EXCELA LIMITED 2012 FINANCIAL STATEMENTS

Transcription

1 2012 FINANCIAL STATEMENTS

2 For the year ended 30 June 2012 Contents Page Directors' Report 1 Auditors' Independence Declaration 10 Statement Of Comprehensive Income 11 Statement Of Financial Position 12 Statement Of Cash Flows 13 Statement Of Changes In Equity 14 Notes To The Financial Statements 15 Directors' Declaration 44 Independent Audit Report 45

3 Directors Report Your directors present their report on the Group, being Excela Limited and its controlled entities (the Group) for the financial year ended 30 June Directors The names of directors in office at any time during or since the end of the year are: Peter John Spann Rod Welford (appointed 1 December 2011) Ben Doyle (appointed 6 August 2012) Michael Willis (resigned 1 December 2011) Howard Woolcott (resigned 24 January 2012) Alan Bennett (resigned 6 August 2012) Company Secretaries The names of company secretaries as at the end of the year are: Peter Spann Company Secretary Craig Burbury Company Secretary Peter is the founder of the Freeman Fox group of companies and is a well-known public speaker and presenter of investment seminars. Peter has had a wealth of experience in business development over the past fifteen years, and has served on the boards and or advised a number of private and public entities. Craig has a commerce degree from The University of Tasmania and is also a Certified Practising Accountant. His career has included positions with Price Waterhouse in small business advisory and taxation services. Craig has held senior accounting positions with listed financial services company Australian Wealth Management Ltd. He has been working with the Freeman Fox and Excela Group of companies for the past five and a half years and is the Group s Chief Financial Officer. Principal activities The principal activities of the Group during the financial year were those of funds management and stockbroking. Review and Results of Operations The net profit/(loss) for the group for the year ended 30 June 2012 after providing for income tax amounted to $(7,355,713) (2011: $(2,335,569)). This result is impacted by three significant items: the amortisation of identifiable intangible assets $639,720; the impairment of identifiable intangible assets $2,220,840, the stockbroking client list ($909,920) and the funds management rights ($1,310,920). the impairment of stockbroking goodwill $1,572,483. 1

4 Directors Report The carrying value of the Group s intangible assets have been reviewed in light of current economic conditions in both the retail stockbroking and funds management sectors. The Excela Board have taken a conservative outlook with regards future revenues and as such, have felt it prudent to recognise write-downs of these assets in line with a conservative approach to the future. Net Tangible Assets per Share (NTA) At 30 June 2012 the NTA per share was $0.03 per share (2011: $0.14 per share). Dividends Paid or Recommended No dividend has been paid or declared since the end of the financial year. Financial Position Net assets of the Group are $4,810,617 as at 30 June 2012 compared to $12,222,999 at 30 June Significant Changes in State of Affairs During the year most of the stockbroking team left the Group resulting in the departure of a large number of stockbroking clients. After Balance Date Events Following the departure of the previous stockbrokers and the associated impact on the business, the directors have reviewed all aspects of the business and implemented measures to reduce the Group s cost base, including seeking alternative office accommodation, exiting the current serviced office arrangements, implementing staff reductions and remuneration cuts to management salaries. These measures were announced in the Group s ASX release on the 9 th August Future Developments, Prospects and Business Strategies Disclosure of other information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the group. Accordingly, this information has not been disclosed in this report other than as noted above. Environmental Issues The Group s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory of Australia. 2

5 Directors Report Information on Directors Peter John Spann - Executive Chairman, Chief Investment Officer Peter is the founder of the Freeman Fox group of companies which partners everyday Australians in their wealth creation. Freeman Fox was recognised as the 41 st fastest growing privately owned company in Australia in the 2007 BRW Fast 100. Peter has over twenty years experience in Financial Services including financial planning, finance, stockbroking, funds management, property development and capital raising and has served on the boards and advised a number of private and public entities. Peter is a qualified stockbroker, financial planner and member of the Australian Institute of Company Directors. Peter is currently a director of the following listed public companies: - Vertua Ltd (listed on the NSX) Rod Welford - Non Executive Director Rod is a former Queensland Attorney General and Minister for Justice, Minister for Education and Training, and Minister for the Arts, and also Minister for Natural Resources. He is currently engaged in the fields of recycling, energy efficiency and renewable energy. Prior to his election to the Queensland Parliament, he was a Solicitor of the Supreme Court of Queensland and barrister of the High Court of Australia. Rod is the Chief Executive of the Australian Council of Recycling, Chairman of the Energy Management Institute, Deputy Chair of Astivita Renewables Limited and Managing Director of Integrated Resource Planners Pty Ltd. He is currently a director of the following listed companies: - Astivita Renewables Limited Ben Doyle Non-Executive Director Ben is a director of the Fiducia Property Group, and a licensed real estate agent in New South Wales. In the past ten years he has managed, developed and sold over $140 million dollars worth of residential real estate in Australia. He has significant experience in the acquisition, renovation, project management, design and marketing of property. In 2002 he received the prestigious NSW Real Estate Rookie of the Year Award. Fiducia s recent success has gained the REINSW Finalist Award for Project marketing 2008, HIA Building Awards Finalists in 2008 and 2010 for renovations and Additions. Ben is currently a director of the following listed public companies: - Vertua Ltd (listed on the NSX) 3

6 Directors Report Shareholdings held by Directors Directors Balance Received as Remuneration Issued as Consideration Shares Purchased Balance Peter Spann* 13,336, ,336,983 Michael Willis ** 20, ,000 Howard Woolcott ** 21, ,540 Alan Bennett Rod Welford Ben Doyle Total 13,378, ,378,523 * Peter Spann indirectly holds 8,341 ordinary shares through Fox Portfolio Pty Ltd, 6,953,542 through Smaartco No.2 Pty Ltd and 6,375,000 through Rohnan Pty Ltd (formerly Freeman Fox Securities Pty Ltd). ** Michael Willis and Howard Woolcott resigned during the last financial year. Remuneration Report (Audited) This report details the nature and amount of remuneration for each key management person of Excela Limited. AASB 124 Related Party Disclosures defines key management personnel as persons having authority and responsibility for the planning, directing and controlling activities of the entity, directly or indirectly. The only persons that have this authority are the Directors of Excela Limited, as well as the Chief Operating Officer (COO) and Chief Financial Officer (CFO). Remuneration Policy The board policy is to remunerate directors at market rates for time, commitment, experience and responsibilities. The remuneration committee determines payments to the directors and reviews their remuneration annually, based on market price, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees/salaries that can be paid to directors is subject to approval by shareholders at the Annual General Meeting. It is presently set at $300,000 per annum for the Executive Chairman and $250,000 in aggregate for all other directors. Directors Remuneration Mr Welford, Mr Doyle, Mr Willis, Mr Woolcott & Mr Bennett receive monthly directors fees as disclosed below pursuant to letters of appointment issued by the company. Formal contracts are not issued. The remuneration is a fixed fee and is not based on the performance of the company. All remuneration paid to directors is valued at the cost to the company and expensed. 4

7 Directors Report Executive Chairman s Remuneration To reflect the expanded operations of the Group and an increased workload, the Group entered into a new Executive Employment Agreement with Mr Peter Spann as Managing Director of the Group. This new agreement replaces the Executive Employment Agreement that Mr Spann entered into with the Group on 12 August Mr Spann is employed under an unlimited duration employment contract. Under that agreement, Mr Spann receives fixed remuneration and a short-term incentive. There are performance measures attached to the short-term incentive component of the remuneration. Mr Spann can terminate his employment by giving the company three (3) months written notice. The Board can waive the requirement for Mr Spann to serve out part or all of the notice period, though Mr Spann would be entitled to the fixed remuneration and the bonus component of the short-term incentive for that portion of the notice period not served out. The group can terminate Mr Spann s employment at any time by giving three (3) months written notice, or the group can elect to make a payment of the fixed remuneration and the bonus component of the short-term incentive in lieu of part or all of the notice period that Mr Spann is not required to serve. Under Mr Spann s employment agreement, he receives: - fixed remuneration, being a combination of base salary, superannuation and other fringe benefits that an individual employee could choose to salary sacrifice; - a short-term incentive linked to contribution and out-performance fees achieved in the funds management business (the bonus ). Under this incentive Mr. Spann is entitled to a bonus equivalent to: o 15% of contribution fees (excluding amounts paid to Freeman Fox Pty Ltd), attributable to additional Funds Under Management (FUM) during the financial period; o for the period 1 June 2011 to 30 June 2013, 0.3% of the average balance of the net assets of the Accelerator fund in excess of $20 million; and o 30% of Excela Equities Ltd EBITDA above $2.333 million in each completed financial year. Performance based payments are linked to inflows into the Group s managed funds. These payments constituted 2.8% (2011: 4.5%) of Mr Spann s total remuneration. Key Management Personnel Remuneration Director s / Executives Fees/Salaries Non-Cash Benefits Superannuation Total 2012 Total Compensation 794,521-46, , Total Compensation 548,665-33, ,700 5

8 Directors Report 2012 Total Compensation Directors / Executives Fees/Salaries ($) Bonus ($) Share-based payments ($) Superannuation ($) Total ($) Peter Spann * 291,444 8,975-15, ,194 Michael Willis ** 50, ,973 52,777 Howard Woolcott *** 20, ,323 Alan Bennett **** 66, ,000 Rod Welford 25, ,667 Directors Fees/Salaries 454,238 8,975-17, ,961 Michael Abbott 181, , ,670 Craig Burbury 150, , ,500 Other Key Management Personnel 331, , ,170 Total 785,546 8,975-46, ,131 * Mr Peter Spann s salary includes a prior period back-pay adjustment of $7,219. He was also approved 187,500 rights at the Company s 2011 Annual General Meeting on the 24 th November However, these were never issued. ** Mr Michael Willis was also remunerated as a director of Excela Equities Ltd. He was also approved 35,000 rights at the Company s 2011 Annual General Meeting on the 24 th November However, these were never issued as Mr Willis resigned on 1 December *** Mr Howard Woolcott was issued 35,000 rights following approval at the Company s 2011 Annual General Meeting. These lapsed upon Mr Woolcott s resignation on the 24 th January Accordingly an unrecorded share based payments expense of $158 was not recorded as this was subsequently reversed upon the rights lapsing. **** Mr Alan Bennett was also remunerated as a director of Excela Equities Ltd. Mr Bennett was also issued 35,000 rights following approval at the Company s 2011 Annual General Meeting. These lapsed upon Mr Bennett s resignation on the 6 th August Accordingly an unrecorded share based payments expense of $665 was not recorded as this was subsequently reversed upon the rights lapsing. Pay cuts of 20% ($155,000) were implemented across all management positions as outlined in ASX announcement dated 9 August Total Compensation Directors / Executives Fees/Salaries ($) Bonus ($) Share-based payments ($) Superannuation ($) Total ($) Peter Spann 222,466 11,320-15, ,952 Michael Willis 73, ,500 77,682 Howard Woolcott 36, ,000 Alan Bennett 36, ,000 Directors Fees/Salaries 367,648 11,320-19, ,634 Peter Conway * 23, ,744 Michael Abbott ** 98, , ,567 Craig Burbury *** 47, ,273 51,755 Other Key Management 169, , ,066 Personnel Total 537,345 11,320-33, ,700 * Mr Peter Conway was a director of Excela Equities Ltd. ** Mr Michael Abbott was Chief Operating Officer and commenced in the role on 15 th November He assumed the role as Chief Executive Officer on 1 st December *** Mr Craig Burbury is Chief Financial Officer and commenced in the role on 2 nd May Mr Burbury has also acted as Company Secretary for the Group since 8 th August

9 Directors Report Rights granted as remuneration Rights may be issued to executives and management as part of their remuneration. The rights are based on performance criteria as stipulated in the Long Term Incentive Plan that was approved at the Company s 2011 Annual General Meeting. There are no outstanding rights to executives or management apart from those issued to Mr Bennett that, subsequent to year end, lapsed upon his resignation on the 6 th August Rights may be issued to non-executive directors as part of their remuneration as stipulated in the Long Term Incentive Plan. The rights are not issued based on performance criteria but are issued as a retention mechanism for non-executive directors. Rights held by Directors Directors Balance Received as Remuneration Lapsed Balance Peter Spann Rod Welford Ben Doyle Howard Woolcott * - 35,000 (35,000) - Alan Bennett * - 35,000-35,000 Total - 105,000 (70,000) 35,000 * Rights issued to non-executive directors, as approved at the Company s 2011 Annual General Meeting, only vest upon three year s service by the non-executive directors. As such rights issued to Howard Woolcott lapsed upon his resignation from the Board during the year. Alan Bennett s rights have subsequently lapsed in August 2012 upon his resignation. Voting and Comments made at the Company s 2011 Annual General Meeting Excela Ltd received more than 76% of yes votes on its remuneration report for the 2011 financial year. The Company did not receive any specific feedback at the AGM on its remuneration report. Consequences of performance on shareholder wealth In considering the Group s performance and benefits for shareholder wealth, the Board have regard to the following in respect of the current financial year and the previous four financial years: EPS (cents) (0.26) (0.08) (0.16) (0.39) (0.23) Dividends (cents/share) Net profit/(loss) ($ 000) (7,356) (2,336) (3,090) (7,180) (4,546) Share price ($) Performance Based Remuneration The Executive Chairman s remuneration is 100% fixed but includes a performance based amount dependent on fund inflows and the performance of Excela Equities Ltd, as outlined earlier in this report. There is currently no other remuneration for key management personnel that are linked to performance, with all key management personnel receiving 100% fixed salaries, notwithstanding the 20% pay cuts implemented in August

10 Directors Report Hedging Of Securities In accordance with the Group s general share trading policy and employee share plan rules, participants are prohibited from engaging in hedging arrangements over unvested securities issued pursuant to any employee or director share plan. End of Remuneration Report (Audited) Meetings of Directors Directors Meetings Number eligible to attend Number attended Audit & Risk Committee Number eligible to attend Number attended Peter John Spann Michael Willis Howard Woolcott Alan Bennett Rod Welford Indemnifying Officers or Auditor During the year the group provided an indemnity to directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the group, other than conduct involving a wilful breach of duty in relation to the group. The content of the insurance prohibits disclosure of the nature of the liability and the amount of the premium. No indemnity is provided to the auditors. Proceedings on Behalf of Group No person has applied for leave of Court to bring proceedings on behalf of the group or intervene in any proceedings to which the group is a party for the purpose of taking responsibility on behalf of the group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. Non-audit Services The board of directors, in accordance with advice from the audit and risk committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act The directors are satisfied that the services disclosed below did not compromise the external auditor s independence for the following reasons: 8

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13 For the year ended 30 June 2012 Statement Of Comprehensive Income Note $ $ Revenue 2 4,522,476 5,392,172 Commission expense 1,337,820 1,511,579 Management & administration expenses 444, ,698 Marketing costs 833,998 1,151,752 Amortisation expense 639, ,028 Employment expenses 3 1,978, ,347 Occupancy expenses 778, ,791 Consultants fees 177, ,848 Office services expenses 362, ,746 Impairment of goodwill 13 1,572,483 - Impairment of identifiable intangible assets 13 2,220,840 - Impairment of financial assets - 500,000 Other expenses from ordinary activities 735, ,495 Directors fees, salaries 480, ,378 Insurance expense 295, ,975 Profit/(loss) before income tax (7,334,199) (2,323,465) Income tax expense/(benefit) 4 21,514 12,104 Profit/(loss) after tax (7,355,713) (2,335,569) Other comprehensive income - - Total comprehensive income for the year (7,355,713) (2,335,569) Overall operations: Basic and diluted earnings per share (cents) 7 (0.26) (0.08) The above statement should be read in conjunction with the accompanying notes. 11

14 As at 30 June 2012 Statement Of Financial Position Note $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 8 893, ,652 Trade and other receivables 9 270, ,890 Other financial assets ,910 2,874,056 Other current assets , ,591 TOTAL CURRENT ASSETS 1,510,654 4,528,189 NON-CURRENT ASSETS Intangibles 13 3,877,474 8,310,517 TOTAL NON-CURRENT ASSETS 3,877,474 8,310,517 TOTAL ASSETS 5,388,128 12,838,706 LIABILITIES CURRENT LIABILITIES Trade and other payables , ,185 Short-term provisions ,603 42,522 TOTAL CURRENT LIABILITIES 577, ,707 TOTAL NON-CURRENT LIABILITIES - - TOTAL LIABILITIES 577, ,707 NET ASSETS 4,810,617 12,222,999 EQUITY Issued Capital 16 25,634,451 25,691,120 Retained earnings (20,823,834) (13,468,121) TOTAL EQUITY 4,810,617 12,222,999 The above statement should be read in conjunction with the accompanying notes. 12

15 For the year ended 30 June 2012 Statement Of Cash Flows Note $ $ CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from trading investments - 3,824,947 Payments for trading investments - (159,254) Commission income 5,146,207 4,837,511 Event Income 162,108 - Investment income (258,446) 357,955 Payments to suppliers & directors (7,214,428) (6,234,595) Payments related to management and investment trading (488,400) (508,698) Tax (paid)/ refunded (21,514) 5,810 Net cash provided by /(used in) operating activities 20 (2,674,473) 2,123,676 CASH FLOWS FROM INVESTING ACTIVITIES Payment for subsidiary, net of cash acquired - (2,027,148) Net cash provided by /(used in) investing activities - (2,027,148) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from redemption of investments 2,688,145 - Shares bought back (56,669) (65,494) Net cash provided by financing activities 2,631,476 (65,494) Net increase /(decrease) in cash held (42,997) 31,034 Cash and cash equivalents at the beginning of the financial year 936, ,618 Cash and cash equivalents at end of financial year 8 893, ,652 The above statement should be read in conjunction with the accompanying notes. 13

16 As at 30 June 2012 Statement Of Changes In Equity Share Capital Retained Ordinary Earnings Total Note $ $ $ Balance ,403,176 (11,132,552) 10,270,624 Shares issued during the year 3,458,438-3,458,438 Deferred equity consideration recognised 895, ,000 Shares bought back during the year (65,494) - (65,494) Loss attributable to members - (2,335,569) (2,335,569) Sub-total 25,691,120 (13,468,121) 12,222,999 Dividends paid or provided for Balance at ,691,120 (13,468,121) 12,222,999 Balance ,691,120 (13,468,121) 12,222,999 Shares bought back during the year (56,669) - (56,669) Loss attributable to members - (7,355,713) (7,355,713) Sub-total 25,634,451 (20,823,834) 4,810,617 Dividends paid or provided for Balance at ,634,451 (20,823,834) 4,810,617 The above statement should be read in conjunction with the accompanying notes. 14

17 Note 1 Statement of Significant Accounting Policies The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act The financial statements cover Excela Limited and its controlled entities as a consolidated entity ( Group ). Excela Limited is an ASX listed public company incorporated and domiciled in Australia. The financial report of Excela Limited complies with all International Financial Reporting Standards (IFRS) in their entirety. The following is a summary of the material accounting policies adopted by the Group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. The financial statements have been authorised for issue by the Directors on 28 September Basis of preparation The following is a summary of the material accounting policies adopted by the Group in the preparation of the financial report. Reporting Basis and Conventions The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected financial assets and financial liabilities for which the fair value basis of accounting has been applied. Going Concern The Directors have prepared the financial statements on the going concern basis which assumes the Group will continue to pay its debts as and when they fall due. As announced to the ASX on 9 th August 2012 a comprehensive review of the business segments and cost structure has been undertaken with a view to reducing the overhead costs of running the business. This has seen a reduction in staff numbers, existing salaries and associated costs to a more sustainable level going forward. An additional focus is on delivering new products and restoring revenue growth to drive a return to profitability. A key initiative is entering into accommodation and serviced office arrangements more suited to Excela s size and needs. This initiative is dependent on negotiating an exit from the existing lease agreements. At the date of this report negotiations are on hold with a prospective tenant whilst they assess the position of their own office space. This will have the additional benefit of releasing the Group s cash security ($550,000) over its bank guarantee at the current premises, making it available to meet operational costs. The Group is pursuing legal action against former brokers associated with the loss of Excela clients and revenue. A Statement Of Claim is to be lodged imminently, with the majority costs associated with this action having already been incurred. No account has been made of any financial settlement that may arise from the action due to the uncertainty of the outcome itself and the quantum of any settlement. The Group is also in the early stages of investigating alternative funding sources to assist in stabilising cash flow going forward. It is evident on cash forecasts that additional cash is needed in the immediate term; particularly until such time that the accommodation and serviced office arrangements are resolved. 15

18 These matters represent a material uncertainty relating to going concern. Should these initiatives not be addressed successfully the company may not be able to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the financial report. Accounting policies a. Revenue Recognition The activity of the Group is that of a stockbroking, investment and funds management company, returns being in the form of commissions, dividends, trust distributions, interest income, trading income and options income. Dividend income is recognised at the ex-dividend date. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Realised gains and losses arising from the disposal of equity investments are recognised in the Statement of Comprehensive Income as investment gains or losses. Premiums on options are recognised as income when an option is written. Management Fees and commissions earned from the funds are calculated based on agreed percentage of the respective funds under management or administration, and are recognised on an accrual basis. Stockbroking commissions are earned based on trading activity and schedules of rates as agreed to with the securities clearing house. Revenues are recognised as income at the point at which the underlying trades are settled. b. Financial assets at fair value through profit or loss Under AASB 139 marketable securities are designated in the Statement of Financial Position as financial assets at fair value through profit and loss. These investments are initially recognised at fair value, typically represented by cost including transaction costs. Investments are measured at fair value and include transaction costs. Investments are valued based on quoted bid market prices at balance date. Gains and losses from changes in the fair value of the financial assets are included in the Income statement in the period in which they arise. In accordance with IFRS, derivative instruments are categorised as financial assets at fair value through profit or loss and are accounted for at fair value, with changes to such values to be recognised through the Income statement in which they arise. Open options positions are valued based on quoted bid market prices at balance date. Gains and losses from changes in the fair value of the financial assets are included in the Income statement in the period in which they arise. Available-for-sale financial assets c. Shares in unlisted corporation Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. 16

19 d. Cash For the purposes of the statement of cash flows, cash includes cash on hand and at call with banks or financial institutions, net of bank overdrafts; and investments in money market instruments with less than 30 days to maturity. e. Payables Payables represent the principal amounts outstanding at balance date, plus where applicable, any accrued interest. f. Income tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date. The income tax calculations have been prepared on the basis of the tax consolidated group that was formed on the 1 st July 2010 with an appropriate tax-sharing agreement in place. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. g. Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances, GST is recognised as part of the costs of acquisition of the asset or as part of an expense item. Receivables and payables in the statement of financial position are shown inclusive of GST. Receivables Trade accounts receivable, amounts due from related parties and other receivables represent the principal amounts due at balance date plus accrued interest and less, where applicable, any unearned income and provision for doubtful accounts. Investments in associates Investments in associates are recognised in the financial statements by applying the equity method of accounting. 17

20 h. Impairment At each reporting date, the company assesses whether there is objective evidence that a financial instrument or intangible asset has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the Statement of Comprehensive Income. i. Critical accounting estimates and judgments The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Key judgments Valuation of shares in unlisted corporation. The directors are continuing to monitor the recoverability of the investment in Rohnan Pty Ltd having written the investment down in the 2011 financial year. Assessment of the effect life of intangible assets The directors have assessed that the goodwill (Note 13) recognised in relation to the acquisition of the Excela Equities Limited (stockbroking) business continues to be indefinite, on the basis of continued profitability in the business with no intentions to wind down or cease trading. Initiatives are actually being implemented to attract new clients, particularly in the self-managed superannuation space. The directors have assessed that the useful life previously ascribed to the management rights intangible (Note 13) which was recognised in relation to the Excela Funds Management acquisition, being 7 years, continues to be appropriate. For the reasons set out in Note 12, the directors have re-assessed FUM growth over the remaining 5 year useful life and written down the carrying value accordingly. This includes a re-evaluation of the financial viability of the respective funds with a view to delivering a more cost effective structure. The directors have assessed that the useful life previously ascribed to the customer relationship intangible(note 13) which was recognised in relation to the Excela Equities Limited (stockbroking) acquisition, being 10 years, continues to be appropriate. This useful life has been attributed based on historical customer retentions of 80% per annum, albeit there was a loss of clients in the current financial year. This is not considered reflective of historical client retention rates in the normal course of business however. Onerous Lease Further to the group s announcement of 9 th August 2012 in relation to business restructuring initiatives, the directors have determined subsequent to year end the current office lease is onerous in the sense of the space that is surplus to its current needs. 18

21 j. Business combinations Business combinations occur where control over another business is obtained and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the purchase method. The purchase method requires an acquirer of the business to be identified and for the cost of the acquisition and fair values of identifiable assets, liabilities and contingent liabilities to be determined as at acquisition date, being the date that control is obtained. Cost is determined as the aggregate of fair values of assets given, equity issued and liabilities assumed in exchange for control together with costs directly attributable to the business combination. Any deferred consideration payable is discounted to present value using the entity s incremental borrowing rate. A controlled entity is any entity that Excela Limited has the power to control the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing the power to govern, the existence and effect of holdings of actual and potential voting rights are considered. A list of controlled entities is contained in Note 25 to the financial statements. All controlled entities have a June financial year end. As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. All inter-company balances and transactions between entities in the group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Goodwill is recognised initially at the excess of cost over the acquirer s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the fair value of the acquirer s interest is greater than cost, the surplus is immediately recognised in profit or loss after the fair value of the acquired assets and liabilities have been reassessed. 19

22 Intangibles k. Goodwill Goodwill on consolidation is initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Management Agreements Management agreements are recognised at cost of acquisition. Management agreements have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Management agreements are amortised over their useful life determined by the Directors as 7 years. Customer Relationships Customer relationship intangible assets are recognised upon acquisition as part of business combinations, and are valued at fair value at acquisition date based on the expected economic benefits to be realised over the effective life. Customer relationships have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Customer relationships are amortised over their useful life determined by the Directors as 10 years. Australian Financial Services Licence The Australian Financial Services Licence was recognised upon acquisition as part of a business combination, and is valued at fair value at acquisition date based on the costs incurred to obtain the licence which approximate the costs for a third party entity to replicate the asset. The licence is deemed to have an indefinite life and is tested annually for impairment and carried at cost less accumulated impairment losses. l. Adoption of New and Revised Accounting Standards During the current year the Group adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory. The adoption of these standards, which are listed below, has not had a significant impact on the financial statements of the Group in the current period or any prior period and are not likely to affect future periods: The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 July 2011: AASB 124 / AASB Related Parties / Amendments to Australian Accounting Standards; AASB Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project; AASB Amendments to Australian Accounting Standards editorial amendments to reflect changes made to the text of International Financial Reporting Standards; AASB Amendments to Australian Accounting Standards Disclosures on Transfers 20

23 of Financial Assets; and AASB 1054 Australian Additional Disclosures arising from the Trans-Tasman Convergence project. m. New accounting standards for application in future periods The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group is as follows: AASB 9: Financial Instruments (December 2010) (applicable for annual reporting periods commencing on or after 31 December 2015) This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The Group has not yet determined any potential impact on the financial statements. The key changes made to accounting requirements include: simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument requiring financial assets to be reclassified where there is a change in an entity s business model as they are initially classified based on: (a) the objective of the entity s business model for managing the financial assets; and (b) the characteristics of the contractual cash flow, and requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss AASB : Amendments to Australian Accounting Standards Deferred Tax: Recovery of Underlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012) This Standard makes amendments to AASB 112: Income Taxes. The amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model under AASB 140: Investment Property. Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic 21

24 benefits embodied in the investment property over time, rather than through sale. The amendments brought in by this Standard also incorporate Interpretation 121 into AASB 112. The amendments are not expected to impact the Group. AASB : Amendments to Australian Accounting Standards [AASB 10, AASB 11, AASB 12, AASB 127 & AASB 128] arising from the Consolidation and Joint Arrangement Standards (applies to periods beginning on or after 1 January 2012) The Standard gives effect to consequential changes arising from the issuance of the new standards. The Group has not yet determined the impact on the financial statements of adopting the respective standards. AASB : Amendments to Australian Accounting Standards Presentation of Other Comprehensive Income [AASB 101] (applies to period beginning on or after 1 July 2012) The Standard details amendments to items presented in other comprehensive income on the basis as to whether they, in subsequent periods, may be re-classified to profit and loss. These items are to be separated and classified within other comprehensive income into reclassification adjustments to profit and loss and those that will not be re-classified. The Group has not yet determined the impact on the financial statements of adopting the standard. AASB : Amendments to Australian Accounting Standards Disclosures Offsetting Financial Assets and Financial Liabilities (applies to period beginning on or after 1 January 2012) The Standard amends the required disclosures in AASB 7 to include information on netting arrangements, including rights of set-off associated with the Group s recognised financial assets and recognised financial liabilities. This has the aim of enabling users to evaluate the effect or potential effect on the Group s financial position. The amendments are not expected to impact the Group. AASB : Amendments to Australian Accounting Standards Offsetting Financial Assets and Financial Liabilities (applies to period beginning on or after 1 January 2013) The Standard provides additional guidance to AASB 132 in identifying offsetting criteria. This includes guidance on currently has a legally enforceable right of set-off and that some gross settlement systems may be considered equivalent to net settlement. The amendments are not expected to impact the Group. AASB : Amendments to Australian Accounting Standards arising from Annual Improvements Cycle (applies to period beginning on or after 1 January 2013) These amendments follow the issuance of Annual Improvements to IFRSs Cycle issued by the International Accounting Standards Board in May 2012.These amendments are not expected to impact the Group. Mandatory Effective Date of IFRS 9 and Transition Disclosures (applies to period beginning on or after 1 January 2015) This Standard amends IFRS 9 to require application for annual periods beginning on or after 1 January 2015, rather than 1 January IFRS 9 is also amended so that it does not require the restatement of comparative period financial statements for the initial application of the classification and measurement requirements. These amendments are 22

25 not expected to impact the Group. AASB 11: Joint Arrangements This standard eliminates the option to use the proportionate consolidation method of accounting for interest in joint venture entities. The group has not yet determined the extent of the impact of the amendments on the financial statements. AASB10: Consolidated Financial Statements this standard introduces a new, principlebased definition of control which will apply to all investees to determine the scope of consolidation. Traditional control assessments based on majority ownership of voting rights will very rarely be affected. However, 'borderline' consolidation decisions will need to be reviewed and some will need to be changed taking into consideration potential voting rights and substantive rights. The group has not yet determined the extent of the impact of the amendments on the financial statements. AASB 12: Disclosure of Interests in Other Entities this standard combines the disclosure requirements for subsidiaries, joint arrangements, associates and structured entities within a comprehensive disclosure standard. It aims to provide more transparency on 'borderline' consolidation decisions and enhance disclosures about unconsolidated structured entities in which an investor or sponsor has involvement. Summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests will require disclosure. The group has not yet determined the extent of the impact of the amendments on the financial statements. AASB 13: Fair Value Measurement This standard has been created to: establish a single source of guidance for all fair value measurements; clarify the definition of fair value and related guidance; and enhance disclosures about fair value measurements (new disclosures increase transparency about fair value measurements, including the valuation techniques and inputs used to measure fair value) The group has not yet determined the extent of the impact of the amendments on the financial statements. 23

26 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 2. Revenue Note $ $ Realised investment gain /(loss) (473,280) 168,300 Unrealised investment gain /(loss) - (244,804) Option premiums received - 31,901 Event revenue 147,371 - Interest received 54,124 50,894 Dividend income - 20,096 Distributions received 115, ,274 Commissions received 4,678,370 4,837,511 Total revenue 4,522,476 5,392, Employment Expenses Salaries & wages 1,557, ,617 Superannuation 158,945 95,177 Payroll tax 108,321 1,554 Recruitment costs 54,398 71,477 Other expenses 99,220 42,522 1,978, , Income Tax Expense a. The components of tax expense comprise: Current tax 21,514 12,104 Deferred tax ,514 12,104 The prima facie tax on profit/(loss) before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit/(loss) (2,200,261) (697,039) before income tax at 30% (2011: 30%) Add tax effect of: - tax relating to pre-acquisition period (Excela Equities Ltd) 21, non-deductible professional fees 73,693 32,321 - non-deductible impairment and amortisation 1,329, ,308 - other non-deductible expenses - 102,572 (775,140) (207,838) 24

27 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 4. Income Tax Expense (cont) Less tax effect of: - other non-deductible expenses (28,115) - - amounts deductible over 5 years (109,475) (48,740) - deferred tax asset not recognised on tax loss 934, ,682 Income tax expense attributable to profit/(loss) before income tax 21,514 12,104 Applicable weighted average effective tax rates are as follows: -% -% 5. Auditors Remuneration Note $ $ Remuneration of the auditor for: - audit of the financial report (including Australian 44,000 44,500 Financial Services Licence) - review of the half year report 19,800 24,548 - other services: taxation services 18,692 13,290 82,492 82, Dividends a. Distributions paid Interim fully franked dividend of nil (2011: 0.0) cents - - per share franked at the tax rate of 30% (2011: 30%) Total dividends per share for the period - - b. Dividend Franking Account Balance of franking account at year end adjusted for franking credits arising from payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and franking credits that may be prevented from distribution in subsequent financial years. The closing balance has been affected by the formation of the tax consolidated group and the transfer of franking account balances from subsidiary members of the group. 969, ,187 25

28 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 7. Earnings Per Share Note $ $ Earnings used in the calculation of earnings per (7,355,713) (2,335,569) share and dilutive earnings per share is the net profit/(loss) after tax Weighted average number of ordinary shares 28,061,557 28,006,837 outstanding during the year used in calculating basic and dilutive EPS 8. Cash and Cash Equivalents Cash at bank 893, , , ,652 A term deposit of $550,000 secures a bank guarantee in relation to the Group's leased office space in Brisbane (Note 18). The use of these funds is restricted while the office lease remains in place. 9. Trade and Other Receivables Other debtors 25,601 86,061 Accrued income 244, , , , Other Financial Assets Financial assets at fair value through profit or loss Shares in listed corporations, at cost 1 185, ,910 Managed funds, at market value - 2,688, ,910 2,874,056 Available-for-sale financial assets Shares in unlisted corporation, at cost 2 22(iii) 500, ,000 Less provision for impairment * (500,000) (500,000) 185,910 2,874,056 * The directors are continuing to monitor the recoverability of this investment. 26

29 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 10. Other Financial Assets (cont) Fair value has not been reported for these assets as it can not be measured reliably: 1. These shares are held in Vertua Ltd, a company listed on the NSX and whose most recent on-market trade was 4 years ago, this not considered a reliable measure of fair value. 2. These shares are held in Rohnan Pty Ltd, a private company. As such there is no active market for these shares and no reliable measure of fair value. 11. Tax Note $ $ Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1 (f) occur: Deductible temporary differences: $109,496 (2011: $128,103) Tax losses: operating losses $4,068,165 (2011: $2,376,316) 12. Other Current Assets Prepayments 161, , , , Intangibles Goodwill Cost 3,761,586 3,761,586 Accumulated impairment losses (1,572,483) - Net carrying value 2,189,103 3,761,586 Management Rights Cost 2,877,000 2,877,000 Accumulated amortisation (1,118,308) (727,493) Accumulated impairment losses (1,310,920) - Net carrying value 447,772 2,149,507 27

30 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 13. Intangibles (cont) Note $ $ Customer Relationships Cost 2,489,000 2,489,000 Accumulated amortisation (468,481) (219,576) Accumulated impairment losses (909,920) - Net carrying value 1,110,599 2,269,424 Australian Financial Services Licence 130, ,000 Total Intangibles 1,240,599 2,399,424 Australian Financial Management Customer Services Goodwill Rights Relationships Licence Total $ $ $ $ $ Year ended 30 June 2011 Balance at the beginning of year - 2,610, ,610,959 Additions 3,761,586-2,489, ,000 6,380,586 Disposals Amortisation charge - (461,452) (219,576) - (681,028) Impairment losses Closing value at 30 June ,761,586 2,149,507 2,269, ,000 8,310,517 Year ended 30 June 2012 Balance at the beginning of year 3,761,586 2,149,507 2,269, ,000 8,310,517 Additions - - Disposals Amortisation charge - (390,816) (248,904) - (639,720) Impairment losses (1,572,483) (1,310,920) (909,920) - (3,793,323) Closing value at 30 June ,189, ,771 1,110, ,000 3,877,474 Impairment Disclosures - Goodwill Goodwill is allocated to cash-generating units (CGU's) which are based on the Group's business segments which represent the lowest level within the Group at which goodwill is monitored for internal management purposes. These segments are representative of the operating segments as defined by accounting standards and as disclosed at Note

31 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 13. Intangibles (cont) Goodwill has arisen following the acquisition of Excela Equities Ltd on the 12th August All goodwill is attributed to the stockbroking cash generating unit. The recoverable amount of the cash-generating unit is determined based on value-in-use calculations. The value-in-use is calculated based on the present value of cash flow projections over a 5-year period. The cashflows are discounted using an appropriate post-tax discount rate, which was derived by an independent expert in performing purchase price allocation calculations. This rate represents the cost of equity of the Group, which has no debt. The growth rate is reflective of the slow-down that has been seen in the retail stockbroking sector. The following assumptions were used in the value-in-use calculations: Growth rate 2% Discount rate 12% Excela Funds Management Pty Ltd Identifiable intangibles represent management rights agreements acquired by Excela Funds Management Pty Ltd (wholly owned subsidiary of Excela Ltd acquired 7 January 2010) to act as fund manager for three funds; Generator, Emergent and Maximiser. These management agreements have varying expiration dates, the longest of which runs to 21 April Given the uncertainty with looking forward over such a period, management have thought it prudent to adopt a seven year period as reflective of the useful life of these agreements. It was deemed that there was no change to effective life as a result of current year impairment write-downs. The purchase consideration has been allocated to the respective management agreements by forecasting revenues derived from funds under management (FUM) over the seven year period. At balance date the FUM growth projections have been re-assessed in light of the current financial and investment climate. As such impairment write-downs have been recognised which reflect a conservative approach to FUM generation in the near term. The structure and running costs of the Group's funds are also being assessed in terms of their respective financial viability going forward, with a view to delivering a more cost effective structure. 29

32 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 13. Intangibles (cont) Excela Equities Ltd Identifiable intangibles represent Excela Equities Limited's external customer relationships, or stockbroking clients. The non-excela customer relationships represent the right of Excela to undertake stockbroking activities on behalf of its pre-existing customer base. Given the retentive nature of the customer relationships (historically 80% of customers were repeat customers under normal circumstances), a ten year useful life has been attributed to these customer relationships. This has been reviewed by management and determined as remaining appropriate, as clients, without direct intervention, remain clients of Excela over an extended period. It was deemed that there was no change to effective life as a result of current year impairment write-downs. As had been noted previously in the Company's ASX release in June 2012, the majority of the Company's stockbroking team left Excela in April/May this year. This has had a significant impact through the loss of stockbroking clients, the value of those clients previously being reflected in the value of the Customer Relationship intangible asset. The resulting decrease in revenue from these clients in the future has necessitated the recognition of an impairment loss in the value of this intangible asset. A Statement Of Claim is to be lodged imminently. 14. Trade and Other Payables Note $ $ Trade creditors 277, ,711 Accrued expenses 186, , , , Provisions Employee Benefits Total $ $ Opening balance at 1 July ,522 - Additional provisions 71,081 42,522 Closing Balance at 30 June ,603 42,522 30

33 For the year ended 30 June 2012 Notes To The Financial Statements (cont) $ $ 16. Issued Capital 28,031,981 fully paid ordinary shares (2011: 28,363,145) 26,546,697 26,603,366 Capital raising costs (912,246) (912,246) 25,634,451 25,691, No. No. Ordinary Shares At the beginning of the reporting period 28,363,145 22,242,624 Shares issued during the year: - shares issued in consideration of acquisition of - 6,375,000 Excela Equities Ltd Shares bought back during the year - 331,164 ordinary shares (2011: 254,479) (331,164) (254,479) 28,031,981 28,363,145 The Company has maintained in place the on-market share buy-back, but does not intend to exceed buying back above the 20% figure where shareholder approval is required. The Company's cash reserves are unlikely to be utilised in this area moving forward. At the date of this report 6,482,651 shares have been purchased under the buy-back plan at a cost of $4,298,651. Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the company does not have authorised capital or par value in respect of it issued shares. The ordinary shares participate in dividends and the proceeds on winding up in proportion to the number of shares held. At shareholders meetings each ordinary shareholder is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. On 7 January 2010 the company issued 6,953,542 ordinary shares at $0.60 each to the vendors of Excela Funds Management Pty Ltd as full consideration for the purchase of that subsidiary. These shares were released from voluntary escrow in January On 12 August 2010 the company issued 6,375,000 ordinary shares at $0.40 each to the vendors of Excela Equities Ltd as part consideration for the purchase of that subsidiary. These shares were released from voluntary escrow in September

34 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 17. Commitments Operating Lease Committments Non-cancellable operating lease contracted for but not capitalised in the financial statements Note $ $ Payable - minimum lease payments: - not later than 12 months 552, ,219 - between 12 months and 5 years 1,519,489 2,033,322 - greater than 5 years - - 2,072,031 2,575,541 The property lease is a non-cancellable lease with a 5 year term, with rent payable monthly in advance. Provisions within the lease note that the minimum lease payments shall be increased by 4% per annum. There is no option to renew the lease at the end of the five year term. Negotiations are currently underway with a number of prospective tenants to sub-lease or take over the Group's leased space, with the landlord having granted approval to do so. The exit of the lease will free-up the $550,000 term deposit securing the current bank guarantee for the leased space, giving the Group increased available cash reserves. Premises & Services charges of $35,972 and $26,050 respectively are being paid to Smaartco Pty Ltd on a month-to-month basis pursuant to agreements struck in the prior year. 18. Contingent Liabilities A bank guarantee of $550,000 is in place for the leased office space at Level 21, 333 Ann Street Brisbane, secured by a term deposit for the same amount (Note 8). There are warranty claims by clients of Excela Equities Limited under its Australian Financial Services Licence, prior to its acquisition by Excela Limited on 12 August However, an indemnity was provided by the vendor, and the Group is therefore not liable. 19. Segment information The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of the service areas it provides, with segments determined on the same basis. Those segments are: (i) investment management, comprising the management of an investment portfolio consisting of managed fund investments; and (ii) funds management, being the provision of a multi-manager approach, using sector specialists; (iii) stockbroking; and (iv) events. 32

35 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 19. Segment information (cont) Basis of accounting for purposes of reporting by operating segments (a) Accounting policies adopted Unless stated otherwise, all amounts reported to the Board of Directors, being the chief decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. (b) Inter-segment transactions There are no inter-segment sales. (c) Segment assets Where an asset is used across multiple segments, the asset is allocated to that segment that receives the majority of economic value from that asset. (d) Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables and provisions. (e) Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: - income tax expense, current tax liabilities. 33

36 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 19. Segment information (cont) (f) Segment performance 30 June 2012 Investment Funds Stock- M'ment M'ment Broking Events Total REVENUE $ $ $ $ $ External revenue (357,389) 696,116 3,982, ,371 4,468,352 Less inter-segment sales Interest revenue 42,427-11,697-54,124 Total segment and group revenue (314,962) 696,116 3,993, ,371 4,522,476 Segment net profit/(loss) before tax (314,962) (1,820,980) 845,361 (303,264) (1,593,845) and amortisation from continuing operations Less amortisation expense - (390,816) (248,904) - (639,720) Less impairment of goodwill - - (1,572,483) - (1,572,483) Less impairment of intangible assets - (1,310,920) (909,920) - (2,220,840) Segment net profit/(loss) after tax (314,962) (3,522,716) (1,885,946) (303,264) (6,026,888) and amortisation from continuing operations Reconciliation of segment result to group net profit/(loss) before tax Amounts not included in segment result but reviewed by Board: - company holding costs (1,307,311) Net profit/(loss) before tax from continuing operations (314,962) (3,522,716) (1,885,946) (303,264) (7,334,199) 34

37 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 19. Segment information (cont) Segment Performance 30 June 2011 Investment Funds Broking Managem't Managem't 13/8/10-30/6/11 Total REVENUE $ $ $ External revenue 503, ,762 3,890,733 5,341,262 Less inter-segment sales Interest revenue 35,328-15,582 50,910 Total segment and group revenue 539, ,762 3,906,315 5,392,172 Segment net profit/(loss) before 467,756 (2,407,273) 1,305,459 (634,058) amortisation from continuing operations Less amortisation expense - (461,452) (219,576) (681,028) Less impairment of goodwill (500,000) - - (500,000) Segment net profit/(loss) after (32,244) (2,868,725) 1,085,883 (1,815,086) amortisation from continuing operations Reconciliation of segment result to group net profit/(loss) before tax Amounts not included in segment result but reviewed by Board: - company holding costs (508,379) Net profit/(loss) before tax from (32,244) (2,868,725) - (2,323,465) continuing operations (g) Segment Assets Investment Funds Stock- 30 June 2012 Managem't Managem't Broking Total $ $ $ $ Segment assets 1,067, ,122 3,819,081 5,388,128 Segment asset increases for the period - acquisitions Total Group Assets 1,067, ,122 3,819,081 5,388,128 Segment Assets Investment Funds Stock- 30 June 2011 Managem't Managem't Broking Total $ $ $ $ Segment assets 3,966,441 2,232,295-6,198,736 Segment asset increases for the period - acquisitions - - 6,639,970 6,639,970 Total Group Assets 3,966,441 2,232,295 6,639,970 12,838,706 35

38 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 19. Segment information (cont) (h) Segment Liabilities Investment Funds Stock- 30 June 2012 Managem't Managem't Broking Total $ $ $ $ Segment liabilities - 274, , ,511 Segment liabilities increases for the period - acquisitions Total Group Liabilities - 274, , ,511 Segment Liabilities Investment Funds Stock- 30 June 2011 Management Management Broking Total $ $ $ $ Segment liabilities - 300, ,923 Segment liabilities increases for the period - acquisitions , ,784 Total Group Liabilities - 300, , ,707 (i) Geographical Region The Group currently operates in one geographical segment, being Australia. 20. Cash Flow Information Note $ $ (a) Reconciliation of cash flow from operations with profit after income tax Profit/(loss) after income tax (7,355,713) (2,335,569) Non cash flows in profit/(loss) - amortisation 639, ,028 - impairment of goodwill 1,572, impairment of financial assets - 500,000 - impairment of identifiable intangible assets 2,220,840 - Changes in assets and liabilities (Increase)/decrease in receivables 44,819 (196,707) (Increase)/decrease in other financial assets - 3,665,694 (Increase)/decrease in current tax asset - 5,810 (Increase)/decrease in other assets 241,574 (387,316) Increase/(decrease) in provisions 71,081 42,522 Increase/(decrease) in payables (109,277) 148,214 Cash flow from operations (2,674,473) 2,123,676 36

39 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 20. Cash Flow Information (cont) The acquisition of Excela Equities Ltd in the prior year was a partial scrip for scrip transaction, with the balance of the consideration being a cash payment of $1,950, Events After the Reporting Period The directors authorised the financial statements for issue on 28 September On 9 August 2012 the Group made an announcement in relation to business restructuring initiatives, including strategies to address the onerous lease aspects of the current office space. A Statement Of Claim is to be lodged imminently in relation to the departure of the previous stockbrokers and associated loss of clients. 22. Related Party Transactions $ $ (i) Administration Fee An administration fee of $5,358 per month plus goods and services tax, was paid by Excela Ltd in the prior year to Fox Portfolio Pty Ltd, a company controlled by Mr Peter Spann during the year. This fee covered the provision of administration support services to the Group. Excela Ltd is a financial services provider and could claim only 75% of the GST paid. As such an unrecoverable expense of $402 in relation to the GST on the administration service fee was incurred. - 64,698 (ii) Commissions Excela Funds Management Pty Ltd (EFM), in its capacity as fund manager of its funds Generator, Emergent, Maximiser and the Accelerator Fund, pays trail and up-front commissions to Freeman Fox Pty Ltd, a company owned by Mr Peter Spann during the year: - trail commission 173, ,359 - up-front commission 96, ,948 37

40 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 22. Related Party Transactions (cont) $ $ (iii) Investments in Related Entities On 20 January 2009, Excela Ltd acquired 675,000 shares (5%) in Rohnan Pty Ltd, a private company, at the time of the transaction, 100% owned ultimately by Mr Peter Spann, at a cost of $500, Rohnan Pty Ltd is the parent company of the Freeman Fox Group and its associated business operations. The directors are of the opinion that the investment was on at least an arm's length basis and does not constitute a substantial asset as defined in the ASX listing rules. The directors are continuing to monitor the recoverability of this of this investment. NSX listed director related entities held by the Company at year end: Vertua Ltd 185, ,910 (iv) Consultancy Services Consultancy fees regarding due diligence services were provided by Woolcott Corporate Development Pty Ltd, a company of which former director Howard Woolcott is a director, as follows: - Excela Equities Ltd acquisition - 11,000 - strategic / business plan development - 10,250 (v) Premises & Services Charges Premises and Services charges were paid by Excela Ltd to Smaartco Pty Ltd, a company controlled by Mr Peter Spann during the year. These charges include, but are not limited to: (i) equipment leases; (ii) communications charges; (iii) use of servers, network and internet; (iv) use of telephone handsets, VOIP & call recording facilities; (v) CRM; and (vi) Xplan software. 719, ,312 38

41 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 23. Financial Risk Management The Group isexposed to a variety of financial risks including market risk (price risk and interest rate risk), credit risk and liquidity risk. The Board of the Group monitors these risk factors as part of regular reviews of financial performance. Financial Risk Management Policies The Audit and Risk Committee (ARC) has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the Group. The ARC monitors the Group's financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to market risk, credit risk, liquidity risk and interest rate risk. The ARC met twice during the year and minutes of the ARC are reviewed by the Board. The ARC's overall risk management strategy seeks to assist the Group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of credit risk policies, market risk including review of the investment manager and future cash flow requirements. (a) Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance 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 $ $ Classes of financial assets - carrying amounts Cash and cash equivalents 893, ,652 Trade and other receivables 270, ,890 Financial assets 185,910 2,874,056 Other current assets 161, ,591 1,510,654 4,528,189 The Group has no significant concentration of credit risk with any single counter party or group of counter parties. Credit risk related to balances with banks and other financial institutions is managed by the ARC in accordance with approved Board policy. Surplus funds are only invested with Australian major financial institutions. 39

42 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 23. Financial Risk Management (cont) (b) Market Risk Market risk is the risk that the fair value offinancial instruments will fluctuate because of changes in market prices. The Group is inherently exposed to market risk as it invests its capital in securities whose prices fluctuate, that is, that are not risk free. At 30 June 2012 had the price of the shares held by the group in other entities increased / decreased by 10% (2011: 10%) with all other variables held constant, post-tax profit for the year would increase/ decrease by $1,863 (2011: $9,995). The key direct risks associated with the consolidated entity are those driven by investment and market volatility and the resulting impact on FUM and stockbroking activities, or a reduction in the growth of FUM. Reduced FUM will directly impact on commissions income and profit, because commissions income is calculated as a percentage of FUM. FUM can be directly impacted by a range of factors including: poor investment performance, market volatility, a reduction in the ability to retain and attract investors, a loss of key personnel, and investor allocation decisions. The Group's market risk exposure is also impacted due to the illiquid nature of its investment in Rohnan Pty Ltd (formerly Freeman Fox Securities Pty Ltd), a private director-related company. Risk concentration is assessed on a counterparty basis with regards contribution to total revenue. Excela Equities Ltd conducts the stockbroking function for the Group's four managed funds, contributing 30% of gross stockbroking revenue. Due to the high perentage of total stockbroking revenue that the funds contribute, there is an acknowledged concentration of risk. (c) Interest Rate Risk The Group's exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and liabilities is set out below: 30 June 2012 Floating Non Interest Interest Rate Bearing Total $ $ $ Financial assets - 185, ,910 Trade and receivables - 270, ,071 Cash assets 893, , , ,981 1,349,636 Weighted average interest rate 5.70% 40

43 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 23. Financial Risk Management (cont) 30 June 2011 Floating Non Interest Interest Rate Bearing Total $ $ $ Financial assets - 2,874,056 2,874,056 Trade and receivables - 314, ,890 Cash assets 936, , ,652 3,188,946 4,125,598 Weighted average interest rate 3.58% (d) Liquidity Risk Liquidityrisk is the risk that there will be difficulties in meeting obligations associated with financial liabilities. Cash flow is monitored daily with a view to any up-coming commitments such as creditor and tax payments. The majority of the Group's available cash is directed towards discretionary marketing activities. The level of these activities is managed by the CEO with a view to available cash and the success of the marketing activities. As disclosed in Note 1 (Going Concern) there are inherent uncertaintes in relation to the liquidity risk. Refer to this disclosure for further details. (e) Capital Management Strategy (i) Capital requirements Management controls the capital of the Group in order to maintain adequate working capital, provide the shareholders with adequate returns and ensure that the Groupcan fund its operations and continue as a going concern. The Group's capital includes ordinary share capital, supported by financial assets. Management effectively manages the Group's capital by assessing the Group's financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. Excela Ltd has maintained in place the on-market share buy-back, but does not intendto exceed buying back above the 20% figure where shareholder approval is required. The Group's cash reserves are unliklely to be utilised in this area moving forward. As disclosed in Note 1 (Going Concern) the directors are considering the capital requirements of the Group. (ii) External requirements The operation of the funds management and stockbroking businesses require theexcela Group to hold an Australian Financial Services Licence (AFSL). The operation of the stockbroking business also require theexcela Group to be a "market participant" on the Australian Securities Exchange. This requires the participant to maintain its Capital Liquidity Ratio above 1.2, where the ratio is calculated as Liquid Capital divided by Total Risk Requirement (TRR). As the participant clears through a third party, its TRR is a nominal $100,000. The market participant has complied with the externally imposed financial requirements of the Australian Securities Exchange during the financial year. The licence holder has complied with the externally imposed requirements of the AFSL during the financial year and subsequent to year end. 41

44 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 24. Share-Based Payments The Group operates an equity participation scheme under the Excela Ltd Long Term Incentive Plan (the "Plan"). The Plan is the vehicle used to deliver equity based incentives to executives and staff across the Excela Group. Employees receive ordinary shares of Excela Ltd on vesting of the performance rights. No amounts are paid or payable by the recipient on receipt of the performance rights or on vesting. The performance rights carry neither rights to dividends nor voting rights prior to vesting. The Board regards the grant of performance rights to employees as an appropriate long-term incentive and retention component of total remuneration. It is expected that future annual grants of performance rights will be made subject to the Board's evaluation of overall performance of the Group and market conditions. The vesting of any performance rights awarded will be subject to the achievement of appropriate performance hurdles and on the basis of continuing employment with the Group. Performance rights granted under the Plan carry no dividend or voting rights. The Plan is equity-settled. Non-executive directors are entitled to participate in the Plan. Their vesting conditions rest solely on a 3 year service continuous period on the Group's board. The following share-based payment arrangements were in existence during the current reporting period: Rights Recipient Exercise Price Earliest Vesting Date Vesting Conditions H Woolcott Nil 15/12/2014 On-going board service of 3 years A Bennett Nil 15/12/2014 On-going board service of 3 years Performance Rights H Woolcott A Bennett Total Opening Balance 1 July Granted during the period 35,000 35,000 70,000 Exercised or lapsed during the period (35,000) - (35,000) Outstanding at 30 June ,000 35,000 Exercisable at 30 June Mr Peter Spann was approved 187,500 performance rights at the Company's Annual General Meeting (AGM) on the 24th November However these were never issued. Mr Michael Willis was approved 35,000 rights at the Company's AGM on the 24th November However these were never issued as Mr Willis resigned on the 1st December

45 For the year ended 30 June 2012 Notes To The Financial Statements (cont) 24. Share-Based Payments (cont) Mr Howard Woolcott was issued 35,000 rights following approval at the Company's AGM on the 24th November These lapsed upon Mr Woolcott's resignation on the 24th Janaury Mr Alan Bennett was issued 35,000 rights following approval at the Company's AGM on the 24th November These lapsed upon Mr Bennett's resignation on the 6th August Controlled Entities Controlled Entities Consolidated Country Of Percentage Owned (%) Incorporation Subsidiaries of Excela Ltd: Excela Funds Management Pty Ltd Australia Excela Equities Ltd Australia Excela Ltd Company Information $ $ Current assets 882,018 1,092,386 Non-current assets 4,752,459 13,980,582 Total assets 5,634,477 15,072,968 Current liabilities 347, ,435 Non-current liabilities 939,384 - Total liabilities 1,286, ,435 Net Assets 4,347,963 14,781,533 Issued capital 25,634,451 25,691,120 (Loss) for the year (6,439,074) (1,828,334) Accumulated losses (14,847,414) (9,081,253) Total Equity 4,347,963 14,781,533 Excela Limited has a bank guarantee in place which is disclosed at Note 18. There are no contingent liabilities. All commitment disclosures at Note 17 are in relation to Excela Ltd. 25. Company Details The Group's registered office and principal place of business is: Level Ann Street BRISBANE QLD

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