessionality being offered in the transactions can be estimated.

  2018
$'000
2017
$'000
2.1D: Write-Down and Impairment of Assets
Loan impairment charge 2,683 2,129
Impairment of unlisted equity investments 5,000
Total write-down and impairment of assets 7,683 2,129


Accounting Judgements and Estimates

Impairment of loans and advances

The Group reviews its individually significant loans and advances at each reporting date to assess whether an impairment loss should be recorded in the statement of comprehensive income. In particular, Management’s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

Loans and advances that have been assessed individually (and found not to be impaired) are assessed together with all individually insignificant loans and advances in groups of assets with similar risk characteristics. This is to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, etc), and judgements on the effect of concentrations of risks and economic data (asset type, industry, geographical location).

Impairment of available-for-sale (‘AFS’) financial assets

For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.

The determination of what is ‘significant’ or ‘prolonged’ requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

In the case of debt instruments classified as AFS, the impairment is assessed based on the same criteria as loans and advances.

  2018
$'000
2017
$'000
2.1E: Provision for Irrevocable Loan Commitments
Provision for irrevocable loan commitments 2,625 292
Total provision for irrevocable loan commitments 2,625 292


Accounting Judgements and Estimates

Provision for irrevocable loan commitments

The Group calculates a loss loan provision for the undrawn component of loans that are not yet fully drawn and where future drawdowns are unconditional.

2.2: Own-Source Revenue and Gains

  2018
$'000
2017
$'000
2.2A: Interest and Loan Fee Revenue
Interest and fees from loans and advances 75,223 30,045
Interest from available-for-sale financial assets 25,498 12,118
Interest from cash and short-term investments 10,440 7,199
Interest from other financial assets 4,994 7,488
Unwind of concessional interest rate discount 6,114 2,425
Total interest and loan fee revenue 122,269 59,275

Accounting Policy

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Interest Revenue

Interest revenue is recognised as interest accrues using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement. 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 exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Deferred income received in cash at the start of a loan is brought to income on an effective yield basis over the life of the loan by reducing the carrying amount.

Establishment Fees

Establishment fees relating to the successful origination or settlement of a loan are deferred and recognised as an adjustment to the effective interest rate on the loan.

Commitment Fees

Commitment fees are recognised on an accrual basis over the period during which the credit is made available to the customer but is not drawn down.

  2018
$'000
2017
$'000
2.2B: Distributions from Trusts and Equity Investments
Distributions from trusts and equity instruments 10,090 5,328
Total distributions from trusts and equity investments 10,090 5,328

Accounting Policy

Distributions from trusts and equity investments are recognised as revenue upon CEFC becoming irrevocably entitled to the relevant distributions.

2.3: Gains/(Losses) included in Other Comprehensive Income and Reserves

  2018
$'000
2017
$'000
2.3A: Gains on Available-For-Sale Financial Assets
Unrealised gains on investments in trusts and equity instruments 23,542 15,145
Unrealised gains/(losses) on investments in debt securities 4,312 (7,471)
Total gains on available-for-sale financial assets, net 27,854 7,674

Accounting Policy

After initial measurement, AFS financial assets are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income and credited in the reserves until the investment is derecognised, at which time the cumulative gain or loss is recognised in other gains in the statement of comprehensive income, or the investment is determined to be impaired when the cumulative loss is reclassified from the reserves to the statement of comprehensive income as a write-down and impairment of assets.

2.3B: Reconciliation of Unrealised Gains/(Losses) in Reserves at 30 June 2018
  Debt Securities
$’000
Trust and Equity Instruments
$'000
 Cash Flow Hedge
$'000
 Total
$'000
Unrealised gains/(losses) included in reserves, 1 July 2017 (64) 14,761 (42) 14,655
Unrealised gains/(losses) recorded in other comprehensive income during 2018 4,312 23,542 282 28,136
Unrealised gains/(losses) on AFS securities included in reserves, 30 June 2018 4,248 38,303 240 42,791
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