For personal use only · Reflecting the Company’s growth profile, ongoing investment in growth initiatives, and strong cashflows and balance sheet, the Directors of The Citadel

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CGL

Specialises in managing knowledge in

complex environments through integrating

know-how, systems and people to provide

information on an anywhere-anytime basis

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Statutory Financial results for the full-year ended 30 June 2016

relative to Previous Corresponding Period (PCP)

$85.1m total revenue

17%

$21.4m EBITDA

109%

$12.8m profit before income tax

49%

$8.9m net profit

36%

17.6¢ earnings per share

(note 7)

9%

$4.9m dividends paid

(note 28)

20%

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contents

Chairman’s report .......................................................................................................... 5

Operating and financial review ...................................................................................... 7

Board of directors ......................................................................................................... 14

Key management personnel ......................................................................................... 17

People and values ......................................................................................................... 19

Directors’ report .......................................................................................................... 20

Remuneration report (audited) ................................................................................... 25

Auditor’s independence declaration ............................................................................ 36

Corporate directory ...................................................................................................... 37

Annual financial report ................................................................................................38

Notes to the financial statements ................................................................................. 46

Directors’ declaration ................................................................................................... 93

Auditor’s report ............................................................................................................ 94

Shareholder information .............................................................................................. 96

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Chairman’s report

Dear Shareholder,

A YEAR OF STRONG PERFORMANCE

I am pleased to report a strong financial performance by the Group for the year ended 30 June 2016.

�� Statutory total revenues were $85.1 million compared with $73.0 million in FY15;

�� Group gross margins have remained stable, falling slightly in the Education segment which has been offset

by an increase in Technology;

�� Strong cost management has contributed to a profit before income tax of $12.8 million, compared with

$8.6 million in FY15;

�� Net Profit After Tax (NPAT) was $8.9 million compared with a FY15 result of $6.5 million;

�� Cash and cash equivalent reserves remain strong at $34.6 million, down slightly from $37.2 million in

FY15; and,

�� There was an increase in the balance sheet net assets by $7.6 million to $64.6 million compared to $57.0

million at 30 June 2015.

DIVIDENDS

Reflecting the Company’s growth profile, ongoing investment in growth initiatives, and strong cashflows and

balance sheet, the Directors of The Citadel Group declared a final dividend of 4.8 cents per share, 100%

franked. The record and payment dates for this dividend are 26 August 2016 and 30 September 2016,

respectively.

This brings the total FY16 dividend to 9.6 cents per share, 100% franked.

OPERATING HIGHLIGHTS FOR THE YEAR

Highlights for the year were:

�� Successful completion of the large New Royal Adelaide Hospital (nRAH) project;

�� Continued deepening of relationships in our technology and health verticals where we traditionally enjoy

longer term recurring services contracts;

�� Acquisition of the Kapish Group which expands the capacity of the Group in electronic data management;

and

�� The Group continued to have low operating debt.

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BOARD AND MANAGEMENT

�� It has been a pleasure to work with my Board colleagues and I would like to thank them for their efforts

during the year. Thanks particularly to our Managing Director and CEO, Dr Miles Jakeman, his executive

team and all our staff for their efforts in what has been a very busy year;

�� Mark McConnell retired as an Executive Director with effect from 1 July 2016, and remains as a non-

Executive Director. He made an important contribution to the Group in his former role; and

�� Darren Stanley was appointed as Deputy Chief Executive Officer of the Group with effect from 21

September 2015. Prior to this, Darren was Managing Director Consulting at SMS Management and

Technology Limited with deep experience in managed IT services and consulting.

OUTLOOK

There are many opportunities to continue growing our businesses in both public and private markets,

particularly with our unique technology and health offerings.

Finally, thanks to our shareholders for your support during the year.

Yours sincerely,

Mr Kevin McCann, AM

Chairman

22 August 2016

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Operating and financial review

I am very pleased to present this full year Operating and Financial Review for Citadel.

OVERVIEW OF THE BUSINESS

Citadel is a leader in the development and delivery of Technology and Education solutions to federal and state

government departments and the private sector. For these clients, Citadel specialises in managing complex

environments through integrating know-how, systems and people to provide information on an anywhere-

anytime basis.

The majority of Citadel’s revenues are derived from long term managed services, software-as-a-service, and

high quality nationally accredited education and training, which are managed through two business segments,

these being ‘Technology’ and ‘Education’.

Technology

The Technology segment sells professional and managed services to government agencies and private

enterprises. During the period, the Group has successfully delivered against all of our service level

agreements, continued our record of not losing any managed services contracts, as well as securing a number

of new contracts. In addition, our contracts associated with national security agencies continue to progress in

line with budgets and forecasts.

Education

The Education segment focuses on the delivery of a range of nationally-accredited business qualifications (up

to and including Advanced Diploma level) that enable students to articulate into second year university or to

gain practical skills for employment. The Education segment continues to operate under its Registered

Training Organisation (RTO), Commonwealth Register of Institutions and Courses for Overseas Students

(CRICOS) and VET FEE-HELP licences. During the period, the segment was hit hard by continuing adverse media

about the vocational education sector, the conduct of certain private providers, and a concomitant changing

regulatory environment being applied to all private sector providers (regardless of their quality). However, this

division now represents less than 10% of total revenue and, declines in this segment have been more than

offset by growth in our Technology segment.

OPERATIONAL HIGHLIGHTS

Following a very successful FY15, I am again pleased to advise that FY16 has been another excellent year for

Citadel:

�� With specific reference to the Technology segment:

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− The contract associated with the nRAH was completed;

− Our major Department of Defence and other key federal government agency contracts continue

to progress well;

− The contract with Charles Sturt University (CSU) to provide a new education and

communications network supporting up to 25,000 students, faculty, and staff communicating

face-to-face in real-time was successfully completed;

− A new contract with Monash University for the provision of audio and visual collaboration

services throughout the University was won and delivery has been proceeding well;

− We have continued to successfully expand within the health sector, including through the

renewal and expansion of key contracts in New South Wales; and,

− The retention of contracts coupled with new work and new large profitable multi-year managed

service contracts has seen margins improve.

�� With specific reference to the Education segment:

− Due to the continued negative market influences in the vocational training sector, we have

experienced a fall in revenues during the period and a reduction of profitability;

− Our Education team has responded to these negative market influences through various

strategies, including expanding the courses and training offered, increasing focus on technology

and platform delivery, and general cost management control. This pivot will take time to execute

but a full recovery to FY15 profits is expected within 12-18 months; and,

− Encouragingly, the segment continues to show the higher quality of our offerings evidenced

through maintaining gross margins and a positive EBITDA contribution while other businesses in

the sector have ceased trading.

STATUTORY RESULTS

Statutory Group Results Summary

Citadel achieved revenues from the sale of goods and rendering of services of $82.7 million for the 2016

financial year, up from $72.3 million in FY15. The increase was derived in the Technology sector through a

combination of internal growth strategies, acquisition activities and execution on existing contracts.

2016 2015 Variance Variance

($m) ($m) ($m) (%)

Sale of goods and rendering of services (excluding Other

Income) 82.7 72.3 10.4 14.4

Cost of Sales Expenses (48.3) (49.9) 1.6 (3.2)

Gross Profit 34.4 22.4 12.0 53.6

Other Income 2.0 2.4 (0.4) 16.7

Gains from fair value adjustments 1.8 - 1.8 -

Employment Expenses (11.1) (9.2) (1.9) 20.7

Aggregate Administrative Expenses (5.7) (5.4) (0.3) 5.6

EBITDA 21.4 10.2 11.2 109.8

NPAT 8.9 6.5 2.4 36.9

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Cost management continued to remain a focus across all segments in FY16 (continuing trends from interim

accounts) in order to maintain strong gross profit margins.

Depreciation and amortisation in FY16 was $5.0 million compared with $1.2 million in FY15 (an increase of

317%) reflecting $3.9 million in amortisation of assets associated with the Citadel Health Pty Ltd (formerly PJA

Solutions Pty Ltd, hereafter referred to as Citadel Health) acquisition which was acquired on 1 June 2015 as

well as the continued capital investment in Education campus facilities, and ICT investments.

Capital Expenditure

Furniture

& office

equipment

Plant &

equipment

Computer

equipment

Leasehold

improve-

ments

Motor

vehicles

Make

good

ICT

Software Total

($m) ($m) ($m) ($m) ($m) ($m) ($m) ($m)

2015 Additions 0.1 0.0 0.1 0.8 0.1 0.1 0.3 1.5

2016 Additions 0.0 0.1 1.0 1.0 0.2 0.2 2.5 5.0

Group capital expenditure on Plant and Equipment increased during the year to $5.0 million from $1.5 million.

Capital is related to expenditure on campus fit-outs, demonstration equipment, and IT requirements (in

support of both internal and client requirements). In particular, Leasehold Improvements primarily consisted

of fitting out a new education campus in Parramatta. New offices were also opened for the Group in

Melbourne and Brisbane. ICT Software included purchases for whole of group ICT Infrastructure, investments

in a customer relationship management system and a talent management platform. It also includes the

acquisition of the eBlood program which complements current health software offerings and costs capitalised

for software program enhancements.

Reconciliation of Net Profit to Operating Cashflow

The $10.3 million operating net cash inflow movement is characterised by a number of significant working

capital movements resulting from existing business arrangements. Specifically, of the $8.9 million in NPAT,

there was $5.6 million in net expenses which were non-cash in nature resulting in a positive adjustment

against NPAT. This was offset by working capital requirements across the Group ($4.2 million), which include:

�� The completion of the nRAH Construction Contract which has resulted in a decrease to total debtors with

all amounts owing under the construction contract receipted during the year;

�� Decreases in other current liabilities associated with the payment of short term vendor facilities and

unsecured loans that were outstanding at the end of the prior financial year; and,

�� Increased activity towards the second half of the financial year which has decreased the number of

projects still in progress as at the end of the year.

($m)

Net Profit After Tax (NPAT) 8.9

Non-Cash adjustments 5.6

Trade and other receivables 9.6

Inventory 0.7

Income accruals (1.0)

Tax accounts (1.3)

Trade payables 0.2

Other Working Capital movements (12.4)

Net Cash from Operations 10.3

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Statutory Technology Segment Summary


($m) ($m) ($m) (%)


Income) 75.3 61.5 13.8 22.4

Cost of Sales expenses (44.6) (46.1) 1.5 (3.3)

Gross Profit 30.7 15.4 15.3 99.4

Other income 1.3 2.0 (0.7) 35.0

Gain from fair value adjustments 1.8 - 1.8 -

Employment expenses (5.3) (4.7) (0.6) 12.8

Aggregate administrative expenses (2.6) (2.1) (0.5) 23.8

EBITDA 25.9 10.6 15.3 144.3

NPAT 18.3 7.6 10.7 140.8

Revenues within the Technology segment increased by $13.8 million or 22.4% compared to FY15. The increase

is primarily due to the full year impact of Citadel Health (revenues, synergies and new combined market

offerings), early successes in new markets, and success with incremental Integrated Technology Solution

delivery.

In addition to the 22.4% expansion in segment revenues, cost of sales expenses decreased by $1.5 million

driven predominately by greater efficiencies generated through scalability of managed service contract

resources and a focus on the use of variable direct labour for the implementation phase of large projects.

Employee costs (administrative employees) increased by $0.6 million or 12.8% due to the introduction of new

sales and marketing positions throughout the organisation to target new opportunities beyond federal

government.

Other administrative expenses increased by $0.5 million or 23.8%, driven by:

�� The full year impact of Citadel Health administration costs;

�� Increased sales-related travel; and,

�� New localised occupancy costs to support the growth in contract numbers.

Statutory Education Segment Summary


($m) ($m) ($m) (%)


Income) 7.8 11.2 (3.4) (30.4)

Cost of Sales expenses (3.9) (4.1) 0.2 (4.88)

Gross Profit 3.9 7.1 (3.2) (45.1)

Other income 0.1 0.0 0.1 -

Employment expenses (1.8) (2.2) 0.4 (18.2)

Aggregate administrative expenses (1.2) (0.8) (0.4) 50.0

EBITDA 1.0 4.1 (3.1) (75.6)

NPAT 0.4 2.7 (2.3) (85.2)

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The Education segment’s revenue decreased by $3.4 million (30.4%) in FY16. The decrease was primarily

driven by:

�� Negative publicity in the private education market as noted in our half-year reporting; and,

�� Lower student numbers.

Cost of sales expenses decreased by $0.2 million (4.88%). This reduction is not as large as the revenue

decrease due to:

�� Continued lease costs, which are predominantly fixed in nature; and,

�� Increased governance and compliance-related costs to ensure quality delivery against new regulatory

requirements.

Employee costs also decreased by $0.4 million or 18.2% due to a reduction in average head count across the

year. This decline in headcount resulted from redundancies in line with the decrease in student numbers.

Other costs show an increase of $0.4 million or 50%, driven by an expansion in marketing costs across all

campuses including online. This resulted in aggregate marketing spend increasing to $0.6 million from $0.5

million (an increase of $0.1 million or 20%).

Depreciation and amortisation was $0.4 million in FY2016 compared with $0.3 million in FY2015. This 33.3%

increase was due to the depreciation of fit out associated with the new Parramatta campus and amortisation

of the make good requirements for Liverpool and Ashfield.

BUSINESS STRATEGY AND PROSPECTS

Going forward, the strategy of Citadel remains to assist its clients with managing complexity through

harnessing the power of information. It will prosecute this strategy via a mix of organic and acquisitive

opportunities.

The Technology segment’s growth strategies include deeper market penetration and expansion in to

adjacencies via:

�� Executing existing contracts;

�� Deepening relationships with Australian Government and State Government agencies that require secure

technologies;

�� Investment in, and commercialisation of, our unique R&D in Knowledge Management products;

�� Moving into bundled software-as-a-service in secure cloud offerings;

�� Extending our consulting-led offering into disrupted sectors (such as health and education), where the

Group has the opportunity to leverage its skills;

�� Increasing the number of profitable multi-year managed service contracts;

�� Adopting a more active private sector sales strategy; and,

�� Making acquisitions into aligned and adjacent markets.

Our strategy for the Education segment remains extant, this being:

�� Maintaining a ‘watching brief’ on the political landscape and concomitant regulatory requirements;

�� Extending the range of nationally accredited courses that are offered;

�� Reducing exposure to government revenue streams for VET through pivoting back to ‘business-to-

government’ (B2G) and ‘business-to-business’ (B2B) training delivery;

�� Marketing additional offerings via our online delivery platforms;

�� Focusing on our use of technologies and platforms to complement training delivery; and,

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�� Making acquisitions where they can add depth to Citadel’s offerings or enable penetration into new

markets.

Coupled with our expanding footprint in the health ICT sector, we may also look to rebrand or reposition some

of Citadel’s core offerings to reflect the higher percentage of work flowing from health managed services and

software-as-a-service contracts, and our ability to deepen our customer offerings.

RISK MANAGEMENT

In accordance with board policies, Citadel manages risk at both the segment and Group level. The major risk

events, together with possible reasons for their occurrence, are identified and recorded in risk registers in

accordance with AS/NZS ISO31000:2009. Those rated as unacceptable, plus what is being done to manage

these, are reported to the Board on a regular basis. Principle 7 of The Corporate Governance Statement

(available on Citadel website) outlines the process of managing risk and the engagement of the Audit, Risk and

Compliance committee.

As required by Section 299A(1) of the Corporations Act 2001,and in accordance with ASIC Regulatory Guide

247 Effective Disclosure in an Operating and Financial Review (RG 247) issued in March 2013, material business

risks that could adversely affect financial performance include:

�� Loss of key contracts or failure to win new contracts;

�� Claims for indemnities or damages which may arise in connection with Citadel's key contracts;

�� Breach of legislative framework and regulatory requirements;

�� Changes in Government funding for the VET sector and/or Citadel;

�� Failure to commercialise R&D expenditure;

�� Disruption through technological advances or product failures; and,

�� Loss of key personnel & management and/or an inability to attract new talent in line with the increase in

operational scale.

REGULATORY AND ENVIRONMENTAL MATTERS

The Group is required to carry out its activities in accordance with applicable regulations in each of the

jurisdictions in which it undertakes its professional and managed services, such as with its education and

training licenses and with work, health and safety on construction contracts. The Group is not aware of any

matter that requires disclosure with respect to any significant regulations in respect of its operating activities,

with no issues of non-compliance during the period.

Group operations are subject to a range of environmental regulations under the law of the Commonwealth of

Australia and its States and Territories. The Group is also subject to various Local Government requirements,

and may be subject to environmental and town planning regulations incidental to the operation of it education

and training campuses. The Group has not incurred any liabilities under any environmental legislation.

OUR PEOPLE

At Citadel, we continue to recognise that our people are an integral component of our ongoing service

delivery, clients’ satisfaction and growth prospects. Indeed, Citadel’s successes are intimately linked with the

quality and performance of our people. We therefore look after our people in a variety of ways, such as

through close engagement and consultation, above-industry remuneration, opportunities to participate in

share ownership, promotion of continuous learning opportunities, and cross-subsidiary work and development

activities amongst others.

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In closing, I would like to thank the whole Citadel team and its shareholders for the great successes achieved

during the past 12 months and to note that FY17 looks equally as exciting.

Yours sincerely,

Dr Miles Jakeman

Managing Director

Canberra

22 August 2016

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Board of directors

The Directors bring to the Board relevant experience and skills, including industry and business knowledge,

financial management and corporate governance.

DIRECTOR AND POSITION EXPERIENCE

Mr H Kevin McCann, AM

Independent non-executive

Chairman and Director

Kevin is Chairman of the Sydney Harbour Federation Trust, an Australian

Government agency and Dixon Hospitality, an Australian gastronomic pub

group. He is a director of Evans and Partners Pty Ltd, is a Fellow of the Senate

of the University of Sydney, and Co-Vice Chair of the New Colombo Plan

Reference Group, as well as a member of the Male Champions of Change. In

the past three years, Kevin has held the role of Chairman and Director of ASX

listed companies including Macquarie Group Limited and Macquarie Bank

Limited, Origin Energy Limited, and is a former Chairman of ING Management

Limited and Healthscope Limited.

Kevin practiced as a commercial lawyer as a partner of Allens Arthur Robinson

from 1970 to 2004 and was Chairman of Partners from 1995 to 2004.

Kevin has a Bachelor of Arts and Law (Honours) from Sydney University and a

Master of Law from Harvard University. Kevin is also a Fellow of the Australian

Institute of Company Directors.

He was made a Member of the Order of Australia for services to the Law,

Business and the Community in 2005.

Dr Miles Jakeman

Managing Director

Miles is the Managing Director of Citadel. For over 28 years, he has advised

senior business leaders and government officials, including representing

countries in ministerial level forums. He has been Citadel’s Managing Director

since the Company’s inception.

His key skills cover business strategy, program management, security risk

management and staff development. Miles has significant overseas working

experience with multinational companies in sales, marketing and business

development capacities with full profit and loss responsibilities.

Miles has a Bachelor of Science (Hons), a Graduate Diploma in Asian Studies, a

Doctorate of Philosophy (PhD) in Asian Studies and a PhD in Business

Leadership. He has also completed the AICD Advanced Diploma Mastering the

Boardroom and the AICD Diploma of International Company Directors, plus

holds an Advanced Diploma Project Management.

Miles is a visiting Fellow at the Australian National University and a member of

the Australian Institute of Company Directors. He is also a member of the not-

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Ms Deena Shiff


Director

Deena has nearly 30 years experience in the communications industry. She

served as a Group Managing Director at Telstra Corporation Limited between

2005 and 2013, during which time she led the Wholesale Business Division,

and established Telstra’s Business Division dedicated to small to medium

enterprises. These Divisions turned over between $2bn and $5bn in revenue

per annum and Deena’s responsibilities spanned financial management and

performance, sales, marketing and operations. In 2011 Deena established and

managed Telstra’s corporate venture capital entity, Telstra Ventures. As a

result, Deena has had varied experience in developing, investing in, and

managing, cloud solutions and software as a service for enterprise markets.

Deena was previously a partner of Mallesons Stephen Jaques, in-house

corporate and regulatory counsel at Telstra, and has served as a senior

executive and advisor on legal and social policy reforms for the Australian

Government.

Deena is currently a Non Executive Director of the language services and data

search company, Appen Limited (ASX:APX). In June 2016 she was appointed as

Chairman of the global board of communications infrastructure company BAI

Communications Pty Ltd. Deena also chairs the Alertness CRC Ltd, a health

research collaboration, as well as the Sydney Writers’ Festival. In 2015 Deena

was appointed by the Australian Government to Chair the Regional

Telecommunications Independent Review Committee.

Deena’s previous board roles include: Freightcorp Pty Ltd, where she chaired

the Risk and Compliance Committee, Efic, where she was Deputy Chair and

Telstra Clear, where she served on the Audit Committee. .

Deena holds a Bachelor of Science (Economics) from the London School of

Economics and Political Science and a Masters of Arts (Law) from the

University of Cambridge. She is also a Fellow of the Australian Institute of

Company Directors.

Professor Peter Leahy, AC


Director

Peter retired from the Army in July 2008 after a 37 year career as a soldier. He

concluded his career in the Army with the rank of Lieutenant General after a

six year appointment as the Chief of Army. In this appointment he was directly

responsible for Army’s $6bn annual budget. His responsibilities included the

detailed management of personnel, operating and capital cost centres and the

direct responsibility to raise, train and sustain the Army. He was the principle

adviser to the Chief of the Defence Force on strategic matters related to the

deployment of the Army on global combat operations.

Since leaving the Army, Peter has joined the University of Canberra as a

Professor and Foundation Director of the National Security Institute where he

teaches, writes and commentates on defence and security matters. He is a

member of the Australian Institute of Company Directors and has been

appointed to the Boards of Codan Limited and Electro Optic Systems Holdings

Limited. He supports the Government of South Australia as a member of the

Defence South Australia Advisory Board. He is also involved in charities as the

Chairman of Soldier On, the Salvation Army Red Shield Appeal Committee for

the Australian Capital Territory and the Australian International Military

Games (Invictus). He is also a Trustee of the Prince’s Charities Australia. In

2014 he was appointed by the Minister for Defence as a member of the First

Principles Review of the Department of Defence.

Peter was awarded the Companion of the Order of Australia in 2007 for

eminent service to the Australian Defence Force in command of the Australian

Army and strategic staff appointments.

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Mr Mark McConnell

Executive Director

Mark is an Executive Director of Citadel. After serving as an officer in the Royal

Australian Air Force for 8 years, Mark moved into the corporate world and has

spent the last 17 years in a range of executive roles in the fields of aviation,

technology and investment finance. He has been a director of Citadel since its

formation in 2007.

His skills cover areas of business strategy, investor relations, capital raising and

innovation. Mark has founded several private companies and has been

recognised with a number of entrepreneurial awards. Since 2007, he has been

the Managing Director of New Territories Investments, a private equity fund

that has assisted the growth strategies of multiple technology businesses in

Australia, including Citadel.

Mark has a Bachelor of Science, a Graduate Diploma of Employment Relations,

a Graduate Diploma of Logistics Management, and a Masters of Business

Administration. He is also a Fellow of the Australian Institute of Company

Directors (FAICD). Mark was awarded the ACT Young Entrepreneur of the Year

in 2003 and 2006.

Mark is the Director of several private companies as well as the board of the

GWS Giants Foundation.

Effective 1 July 2016, Mark moved to a Non-Executive Director role with

Citadel following the Group’s restructuring of its internal capabilities and

establishment of commercial relationships with investor relations/media

communications companies to match its growth.

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Key management personnel

NAME AND POSITION EXPERIENCE

Dr Miles Jakeman

Managing Director

Please refer to profile under the Board of Directors

Section.

Mr Mark McConnell

Executive Director

Please refer to profile under the Board of Directors

Section.

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NAME AND POSITION EXPERIENCE

Mr Darren Stanley

Deputy Chief Executive Officer

Darren Stanley is the Deputy CEO of the Citadel

Group and joined in September 2015. Prior to

joining Citadel Darren was MD Consulting at SMS

Management and Technology Limited where he

also fulfilled a number of leadership and delivery

roles including Regional Director QLD, Regional

Director NSW and Chairman of the Offshore

Development Centre.

Darren has previously held a number of senior

leadership roles GMAC, Suncorp and Defence and

he has significant international experience,

including starting businesses in the UK. Darren is a

Duntroon Graduate and was previously an Officer

in the Royal Australian Engineer Corps. Darren has

a background in project and program management

with a particular strength in large scale complex

programs and integration/merger of companies.

Darren has a particular interest in growing

Australian technology companies to be

internationally recognised.

Darren has a Bachelor of Science (Honours), an

MBA (Technology), Graduate Diploma of Human

Resource Management and is an alumni member

of Harvard University.

Mr Robert (Andrew) Burns

Chief Financial Officer

Andrew has been the CFO and Citadel Company

Secretary since January 2008. Prior to joining

Citadel, Andrew spent 10 years with General

Electric in various senior leadership roles including

Finance Manager of GE Healthcare ANZ and Six

Sigma Quality Leader for GE Healthcare Financial

Services globally.

Andrew is a proven leader of change with

technically strong competencies in financial

management, accounting, and process

improvement techniques.

Andrew is a Chartered Accountant, graduate of the

AICD, as well as a Six Sigma Master Black Belt and

an alumni member of Australian Graduate School

of Management’s MBA Program.

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People and values

CORE VALUES

The Group recognises the importance of its role as a good corporate citizen and espouses the following core

values through a range of supporting activities:

Behaving with integrity

� Our Code of Conduct has been established to guide employees on ethical behaviour, with the

management team demonstrating the ‘tone from the top’.

� Our Directors are members of the Australian Institute of Company Directors, which aims to uphold

the highest level of professionalism in directorship and to empower company directors and boards to

attain excellence in performing their duties and responsibilities.

Valuing and trusting our people

� We provide staff training at all levels to motivate staff and drive career development.

� We respect the cultures of our clients and the rights of our staff.

� We promote the exchange of ideas between staff and management, encouraging dialogue through a

range of communication systems.

Respecting our communities

� We deliver services to a range of different communities and cultures with different languages, ethnic

and religious bases.

� We always consult stakeholders about community affairs and environmental programmes because

our business can touch local communities and successful interaction with the community is vital to

success.

� We have a long-term commitment to return a percentage of profits back to communities in which we

operate in.

We value our responsibilities as corporate

citizens, and we champion diversity through our

team.

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Directors’ report

DIRECTORS’

REPORT

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Directors’ report

Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting

of CGL and the entities it controlled at the end of, or during the year ended 30 June 2016, these being Jakeman

Business Solutions Pty Ltd (JBS), Frontier Group Australia Pty Ltd (FGA), ServicePoint Australia Pty Ltd (SAPL),

The Australian Business Academy Pty Ltd (ABA), Citadel Health Pty Ltd (CH), Citadel Health Management Pty

Ltd (CHM), and filosoph-e Pty Ltd (FIL).

CONSOLIDATED RESULTS AND REVIEW OF THE OPERATIONS

The Group’s statutory performance remains strong with total revenue increasing to $85.1 million (2015: $73.0

million) and achieving net profit before income tax of $12.8 million (2015: $8.6 million).

A review of the operations of the consolidated entity and its principle businesses during the financial period

and the results of the operations are set out in the Chairman’s Report and the Operational and Financial

Review by the Managing Director from pages 5 to 13 inclusive.

DIVIDENDS

The amounts set out below have been paid by the Group during the financial period, or have been declared by

the Directors of the Group, by way of the dividend, but not paid during the financial period up to the date of

this report. All dividends were fully franked at the tax rate indicated:

Franking tax

rate %

Dividend

cents per

share

Total paid /

payable

$m

Dividend paid 25 September 2015 30 5.8 2.7

Dividend paid 31 March 2016 30 4.8 2.2

Dividend declared 22 August 2016 30 4.8 2.2

PRINCIPAL ACTIVITIES

During the year the principal continuing activities of the Group consisted of professional and managed services

provision in the technology and education sectors throughout Australia.

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DIRECTORS

The following persons were Directors of CGL during the whole of the financial year and up to the date of this

report unless noted:

�� Mr Kevin McCann, AM;

�� Dr Miles Jakeman;

�� Ms Deena Shiff;

�� Professor Peter Leahy AC; and,

�� Mr Mark McConnell (transitioned to a non-executive director position as at 1 July 2016)

DIRECTORS’ MEETINGS

The number of directors’ meetings of the company, and of meetings of the board committees held, and the

number of those meetings attended by each of the directors of the company during the financial year are:

Board meetings Audit, Risk and Compliance

Committee

Nominations and

Remuneration Committee

Director A B A B A B

Mr K McCann AM 7 7 5 5 1 1

Dr M Jakeman 7 7 - - - -

Ms D Shiff 7 7 5 5 1 1

Professor Peter Leahy AC 6 7 4 5 1 1

Mr M McConnell 6 7 - - - -

A – Number of meetings attended B – Number of meetings held during the time the director held office during the year

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Significant changes in the state of affairs of the Group during the financial period are as follows:

�� The Group acquired a further 25% shareholding in filosoph-e Pty Ltd, increasing the Group’s shareholding

to 50% giving it control and requiring consolidation into the Group’s financial statements as at 1 April

2016;

�� The implementation phase of the nRAH contract reached completion; and,

�� Established a strong partnership and additional integrated collaboration solutions contracts with Monash

University.

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

Subsidiary acquisition

The Group acquired Kapish Pty Ltd and Kapish Services Pty Ltd (hereafter “Kapish”) on 1 July 2016, which is a

successful Australian software and services company.

The acquisition consideration is currently estimated to have a fair value of $15.9 million. The consideration is

payable over the next 23 months, with the initial payment of approximately $11.4 million funded from

available cash and two additional payments totalling up to $4.8 million (face value) across tranches two and

three.

The Group is currently in the process of finalising the completion accounts and therefore cannot provide

details on the fair value of net assets acquired, including acquired intangible assets and any associated

goodwill. It is expected that the completion accounts process will be finalised by the end of August 2016.

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However, details of the estimated carrying value of Kapish’s net tangible assets as at 1 July 2016 are presented

in note 39.

Director change

On 1 July 2016, Mark McConnell transitioned from his role as executive director to that of a non-executive

director on the Board. Mark will continue to work with the Citadel Executive on an as required basis while

performing his duties as a non-executive director of the company.

COMPLIANCE WITH REGULATIONS AND ENVIRONMENTAL MATTERS

Given its client base, compliance with legislative and regulatory matters is critical for Citadel and is managed

closely. As noted in the Operational and Financial Review by the Managing Director from pages 5 to 13

inclusive, the Group is not aware of any matter that requires disclosure with respect to its operating activities

and there have been no issues of non-compliance during the period.

DIRECTORS’ AND OFFICERS’ INDEMNITY/INSURANCE

The Constitution of the Company provides that the Company may indemnify (to the maximum extent

permitted by law) in favour of each Director of the Company, the Company Secretary, directors and secretaries

of related bodies corporate of the Company, and previous directors and secretaries of the Company and its

related bodies corporate (“Officers”), against any liability to third parties (other than related Citadel Group

companies) incurred by such Officers unless the liability arises out of conduct involving a lack of good faith. The

indemnity includes costs or expenses incurred by an Officer in successfully defending proceedings or in

connection with an application in which the court grants relief to the specified persons under the Corporations

Act 2001.

Each Director has entered into a Deed of Indemnity and Access which provides for indemnity against liability as

a Director, except to the extent of indemnity under an insurance policy or where prohibited by statute. The

Deed also entitles the Director to access Company documents and records, subject to undertakings as to

confidentiality.

During the financial period, the Company has paid a premium in respect of a contract of insurance insuring

Officers (and any persons who are Officers in the future and employees of the Company or its subsidiaries)

against certain liabilities incurred in that capacity. Disclosure of the total amount of the premiums and the

nature of the liabilities in respect of such insurance is prohibited by the contract of insurance.

COMPANY SECRETARY

The Company Secretary and Group CFO is Mr Robert (Andrew) Burns. Mr Burns was appointed to the position

of Company Secretary in 2008.

Ms Leanne Ralph was appointed as joint Company Secretary on 5 April 2016.

NON-AUDIT SERVICES

The Group may decide to employ the auditor on assignments additional to their statutory audit duties where

the auditor’s expertise and experience with the subsidiary companies and/or the Group are important and

there is no conflict of interest.

Details of the amounts paid or payable to the auditor, PricewaterhouseCoopers (PwC), for audit services

provided during the year are set out in note 37 in the financial statements.

If non-audit services by the auditor are required, the Chair of the Audit and Risk Committee considers the

position and ensures they are satisfied that the provision of the non-audit services is compatible with the

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general standard of independence for auditors imposed by the Corporations Act 2001. During the financial

year ended 30 June 2016 the Group did engage other PwC staff (separate to those of the PwC audit team) to

provide non-audit services, including the provision of taxation advice. The Directors are satisfied that the

provision of these non-audit services by PwC did not compromise the auditor independence requirements of

the Corporations Act 2001 based on the following:

�� All non-audit services were reviewed by the Audit and Risk Committee to ensure they did not impact the

impartiality and objectivity of the auditor in accordance with APES 110 Code of Ethics for Professional

Accountants); and,

�� None of the services undermine the general principles relating to auditor independence as set out in APES

110 Code of Ethics for Professional Accountants.

AUDITOR’S INDEPENDENCE DECLARATION

A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001

is set out on page 36.

CORPORATE GOVERNANCE STATEMENT

The Group and the Board are committed to achieving and demonstrating the highest standards of corporate

governance. The Group has reviewed its corporate governance practices against the Corporate Governance

Principles and Recommendations (3rd

edition) published by the ASX Corporate Governance Council.

The 2016 Corporate Governance Statement is dated as at 30 June 2016 and reflects the corporate governance

practices in place throughout the 2016 financial year. The 2016 Corporate Governance Statement was

approved by the Board on 22 August 2016. A description of the Group’s current corporate governance

practices is set out in the Group’s corporate governance statement which can be viewed at

http://investors.citadelgroup.com.au/investors/?page=Corporate-Governance.

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Remuneration report (audited)

Your Directors present The Citadel Group Limited (hereafter “Citadel” or the “Group”) 2016 remuneration

report outlining key aspects of our remuneration policy and framework, and remuneration awarded this year.

During the financial period the Nominations and Remuneration Committee (NRC) benchmarked the

remuneration policy and incentive plans of proxy companies to ensure alignment of the key management

personnel (KMP) remuneration packages to the performance of the company and the interests of the

shareholders.

The report is structured as follows:

a) KMP covered in this report

b) Remuneration policy and link to performance

c) Elements of remuneration

d) Link between remuneration and performance

e) Remuneration expenses for executive KMP

f) Contractual arrangements for executive and non-executive KMP

g) Other statutory information.

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a) Key management personnel covered in this report

Name Position

H K McCann

M Jakeman

D Shiff

P Leahy

M McConnell

R Burns

D Stanley

L Ralph

Chairman

Managing Director

Non-executive Director

Non-executive Director

Executive Director (transitioned to Non-executive

Director 1 July 2016)

Chief Financial Officer/Joint Company Secretary

Deputy Chief Executive Officer (appointed

September 2015)

Joint Company Secretary (appointed 5 April 2016)

b) Remuneration policy and link to performance

Citadel’s executive remuneration philosophy is to align executive remuneration with shareholder interests by:

�� providing levels of fixed and incentive pay sufficient to attract and retain individuals with the skills and

experience required to build on and execute our business strategy;

�� focusing executives on what is important by ensuring incentive remuneration is contingent on outcomes

that grow and/or protect Shareholder value, and can be directly influenced by executive action;

�� balancing the mix of STI and LTI to ensure any focus on annual results does not offset the need to invest

and nurture the business for longer term success as a sustainable and growing business;

�� managing risk by deferring a proportion of incentive payments and reserving the right to exercise

discretion in the event that excessive risk taking or inappropriate outcomes are discovered after

performance has initially been assessed;

�� aligning the interests of executives and Shareholders by ensuring a suitable proportion of remuneration is

received as a Share-based payment; and,

�� using a combination of earnings growth performance targets and share-based payments inclusive of

dividends that balances the desire of the Group for both sustainable growth and yield.

Our Nominations and Remuneration Committee (NRC) is made up of independent non-executive directors.

The committee reviews and makes recommendations to the Board on remuneration packages and policies

related to the Directors, KMPs and senior executives, and to ensure that the remuneration policies and

practices are consistent with the Group’s strategic goals and human resources objectives. Based on Citadel’s

philosophy and benchmarking with proxy companies, the remuneration program is practically applied as

follows:

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Element Purpose Performance metrics Potential value Changes in FY2017

Fixed

Remuneration

(FR)

Provide

competitive

market salary

including

superannuation

Nil Positioned at

median market

rate

KMP fixed remuneration will remain at FY16 levels with greater focus on rewarding performance in

FY17

Short Term

Incentives

(STI) all at risk

Achieving

budgeted growth

across the

business

Budgeted Group EBITDA

and budgeted divisional

EBITDA, and non-

financial measures.

The relevant split for

determining STIs is:

EBITDA: 50%

Customer satisfaction:

25%

Employee satisfaction:

25%

MD: 40% of FR

DCEO: 30% of

FR

CFO: 30% of FR

MD: 50% of FR

DCEO: 35% of FR

CFO: 35% of FR

FY17 STI value has increased in line with the Board’s focus on rewarding performance; fixed

remuneration has not increased.

EBITDA: 50%

Expansion of profitable multi-year Managed Services Business Lines: 25%

Employee satisfaction: 25%

The performance condition of Customer Satisfaction has been replaced with a focus on the

Expansion of Managed Services Business Lines

Long Term

Incentives

(LTI) all at risk

Achieving long

term sustainable

growth and

return for

shareholders

The performance criteria

is

- TSR over 3 years :

50%

- EPS over 3 years :

50%

MD: 40% of FR

CFO: 30% of FR

DCEO: 30% of

FR

MD: 40% of FR

CFO: 30% of FR

DCEO: 30% of FR

LTI arrangements commenced in FY16 following approval by shareholders at the Annual General

Meeting as they related to executive directors. The Group’s aim in establishing LTIs is to motivate,

retain and reward eligible employees and eligible directors and to align their interests with those of

shareholders, with a number of performance, service or other vesting conditions to be included.

The Board is currently considering changes to the performance criteria of the FY17 LTI in line with

external feedback from organisations such as CGI Glass Lewis and changes in industry practice. The

two performance criteria currently being evaluated are directly related to (1) the productivity of the

business in line with the strategy of creating scalable profitable multi-year managed services

contracts, particularly increasing margin without proportional increase in labour resources, and (2)

a cash based EPS, which will align management to shareholder value, and is defined as basic EPS

adjusted for non-cash revenue and expenses arising from the accounting treatment of business

combinations.

The company will seek shareholder approval for the grant of these LTIs for the directors and

selected KMPs, which includes these metrics, at the next AGM in October 2016.

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Balancing short-term and long-term performance

In FY17 the STI plan is set at a maximum of 50% of fixed remuneration for the MD and 35% of fixed

remuneration for all other KMP. The LTI plan remains at a set maximum of 40% of fixed remuneration for the

MD and 30% of fixed remuneration for all other KMP in order to drive performance without encouraging

excessive risk-taking.

Both STI and LTI plans incorporate vesting periods of 2 and 3 years respectively to align employees’ interests

with shareholders with a focus on long-term performance and to retain talented employees. The target

remuneration mix for FY17 is shown in the following table.

Assessing performance

Key management personnel are subject to self-assessment and peer performance reviews (relevant

supervisors for key management personnel or the Nominations and Remuneration Committee for directors).

The Nominations and Remuneration Committee is then responsible for assessing the results and determining

outcomes. The result of this review process will determine the STI and LTI to be paid.

In an event of unacceptable performance, including but not limited to, serious misconduct, misalignment with

CGL values, excessive risk taking or a material misstatement in the Group’s financial statements, the

Remuneration Committee can cancel or defer performance-based remuneration.

c) Elements of remuneration

(i) Fixed annual remuneration (FR)

Executives may receive their fixed remuneration as cash, or cash with non-monetary benefits such as car

allowances. FR is reviewed annually, or on promotion. It is benchmarked against market data for comparable

roles in companies in a similar industry and with similar market capitalisation. This ensures that executives are

fairly remunerated while taking into account their experience and performance. Superannuation is included in

FR.

In FY16, fixed remuneration was increased for those executives who had been in office for FY15, with an

average increase of 10%. This was done to remunerate executives in line with the market at the time of a

Nominations and Remuneration Committee benchmark review.

(ii) Short-term incentives (STI)

Participants in the STI Plan have a target cash payment which is set as a percentage of their FR. Actual STI

payments in any given year may be at, above, or below target depending on the achievement of financial and

non-financial criteria as set by the Board, in accordance with the terms of the STI Plan, which may be varied

from time-to-time by the Board. The current STI Plan provides for financial and non-financial components of

the incentive, each weighted at 50%.

54%

54%

44%

25%

25%

29%

21%

21%

27%

0% 20% 40% 60% 80% 100%

CFO

DCEO

MD

Fixed remuneration

STI

LTI

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In FY17 there are three separate STI performance conditions, with 50% of the STI tested against an EBITDA

performance condition, 25% tested against an expansion of profitable multi-year managed services business

lines performance condition, and 25% tested against an employee satisfaction performance condition. These

measures have been selected as a reasonable representation of a balanced scorecard approach for the KMP

and management teams.

These measures are tested annually after the end of the relevant financial year.

Payments under the STI Plan are phased evenly over two years, with payments made after the release of full

year financial results to the ASX. Half of all STI payments are deferred for 12 months and subject to a final

review by the Nominations and Remuneration Committee and the Board, which retains the right to exercise

discretion to forfeit some or all payments if the employee has not remained in service, a financial restatement

is required, results were obtained with excessive risk taking, or in cases of employee misconduct.

All payments under the STI Plan are determined by the Nominations and Remuneration Committee and the

Board, in their absolute discretion.

(ii) Long-term incentives (LTI)

The LTI Plan commenced in FY16. The LTI consists of a share rights plan provided to key management

personnel and eligible senior leadership members; certain vesting conditions are attached to the rights. The

company introduced annual grants of LTI with:

� An initial performance period of three years; and,

� Vesting contingent upon specified performance requirements, such as total shareholder return and

earnings per share.

Key terms of the share rights plan are as follows:

Award

A share right will vest and become exercisable to the extent that the applicable

performance conditions detailed below are satisfied at the end of the relevant

performance period (being 1 October 2015 to 30 September 2018 for the Relative TSR

Performance Condition and 1 July 2015 to 30 June 2018 for the EPS Performance

Condition).

Performance conditions

The Share Rights are subject to the following Performance Conditions:

• 50% of the total Share Rights granted will be tested based on growth in

Citadel’s relative total shareholder return (Relative TSR Performance

Condition); and,

• 50% of the total Share Rights granted will be tested based on growth in

Citadel’s earnings per share (EPS Performance Condition).

The Relative TSR Performance Condition and the EPS Performance Condition are

independent of each other and will be assessed separately.

Each Performance Condition will be tested after the end of the relevant Performance

Period (likely to be at the Board meeting following the relevant annual results

announcement, so that final audited numbers are available for the EPS Performance

Condition)

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Relative TSR Performance Condition

50% of the Share Rights in the FY16 LTI grant will be tested against the Relative TSR

Performance Condition. The Relative TSR Performance Condition measures Citadel’s

total shareholder return performance over the period 1 October 2015 to 30

September 2018 (the TSR Performance Period).

Total shareholder return is the growth in share price plus dividends, assuming

dividends are reinvested. To minimise the impact of any short-term share price

volatility, Citadel’s TSR will be calculated using the average closing share price over

the 10 trading days prior to the start of the TSR Performance Period and the end of

the TSR Performance Period, respectively.

The TSR performance condition is measured on a sliding scale of success relative to

movements in the ASX Small Ordinaries Accumulation Index:

No Share Rights will be awarded for a performance that is less than the TSR

calculated for the ASX Small Ordinaries Accumulation Index.

50% of Share Rights will be awarded of a performance that is equal to the

TSR calculated for the ASX Small Ordinaries Accumulation Index.

100% of Share Rights will be awarded for a performance that is 25% or

greater than the TSR calculated for the ASX Small Ordinaries Accumulation

Index.

EPS Performance Condition

50% of the Share Rights in the FY16 LTI grant will be tested against the EPS

Performance Condition.

The EPS Performance Condition requires the compound annual growth rate (CAGR) in

Citadel’s basic EPS over the period 1 July 2015 to 30 June 2018 (the EPS Performance

Period) to exceed 15% before any of the share rights subject to the condition vest.

The EPS Performance Condition is measured on a sliding scale of success relative

targets set by the NRC:

No Share Rights will be awarded for an EPS CAGR of less than 15%.

50% of Share Rights will be awarded for an EPS CAGR of 15%.

100% of Share Rights will be awarded for an EPS CAGR of 25% or greater.

Share Rights Upon satisfaction of any performance and vesting conditions, each Share Right will, at

the Company’s election, convert to a share on a one-for-one basis or entitle the

participant to receive cash to the value of a share.

Each vested share right also entitles a participant to receive a cash amount equivalent

to the value of any dividend or distribution paid on a share on or after the date of

grant.

Share rights do not carry any voting rights.

For accounting purposes, the value of these share rights are expensed on a straight

line basis over the vesting period.

In the event of a takeover of the Company or the sale of its main undertaking, or that

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of the business unit, all of the Share Rights shall be allocated to the holder with no

further performance or vesting conditions on the date the takeover, merger or sale is

completed.

Shares Shares issued under the plan will rank equally with the other issued shares.

Depending on the terms of issue, the shares may be subject to disposal restrictions,

which means the shares may not be disposed of or dealt with for a period of time.

Shares allocated on vesting or exercise of a share right carry the same rights and

entitlements as other issued shares, including dividend and voting rights.

Restrictions Under the FY16 LTI offer, shares allocated on vesting of share rights will not be

subject to any further dealing restrictions. Therefore, participants may immediately

deal with shares allocated, subject to complying with the Citadel Share Trading Policy.

Dilution Any new shares issued on vesting of share rights will be restricted to a maximum of

5% of total issued shares over the previous five years.

Amendments To the extent permitted by the ASX Listing Rules, the Board retains the discretion to

vary the terms and conditions of the share rights plan. This includes varying the

number of shares rights or the number of shares to which a participant is entitled

upon a reorganisation of capital of Citadel.

d) Link between remuneration and performance

The Group has performed well in FY16 with management delivering an EBITDA result of $21.5m. As a result,

the Board awarded key management personnel 74.8% of the maximum STI. As detailed in the STI plan, 50% of

the award will be paid in cash and 50% will be deferred for 12 months and subject to a final review by the

Nominations and Remuneration Committee.

Metric Target Performance Impact on incentive

award

EBITDA Budgeted EBITDA $21.5 m Above target

Customer Satisfaction 85% 85% On target

Employee Satisfaction 85% 79% Above threshold but

below target

Statutory performance indicators

We aim to align our executive remuneration to our strategic and business objectives and the creation of

shareholder wealth. The table below shows measures of the Group’s financial performance over the last five

years as required by the Corporations Act 2001. However, these are not necessarily consistent with the

measures used in determining the variable amounts of remuneration to be awarded to KMPs. As a

consequence, there may not always be a direct correlation between the statutory key performance measures

and the variable remuneration awarded.

Metric 2016 2015 2014 2013 2012 2011

Revenue ($’000) 85,143 72,970 49,927 50,278 53,802 59,047

Net profit before tax ($’000) 12,761 8,570 5,302 4,312 2,091 1,283

Dividends paid ($’000) 4,949 4,110 1,277 1,277 1,702 426

Basic earnings per share (cents) 17.6 16.1 12.4 10.3 5.1 4.0

Share price 5.40 3.88 NA NA NA NA

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The increase in share price has now been included as this is the first full year in which the company operated

as a listed entity. As at 30 June 2016, the closing share price was $5.40/share which is an increase of 39.2%

from the share price as at 30 June 2015 of $3.88/share.

e) Remuneration expenses for non-executive and executive KMPs

The following table shows details of the remuneration earnt for the Group’s executive key management

personnel for the current and previous financial year measured in accordance with the requirements of the

accounting standards.

Name Year Short-term employee benefits Post-

employment

benefits

Long-term

employee

benefits

Share-

based

payments

Total

Cash Salary

& Fees

Cash bonus Other Super Long

service

leave

Options &

Rights

Non-executive directors

K McCann(1)

2016 117,808 - - 11,192 - 37,661 166,661

2015 109,589 - 20,000 10,411 - 21,969 161,969

D Shiff(1)

2016 73,500 - - - - 18,831 92,331

2015 66,000 - - - - 10,985 76,985

P Leahy(1)

2016 73,500 - - - - 18,831 92,331

2015 66,000 - - - - 10,985 76,985

Executive directors

M Jakeman 2016 433,333 206,572 - - - 50,625 690,530

2015 387,500 222,507 - - - - 610,007

M McConnell 2016 170,054 - - 18,568 - - 188,622

2015 86,571 55,627 3,413 9,661 198 - 155,470

Other key management personnel

R Burns 2016 257,594 96,070 - 23,621 12,259 164,333 553,877

2015 238,904 218,509 3,413 40,608 12,411 110,883 624,728

D Stanley (from

28/9/2015)

2016 247,041 53,258 4,409 28,591 450 176,691 510,440

2015 - - - - - - -

Total KMP

remuneration

expensed

2016 1,372,830 355,900 4,409 81,972 12,709 466,972 2,294,792

2015 954,564 496,643 26,826 60,680 12,609 154,822 1,706,144

(1) The change to base non-executive director fees detailed on page 33 came into effect on 11 November

2015, following approval at the AGM. Therefore, the director fees disclosed in the table above is based on one

quarter paid at the previous base fee.

f) Contractual arrangements for non-executive and executive KMPs

All KMPs noted above in section (e) are bound by their employment or contractor agreement. An

arrangement has been established with the managing director as detailed below. This contractual

arrangement has been factored into the table above.

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Managing director

The Group entered into an ongoing contract with the Jakeman Family Trust (JFT) for the provision of services

by Dr Miles Jakeman. The agreement provides for:

� An entitlement for JFT to receive fixed annual payments of $450,000 from November 2015;

� Eligibility to participate in any STI plan;

� Eligibility to participate in any LTI plan;

� Either party may terminate the agreement by giving six month’s written notice of its intention to do

so. The company may require JFT not to provide services during the notice period; and,

� Upon any termination of the contract, JFT will be subject to a restraint period of six months. Citadel

may elect to reduce the restraint of trade period, or eliminate the period in its entirety. The

enforceability of the restraint clause is subject to all usual legal requirements.

Non-executive Directors

All non-executive directors enter into a letter of appointment, which includes fees for chairing or participating

on board committees as detailed below. The letter summarises the board policies and terms, including

remuneration, relevant to the office of director with the company.

The maximum annual aggregate non-executive directors’ fee pool is $0.3 million (2015: $0.3 million), which

includes $10,000 paid to the Chairs of the ARCC and the NRC.

From 1 July 2015 to

30 June 2016

$’000

Base fees (per position)

Chair 132,000

Other non-executive directors 66,000

g) Other statutory information

The following table shows the relative proportions of remuneration that are linked to performance and those

that are fixed, based on the amounts disclosed as statutory remuneration expense on page 32 above:

(i) Relative proportions of fixed vs variable remuneration expense

Fixed remuneration Remuneration linked to performance

Name 2016 2015 2016 2015

Non-executive directors

K McCann 100% 100% - -

D Shiff 100% 100% - -

P Leahy 100% 100% - -

Executive directors

M Jakeman 67% 62% 33% 38%

M McConnell 100% 62% - 38%

Other key management personnel

R Burns 58% 65% 42% 35%

D Stanley 50% - 50% -

(ii) Share-based payments granted as incentive compensation

Share Options

No change has been made to the share options issued to non-executive directors on 1 November 2014, which

was a one off incentive; there are no plans for future grants to be included in on going remuneration. If a non-

executive director ceases to be a director, any options issued to that director which have not become

exercisable automatically lapse. In the event of a takeover of the Group or the same of its main undertaking

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all of the options shall be exercisable on the date the takeover, merger or sale is completed. The options do

not carry any participation rights in new share issues.

As at 30 June 2016, there were no vested options, and no lapsed or forfeited options. Refer below for details

on the number of share options held by non-executive directors.

Share rights:

During the year, one-third of the share rights issued to R Burns on 1 November 2015 were exercised into

ordinary shares. The remaining two-thirds vest on 1 November 2016. Refer below for details on the number

of ordinary shares that were granted on exercise of the rights.

Shares:

As of 6 November 2015, 32,051 shares valued at $150,000 were issued to Darren Stanley. The shares were

issued as part of the recruitment process of Mr Stanley in to the role of Deputy Chief Executive Officer. No

consideration was paid for the shares, the share price as of the grant date was $4.68.

(iii) Key management personnel equity holdings

Name Held at 1 July 2015 Granted during year Vested, exercised and

sold

Held at 30 June 2016

K McCann Options 300,000 - - 300,000

Rights - - - -

Shares 100,000 - - 100,000

D Shiff Options 150,000 150,000

Rights - - - -

Shares - - - -

P Leahy Options 150,000 - - 150,000

Rights - - - -

Shares - - - -

M Jakeman Options - - - -

Rights - 44,981 - 44,981

Shares 8,309,009 - - 8,309,009

M McConnell Options - - - -

Rights - - - -

Shares 6,626,306 - - 6,626,306

R Burns Options - - - -

Rights 133,333 18,659 (45,004) 106,988

Shares 50,348 45,004 (35,000) 60,352

D Stanley Options - - - -

Rights - 23,715 - 23,715

Shares - 32,051 - 32,051

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DIRECTORS’ DECLARATION

This report is made in accordance with a resolution of Directors.

Mr Kevin McCann, AM

Chairman

Canberra

22 August 2016

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PricewaterhouseCoopers, ABN 52 780 433 757 28 Sydney Avenue, FORREST ACT 2603, GPO Box 447, CANBERRA CITY ACT 2601 T: + 61 2 6271 3000, F: + 61 2 6271 3999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Auditor’s Independence Declaration

As lead auditor for the audit of The Citadel Group Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been:

1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

2. no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of The Citadel Group Limited and the entities it controlled during the period.

David Murphy Canberra Partner PricewaterhouseCoopers

22 August 2016

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Corporate directory

DIRECTORS Mr Kevin McCann, AM (Chairman)

Dr Miles Jakeman

Ms Deena Shiff

Professor Peter Leahy, AC

Mr Mark McConnell

SECRETARY Mr Robert Andrew Burns

Ms Leanne Ralph (appointed 5 April 2016)

PRINCIPAL PLACE OF

BUSINESS

11 Faulding Street

SYMONSTON ACT 2609 AUSTRALIA

Telephone: (02) 6124 0800

Fax: (02) 6201 0550

REGISTERED OFFICE 11 Faulding Street


Telephone: (02) 6124 0800

Fax: (02) 6201 0550

STOCK EXCHANGE LISTING Australian Securities Exchange

SHARE REGISTRY Link Market Services Limited

Level 12, 680 George Street

SYDNEY NSW 2000 AUSTRALIA

Telephone: 1300 554 474

AUDITOR PricewaterhouseCoopers

28 Sydney Ave

FORREST ACT 2603 AUSTRALIA

Telephone: (02) 6271 3000

WEBSITE ADDRESS www.citadelgroup.com.au

The company is limited by shares, incorporated and domiciled in Australia.

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Annual financial report

ANNUAL

FINANCIAL

REPORT

YEAR ENDED

30 JUNE 2016

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Annual financial report

The Citadel Group Limited (CGL) statements are the consolidated statements for the Group consisting of CGL

and its subsidiaries.

The financial report is presented in Australian Dollars and all values are rounded to the nearest thousand

dollars ($,000) unless otherwise stated.

CGL is a company limited by shares, incorporated and domiciled in Australia. Its registered office is:

11 Faulding Street


Telephone: (02) 6124 0800

Fax: (02) 6201 0550

A description of the nature of the consolidated entity’s operations and its principal activities is included in the

Directors’ report on page 20, which is not part of this financial report.

The financial statements were authorised for issue by the Directors on 22 August 2016. The Directors have the

power to amend and reissue the financial statements.

Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and

available globally at minimum cost to the Group. All press releases and other information are available on our

website: www.citadelgroup.com.au

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contents Consolidated statement of profit or loss and other comprehensive income ............................................ 41

Consolidated statement of financial position ........................................................................................... 42

Consolidated statement of changes in equity............................................................................................ 44

Consolidated statement of cash flows ....................................................................................................... 45

Notes to the financial statements .............................................................................................................. 46

Note 1 – Significant accounting policies ................................................................................................... 46

Note 2 – Segment information .................................................................................................................. 49

Note 3 – Revenues ...................................................................................................................................... 53

Note 4 – Individually significant items ...................................................................................................... 55

Note 5 – Expense items ............................................................................................................................... 55

Note 6 – Income tax expense ..................................................................................................................... 56

Note 7 – Earnings per share ...................................................................................................................... 59

Note 8 – Cash and cash equivalents .......................................................................................................... 60

Note 9 – Trade and other receivables........................................................................................................ 60

Note 10 – Inventories .................................................................................................................................. 61

Note 11 – Other current assets .................................................................................................................... 61

Note 12 – Plant and equipment ................................................................................................................. 62

Note 13 – Intangible assets ........................................................................................................................ 64

Note 14 – Amounts due from (to) customers under construction contracts .......................................... 68

Note 15 – Subsidiaries ................................................................................................................................ 69

Note 16 – Associates ................................................................................................................................... 70

Note 17 – Trade & other payables ............................................................................................................... 71

Note 18 – Interest bearing liabilities: current ........................................................................................... 71

Note 19 – Interest bearing liabilities: non current .................................................................................... 72

Note 20 – Other payables: non current ..................................................................................................... 72

Note 21 – Obligations under finance leases ............................................................................................... 72

Note 22 – Provisions ................................................................................................................................... 73

Note 23 – Make good provision ..................................................................................................................74

Note 24 – Other liabilities: current ............................................................................................................ 75

Note 25 – Contributed equity ..................................................................................................................... 75

Note 26 – Reserves (net of income tax) .....................................................................................................76

Note 27 – Retained earnings ....................................................................................................................... 77

Note 28 – Dividends .................................................................................................................................... 77

Note 29 – Capital management .................................................................................................................. 77

Note 30 – Financial risk management ...................................................................................................... 78

Note 31 – Share-based payments .............................................................................................................. 83

Note 32 – Related party transactions ........................................................................................................ 84

Note 33 – Business combinations ............................................................................................................. 85

Note 34 – Reconciliation of the net profit after tax to the net cash flow from operations ..................... 89

Note 35 – Operating lease arrangements .................................................................................................. 89

Note 36 – Commitments and contingencies ............................................................................................. 90

Note 37 – Remuneration of auditors ......................................................................................................... 90

Note 38 – Parent entity financial information .......................................................................................... 91

Note 39 – Events occurring after the balance sheet date ......................................................................... 92

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

NOTES 2016

$,000

2015

$,000

Sale of goods and rendering of services 3(a) 82,669 72,314

Other income 3(b) 2,474 656

85,143 72,970

Cost of sale of goods and rendering of services (48,267) (49,860)

Distribution, sales and marketing (3,291) (3,734)

Occupancy (1,276) (843)

Administration (17,178) (11,212)

Finance costs 5(b) (3,630) (510)

Share of net profit of associates accounted for using the equity

method 1,260 1,759

Profit before income tax 12,761 8,570

Income tax expense 6 (3,876) (2,045)

Net profit for the year 8,885 6,525

Other comprehensive income, net of tax - -

Total Comprehensive Income for the year 8,885 6,525

Profit attributable to:

Owners of The Citadel Group Limited 8,230 6,525

Non-controlling interests 655 -

8,855 6,525

Earnings per share for profit attributable to the ordinary equity

holders of the parent entity: Notes Cents Cents

Basic earnings per share 7 17.6 16.1

Diluted earnings per share 7 17.0 16.0

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the

accompanying notes.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

NOTES

2016

$,000

2015

$,000

ASSETS

Current assets

Cash and cash equivalents 8(a) 34,574 37,222

Trade and other receivables 9 12,469 21,291

Inventories 10 1,098 1,832

Other current assets 11 3,327 3,133

TOTAL CURRENT ASSETS 51,468 63,478

Non – current assets

Plant and equipment 12 5,969 2,637

Other non-current assets - 622

Intangible assets 13 59,291 59,949

Investments at cost 14 14

Investments in associates accounted using the equity method 16 - 17

TOTAL NON – CURRENT ASSETS 65,274 63,239

TOTAL ASSETS

116,742 126,717

LIABILITIES

Current liabilities

Trade and other payables 17 9,924 21,913

Interest bearing liabilities 18 298 923

Provisions 22 2,534 2,778

Other current liabilities 24 20,366 16,910

TOTAL CURRENT LIABILITIES

33,122 42,524

Non – current liabilities

Other payables 20 12,335 24,417

Interest bearing liabilities 19 970 534

Deferred tax liabilities 6(e) 5,410 1,898

Provisions 22 347 357

TOTAL NON – CURRENT LIABILITIES 19,062 27,206

TOTAL LIABILITIES

52,184 69,730

NET ASSETS

64,558 56,987

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NOTES

2016

$,000

2015

$,000

EQUITY

Equity attributable to owners of the parent entity

Contributed equity 25 48,172 47,849

Reserves (net of income tax) 26 1,004 649

Retained earnings 27 11,770 8,489

Capital and reserves attributable to owners of The Citadel Group

Limited 60,946 56,987

Non-controlling interests 15(b) 3,612 -

TOTAL EQUITY 64,558 56,987

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Attributable to owners of The Citadel Group Limited

Notes

Contributed Equity Reserves (net of

income tax) Retained Earnings

Non-controlling

interests Total Equity

$,000 $,000 $,000 $,000 $,000

Balance at 1 July 2014 19,210 - 6,074 - 25,284

Total comprehensive income for the year - - 6,525 - 6,525

Transactions with owners in their capacity as owners, net of income tax:

Contributions of equity, net of transaction costs 25 28,639 - - - 28,639

Dividends paid 28 - - (4,110) - (4,110)

Share based payments 31 - 649 - - 649

Balance at 30 June 2015 47,849 649 8,489 - 56,987

Total comprehensive income for the year - - 8,230 655 8,885

Transactions with owners in their capacity as owners, net of income tax:

Non-controlling interests on acquisition of subsidiary 15(b) - - - 2,957 2,957

Dividends paid 28 - - (4,949) - (4,949)

Share based payments 31(b) 150 528 - - 678

Exercise of share rights 31(b) 173 (173) - - -

Balance at 30 June 2016 48,172 1,004 11,770 3,612 64,558

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CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES 2016

$,000

2015

$,000

Cash flows from operating activities

Receipts from customers 87,766 67,531

Payments to suppliers and employees (73,577) (59,473)

Income taxes paid (3,731) (1,767)

Interest & borrowing costs paid (597) (48)

Interest & other income received 517 639

Net cash inflow from operating activities 34 10,378 6,882

Cash flows from investing activities

Payments for plant & equipment (2,918) (756)

Proceeds from sale of plant & equipment 12 5 -

Investments in short-term deposits - (1,554)

Proceeds from the maturity of short-term deposits 1,554 -

Dividends received 1,575 1,512

Payment for acquisition of subsidiary, net of cash acquired 33(e) (1,495) (9,055)

Payments for capitalised development costs (1,496) (885)

Net cash (outflow) from investing activities (2,775) (10,738)

Cash flows from financing activities

Proceeds from issuance of shares 73 25,000

Payments of transaction costs for issuance of shares - (2,956)

Dividends paid 28 (4,949) (4,110)

Proceeds from loans 1,022 3,500

Repayment of loans (5,393) -

Repayment of lease liabilities (210) (52)

Net cash (outflow)/inflow from financing activities (9,457) 21,382

Net (decrease)/increase in cash and cash equivalents (1,854) 17,526

Cash and cash equivalents at the beginning of financial year 36,428 18,902

Cash and cash equivalents at the end of the year 8(b) 34,574 36,428

The above consolidated statement of cashflows should be read in conjunction with the accompanying notes.

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Notes to the financial statements

Statement of compliance

These financial statements are general purpose financial statements which have been prepared in accordance

with the Corporations Act 2001, Australian Accounting Standards and Interpretations issued by the Australian

Accounting Standards Board, and comply with other requirements of the law.

The financial statements comprise the consolidated financial statements of The Citadel Group Limited (the

“Group” or “CGL”). For the purposes of preparing the consolidated financial statements, The Citadel Group

Limited is a for-profit entity.

Basis of preparation

The consolidated financial statements have been prepared on the basis of historical cost, except for certain

financial instruments that are measured at revalued amounts or fair values at the end of each reporting

period, as explained in the accounting policies below. Historical cost is generally based on the fair values of

the consideration given in exchange for goods and services. All amounts are presented in Australian dollars,

unless otherwise noted.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date, regardless of whether that price is directly

observable or estimated using another valuation technique. In estimating the fair value of an asset or a

liability, the Group takes into account the characteristics of the asset or liability if market participants would

take those characteristics into account when pricing the asset or liability at the measurement date. Fair value

for measurement and/or disclosure purposes in these consolidated financial statements is determined on such

a basis, except for share-based payment transactions that are within the scope of AASB 2 Share-based

payments, leasing transactions that are within the scope of AASB 117 Leases, and measurements that have

some similarities to fair value but are not fair value, such as net realisable value in AASB 2 or value in use in

AASB 136 Impairment of Assets.

The Group is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports)

Instrument 2016/191, dated 24 March 2016, and in accordance with that Instrument amounts in the financial

report are rounded off to the nearest thousand dollars, unless otherwise indicated.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation

(i) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group

controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with

the entity and has the ability to affect those returns through its power to direct the activities of the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are

deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group (refer to note

1(f)).

Intercompany transactions, balances and unrealised gains on transactions between group companies are

eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment

of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure

consistency with the policies adopted by the Group.

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(ii) Associates

Associates are all entities over which the Group has significant influence but not control or joint control. This

is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in

associates are accounted for using the equity method of accounting (see (iii) below), after initially being

recognised at cost.

(iii) Equity method

Under the equity method of accounting, the investments are initially recognised at cost and adjusted

thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or

loss, and the Group’s share of movements in other comprehensive income of the investee in other

comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as

a reduction in the carrying amount of the investment.

When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the

entity, including any other unsecured long-term receivables, the Group does not recognise further losses,

unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the

Group’s interests in these entities. Unrealised losses are also eliminated unless the transactions provide

evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have

been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Foreign currency translation

(i) Functional and presentation currency

Items included in the consolidated financial statements of each of the Group’s entities are measured using

Australian dollars $A (‘the functional currency’). The consolidated financial statements are presented in

Australian dollars, which is CGL’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at

the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year-end exchange rates of monetary assets and liabilities

denominated in foreign currencies are recognised in the consolidated statement of profit or loss and other

comprehensive income.

(c) Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is

not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the

asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of

GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in

the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or

financing activities which are recoverable from, or payable to the taxation authority, are presented as

operating cash flow.

(d) New, revised or amending Accounting Standards and Interpretations adopted

The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued

by the Australian Accounting Standards Board (AASB) that are mandatory for the current period as detailed

below:

• AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB

1031 Materiality

AASB 2015-3 completes the withdrawal of references to AASB 1031 in all Australian Accounting Standards and

Interpretations. The adoption of this accounting standard had no effect on the disclosures in the notes to the

financial statements.

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(e) Standards and Interpretations in issue not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in

issue but not yet effective.

Standard/Interpretation Effective for annual reporting

periods beginning on or after

Expected to be initially applied in

the financial year ending

AASB 9 Financial Instruments, and

the relevant amending standards

1 January 2018 30 June 2019

AASB 15 Revenue from Contracts

with Customers


AASB 16 Leases 1 January 2019 30 June 2020

AASB 2015-1 Amendments to

Australian Accounting Standards –

Annual Improvements to

Australian Accounting Standards

2012-2014 Cycle


AASB 2015-2 Amendments to

Australian Accounting Standards –

Disclosure Initiative: Amendments

to AASB 101


AASB 9 issued in December 2009, introduced new requirements for the classification and measurement of

financial assets. AASB 9 was amended in December 2010 to include requirements for the classification and

measurement of financial liabilities and for derecognition. The Group does not expect any impact from the

requirements of the amended standard as there are currently no hedges in place, and the changes are not

expected to impact other financial assets and liabilities held by the Group.

AASB 15 is a new standard for the recognition of revenue and will replace AASB 118 which covers contracts for

goods and services and AASB 111 which covers construction contracts. The new standard is based on the

principle that revenue is recognised when control of a good or service transfers to a customer – so the notion

of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective

approach for the adoption.

AASB 16 provides a comprehensive model for the identification of lease arrangements and their treatment in

the financial statements of both lessees and lessors. The accounting model for lessees will require lessees to

recognise all leases on balance sheet, except for short-term leases and leases of low value assets. AASB 16

applies to annual periods beginning on or after 1 January 2019. The directors of the Company anticipate that

the application of AASB 16 in the future may have a material impact on the amounts reported and disclosures

made in the Group's consolidated financial statements. However, it is not practicable to provide a reasonable

estimate of the effect of AASB 16 until the Group performs a detailed review.

AASB 2015-1 include a number of amendments to Australian Accounting Standards including AASB 119 where

it clarifies that the rate used to discount post-employment benefit obligations should be determined by

reference to market yields at the end of the reporting period on high quality corporate bonds. The

amendments apply to annual periods beginning on or after 1 January 2016. The directors of the Group do not

anticipate that the application of these amendments will have a material effect on the Group’s consolidated

financial statements.

AASB 2015-2 includes amendments to AASB 101 to give some guidance on how to apply the concept of

materiality in practice. The directors of the Group do not anticipate that the application of these amendments

to AASB 101 will have a material impact on the Group’s consolidated financial statements.

The adoption of these Standards and Interpretations in issue but not yet effective is not expected to have a

significant impact on the Group’s accounting policies however it may result in changes to information currently

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disclosed. The Group does not intend to adopt any of these pronouncements before their effective dates.

There are no other standards that are not yet effective and that would be expected to have a material impact

on the Group in the current or future reporting periods and on foreseeable future transactions.

(f) Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a

business combination is measured at fair value which is calculated as the sum of the acquisition-date fair

values of assets transferred by the Group, liabilities incurred by the Group and the equity instruments issued

by the Group in exchange for control of the acquire. Acquisition-related costs are recognised in profit or loss

as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair

value, with the exception of deferred tax liabilities which are measured in line with AASB 112.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-

controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interests in the

acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the

liabilities assumed. If those amounts are less than the fair value of the net identifiable assets of the subsidiary

acquired, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are

discounted to their present value as at the date of exchange. The discount rate used is the entity’s

incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an

independent financier under comparable terms and conditions.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial

liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s

previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or

losses arising from such re-measurement are recognised in profit or loss.

(g) Critical accounting judgements and key sources of estimation uncertainty

(i) Significant accounting judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will

seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s

accounting policies. The estimates, judgements and assumptions are based on historical experience, adjusted

for current market conditions and other factors that are believed to be reasonable under the circumstances

and are reviewed on a regular basis. Actual results may differ from these estimates.

The areas that involved a higher degree of judgement or complexity are included in the following notes:

• Note 3 – Percentage of completion

• Note 13 – Fair value of acquired intangibles

• Note 13 – Impairment of goodwill and intangibles with indefinite useful lives

• Note 31 – Fair value of share options issued to employees

• Note 31 – Share-based payment arrangements

• Note 33 – Fair value of consideration on acquisition

NOTE 2 – SEGMENT INFORMATION

(a) Description of segments

The Managing Director, Deputy Chief Executive Officer and the Chief Financial Officer examine the Group’s

performance from a product perspective and have identified two reportable segments of its business:

Technology segment: The Group provides a range of professional and managed service solutions to public

sector agencies and large corporates. Within this segment, the Group offers a number of specialist capabilities:

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�� Knowledge – The Group provides strategic advice, program management, acquisition support and quality

assurance services via consulting, contracting and placement mechanisms. The Group also helps

organisations capture, share and use their corporate knowledge such that the right person can find the

right information anywhere-anytime;

�� Technology & Integration – The Group brings together disparate organisational information using

collaboration and presentation systems, unified communications, telemedicine and video conferencing;

and,

�� Health – The Group provides software solutions, products and managed services for digital health,

diagnostic laboratories and clinical applications across Australian hospitals.

Education segment: The Group provides vocational education and training and supporting technology

applications to empower learners (typically 17-24 year olds) to achieve their individual education or

employment goals.

(b) Segment results

The segment information provided to the strategic steering committee for the reportable segments is as

follows:

(a) Included in the “Other” segment are corporate assets such as investments in subsidiaries.

For the year ended 30 June 2016 TECHNOLOGY EDUCATION OTHERa

TOTAL

$,000 $,000 $,000 $,000

Total segment revenue 75,331 7,795 - 83,126

Inter-segment revenue (457) - - (457)

Revenue from external customers 74,874 7,795 - 82,669

Adjusted Earnings before interest, taxes, depreciation and

amortisation (Adjusted EBITDA) 26,006 980 8,577 35,563

Depreciation and amortisation expense 541 445 184 1,170

Income tax expense/(benefit) 6,777 122 2,364 9,263

Share of profit from associates 1,260 - - 1,260

Total segment assets 52,972 6,039 77,340 136,351

Total assets includes:

Additions to non-current assets (other than financial assets &

deferred tax) 4,757 906 431 6,094

Total segment liabilities 23,988 5,344 37,405 66,737

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(c) Understanding the segment results

(i) Segment revenue

Sales between segments are carried out at arm’s length and are eliminated on consolidation. The revenue

from external parties is measured in the same way as in the statement of profit or loss and other


Revenues from external customers come from the sale of professional and managed services and provision of

education and training. All external customers are located in Australia

Revenues for the year of approximately $33.7 million (2015: $34.0 million) are derived from two external

customers. These revenues are attributed to the Technology segment.

Segment revenue reconciles to total revenue as follows:

(ii) Adjusted Earnings Before Interest, Taxes, Depreciation And Amortisation (EBITDA)

Management and the Board use an Adjusted EBITDA measure to assess the performance of the segments. This

excludes the effects of individually significant expenditure, such as restructuring costs, one-off legal expenses,

and goodwill impairments when the impairment is the result of an isolated, non-recurring event. It also

excludes unrealised gains or losses on financial instruments.

For the year ended 30 June 2015 TECHNOLOGY EDUCATION OTHER TOTAL

$,000 $,000 $,000 $,000

Total segment revenue 61,459 11,228 - 72,687

Inter-segment revenue (373) - - (373)

Revenue from external customers 61,086 11,228 - 72,314

Adjusted Earnings before interest, taxes, depreciation and

amortisation (EBITDA) 10,681 4,146 752 15,579

Depreciation and amortisation expense 453 327 92 872

Income tax expense/(benefit) 2,408 1,141 628 4,177

Share of profit from associates 1,759 - - 1,759

Total segment assets 55,977 10,517 66,782 133,276

Total assets includes:

Investment in associates 17 - - 17

Additions to non-current assets (other than financial assets &

deferred tax) 1,076 1,034 262 2,372

Total segment liabilities 37,957 9,252 26,702 73,911

2016 2015

$,000 $,000

Total segment revenue 83,126 72,687

Inter-segment eliminations (457) (373)

Finance revenue – Note 3(b) 491 647

Other income 1,983 9

Total revenue (note 3) 85,143 72,970 For

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Interest income and expenditure are allocated to segments. Adjusted EBITDA reconciles to operating profit

before income tax as follows:

(iii) Segment assets

Segment assets are measured in the same way as in the financial statements. These assets are allocated based

on the operations of the segment. All segment assets are located in Australia. Reportable segments’ assets are

reconciled to total assets as follows:

(iv) Segment liabilities

Segment liabilities are measured in the same way as in the financial statements. These liabilities are allocated

based on the operations of the segment. The Group’s borrowings are not considered to be segment liabilities

but are managed by the treasury function. Reportable segments’ liabilities are reconciled to total liabilities as

follows:

2016 2015

$,000 $,000

Adjusted EBITDA 35,563 15,579

Inter-segment eliminations (14,090) (3,355)

One-off legal expenses (49) -

Acquisition-related costs - (397)

IPO listing costs - (1,553)

EBITDA 21,424 10,274

Depreciation and amortisation expense (5,033) (1,194)

Finance costs (3,630) (510)

Profit before income tax 12,761 8,570

2016 2015

$,000 $,000

Segment assets 136,351 133,276


Total assets as per the consolidated statement of financial position 116,742 126,717

2016 2015

$,000 $,000

Segment liabilities 66,737 73,911


Unallocated: Deferred tax liability 5,410 1,898

Total liabilities as per the consolidated statement of financial position 52,184 69,730

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NOTE 3 – REVENUES

Significant accounting policies

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that

future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s

activities as described below. The amount of revenue is not considered to be reliably measurable until all

contingencies relating to the sale have been resolved. The Group bases its estimates on historical results,

taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as

revenue are net of returns, trade allowances and duties and taxes paid.

Generally, the Group records the full gross amount of sale proceeds as revenue. However, if the Group is

acting as an agent, revenue is recorded on a net basis (being the gross amount billed less the amount paid to

the supplier acting as a principal in the arrangement).

(i) Sale of technological products

In addition to the recognition criteria noted above, revenue from the sale of technological products is

recognised when:

• The Group has passed the risk and rewards of ownership in the goods to the buyer;

• The Group retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the goods sold; and,

• The costs incurred or to be incurred in respect of the transaction can be measured reliably.

(ii) Rendering of services

Educational and training services

Revenue from education and training services is recognised in the accounting period in which the delivery of

the programme occurs. The recognition of revenue is based on the number of teaching days completed in

relation to the total teaching days for the programme.

Technology consulting and integration services

The revenue of time and material contracts is recognised at the contractual rates as labour hours are delivered

2016 2015

$,000 $,000

(a) Sale of goods and rendering of services

Rendering of services 53,278 52,005

Sale of goods 8,586 6,630

Construction contract revenue 12,923 13,012

Licence fees 7,882 667

82,669 72,314

(b) Other Income

Finance revenue 491 647

Net foreign exchange (7) (16)

Gain on fair value of associate immediately prior to acquisition 1,479 -

Gain on fair value re-measurement of financial instruments 356 -

Other income 155 25

2,474 656

Total revenue 85,143 72,970

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and direct expenses are incurred.

For fixed services contracts, revenue is recognised on a straight line basis over the contractual term of the

contract.

For fixed price contracts, revenue is recognised under the percentage of completion method.

Where a loss is expected to occur, it is recognised immediately in the statement of profit or loss and other

comprehensive income. If circumstances arise that may change the original estimate of the revenue, costs or

extent of progress towards completion, the estimates are revised. These revisions may result in increases or

decreases in revenue and costs and are reflected in the period in which the circumstances that give rise to the

revision became known by management.

Software development

The revenue recognition policy for software development services is the same as noted above for fixed price

contracts.

Construction of technology infrastructure

When the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by

reference to the stage of completion of the contract activity at the end of the reporting period, measured

based on the proportion of contract costs incurred for work performed to date relative to the estimated total

contract costs, except where this would not be representative of the stage of completion. Variations in

contract work, claims and incentive payments are included to the extent that the amount can be measured

reliably and its receipt is considered probable.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to

the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as

expenses in the period in which they are incurred. When it is probable that total contract costs will exceed

total contract revenue, the expected loss is recognised as an expense immediately.

(iii) Licence fees

Revenue from licence fees for use of developed software is recognised on a straight line basis over the term of

the licence. If the term of the licence is undetermined or perpetual the revenue is recognised at the point of

sale.

(iv) Dividends

Dividends are recognised as revenue when the right to receive payment is established.

(v) Finance revenue

Finance revenue is recognised as it accrues, taking into account the effective yield on the financial asset, which

is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset

to that asset’s net carrying amount on initial recognition.

Critical accounting estimates

(i) Percentage of completion

The percentage of completion is determined by the aggregated cost of effort for the individual contract

incurred at the end of the reporting period compared with the estimated budgeted effort. Management’s

estimation of the cost incurred to date and the budgeted cost are primarily based on the labour effort

employed in the contract. Corresponding revenue from contract work is also estimated by management based

on the percentage of completion and budgeted revenue. The Group regularly reviews and revises the

estimation of both contract revenue and contract cost in the budget prepared for each contract as these

contract progresses.

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NOTE 4 – INDIVIDUALLY SIGNIFICANT EXPENSE ITEMS

The Group has identified a number of items which are material due to the significance of their nature and/or

amount. These are listed separately here to provide a better understanding of the financial performance of the

Group.

(a) On 13 November 2014, CGL completed the initial public offering (IPO) of the Group on the ASX. The IPO

raised $25.0 million in incremental capital through the issue of 11.1 million new shares (note 25); $1.5

million of costs (net of tax) were incurred being directly associated with the IPO.

(b) On 1 June 2015, CGL acquired Citadel Health to expand its capabilities in the technology segment. Costs

associated with the acquisition totalled $0.4 million. Refer to note 33 for further detail on the acquisition.

NOTE 5 – EXPENSE ITEMS

2016 2015

$,000 $,000

IPO listing costs (a) - 1,553

Acquisition-related costs (b) - 397

- 1,950

2016 2015

$,000 $,000

(a) Breakdown of expenses by nature

Changes in inventory of finished goods and work in progress 8,238 5,090

Employee benefits expenses 18,271 16,960

Depreciation 1,502 872

Amortisation 3,975 322

(b) Finance costs

Finance charges payable under invoice financing & trade facility 219 98

Finance charges payable under finance leases 53 13

Overdraft charges & bank fees 256 167

Liabilities: unwinding of discount 3,102 232

Total finance costs expensed 3,630 510

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NOTE 6 – INCOME TAX EXPENSE

2016 2015

$,000 $,000

(a) Income Tax Expense relating to continuing operations

Current Tax

2,624 2,263

Current Tax – adjustment to prior year

398 -

Deferred Tax

854 (256)

Deferred Tax – adjustment to prior year - 38

3,876 2,045

Deferred income tax (revenue) expense included in income tax

expense comprises:

Decrease/(Increase) in deferred tax assets (not including any

increase through business combinations)

216 (433)

Increase/(Decrease) in deferred tax liabilities (not including any

increase through business combinations)

638 177

854 (256)

(b) Numerical reconciliation of income tax expense to prima facie

tax payable

Profit from continuing operations before income tax expense 12,761 8,570

At the Group’s statutory income tax rate of 30 % (2015: 30%) 3,828 2,571

Entertainment - 1

Gain on fair value increases (549) -

Research & development credit (329) (70)

Dividends 70 (104)

Imputation credits (473) (423)

Unwinding of discount 931 70

Under provision of prior year income tax 398 -

Income tax expense recognised in profit or loss (relating to

continuing operations)

3,876 2,045

(c) Amounts recognised directly in equity

Current tax (share issue costs) - 485

- 485

(d) Current tax liabilities

Provision for income tax 22 927 1,194

927 1,194

(e) Deferred tax balances are presented in the statement of

financial position as follows:

Deferred tax liabilities 5,410 1,898

Net deferred tax liability 5,410 1,898

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Refer below for details on the Group’s tax funding arrangement as a tax consolidated group. Movements in

and closing balances of deferred tax during the year are summarised below:

2016

Opening

balance

Recognised in

profit or loss

Recognised in

other

comprehensive

income

Closing

balance

$,000 $,000 $,000 $,000

Provisions 601 (133) - 468

Inventory obsolescence 47 (38) - 9

Doubtful debts 17 11 - 28

Prepayments (7) (1) - (8)

IPO costs 761 (191) - 570

Capital legal fees 5 (2) - 3

Accrued expenses 229 (72) - 157

R & D (209) (200) - (409)

Accrued revenue (79) (16) - (95)

Share based payments 49 106 - 155

Intangible assets (3,378) (400) - (3,778)

Other liabilities 38 56 - 94

Amortisation 28 26 - 54

(1,898) (854) - (2,752)

Deferred tax liability assumed on acquisition (2,658)

Net deferred tax liability expected to be settled after

more than 12 months (5,410)

Net deferred tax assets / (liabilities) (5,410)

2015 $,000 $,000 $,000 $,000

Provisions 422 179 - 601

Inventory obsolescence 174 (127) - 47

Doubtful debts 65 (48) - 17

Prepayments - (7) - (7)

IPO costs - 276 485 761

Capital legal fees - 5 - 5

Accrued expenses 196 33 - 229

R & D - (209) - (209)

Accrued revenue (157) 78 - (79)

Share based payments - 49 - 49

Intangible assets (7) (63) - (70)

Other liabilities - 38 - 38

Property, plant and equipment (24) 24 - -

Amortisation - 28 - 28

669 256 485 1,410

Deferred tax liability assumed on acquisition (3,308)

Net deferred tax assets expected to be recovered after

more than 12 months (1,898)

Net deferred tax assets / (liabilities) (1,898)

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Income tax expense represents the sum of the tax currently payable and deferred tax.

(i) Current tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income

based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and

liabilities attributable to temporary differences between the tax bases of assets and liabilities and their

carrying amounts in the financial statements, and to unused tax losses. The Group’s current tax is calculated

using tax rates that have been enacted or substantively enacted by the end of the reporting period.

(ii) Deferred tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between

the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.

However the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability

in a transaction other than a business combination that, at the time of the transaction, affects neither

accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have

been enacted or substantively enacted by the balance sheet date and are expected to apply when the related

deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is

probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount

and tax bases of investments in controlled entities where the parent entity is able to control the timing of the

reversal of the temporary differences and it is probable that the differences will not reverse in the

foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax

assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax

assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either

to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised

directly in equity.

CGL and its wholly owned Australian controlled entities implemented the tax consolidation legislation as of 1

July 2005. The head entity, CGL and the controlled entities in the tax consolidated group continue to account

for their own current and deferred tax amounts. The Group has applied the allocation approach in

determining the appropriate amount of current taxes and deferred taxes to allocate to members of the

consolidated group.

In addition to its own current and deferred tax amounts, CGL also recognises the current tax liabilities (or

assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from the

controlled entities in the tax consolidated group.

Assets or liabilities arising under the tax funding agreements with the tax consolidated entities are recognised

as amounts receivable or payable to other entities in the Group. Any difference between the amounts

assumed and amounts receivable or payable under the tax funding agreement are recognised as a

contribution to (or distribution from) wholly owned tax consolidation entities.

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NOTE 7 – EARNINGS PER SHARE

(a) Employee share rights

Share rights granted to employees are considered to be potential ordinary shares. They have been included

in the determination of diluted earnings per share as the participants still remain employed by the Group.

They have not been included in the determination of basic earnings per share. Details relating to the rights

are set out in note 31(a).

(b) Contingently issuable shares on business combinations

As part of the consideration for the acquisition of PJA Solutions Pty Ltd, the Group has the option to satisfy

the remaining tranches with shares in the Group to a maximum of $5 million. The potential dilutive effect of

these shares has been factored in from the date of acquisition, 1 June 2015.


(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group,

excluding any costs of servicing equity other than ordinary shares, by the weighted average number of

ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares

issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take

into account the after income tax effect of interest and other financing costs associated with dilutive

2016 2015

Cents per share Cents per share

Basic earnings per share 17.6 16.1

Diluted earnings per share 17.0 16.0

$’000 $’000

(a) Basic earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

Profit for the year attributable to owners of the Group 8,230 6,525

Earnings used in the calculation of basic earnings per share 8,230 6,525

Weighted average number of ordinary shares for the purposes of basic earnings

per share 46,702 40,498

(b) Diluted earnings per share

The earnings used in the calculation of diluted earnings per share are as follows:

Earnings used in the calculation of basic earnings per share 8,230 6,525

Earnings used in the calculation of diluted earnings per share 8,230 6,525

Weighted average number of ordinary shares used in the calculation of basic

earnings per share 46,702 40,498

Shares deemed to be issued for no consideration in respect of:

Options 240 -

Employee share rights 472 107

Contingently issuable shares on business combinations 926 102

Weighted average number of ordinary shares used in the calculation of diluted

earnings per share 48,341 40,707

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potential ordinary shares and the weighted average number of shares assumed to have been issued for no

consideration in relation to dilutive potential ordinary shares.

NOTE 8 – CASH AND CASH EQUIVALENTS


Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other

short-term, highly liquid investments with original maturities of three months or less that are readily

convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and

bank overdrafts.

Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

NOTE 9 – TRADE AND OTHER RECEIVABLES


Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less an

impairment provision. Trade receivables are generally due for settlement between 30 to 60 days from the

(a) Cash and cash equivalents per the statement of financial position 2016 2015

$,000 $,000

Cash at bank and in hand 24,361 22,535

Short-term deposit 10,213 14,687

34,574 37,222

(b) Cash and cash equivalents reconciliation for cash flow purposes

Cash at bank and in hand 24,361 22,535

Short-term deposit 10,213 14,687

Short-term bank facilities (note 18) - (794)

34,574 36,428

2016 2015

$,000 $,000

Trade receivables 12,081 13,811

Provision for doubtful debts (92) (57)

Other receivables 480 1,750

Amounts due from customers under construction contracts (note 14) - 5,787

12,469 21,291

As at 30 June, the aging analysis of trade receivables is as follows:

Past due but not impaired

Total Neither Past Due

nor impaired 30 to 60 days 60 to 90 days >90 days

$,000 $,000 $,000 $,000 $,000

30-Jun-16 12,081 8,480 2,752 121 728

30-Jun-15 13,811 12,074 1,085 35 617

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date of invoice.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be

uncollectible are written off. An impairment provision is established when there is objective evidence that

the Group will not be able to collect all amounts due according to the original terms of receivables. The

amount of the provision is the difference between the asset’s carrying amount and the present value of

estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is

recognised in the income statement.

NOTE 10 – INVENTORIES

(i) Assigning costs to inventories

The costs of individual items of inventory are determined using the weighted average costs.

(ii) Amounts recognised in profit and loss

There were no reversals of write-down in the current year (2015: $0.4 million).


Work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises

direct materials and direct labour. Costs are assigned to individual items of inventory on the basis of

weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of

completion and the estimated costs necessary to make the sale.

NOTE 11 – OTHER CURRENT ASSETS

2016 2015

$,000 $,000

Finished goods 1,128 505

Provision for obsolescence (30) (158)

Work in progress - 1,485

1,098 1,832

2016 2015

$,000 $,000

Prepayments 237 337

Income accrual 3,089 1,244

Short-term deposits 1 1,552

3,327 3,133

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NOTE 12 – PLANT AND EQUIPMENT

Furniture &

office

equipment

Plant &

equipment

Computer

equipment

Leasehold

improvements

Motor

vehicles

Make good

assets ICT Software

Total

$,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000

Cost

Balance at 1 July 2014 1,490 1,417 1,134 925 224 232 841 6,263

Additions 108 35 104 824 67 100 250 1,488

Additions through business combinations 34 - 321 26 - - - 381

Disposals (1,193) (1,254) (432) (413) (87) - (88) (3,467)

Balance at 1 July 2015 439 198 1,127 1,362 204 332 1,003 4,665

Additions (including transfers from assets under

construction) 17 76 964 1,047 173 217 2,488

4,982

Disposals (185) (10) (5) (187) (121) (132) - (640)

Cost at 30 June 2016 271 264 2,086 2,222 256 417 3,491 9,007

Accumulated depreciation

Balance at 1 July 2014 (1,269) (1,281) (514) (536) (209) (209) (563) (4,581)

Depreciation for the year (91) (66) (266) (204) (15) (35) (198) (875)

Eliminated on disposals of assets 1,159 1,251 430 413 87 - 88 3,428

Balance at 1 July 2015 (201) (96) (350) (327) (137) (244) (673) (2,028)

Depreciation for the year (44) (36) (627) (393) (24) (71) (307) (1,502)

Eliminated on disposals of assets 116 - 3 121 120 132 - 317

Accumulated depreciation at 30 June 2016 (129) (132) (974) (599) (41) (183) (980) (3,038)

Net book value at 30 June 2016 142 132 1,112 1,623 215 234 2,511 5,969

Net book value at 30 June 2015 238 102 777 1,035 67 88 330 2,637 For

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All plant and equipment is stated at historical cost less accumulated depreciation and any accumulated

impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the

items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will flow to the

Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to

the income statement during the financial period in which they are incurred.

Depreciation on assets is calculated using the straight line or diminishing value method to allocate their cost,

net of their residual values, over their estimated useful lives, as follows:

Furniture and office equipment 3-8 years

Plant and equipment 5-10 years

Computer equipment 3-5 years

ICT Software 2-10 years

Motor vehicles 3-5 years

Leasehold improvements Term of lease

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet

date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying

amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by

comparing sales proceeds with carrying amount. These are included in the statement of profit or loss and

other comprehensive income.

An item of plant and equipment is derecognised upon disposal or when no future economic benefits are

expected to arise from the continued use of the asset.

(i) Impairment of non-financial assets other than goodwill and indefinite life intangibles

Non-financial assets other than goodwill and intangible assets that have an indefinite useful life are tested for

impairment whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds

its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and

value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which

there are separately identifiable cash inflows which are largely independent of the cash inflows from other

assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered

impairment are reviewed for possible reversal of the impairment at each reporting date.

(ii) Significant accounting judgements

Acquired software valuation

The Group measures ICT Software at fair value for financial reporting purposes when non-monetary assets are

given as consideration in line with the requirements of AASB 138 Intangible Assets. In estimating the fair

value, the Group adopts a discounted cash flow approach. This methodology requires significant assumptions

regarding expected future revenue streams and the discount rate.

Where a signed contract is available which details the future revenue charges, these amounts are used as the

basis for expected future revenue. The Group also uses transactions of a similar nature as a guide to

determining expected revenue from selling licences and/or managed services for the software. The level of

risk associated with the software is considered when calculating the discount rate in addition to the average

borrowing rate the Group would be able to obtain from external funding.

The Group amortises ICT Software acquired through non-monetary exchange in line with the useful lives

detailed above, and will perform impairment testing on an annual basis.

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NOTE 13 – INTANGIBLE ASSETS

Goodwill Business

process,

software and

product

development

Trademarks

& other

rights

Patents &

licences

Customer

contracts

Total

$,000 $,000 $,000 $,000 $,000

Cost

Balance at 1 July 2014 19,231 1,170 50 121 - 20,572

Additions – capitalised development

costs - 884 - - - 884

Additions – acquired through

business combinations 7,189 27,609 4 - 11,026 45,828

Total Cost at 30 June 2015 26,420 29,663 54 121 11,026 67,284

Additions – capitalised development

costs - 1,111 1 - - 1,112

Additions – acquired through

business combinations 2,974 - - - - 2,974

Disposals and transfers to fixed

assets - (772) - - - (772)

Total Cost at 30 June 2016 29,394 30,002 55 121 11,026 70,598

Accumulated amortisation and impairment

Balance at 1 July 2014 (5,995) (905) - - - (6,900)

Amortisation expense - (343) - - (92) (435)

Total Accumulated Amortisation at

30 June 2015 (5,995) (1,248) - - (92) (7,335)

Amortisation expense - (2,872) - - (1,103) (3,975)

Eliminated on disposal/write-off - 3 - - - 3

Total Accumulated Amortisation at

30 June 2016 (5,995) (4,117) - - (1,195) (11,307)

Net book value

30 June 2016 23,399 25,885 55 121 9,831 59,291

30 June 2015 20,425 28,415 54 121 10,934 59,949

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Goodwill and other intangible assets with indefinite useful lives have been allocated for impairment testing

purposes to the cash-generating units listed below. It should be noted that during the year, the Group changed

the way it defined cash generating units from individual subsidiaries to business divisions as this represents the

lowest level of independent cash inflows.

Goodwill Trademarks

& other

rights

Patents &

Licences

Total

$,000 $,000 $,000 $,000

Education - - 121 121

Knowledge 7,885 51 - 7,936

Technology & Integration 8,325 - - 8,325

Health 7,189 4 - 7,193

30 June 2016 Total 23,399 55 121 23,575

Education - - 121 121

Knowledge 4,911 50 - 4,961

Technology & Integration 8,325 - - 8,325

Health 7,189 4 - 7,193

30 June 2015 Total 20,425 54 121 20,600

The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of

a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of

assumptions, which are detailed below. The calculations use cash flow projections based on financial budgets

approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated

using the estimated growth rates stated below. These growth rates do not exceed the long-term average

growth rates for the industry in which each CGU operates.

Forecasted

Revenue

Compound

Annual Growth

Rates

Discount Rate Terminal Rate

% % %

Knowledge 9.5 18.8 1.00

Technology & Integration 8.9 16.3 1.00

Health 6.0 19.8 1.00

These assumptions have been used for the analysis of each CGU within an operating segment. Management

determined budgeted gross margin based on past performance and its expectations for the future. The

compound annual growth rates used are based on past performance and planned strategic initiatives

approved by management. The discount rates used reflect specific risks relating to the relevant CGU segments

and the markets in which they operate.

Were the assumptions to significantly change, the analysis would remain the same with no impairment losses

being incurred.


Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of

an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following

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initial recognition, intangible assets are carried at cost less any accumulated amortisation and any

accumulated impairment losses. Internally generated intangible assets, excluding capitalised development

costs, are not capitalised and expenditure is recognised in profit or loss in the year which the expenditure is

incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite

lives are amortised over their useful life and tested for impairment whenever there is an indication that the

intangible asset may be impaired. The amortisation period and the amortisation method for an intangible

asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful

life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted

for prospectively by changing the amortisation period or method, as appropriate, which is a change in

accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or

loss in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the

cash-generating unit level consistent with the methodology outlined for goodwill below. Such intangibles are

not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to

determine whether indefinite life assessment continues to be supportive. If not, the change in the useful life

assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus

accounted for on a prospective basis.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the

net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset

is derecognised.

(i) Goodwill

Goodwill acquired in a business combination is initially measured at cost of the business combination being

the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired

and liabilities assumed. If this consideration transferred is lower than the fair value of the net identifiable

assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition

date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are

expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities

of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is

allocated represents the lowest level within the entity at which the goodwill is monitored for internal

management purposes.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in

circumstances indicate a potential impairment. If the recoverable amount of the cash-generating unit to

which goodwill has been allocated is less than its carrying amount, the impairment loss is allocated first to

reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro

rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised

directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

(ii) Research and development costs

Research costs are expensed as incurred. An intangible asset arising from development expenditure on an

internal project is recognised only when the Group can demonstrate the technical feasibility of completing the

intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell

the asset, how the asset will generate future economic benefits, the availability of resources to complete the

development and the ability to measure reliably the expenditure attributable to the intangible asset during its

development.

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset

to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure

so capitalised is amortised over the period of expected benefit from the related project.

The carrying value of an intangible asset arising from development expenditure is tested for impairment

annually when the asset is not yet available for use, or more frequently, when an indication of impairment

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arises during the reporting period.

A summary of the policies applied to the Group’s intangible assets is as follows:

Goodwill Business

process,

software and

product

development

Trademarks &

other rights

Patents &

licences

Customer

contracts

acquired

Useful lives Indefinite 3 – 10 years Indefinite Indefinite 10 years

Impairment

testing

Annually Annually Annually Annually Annually

(iii) Patents and licences

The patents and licences have been granted for a minimum of 10 years by the relevant government agency

with the option of renewal without significant cost at the end of this period provided that the Group meets

certain predetermined targets. The fact that patents and licences have previously been renewed and that the

evidence supports the meeting of these targets have allowed the Group to determine that there is no

foreseeable limit to the period over which the assets are expected to generate net cash inflows for the Group.

Thus, the assets have indefinite useful lives. Costs capitalised include external direct costs of materials and

service in acquiring the patents or licences.

(iv) Trademarks and other rights

Costs capitalised include external direct costs of materials and service in acquiring the trademarks and other

rights.

(v) IT development and software

Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that

will contribute to future period financial benefits through revenue generation and/or cost reduction are

capitalised to software and systems. Costs capitalised include external direct costs of materials and service,

direct payroll and payroll related costs of employees’ time spent on the project.

IT development costs include only those costs directly attributable to the development phase and are only

recognised following completion of technical feasibility and where the Group has an intention and ability to

use the asset.

(vi) Curriculum development

Costs incurred in developing the learning curriculum that will contribute to future period financial benefits

through revenue generation and/or cost reduction are capitalised to product development. Costs capitalised

include external direct costs of materials and service, direct payroll and payroll related costs of employees’

time spent on the project.

Curriculum development costs include only those costs directly attributable to the development phase and

are only recognised following completion of technical feasibility and where the Group has an intention and

ability to use the asset.

Significant assumptions

Fair value of acquired intangibles

The fair value of intangible assets acquired in a business combination has been determined using a discounted

cash flow approach. This methodology requires significant assumptions regarding the future revenue

streams, EBITDA results, the proportion of EBITDA attributable to software versus customer contracts, and

the discount rate.

Future revenue streams and EBITDA results are determined using budget estimates and forecasts taking into

consideration the expected revenue arising from contracts and the costs associated with delivering those

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contracts. The level of risk associated with the software was also considered when calculating the discount

rate. The Group amortises the acquired intangibles in line with the useful lives detailed above and will

perform impairment testing on an annual basis.

Impairment of goodwill and intangibles with indefinite useful lives

The Group tests for impairment of goodwill and intangibles with indefinite useful lives on at least on an

annual basis. This requires estimates of the recoverable amount of the cash generating units using a value-in-

use discounted cash flow methodology, to which the goodwill and intangibles with indefinite useful lives are

allocated.

NOTE 14 – AMOUNTS DUE FROM (TO) CUSTOMERS UNDER CONSTRUCTION CONTRACTS

At 30 June 2016 and 2015, there were no retentions held by customers for contract work or advances received

from customers for contract work.


When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings,

the surplus is shown as amounts due from customers for contract work. For contracts where progress billings

exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as

the amounts due to customers from contract work. Amounts received before the related work is performed

are included in the consolidated statement of financial position as income in advance. Amounts billed for work

performed but not yet paid by the customer are included in the consolidated statement of financial position

under trade and other receivables.

2016 2015

$,000 $,000

Contracts in progress

Construction costs incurred plus recognised profits less recognised losses to

date (project to date) - 15,727

Less: progress billings - (9,940)

- 5,787

Recognised and included in the consolidated financial statements as amounts due:

- from customers under construction contracts (note 9) - 5,787

- 5,787

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NOTE 15 – SUBSIDIARIES

(a) Material subsidiaries

Details of the Group’s material subsidiaries at the end of the reporting period are as follows:

Name of subsidiary Principal activity Place of incorporation

and operation

Proportion of ownership interest and voting power

held by the Group

2016 2015

Australian Business

Academy Pty Ltd (ABA) Education provider Australia 100% 100%

Frontier Group Australia

Pty Ltd (FGA)

Specialist consulting and

HR solutions provider Australia 100% 100%

ServicePoint Australia

Pty Ltd (SAPL)

Technology and

integration services Australia 100% 100%

Jakeman Business

Solutions Pty Ltd (JBS)

Knowledge

management and

advisory services

Australia 100% 100%

Citadel Health Pty Ltd Technology and

managed services Australia 100% 100%

Citadel Health

Management Pty Ltd

Technology and

managed services Australia 100% 100%

filosoph-e Pty Ltd (i)

Information and

Communications

Technology managed

services provider

Australia 50% 25%

(i) On 1 April 2016, the Group acquired an additional 25% share of filosoph-e Pty Ltd which resulted in total

shareholding of 50% (refer to note 33).

(b) Non-controlling interests (NCI)

Set out below is summarised financial information for each subsidiary that has non-controlling interests that

are material to the Group. The amounts disclosed for each subsidiary are before inter-company eliminations.

filosoph-e Pty Ltd 2016 2015

$,000 $,000

Summarised balance sheet

Total current assets 11,841 -

Total non-current assets - -

Total current liabilities (2,154) -

Total non-current liabilities (2,463) -

Net assets 7,224 -

Accumulated NCI 3,612

Summarised statement of profit or loss and other comprehensive income

Profit for the year attributed to NCI 1,310 -

Total comprehensive income for the year 1,310 -

Dividends paid to NCI - -

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The Group recognises non-controlling interests in an acquired entity either at fair value or at the non-

controlling interest’s proportionate share of the acquired entity’s net identifiable assets. This decision is

made on an acquisition-by-acquisition basis. For the non-controlling interests in filosoph-e Pty Ltd the Group

elected to recognise the non-controlling interests at its proportionate share of the acquired identifiable net

assets. See note 1 for the Group’s accounting policies for business combinations.

(c) Transactions with non-controlling interests

On 1 April 2016, the Group acquired an additional 25% of the issued shares of filosoph-e Pty Ltd for $3 million

which increased its shareholding from 25% (associate – refer to note 16) to 50%. Immediately prior to the

purchase, the Group calculated the fair value of its previous 25% shareholding resulting in a gain recognised in

Other income in the statement of profit or loss and other comprehensive income of $1.48 million.

NOTE 16 – ASSOCIATES

As detailed in note 15, filosoph-e Pty Ltd became a subsidiary of the Group on 1 April 2016, as a result of the

Group acquiring an additional 25% shareholding which increases its ownership to 50%. In addition Dr Miles

Jakeman (Managing Director of the Group) was elected as Chairman of the Board of Directors of filosoph-e Pty

Ltd, resulting in the Group obtaining control. Summarised financial disclosures in respect of the Group’s

formerly-held associates are presented below for comparative purposes only.

2016 2015

$,000 $,000

Summarised cash flow

Cash flows from operating activities 157 -

Cash flows from investing activities - -

Cash flow from financing activities - -

Net increase in cash and cash equivalents 157 -

2016 2015

$,000 $,000

Investment in associates accounted for using the equity method (refer to

Note 15) - 17

17

filosoph-e Pty Ltd 2016 2015

$,000 $,000

Total current assets - 1,236

Total Non-current assets - -

Total current liabilities - 1,042

Total Non-current liabilities - 40

Net assets - 154

Profit (loss) for the year - 7,124

Total comprehensive income for the year - 7,124

Dividends received or receivable from the associate during the year 1,575 1,746

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NOTE 17 – TRADE AND OTHER PAYABLES

2016 2015

$,000 $,000

Trade creditors 5,332 4,950

Other payables 1,633 2,976

GST payable 1,151 1,570

Accrued expenses 1,808 12,417

9,924 21,913

Trade creditors are unsecured and are usually paid within 30 days of recognition.


These amounts represent liabilities for goods and services provided to the Group prior to the end of financial

year which are unpaid. These amounts are carried at amortised cost and due to their short term nature they

are not discounted. These amounts are unsecured and are usually paid within 30 days of recognition. Trade

and other payables are presented as current liabilities unless payment is not due within 12 months after the

reporting period.

NOTE 18 – INTEREST BEARING LIABILITIES: CURRENT

2016 2015

$,000 $,000

Short Term Bank Facilities (a) - 794

Unsecured loans 40 -

Finance lease Liability (note 21) 258 129

298 923

(a) The short term bank facilities are issued by ANZ Bank. The debt facilities are held by the legal parent The

Citadel Group Limited and are secured by a fixed and floating charge over the Group’s assets. Each subsidiary

of the Group has agreed to a cross collateral mortgage debenture securing the parent entity’s debt facility.

The current average effective interest rate on the bills is 5.9 % per annum (2015: 3.9% per annum).

The carrying amount of the current and non-current borrowings approximates their fair value.


Interest bearing liabilities are initially recognised at fair value, net of transaction costs incurred. Interest

bearing liabilities are subsequently measured at amortised cost using the effective interest rate method. Any

difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the

statement of comprehensive income over the period of the liability using the effective interest method. Fees

paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-

down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of

the facility.

Interest bearing liabilities are removed from the statement of financial position when the obligation

specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of

a financial liability that has been extinguished or transferred to another party and the consideration paid,

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including any non-cash assets transferred or liabilities assumed, is recognised in other income or other

expenses.

Interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to

defer settlement of the liability for at least 12 months after the reporting date.

NOTE 19 – INTEREST BEARING LIABILITIES: NON CURRENT

2016 2015

$,000 $,000

Finance lease liabilities (note 21) 970 534

970 534

NOTE 20 – OTHER PAYABLES: NON CURRENT

2016 2015

$,000 $,000

Lease liability 314 125

Consideration Liabilities (note 30 (d)) 12,021 24,292

12,335 24,417

NOTE 21 – OBLIGATIONS UNDER FINANCE LEASES

The Group leased certain of its equipment under finance leases. The average lease term is 5 years (2015: 5

years). The Group has options to purchase the equipment for a nominal amount at the end of the lease terms.

The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets.

Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging

from 5.0% to 7.8% (2015: 5.0% to 7.8%) per annum.

Minimum lease payments Present value of minimum

lease payments

2016

$’000

2015

$’000

2016

$’000

2015

$’000

Not later than one year 314 164 258 129

Later than one year and not later than five years 1,057 591 970 534

Later than five years - - - -

1,371 755 1,228 663

Less future finance charges (143) (92) - -

Present value of minimum lease payments 1,228 663 1,228 663

Included in the consolidated statement of financial position (note 18 and

19)

- current interest bearing liabilities 258 129

- non-current interest bearing liabilities 970 534

1,228 663

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Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and

rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognised as assets of the Group at their fair value at the

inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding

liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to

achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised

immediately in profit or loss. Contingent rentals are recognised as expenses in the periods in which they are

incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except

where another systematic basis is more representative of the time pattern in which economic benefits from

the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an

expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as

a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line

basis, except where another systematic basis is more representative of the time pattern in which economic

benefits from the leased asset are consumed.

NOTE 22 – PROVISIONS

2016 2015

$,000 $,000

Employee benefits (a) 1,561 1,609

Make good provision (note 23) 393 332

Provision for income tax (note 6) 927 1,194

2,881 3,135

Current 2,534 2,778

Non-current 347 357

2,881 3,135

(a) The provision for employee benefits relates to the Group’s liability for long service leave and annual leave.


(i) Provisions

Provisions for make good obligations are recognised when the Group has a present legal or constructive

obligation as a result of past events, it is probable that an outflow of resources will be required to settle the

obligation and the amount has been reliably estimated. Provisions are not recognised for future operating

losses. Where there are a number of similar obligations the likelihood that an outflow will be required in

settlement is determined by considering the class of obligations as a whole. A provision is recognised even if

the likelihood of an outflow with respect to any one item included in the same class of obligations may be

small. Provisions are measured at the present value of management’s best estimate of the expenditure

required to settle the present obligation at the end of the reporting period. The discount rate used to

determine the present value is a pre-tax rate that reflects current market assessments of the time value of

money and the risks specific to the liability. The increase in the provision due to the passage of time is

recognised as interest expense.

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(ii) Employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long

service leave, and vesting personal leave when it is probable that settlement will be required and they are

capable of being measured reliably.

Liabilities recognised in respect of short-term employee benefits are measured at their nominal values using

the remuneration rate expected to apply at the time of settlement and are recognised in other payables where

the liability is expected to be settled within 12 months. Expenses for non-vesting personal leave are recognised

when the leave is taken and are measured at the rates paid or payable.

Liabilities recognised in respect of long term employee benefits, including annual leave and long service leave

not expected to be settled within 12 months, are measured as the present value of the estimated future

cashflows to be made by the Group in respect of services provided by employees up to 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 end of the reporting

period of corporate bonds with terms and currencies that match, as closely as possible, the estimated future

cash outflows. Re-measurements as a result of experience adjustments and changes in assumptions are

recognised in profit or loss.

NOTE 23 – MAKE GOOD PROVISION

2016 2015

$,000 $,000

Opening amount as at 1 July 332 232

Additional make good provision accrued 226 100

Make good provision paid (165) -

Closing amount as at 30 June 393 332

Current provision 317 284

Non-current provision 76 48

Total make good provision 393 332

Provisions are considered current if they are expected to crystallise in the next 12 months.

The Group is required to restore all leased premises to their original condition with the exception of the

principle place of business in Symonston ACT. A provision has been recognised for the present value of the

estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as

part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the

useful life of the assets.

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NOTE 24 – OTHER LIABILITIES - CURRENT

2016 2015

$,000 $,000

Deferred income 5,031 11,543

Short term vendor facilities - 3,500

Unsecured loan (current) - 1,867

Consideration liabilities 15,335 -

20,366 16,910


A deferred income balance is recognised as a liability when the Group either received payment or raised an

invoice in advance of delivering contracted goods and services. The balance of the deferred income account

is amortised to revenue in the period when the goods are delivered or the services rendered.

NOTE 25 – CONTRIBUTED EQUITY

2016 2015 2016 2015

Shares Shares $’000 $’000

Fully paid ordinary shares issued 46,744,240 46,651,234 48,172 47,849

Details Number of

shares $,000

Opening balance 1 July 2014 8,514,184 19,210

Share split of 3.915 (i) 24,819,169 -

Fully paid ordinary shares issued under IPO, net of transaction costs (ii) 11,111,112 23,942

Employee share offer (iii) 32,856 -

Fully paid ordinary shares issued as part of Citadel Health acquisition 2,173,913 4,697

Balance 30 June 2015 46,651,234 47,849

Conversion of rights (iv) 45,004 100

Employee share scheme 15,951 73

Rights issued on sign-on (v) 32,051 150

Closing balance 30 June 2016 46,744,240 48,172

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(i) Prior to the IPO, existing shares were split at a ratio of 1:3.915 which resulted in the issuance of 24.8 million

additional ordinary shares.

(ii) The IPO raised $22.0 million, net of transaction costs and income tax, with 11.1 million additional shares

issued. The issue price for the IPO was set at $2.25 per share.

(iii) As part of the initial public offering, eligible employees were offered a maximum of $1,000 worth of shares

at no cost. Employees cannot deal in these shares until the earlier of three years from the date of acquisition

and cessation of employment with the Group. These shares hold the same rights as fully paid ordinary shares.

(iv) During the year, share rights issued to executives were exercised into ordinary shares.

(v) Ordinary shares were issued to Darren Stanley as a sign-on bonus. Refer to the Remuneration Report for

further details.

(a) Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in

proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to

one vote, and upon a poll each share is entitled to one vote.

Ordinary shares have no par value and the Group does not have a limited amount of authorised capital.


Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are

shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the

issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as

part of the purchase consideration.

NOTE 26 – RESERVES (NET OF INCOME TAX)

2016 2015

$,000 $,000

Equity-settled employee benefits 1,004 649

1,004 649

Balance at beginning of year 649 -

Value of share options and rights to employees 528 162

Arising on the issuance of rights as consideration for Citadel Health Pty Ltd - 487

Exercise of rights (173) -

Balance at end of year 1,004 649

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NOTE 27 – RETAINED EARNINGS

2016 2015

$,000 $,000

Retained earnings 11,740 8,489

Balance at beginning of year 8,489 6,074

Profit attributable to owners of the Group 8,230 6,525

Payment of dividends (note 28) (4,949) (4,110)

Balance at end of year 11,770 8,489

NOTE 28 – DIVIDENDS

2016 2015

$,000 $,000

(a) Dividends paid

Final dividend paid 30 September 2015:

5.8 cents per share fully franked based on tax paid at 30% (Year ended 30 June 2015:

15 cents per share fully franked based on tax paid at 30%)

2,706

1,277

Interim dividend paid 31 March 2016:

4.8 cents per share fully franked dividend based on tax paid at 30% (Year ended 30

June 2015: 8.5 cents per share fully franked based on tax paid at 30%)

2,243 2,833

Total dividend paid 4,949 4,110

(b) Dividends not recognised at the end of the reporting period

Since year end the directors have recommended the payment of a dividend of 4.8

cents fully franked based on tax paid at 30% (2015: 5.8 cents fully franked).

2,243

2,706


Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at

the discretion of the entity, on or before the end of the financial year but not distributed at balance date.

NOTE 29 – CAPITAL MANAGEMENT

The Group's objectives when managing capital are to safeguard their ability to continue as a going concern, so

that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain

an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure,

the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new

shares or sell assets to reduce debt. Consistently with others in the industry, the Group monitors capital on the

basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as

total borrowings (including 'interest bearing liabilities' as shown in the consolidated statement of financial

position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated

statement of financial position plus net debt.

During 2016, the Group's strategy has maintained a net asset gearing ratio of (0.09) (2015: (0.11) net asset

position) due to strong cash balances at 29% of total assets (2015: 29%) the majority of which resulted from

the IPO. This is considered appropriate for the current conditions.

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The gearing ratio at 30 June 2016 and 30 June 2015 were as follows:

2016 2015

$,000 $,000

Net (asset)/debt (5,990) (6,106)

Total equity 64,558 56,502

Net debt to equity ratio (0.09) (0.11)

As at 30 June 2016 and 30 June 2015, the Group held more cash and cash equivalents than debt.

NOTE 30 – FINANCIAL RISK MANAGEMENT

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, and interest

rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the

unpredictability of financial markets and seeks to minimise potential adverse effects on the financial

performance of the Group.

Risk management is carried out by the CGL corporate centre (Group Treasury) and reported to the Board.

Group Treasury identifies and evaluates financial risks in close co-operation with the Group’s operating units.

The Group’s principal financial instruments are summarised below:

2016 2015

$,000 $,000

Financial assets

Cash and bank balances (including short term investments > 3 months) 34,574 38,776

Loans and receivables 12,469 21,291

Financial liabilities

Amortised cost (trade and other payables , finance leases, and vendor facilities) 11,152 26,076

Bank loans - 794

Unsecured loan (current) - 1,867

Consideration liabilities 27,356 24,292

(a) Market risk

(i) Currency risk

The Group sources goods and services internationally and are exposed to foreign exchange risk arising from

currency exposures with respect to the US dollar and UK pound.

To date the foreign exchange risk exposure through international sourcing of services has been considered

immaterial with no specific management strategies adopted.

The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian

dollars, was as follows:

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2016 2015

$,000 $,000

USD Trade receivables - 2

USD Trade payables - 134

During the year, the following foreign-exchange related amounts were recognised in the statement of profit or

loss and other comprehensive income:

2016 2015

$,000 $,000

Net foreign exchange (loss)/gain included in other income/(other expenses) (7) (16)

The Group’s exposure to foreign currency risk is considered immaterial and therefore, movements in the US

dollar are not considered to have a material impact on post-tax profit or other components of equity.

(ii) Cash flow and fair value interest rate risk

The Group's main interest rate risk arises from long-term borrowings as well as working capital facilities

including overdrafts and invoice financing. Borrowings issued at variable rates expose the Group to cash flow

interest rate risk. The risk is managed by the Group by regularly monitoring cash flow requirements.

As at the reporting date, the Group had the following variable rate borrowings outstanding:

2016 2015

Average

interest rate

%

$,000 Average

interest rate

%

$,000

Short term interest bearing investments (interest revenue) 4.8 10,213 4.0 16,241

Short term bank facilities (interest expense) 5.9 - 3.9 794

At 30 June 2016, if interest rates had changed by -/+ 100 basis points from the year-end rates with all other

variables held constant, post-tax profit for the year would have been:

2016 2015

Outstanding at

year end

$’000

Sensitivity

(after tax)

-/+ 100 bps

$

Outstanding

at year end

$’000

Sensitivity (after

tax)

-/+ 100 bps

$

Short term interest bearing investments 10,231 (4,913)/4,913 16,241 (4,529)/4,529

Short term bank facilities - 418/(418) (794) 221/(221)

(b) Credit risk

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, and deposits with

banks, financial institutions and employees, as well as credit exposures to government and wholesale

customers, including outstanding receivables and committed transactions. For banks and financial institutions,

only independently rated parties with a minimum rating of 'A' are accepted. Government customers are

classified as Commonwealth, State and Local. The Group has not separately assessed the credit risk for a

government customer. If there is no independent rating for wholesale customers, finance assesses the credit

quality of the customer, taking into account its financial position, past experience and other factors.

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Sales to wholesale customers are required to be settled in cash, cheque or EFT, mitigating credit risk. Credit

risk for deposits (loans) outstanding with employees is assessed by taking into account the individuals’ position

and time in the Group, past experience and other factors. All employees make payments through the payroll

system.

The Group trades only with recognised, credit worthy third parties and, as such, collateral is not requested nor

is it the Group’s policy to securitise its trade and other receivables.

In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s experience

of bad debts has not been significant.

The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as

summarised following.

2016 2015

$,000 $,000

Financial assets

Petty cash 2 2

Cash at bank

Australian Banks Rating of A or Better 27,341 22,533

Short term deposits

Australian Banks Rating of A or Better 10,231 16,241

Total cash and cash equivalents 34,574 38,776

Total receivables

Commonwealth government 1,818 4,280

State government 887 1,602

Local government 477 141

Customers independently rated B or above 4,190 4,119

Wholesale customers 4,403 2,986

Related parties and associates 306 683

Total trade receivables 12,081 13,811

Financial assets

Associated entities 480 1,750

Wholesale customers - 5,787

Total other receivables and employee loans 480 7,537

Total financial assets 47,135 60,124

The Group has increased the provision against trade receivables by $0.03 million during the year (2015: $0.2

million decrease).

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of

funding through an adequate amount of committed credit facilities and the ability to close out market

positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and

matching the maturity profiles of financial assets and liabilities.

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(i) Maturities of financial assets and liabilities

The amounts disclosed below in the table are the contractual undiscounted cash flows. Balances due within

12 months equal their carrying balances as the impact of discounting is not significant.

0 – 12 months 12 – 24 months 24 – 48 months 48 + months

$,000 $,000 $’000 $’000

Financial assets

Cash and cash equivalents 34,574 - - -

Short-term deposits 1 - - -

Trade and other receivables 12,469 - - -

Financial assets 47,044 - - -

Financial liabilities

Short-term banking facilities - - - -

Trade payables (non-interest bearing) 5,332 - - -

Other payables (non-interest bearing) 2,784 - - -

Accrued liabilities (non-interest bearing) 1,808 - - -

Consideration liabilities 15,335 12,021 - -

Finance lease liability 258 258 258 454

Financial liabilities 25,517 12,279 258 454

Net financial assets/(liabilities) 21,527 (12,279) (258) (454)

The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the

consolidated financial statements approximate their fair values.

(d) Recognised fair value measurements

(i) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial

instruments that are recognised and measured at fair value in the financial instruments. To provide an

indication about the reliability of the inputs used in determining fair value, the Group has classified its financial

instruments into the three levels prescribed under the accounting standards. An explanation of each level

follows underneath the table.

Level 1 Level 2 Level 3 Total

Notes $,000 $,000 $’000 $’000

Consideration Liabilities – Current - - 15,335 15,335

Consideration Liabilities – Non current - - 12,021 12,021

Total financial liabilities as at 30 June 2016 - - 27,356 27,356

Consideration Liabilities – Non current - - 24,292 24,292

Total financial liabilities as at 30 June 2015 - - 24,292 24,292

There were no transfers between levels during the year.

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Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives,

and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting

period. The quoted market price used for financial assets held by the Group is the current bid price. These

instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-

counter derivatives) is determined using valuation techniques which maximise the use of observable market

data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an

instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable data, the instrument is included in

level 3. This is the case for consideration liabilities.

(ii) Valuation techniques used to determine fair values

Specific valuation techniques used to value financial instruments include:

• Discounting of budget and forecast cash flow results, using a discount rate that is reflective of the risk

associated with the instrument.

The above methodology has been used to determine the fair value of consideration liabilities.

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the period ended 30 June 2016:

Consideration

Liabilities

Total

$’000 $’000

Opening balance as at 1 July 2015 24,292 24,292

Acquisitions 350 -

Recognised in profit before income tax – unwinding of discount 3,070 2,585

Recognised in profit before income tax – gain on fair value adjustment (356) -

Total financial liabilities 27,356 26,877

(iv) Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in

level 3 fair value measurements.

Fair value

as at 30

June 2016

Unobservable

inputs

Range of

inputs

Relationship of unobservable inputs to fair value

Description $,000 2016

Consideration Liabilities 27,356 Risk-adjusted

discount rate 7-18%

A change in the discount rate by 100 bps would

increase/decrease the fair value by $0.1m

Expected

average EBITDA $7.5m - $13m

If expected average EBITDA were 10% higher or

lower, the FV would increase/decrease by $1.3m

(v) Valuation processes

For the purposes of determining the fair value of consideration paid to acquire a business, the Group uses the

services of external valuation experts. The fair value is reassessed by the finance team at least once every six

months, in line with the Group’s half-yearly reporting periods. The main level 3 inputs used by the Group are

derived and evaluated as follows:

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• Discount rates for financial liabilities are determined using a capital asset pricing model to calculate a

rate that reflects current market assessments of the time value of money and the risk specific to the

liability; and,

• Expected average EBITDA is estimated based on the entity’s knowledge of the business and how the

current economic environment is likely to impact it.

NOTE 31 – SHARE-BASED PAYMENTS

(a) Employee share rights plan

Details of the share rights plan for senior management personnel are provided below. Note that the terms of

the plan are consistent with those offered to key management personnel as disclosed in the Remuneration

Report.

2016 2015

Number of rights to deferred shares granted on 14 November 2014 - 133,333

Weighted average fair value of rights at grant date: 14 November 2014 - $2.25

Number of rights to deferred shares granted on 1 May 2015 - 293,478

Weighted average fair value of rights at grant date: 1 May 2015 - $2.30

Number of rights to deferred shares granted on 1 October 2015 (i) 121,006 -

Weighted average fair value of rights at grant date: 1 October 2015 $4.50 -

(i) On 1 October 2015, a total of 184,580 share rights were issued at a weighted average fair value of $4.50 per

share right. During the year, 63,574 share rights were cancelled with 121,006 share rights remaining on issue

as at 30 June 2016.

(b) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the year as part of employee

benefit expense were as follows:

2016 2015

$,000 $,000

Option expense over vesting period 76 43

Share rights granted 379 119

Shares issued under employee share offer 223 74

678 236

Significant assumptions

(i) Fair value of share options issued to employees

The Group uses the Black-Scholes model for determining the fair value of share options issued. As such, this

requires estimates for the inputs to the model. Refer to note 31(b) for further detail on the assumptions

used.

(ii) Share-based payments arrangements

Equity-settled share-based payments to employees and others providing similar services are measured at

the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a

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straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will

eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group

revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the

original estimate, if any, is recognised in profit or loss such that the cumulative expense reflects the revised

estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.

NOTE 32 – RELATED PARTY TRANSACTIONS

(a) Trading transactions

During the year, group entities entered into the following trading transactions with associates and other

related parties:

2016 2015

$,000 $,000

Sales of goods and services –associates and other related parties 2,863 4,063

Purchases of goods or services – associates and other related parties 15,978 14,630

Share of revenue from associates 1,260 1,746

Sale of goods and services to related parties were made at the Group’s usual list prices. Purchases were made

at market price.

The following balances were outstanding at the end of the reporting period:

2016 2015

$,000 $,000

Trade receivables and other debtors - 683

Trade payables and other payables - 2

No guarantees have been given or received. No provisions for doubtful debts have been raised in relation to

any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from

related parties.

(b) Other related party transactions

(i) Jakeman Family Trust

The Group has entered into a contract with the Jakeman Family Trust (JFT) for the provision of services by Dr

Miles Jakeman. This agreement provides for:

• An entitlement for JFT to receive fixed annual payment of $450,000 from November 2015;

• Eligibility to participate in any short-term incentive (STI) plan;

• Either party may terminate the agreement by giving six month’s written notice of its intention to do

so. Citadel may require JFT not to provide services during the notice period;

• Upon any termination of the contract, JFT will be subject to a restraint of trade period of six months.

Citadel may elect to reduce the restraint of trade period, or eliminate the period in its entirety. The

enforceability of the restraint clause is subject to all usual legal requirements; and

• Eligibility to participate in any long-term incentive (LTI) plan.

Payments made under this agreement form part of short-term employee benefits reported in note 31.

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(ii) Citadel Group SaleCo Limited (Citadel SaleCo)

Citadel SaleCo is a special purpose vehicle which was established to enable shareholders existing prior to the

IPO to sell a portion of their shares. Some of these shareholders executed a share sale deed in favour of

Citadel SaleCo under which these shareholders offered to sell 9.6 million shares to the nominee of Citadel

SaleCo free from encumbrances and third party rights, and subject to certain conditions. The shares were

subsequently transferred to successful applicants of the IPO.

Citadel SaleCo has no material assets, liabilities or operations other than its interest in the share sale deed

described above. The Citadel SaleCo directors are Mark McConnell, Robert (Andrew) Burns and Miles

Jakeman. The shareholders of Citadel SaleCo are Mark McConnell and Miles Jakeman.

During the year, liabilities of Citadel SaleCo relating to audit fees of $3,927 and filing fees of $1,236 were

assumed by the Group.

(iii) Citadel Health Management Pty Ltd (CHM)

During the year, the Group purchased 100% of CHM from Miles Jakeman, Managing Director, for $2 in order to

support continued growth into health markets. At the time of purchase, CHM had no transactions since

establishment, and no assets or liabilities.

NOTE 33 – BUSINESS COMBINATIONS

The following subsidiary was acquired during 2016 (2015: Citadel Health Pty Ltd or “CH” 100%):

Principal activity Date of

acquisition

Proportion of

shares

acquired

Consideration

transferred

% $,000

filosoph-e Pty Ltd (FIL)

Knowledge-based

management

services

1 April 2016 25% 3,000

3,000

This business aligns with the Group’s existing offerings, allowing the Group to expand its activities and execute

its growth strategy.

filosoph-e Pty Ltd became a subsidiary of the Group on 1 April 2016, as a result of the Group acquiring an

additional 25% shareholding which increases its ownership to 50%. In addition Dr Miles Jakeman (Managing

Director of the Group) was elected as Chairman of the Board of Directors of filosoph-e Pty Ltd, resulting in the

Group obtaining control.

The Group remeasured the fair value of the existing 25% equity interest immediately prior to the acquisition

which resulted in a gain of $1.48 million recognised in other income in the statement of profit or loss and other


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(a) Fair value of consideration transferred

2016 2015

FIL CH

$,000 $,000

Cash paid 2,650 15,000

Issued share rights - 487

Employee award liabilities assumed (i) - 1,110

Cash payable in tranches (ii) - 13,930

Issuable shares (iii) - 4,697

Contingent consideration (iv) 350 10,132

Total 3,000 45,356

(i) In accordance with AASB 2 Share-based payments, the portion of Citadel Health liabilities assumed by the

Group that relates to service provided prior to the acquisition date are recognised as part of the consideration.

In this acquisition, there is a component of share rights granted in satisfaction of the liability.

(ii) Under the arrangement, $15 million is payable on finalisation of the 30 June 2016 financial report (but not

later than 30 September 2016). These amounts have been recognised as a financial liability. The CGL Board

may issue up to $5 million of the consideration owing in ordinary shares at market value.

(iii) As part of the consideration, CGL issued $5 million in ordinary shares at which point, the spot price of the

shares was $2.52 per share; these shares are currently held in escrow. Due to the restriction placed on these

shares, the fair value is deemed to be lower than the spot price of the shares at the date of acquisition.

(iv)The following contingent consideration has been included in the respective acquisitions:

filosoph-e Pty Ltd (FIL)

On renewal or successful re-tender of certain Department of Defence contracts, which is expected to occur no

later than 30 June 2017, an amount of $0.350 million is payable to the seller. The Group’s assessment is that it

is highly likely the contracts will be renewed and, as such, have included the full amount in the fair value of

consideration assessment.

Citadel Health (CH)

The third tranche payment is dependent on the average annual EBITDA (measured between 1 June 2015 and

30 September 2017). The maximum amount payable under this tranche is $25 million. The fair value of this

tranche has been determined by taking the weighted average payment expected (weighted by probability)

discounted back to its present value.

Significant Accounting Policies

In order to comply with accounting policy note 1(f), the Group adopted a number of assumptions relating to

the appropriate discount rate to apply to future tranches to determine present value and the expected future

performance of the acquired entity.

Future performance was based on budget estimates and forecasts taking into consideration the expected

revenue arising from contracts and the costs associated with delivering those contracts. The discount rate was

determined using the Group’s existing cost of debt and equity. The Group obtained the assistance of valuation

experts in this process.

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(b) Fair value of assets acquired and liabilities assumed at the date of acquisition

2016 2015

FIL CH

$,000 $,000

Current assets

Cash and cash equivalents 1,255 5,945

Trade and other receivables 9,499 768

Other current assets 5 6

Non-current assets

Property, plant and equipment - 381

Intangible assets: software and customer relationships - 38,635

Other non-current assets - 5

Current liabilities

Trade and other payables 4,114 2,184

Provision for employee benefits - 217

Income in advance 8 1,822

Deferred tax liability - 3,308

Other accruals 682 -

Non-current liabilities

Provision for employee benefits - 42

Other 40 -

Net assets acquired 5,915 38,167

The receivables and other debtors acquired in these transactions with a fair value of $9.5 million had gross

contractual amounts of $9.5 million. The best estimate at acquisition date of the contractual cash flows not

expected to be collected is nil.

(c) Non-controlling interests

The non-controlling interest (50% ownership interest in FIL) recognised at the acquisition date was measured

by reference to the fair value of the non-controlling interest and amounted to $2.96 million. The fair value was

measured by taking the present ownership’s proportionate share in the recognised amounts of FIL’s

identifiable net assets.

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(d) Goodwill arising on acquisition

2016 2015

FIL CH

$,000 $,000

Consideration transferred 3,000 45,356

Plus: non-controlling interests 2,957 -

Plus: fair value of equity interest held by the Group immediately before the acquisition date 2,932 -

Less: fair value of identifiable net assets acquired (5,915) (38,167)

Goodwill arising on acquisition 2,974 7,189

Goodwill arose in the acquisition of these entities because the consideration paid for the combination

effectively included amounts in relation to the benefits of expected synergies, revenue growth, future market

development and the assembled workforce. These benefits are not recognised separately from goodwill

because they do not meet the recognition criteria for identifiable intangible assets.

None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.

(e) Net cash outflow on acquisition of subsidiaries

Year ended

30 June 2016

Year ended 30

June 2015

$,000 $,000

Consideration paid in cash 2,750 15,000

Less: Cash and cash equivalent balances acquired (1,255) (5,945)

Outflow of cash – investing activities 1,495 9,055

Included in consideration paid was a deposit of $0.1 million paid for Kapish. Refer to note 39 for details on

Kapish.

(f) Impact of acquisitions on the results of the Group

Included in the profit after tax for the year is $1.3 million attributable to the additional business generated by

FIL (2015: $0.5 million from CH).

If the acquisition had occurred on 1 July 2015, consolidated profit after tax for the year ended 30 June 2016

would have been $14.7 million (2015: $9.5 million). These amounts have been calculated using the

subsidiary’s results and adjusting them for differences in the accounting policies between the Group and the

subsidiary.

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NOTE 34 – RECONCILIATION OF THE NET PROFIT AFTER TAX TO THE NET CASH FLOW FROM

OPERATIONS

2016 2015

$,000 $,000

Profit for the year 8,885 6,525

Depreciation and amortisation 5,464 1,216

Unwinding of discount 3,102 232

Share-based payments 812 237

Other movements (24) 37

Non-monetary consideration received for licence and service revenue (402) -

Transaction costs for issuance of shares expensed in profit and loss, net of tax - 1,339

Share of net profit of associates accounted for using the equity method (1,259) (1,759)

Gain on fair value re-measurement of financial instruments (356) -

Gain on fair value of associate immediately prior to acquisition (1,479) -

(Increase)/decrease in trade and other receivables 9,597 (8,678)

(Increase)/decrease in inventories 734 (362)

(Increase)/decrease in income accruals and other assets (955) (1,445)

(Increase)/decrease in prepayments 38 (132)

(Increase)/decrease in deferred tax assets - 669

Increase/(decrease) in trade payables 195 1,984

Increase/(decrease) in tax liabilities (1,334) (182)

Increase/(decrease) in provisions (48) 424

Increase/(decrease) in other liabilities (12,592) 6,777

Net cash inflow from operating activities 10,378 6,882

NOTE 35 – OPERATING LEASE ARRANGEMENTS

Operating leases relate to leases of land and buildings with lease terms of between 3 and 5 years. The Group

does not have an option to purchase the leased land and buildings at the expiry of the lease periods.

2016 2015

Payments recognised as an expense: $,000 $,000

Minimum lease payments 1,710 1,480

Operating leases:

- Not later than one year 1,669 1,261

- Later than one but not later than five years 5,233 3,083

Aggregate lease expenditure contracted for at 30 June 6,902 4,344

The Group has entered in to commercial leases for office premises. All leases have an average life of 3 to 5

years.

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NOTE 36 – COMMITMENTS AND CONTINGENCIES

Finance lease liabilities and non-cancellable operating lease commitments are disclosed in notes 21 and 35 to

the financial statements.

As at 30 June 2016, the Group has a total of $3.8 million in bank guarantees outstanding (2015: $3.4 million)

relating to office premises and the nRAH project.

As at 30 June 2016, there were no contingent assets or liabilities (2015: nil).

NOTE 37 – REMUNERATION OF AUDITORS

During the year the following fees were paid or payable for services provided by the auditor of the Group, and

its related practices.

2016 2015

$,000 $,000

Remuneration of the external auditors PricewaterhouseCoopers

- Audit and review of financial statements 140 150

- Other assurance services

Investigating accountant’s report on CGL’s prospectus - 350

Due Diligence report on Citadel Health Pty Ltd - 55

Total remuneration for audit and other assurance services 140 555

During the year the following fees were paid or payable for non-audit services by the auditor of the Group.

2016 2015

$,000 $,000

Taxation Services

- Taxation Advice 36 20

Total taxation services 36 20

Other services

- Accounting services - 9

Total other services - 9

It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit

duties where PricewaterhouseCoopers’ expertise and experience with the Group are important. These

assignments are principally tax advice and due diligence works for merger and acquisition activities.

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NOTE 38 – PARENT ENTITY FINANCIAL INFORMATION

2016 2015

$,000 $,000

Assets

Current assets 22,344 9,925

Total assets 77,340 66,782

Liabilities

Current liabilities 25,209 2,241

Total liabilities 36,617 26,737

Net assets 40,723 40,045

Shareholders’ equity Issued capital 43,983 43,660

Retained earnings (4,264) (4,265)

Reserves - share based payments 1,004 650

Total equity 40,723 40,045

Profit (loss) for the year of the parent entity 2,783 1,094

Total comprehensive income of the parent entity 2,783 1,094

(a) Guarantees

During the years ended 30 June 2016 and 30 June 2015, Citadel had signed a cross-collateral mortgage

debenture with ANZ bank for the outstanding debt of all entities within the Group.

In addition, Citadel has $0.7 million ($2015: $0.2 million) in bank guarantees outstanding relating to office

premises.

(b) Contingent Assets and Liabilities

As at 30 June 2016 there are no contingent assets or liabilities (2015: nil).

(c) Contractual Commitments for the acquisition of property plant and equipment

As at 30 June 2016 there are no contractual commitments for the acquisition of property, plant and equipment

(2015: nil).

Significant Accounting Policies

The financial information for the parent entity, The Citadel Group Limited, has been prepared on the same

basis as the consolidated financial statements, except as set out below.

Investments in subsidiaries and associates

Investments in subsidiaries are accounted for at cost. Such investments include both investments in shares

issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s

investment in the subsidiary. These include investments in the form of interest-free loans which have no fixed

repayment terms and which have been provided to subsidiaries as an additional source of long term capital.

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Trade amounts receivable from subsidiaries in the normal course of business and other amounts advanced on

commercial terms and conditions are included in receivables.

NOTE 39 – EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

Subsidiary acquisition

The Group acquired Kapish Pty Ltd and Kapish Services Pty Ltd (“Kapish”) on 1 July 2016, which is a successful

Australian software and services company.

The acquisition consideration is currently estimated to have a fair value of $15.9 million. The consideration is

payable over the next 23 months, with the initial payment of approximately $11.4 million funded from

available cash and two additional payments totalling up to $4.8 million (face value) across tranches two and

three.

The Group is currently in the process of finalising the completion accounts and therefore cannot provide

details on the fair value of net assets acquired, including acquired intangible assets and any associated

goodwill. It is expected that the completion accounts process will be finalised by the end of August 2016.

However, details of the estimated carrying value of Kapish’s net tangible assets as at 1 July 2016 are presented

below.

$,000

Current assets

Cash and cash equivalents 897

Trade and other receivables 2,415

Other current assets 1,363

Non-current assets

Property, plant and equipment 56

Deferred tax asset 49

Current liabilities

Trade and other payables 943

Provision for employee benefits 168

Income in advance 2,913

Other liabilities 401

Non-current liabilities

Other -

Net assets acquired 355

Director change

On 1 July 2016, Mark McConnell resigned as executive director to take a non-executive director positon on the

Board.

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Directors’ declaration

In the Directors’ opinion:

a. the financial statements and notes set out on pages 38 to 92 are in accordance with the

Corporations Act 2001, including:

i. complying with Accounting Standards, the Corporations Regulations 2001 and other

mandatory professional reporting requirements;

ii. giving a true and fair view of the consolidated entity’s financial position as at 30

June 2016 and of its performance, for the financial year ended on that date; and

b. there are reasonable grounds to believe that the company will be able to pay its debts as and

when they become due and payable.

The Directors have been given the declaration by the Managing Director required by section 295A of the

Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

Mr Kevin McCann, AM

Chairman

Canberra

22 August 2016

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PricewaterhouseCoopers, ABN 52 780 433 757 28 Sydney Avenue, FORREST ACT 2603, GPO Box 447, CANBERRA CITY ACT 2601 T: + 61 2 6271 3000, F: + 61 2 6271 3999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Independent auditor’s report to the members of The Citadel Group Limited

Report on the financial report We have audited the accompanying financial report of The Citadel Group Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for The Citadel Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the financial year.

Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion In our opinion, the financial report of The Citadel Group Limited is in accordance with the Corporations Act 2001, including:

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(a) giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and

(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Report on the Remuneration Report We have audited the remuneration report included in pages 25 to 34 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion In our opinion, the remuneration report of The Citadel Group Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001.

PricewaterhouseCoopers

David Murphy Canberra Partner 22 August 2016

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Shareholder information

Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is

as follows. This information is current as at 20 July 2016.

In accordance with ASX Listing Rule 4.10.19 the Group confirms that it has used the cash and assets in a form

readily convertible to cash that it had at the time of admission to the ASX in a way consistent with its business

objectives.

1. DISTRIBUTION OF SHAREHOLDERS

The distribution of issued capital is as follows:

Holding Total No. of

Shares Held

No. of

Shareholders

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 and over

65,237

417,257

573,437

3,151,425

42,522,022

158

132

74

112

29

46,729,378 505

2. DISTRIBUTION OF PERFORMANCE

RIGHTS HOLDERS


Rights Held

No. of

Shareholders

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 and over

-

-

-

102,347

107,548

-

-

-

5

1

209,895 6

3. DISTRIBUTION OF OPTIONS

The distribution of unquoted options on issue are:


Options Held

No. of

Shareholders

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 and over

-

-

-

-

600,000

-

-

-

-

3

4. 600,000 3

5. TWENTY LARGEST SHAREHOLDERS

The twenty largest holders of quoted equity

securities are listed below:

ORDINARY SHARES

Shareholder Number Held % of Issued

Shares

Jakeman Family Trust 8,309,009 17.78%

McBren Investments 6,626,306 14.18%

Citicorp Nominees Pty Ltd 3,819,198 8.17%

PJA Investment A/C 3,000,000 6.42%

National Nominees

Limited 2,326,032 4.98%

BNP Paribas Nominees Pty

Ltd 2,128,919 4.56%

HSBC Custody Nominees

(Australia) Limited 2,109,675 4.51%

New Territories Fund

Trust 1,894,167 4.05%

JP Morgan Nominees

Australia Limited 1,436,478 3.07%

UBS Nominees Pty Ltd 1,280,904 2.74%

Brispot Nominees Pty Ltd 1,029,723 2.20%

BNP Paribas Noms Pty Ltd 1,003,189 2.15%

Mirrabooka Investments

Limited 989,632 2.12%

CS Fourth Nominees Pty

Limited 974,151 2.08%

Amcil Limited 889,633 1.90%

RBC Investor Services

Australia Nominees Pty

Limited

816,008 1.75%

Skills4Life Pty Ltd 642,117 1.37%

HSBC Custody Nominees

(Australia) Limited 569,729 1.22%

McRoberts Family

Investments No 1 Pty Ltd 386,272 0.83%

Jia Liang 378,833 0.81%

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6. SUBSTANTIAL SHAREHOLDERS

The names of the Substantial Shareholders listed

in the Company’s Register as at 20 July 2016:

ORDINARY SHARES

Shareholder Number Held % of Issued

Shares

Jakeman Enterprises Pty

Ltd 8,309,009 17.78%

Bryony McConnell 6,626,306 14.18%

Copia Investment Partners

Limited 3,417,569 7.31%

PJA Australia Pty Ltd 3,000,000 6.42%

Commonwealth Bank of

Australia and its related

bodies corporate

2,344,217 5.02%

7. LESS THAN MARKETABLE PARCELS OF

ORDINARY SHARES

There are 25 shareholders with unmarketable

parcels totalling 59 shares.

8. UNQUOTED EQUITY SECURITIES

The company had the following unquoted

securities on issue as at 20 July 2016:

Security No. of securities

Unquoted Options

Unquoted Rights

600,000

209,895

9. RESTRICTED SECURITIES

The company had the following restricted

securities on issue as at 20 July 2016:

Class No. of

Shares

% of issued

capital

Fully paid ordinary shares –

mandatory escrow

Restricted until 31 May 2018

Restricted until 14 Nov 2017

Restricted until 31 Dec 2018

2,173,913

24,420

1,089

4.65%

0.00%

0.00%

10. 2,199,422 4.71%

11. VOTING RIGHTS

In accordance with the Constitution each member

present at a meeting whether in person, or by

proxy, or by power of attorney, or in a duly

authorised representative in the case of a

corporate member, shall have one vote on a show

of hands, and one vote for each fully paid ordinary

share, on a poll.

Performance rights and Options have no voting

rights.

12. ON-MARKET BUY-BACKS

There is no current on-market buy-back in relation

to the Company’s securities.

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The Citadel Group Limited

ABN: 79 127 151 026

2016

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Documents

For personal use only · Reflecting the Company’s growth profile, ongoing investment in growth initiatives, and strong cashflows and balance sheet, the Directors of The Citadel