Exhibit 99.4

Broking Division

Interim Combined Financial Report

31 December 2013

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Contents

 

		Page
Directors’ Report			2
Combined Statement of Comprehensive Income			4
Combined Statement of Financial Position			5
Combined Statement of Changes in Equity			6
Combined Statement of Cash Flows			7
Notes to the Interim Combined Financial Statements			8
Directors’ Declaration			24

 

1

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Broking Division

Directors’ Report

For the interim period ended 31 December 2013

The Directors of Wesfarmers Insurance Investments Pty Ltd (the “Company” or “WIIPL”) present the Interim Combined Financial Report of the insurance broking and premium funding operations of the Wesfarmers Group Broking Division, (together the “Group” or “the Broking Division”) being the combination of the entities listed below, for the interim period ended 31 December 2013 and the auditor’s report thereon.

 

It is noted that this Interim Combined Financial Report has been prepared for the sole purpose of the proposed divestment of the Broking Division by Wesfarmers Limited (“Wesfarmers”).

 

1.	Principal activities

The Company is primarily involved in the provision of insurance broking and premium funding services.

 

2.	Operating and financial review

The net profit of the Broking Division after income tax for the financial period was $23,613 thousand (2012: $22,225 thousand).

 

3	Events subsequent to reporting date

In January 2014 the Broking Division acquired the TCIS business in New Zealand for approximately A$3 million.

There has not been any other item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Broking Division, the results of those operations, or the state of affairs of the Broking Division, in future financial years.

No dividends have been paid or declared since the end of the financial period.

 

4.	Likely developments

Further information about likely developments in the operations of the Broking Division and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Broking Division.

 

2

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Broking Division

Directors’ Report (continued)

For the interim period ended 31 December 2013

 

5.	Environmental regulation

The Broking Division is not subject to significant environmental regulation under Commonwealth or State Laws.

 

6.	Rounding off

Amounts in the interim combined financial statements and Directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

 

/s/ Anthony Natale Gianotti

Anthony Natale Gianotti Director

Wesfarmers Insurance Investments Pty Ltd

Sydney 7 April 2014

 

3

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Broking Division

Combined Statement of Comprehensive Income¹

For the interim period ended 31 December 2013

 

		Note				Interim period ended 31 December 2013				Interim period ended 31 December 2012
						‘000				‘000
Revenue			5				174,406				160,004
Employee benefits expense			5				77,688				71,586
Depreciation expense			5				3,146				2,443
Amortisation expense							6,976				6,024
Marketing expenses			5				2,394				2,367
Occupancy and office expenses			5				10,213				9,684
Commission expense			5				12,664				10,701
Finance expenses							10,529				9,869
Other expenses			5				17,059				15,479
Profit before income tax							33,737				31,851
Income tax expense							10,124				9,626
Profit after income tax							23,613				22,225
Net profit for the period							23,613				22,225
Other comprehensive income
Items that may be subsequently reclassified to profit and loss
Exchange differences on translation of foreign operations							14,666				542
Total comprehensive income							38,279				22,767

 

1	The Combined Statement of Comprehensive Income comprises the combination of the entities listed at note 1.

The notes are an integral part of these interim combined financial statements.

The combined financial information above may not be representative of future results, for example the historical capital structure does not reflect the future capital structure.

Future interest income and expense, certain operating costs, tax charges and dividends may be significantly different from those that arose from being wholly owned by Wesfarmers.

The information on earnings per share for the Group is not presented, as the companies do not form a statutory group, hence the Group has no historical capital structure.

 

4

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Broking Division

Combined Statement of Financial Position¹

As at 31 December 2013

 

		Note				2013				2013				2012
						‘000				‘000				‘000
						Dec				Jun				Dec
Assets
Current assets
Cash and cash equivalents			6a				280,753				297,725				278,328
Trade and other receivables			7				549,152				570,332				477,972
Other current assets							5,283				4,090				3,130
Total current assets							835,188				872,147				759,430
Non-current assets
Property, plant and equipment							18,481				17,785				14,405
Identifiable intangible assets			8				55,178				58,358				61,856
Goodwill			8				523,498				491,275				471,202
Receivables			7				49,889				49,909				49,892
Total non-current assets							647,046				617,327				597,355
Total assets							1,482,234				1,489,474				1,356,785
Liabilities
Current Liabilities
Trade and other payables			9				433,600				526,581				437,508
Borrowings			10				516,186				448,383				448,440
Current tax liabilities							2,787				6,410				2,800
Provisions							16,470				23,883				15,029
Other current liabilities							3,575				4,830				2,934
Total current liabilities							972,618				1,010,087				906,711
Non-current liabilities
Provisions							716				697				670
Deferred tax liabilities							11,790				14,394				15,385
Other non-current liabilities							3,478				3,274				8,979
Total non-current liabilities							15,984				18,365				25,034
Total liabilities							988,602				1,028,452				931,745
Net assets							493,632				461,022				425,040
Equity
Owner’s net investment							403,549				385,605				356,683
Accumulated other comprehensive income							90,083				75,417				68,357
Total equity							493,632				461,022				425,040

 

1	The Combined Statement of Financial Position comprises the combination of the entities listed at note 1.

The notes are an integral part of these interim combined financial statements.

 

5

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Broking Division

Combined Statement of Changes in Equity¹

For the interim period ended 31 December 2013

 

		Accumulated other comprehensive income ‘000				Owner’s net investment ‘000				Total equity ‘000
Balance at 1 July 2013			75,417				385,605				461,022
Comprehensive income for the period
Profit for the period			—				23,613				23,613
Other comprehensive income
Exchange differences on translation of foreign operations			14,666				—				14,666
Total comprehensive income for the period			14,666				23,613				38,279
Transactions with owners, recorded directly in equity
Dividends to equity holders			—				(5,669	)			(5,669	)
Balance at 31 December 2013			90,083				403,549				493,632
Balance at 1 July 2012			67,815				335,731				403,546
Comprehensive income for the period
Profit for the period			—				22,225				22,225
Other comprehensive income
Exchange differences on translation of foreign operations			542				—				542
Total comprehensive income for the period			542				22,225				22,767
Transactions with owners, recorded directly in equity
Dividends to equity holders			—				(1,273	)			(1,273	)
Balance at 31 December 2012			68,357				356,683				425,040

 

1	The Combined Statement of Changes in Equity comprises the combination of the entities listed at note 1.

The notes are an integral part of these interim combined financial statements.

 

6

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Broking Division

Combined Statement of Cash Flows1

For the interim period ended 31 December 2013

 

		Note				Interim period ended 31 December 2013 ‘000				Interim period ended 31 December 2012 ‘000
Cash flows from operating activities
Cash receipts from customers							167,109				178,056
Cash paid to underwriters, suppliers and employees							(133,831	)			(125,465	)
Cash generated from operations							33,278				52,591
Interest received							10,367				9,169
Net premium funding loan advances							(39,200	)			(29,700	)
Net premium funding borrowings							30,073				23,605
Borrowings costs							(1,413	)			(1,896	)
Income tax paid							(16,351	)			(20,963	)
Net cash from operating activities			6b				16,754				32,806
Cash flows from investing activities
Purchase of property, plant and equipment and intangibles							(4,444	)			(4,110	)
Investment with related party							(35,539	)			(8,080	)
Net cash used in investing activities							(39,983	)			(12,190	)
Cash flows from financing activities
Proceeds from borrowings							193				2,481
Distributions							(5,669	)			(1,273	)
Net cash (used in)/from financing activities							(5,476	)			1,208
Net increase/(decrease) in cash and cash equivalents							(28,705	)			21,824
Net foreign exchange difference							11,733				941
Cash and cash equivalents at 1 July							297,725				255,563
Cash and cash equivalents at 31 December			6a				280,753				278,328

 

1	The Combined Statement of Cash Flows comprises the combination of the entities listed at note 1.

The notes are an integral part of these interim combined financial statements.

 

7

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

1.	Reporting entity

 

The Interim Combined Financial Report comprises the combination of the following entities on 100 per cent terms (together “the Group” or “the Broking Division”):

 

Crombie Lockwood (NZ) Limited		OAMPS Gault Armstrong Pty Ltd
Monument Finance Limited		OAMPS Insurance Brokers Ltd
Monument Insurance (NZ) Limited		OAMPS Sports Services Pty Limited
Offshore Market Placements Limited		OMP Insurance Brokers Ltd
OAMPS Life Solutions Ltd		Wideland Insurance Brokers Pty Ltd
Australian Taxi Insurance Underwriting Agency Pty Ltd		ZIB Group Holdings Company Limited
Bakop Pty Ltd		ZIB Holdings Pty Limited
MIB Insurance Brokers Pty Ltd		ZIB Insurance Brokers Holding Limited
Fraser MacAndrew Ryan Limited		ZIB Insurance Trust
Gault Armstrong Kemble Pty Ltd		QRL Insurance Finance Agency Pty Ltd
Gault Armstrong SARL (Noumea)		OAMPS (UK) Limited
Hill’s Environmental Limited		OAMPS Special Risks Ltd
Wesfarmers Broking (NZ) Limited		OHES Environmental Limited
Lumley Finance (NZ) Limited		OAMPS Ltd
WI Premium Funding Limited		ZIB Credit Trust (disposed December 2011)

The ultimate parent company of the Group is Wesfarmers, a listed company on the Australian Securities Exchange (“ASX”). All entities making up the Broking Division are wholly owned by Wesfarmers. The Broking Division has not in the past formed a separate legal group.

This Interim Combined Financial Report was prepared by and is the responsibility of the Directors of Wesfarmers Insurance Investments Pty Ltd, in the context of a contemplated carve out transaction of the Broking Division from Wesfarmers. The combined financial information presented here reflects the entities, assets and liabilities that could be carved out from Wesfarmers and have not been adjusted to reflect the final characteristics of the proposed transaction.

The Interim Combined Financial Report has been prepared in accordance with the basis of preparation set out below.

Because of the conventions used to prepare the Interim Combined Financial Report as described below, the Interim Combined Financial Report is not necessarily identical to consolidated financial statements that would have been issued if the carve-out had taken place in the past. Further, they do not take into account potential consequences of the carve-out transaction, such as any potential tax consequences of any future financial transaction or potential parent company equity contribution.

The Broking Division is primarily involved in the provision of insurance broking and premium funding services.

 

2.	Basis of preparation

The Broking Division is not a reporting entity and the Interim Combined Financial Report of the Broking Division for the interim period ended 31 December 2013 has been drawn up as a special purpose financial report for the purpose of presenting the combined financial position, performance and cash flows of the Broking Division for the purposes of its proposed divestment by Wesfarmers.

 

8

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

2.	Basis of preparation (continued)

 

The Interim Combined Financial Report has been prepared in accordance with the requirements of the recognition, measurement and classification aspects of all Australian Accounting Standards (AASBs) issued by the Australian Accounting Standards Board (AASB), including AASB 134 Interim Financial Reporting, except that the Broking Division does not constitute a group as defined in AASB 127 Consolidated and Separate Financial Statements.

Except for AASB 101 Presentation of Financial Statements; AASB 107 Cash Flow Statements; AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors and AASB 1031 Materiality, the Interim Combined Financial Report does not include the presentation and disclosure requirements of all AASBs.

The Interim Combined Financial Report has been prepared on the historical cost basis.

The Interim Combined Financial Report is presented in Australian dollars, which is the reporting currency of Wesfarmers. All financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated.

 

(a)

Basis of combination

The Broking Division is not required to prepare standalone consolidated financial statements. As a result the Interim Combined Financial Report has been prepared by combining the applicable financial information that was prepared for the purposes of the Wesfarmers consolidation. Accordingly, assets and liabilities are reflected at their carrying amounts reported in the interim consolidated financial statements of Wesfarmers. The only goodwill recognised is any existing goodwill recognised in the interim consolidated financial statements of Wesfarmers relating to any of the combined entities. Internal transactions within the Broking Division have been eliminated in preparing the Interim Combined Financial Report.

The principal accounting policies of Wesfarmers that have been applied to the Interim Combined Financial Report are described below. These policies have been applied consistently for all periods presented.

As the Broking Division has not in the past formed a separate legal group, it is not possible to show share capital or an analysis of reserves for the Broking Division. The net assets of the Broking Division are represented by the cumulative investment of Wesfarmers in the Broking Division (shown as “owners’ net investment” and “accumulated other comprehensive income”).

The information on earnings per share for the Broking Division has not been presented, as the companies do not form a statutory group, hence the Broking Division has no historical capital structure.

All cash and other movements in capital amounts, being dividends and other distribution made by the Broking Division companies to Wesfarmers and other Wesfarmers companies have been reflected in the Combined Statement of Cash Flows and in the Combined Statement of Changes in Equity as “Distributions”.

All entities making up the Broking Division have been included in the Interim Combined Financial Report from the date control was obtained by Wesfarmers and as if the acquisition had been performed by the Broking Division and financed by a contribution from Wesfarmers. Any entities disposed of by the Broking Division have been included in the financial results of the Broking Division up to the date of disposal.

For the purpose of preparing the Interim Combined Financial Report no adjustments have been made to administration and other costs recharged by Wesfarmers as a result of existing arrangements within the Wesfarmers Group. Accordingly, costs recharged by Wesfarmers during the periods presented are not necessarily representative of the position that may prevail in the future.

Wesfarmers has historically managed financing needs and cash flow surpluses for the Wesfarmers Group through its financing function and a cash pooling mechanism. For the purposes of the Interim Combined Financial Report, such centrally managed financing and cash pooling has been allocated to the Broking Division and reflected in the Interim Combined Financial Report as cash and cash equivalents or borrowing where appropriate. The interest income and expense recorded in the Interim Combined Financial Report has been affected by the existing financing arrangement with Wesfarmers and is not necessarily representative of the interest charges that would have been reported had the Broking Division been an independent group. In addition, the interest income and expense recorded in the Interim Combined Financial Report is not necessarily representative of the interest income and expense that may arise in the future.

 

 

9

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

2.	Basis of preparation (continued)

 

(a)

Basis of combination (continued)

 

Tax charges in the Interim Combined Financial Report are accrued using the tax rates that would be applicable to the expected total annual earnings of the individual entities making up the Broking Division. Certain entities within the Broking Division are members of the Wesfarmers tax consolidated group. The tax charges recorded in the Interim Combined Financial Report have been affected by the taxation arrangements within Wesfarmers and are not necessarily representative of the tax charges that would have been reported had the Broking Division been an independent group.

 

(b)

Going concern

The Broking Division had net current liabilities of $137,430,000 at 31 December 2013 (30 June 2013: $155,362,000). As disclosed in note 10, current liabilities include $516,186,000 of borrowings from Wesfarmers (30 June 2013: $448,383,000).

Wesfarmers has undertaken that loans and financial facilities granted to its subsidiaries will not be demanded or withdrawn in circumstances that would result in its subsidiary companies not being able to pay their debts as and when they fall due. Furthermore, on the completion of the proposed carve-out transaction, the Broking Division’s borrowings with Wesfarmers are expected to be restructured via a combination of debt repayment, equity injections and securitisation to ensure the Broking Division has sufficient working capital to meet its debts as and when they fall due.

On the above basis, the Directors consider the going concern assumption is a valid basis to prepare the combined financial statements.

 

(c)

Use of estimates and judgements

The preparation of the Interim Combined Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next reporting period are:

Impairment of assets including goodwill and intangibles with indefinite useful lives

Goodwill and intangibles with indefinite useful lives are tested for impairment at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and intangibles with indefinite useful lives are allocated. The recoverable amounts of the cash generating units have been determined using cash flow projections, as well as other supplementary information, based on an appropriate valuation model which incorporates the Broking Division’s corporate plans covering a five-year period.

A reasonably possible change in the assumptions used in the estimation of recoverable amount would not give rise to a material impairment being recognised.

Estimation of useful lives of assets

Useful lives and residual value of property, plant and equipment are reviewed annually. Judgement is applied in determining the useful lives of property, plant and equipment. These judgements are supported by consultation with internal technical experts. Any reassessment of useful lives and residual value in a particular year will affect depreciation and amortisation expense (either increasing or decreasing) from the date of reassessment through to the end of the reassessed useful life for both the current and future years.

 

10

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

2.	Basis of preparation (continued)

 

(c)

Use of estimates and judgements (continued)

 

Useful lives of intangible assets with finite lives are reviewed annually. Any reassessment of useful lives in a particular year will affect the amortisation expense (either increasing or decreasing) through to the end of the reassessed useful life for both the current and future years.

Long service leave

Management judgement is applied in determining the following key assumptions used in the calculation of long service leave at balance date:

 

•

future increases in salaries and wages;

 

•

future on-cost rates; and

 

•

experience of employee departures and period of service.

Impairment of financial assets including trade receivables

At the end of each reporting period, it is assessed whether there is any objective evidence that an item in the Group’s financial assets might be impaired.

Criteria applied by the Group in stating that there is objective evidence of impairment:

 

•

issuer’s or debtor’s considerable financial problems;

 

•

breach of contract terms, such as neglecting payments or payments long overdue; and

 

•

high probability of bankruptcy or other financial restructuring of debtor.

 

3.	Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these interim combined financial statements.

 

(a)

Acquisitions

Subsequent to 1 July 2009

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is achieved. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, all relevant facts and circumstances are considered. Goodwill is measured at the acquisition date as:

 

•

The fair value of the consideration transferred; plus

 

•

The recognised amount of any non-controlling interest in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less

 

•

The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities that are incurred in connection with a business combination, are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. Otherwise subsequent changes to the fair value of the contingent consideration are recognised in the combined statement of comprehensive income.

Prior to 1 July 2009

Business combinations were accounted for using the purchase method.

 

11

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(b)

Foreign currency

 

(i)

Foreign currency transactions

Each entity within the Group determines its own functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

 

(c)

Financial instruments

 

(i)

Non-derivative financial assets

Loans and receivables and deposits are initially recognised on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

A financial asset is derecognised when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the combined statement of financial position when, and only when, there is a legal right to offset the amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.

Non-derivative financial assets comprise loans and receivables and cash and cash equivalents.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. The objective is to hold the assets in order to collect the cash specified in the contract and to collect principals and interests on any outstanding loans due as specified in the contract.

Loans and receivables comprise trade and other receivables (see note 7).

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of cash management are included as a component of cash and cash equivalents for the purposes of the combined statement of cash flows.

 

(ii)

Non-derivative financial liabilities

Debt securities issued and subordinated liabilities are initially recognised on the date that they are originated. All other financial liabilities are recognised initially on the trade date when the contractual provisions of the instrument apply. A financial liability is derecognised when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the combined statement of financial position when, and only when, there is both a legal right to offset the amounts and the intention either to settle on a net basis or to realise the asset and settle the liability simultaneously.

 

 

12

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(c)

Financial instruments (continued)

 

(ii)

Non-derivative financial liabilities (continued)

 

Non-derivative financial liabilities comprise loans and borrowings and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method.

 

(d)

Property, plant and equipment

 

(i)

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other expense” in the combined statement of comprehensive income.

 

(ii)

Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the entity and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day repairs and maintenance of property, plant and equipment are recognised in the combined statement of comprehensive income as incurred.

 

(iii)

Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives.

The estimated useful lives for the current and comparative periods are as follows:

 

•     Computer software and equipment			2-10 years
•     Office furniture and equipment			4-10 years
•     Leasehold improvements			3-10 years
•     Motor Vehicles			4-8 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

 

13

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(e)

Intangible assets

 

(i)

Goodwill

Goodwill acquired in a business combination is initially measured as the cost of the business combination being the excess of the consideration transferred over the fair value of the 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 the combined statement of comprehensive income.

Goodwill is subsequently measured at cost less accumulated impairment losses.

 

(ii)

Other intangible assets

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 at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite.

 

(iii)

Amortisation

Intangible assets with finite lives are amortised over their useful life and tested for impairment whenever there is any indication that the intangible asset may be impaired.

Amortisation is recognised in the combined statement of comprehensive income on a straight-line basis from the date that they are available for use. The amortisation period and the amortisation method 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 estimated useful lives for the current and comparative periods are as follows:

 

•     Customer relationships			10 years

 

(f)

Leased assets

Leases in terms of which substantially all the risks and rewards of ownership are assumed are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the combined statement of comprehensive income.

Operating lease payments are recognised as an operating expense in the combined statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.

 

(g)

Impairment

 

(i)

Financial assets (including receivables)

A financial asset not carried at fair value through profit of loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

 

14

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(g)

Impairment (continued)

 

(i)

Financial assets (including receivables) (continued)

 

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

Losses are recognised in the combined statement of comprehensive income and reflected in an allowance account against receivables.

Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the combined statement of comprehensive income.

 

(ii)

Non-financial assets

The carrying amounts of non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

Subject to an operating segment ceiling test, for the purpose of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the combined statement of comprehensive income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

15

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(h)

Employee benefits

 

(i)

Long-term employee benefits

The net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on Commonwealth Government bonds that have maturity dates approximating the terms of the obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in the combined statement of comprehensive income in the period in which they arise.

 

(ii)

Short-term benefits

Short-term employee benefit obligations such as wages, salaries and annual leave, are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if a present legal or constructive obligation exists to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

(iii)

Termination benefits

Termination benefits are recognised as an expense when there is a demonstrable commitment, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Broking Division has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

 

(iv)

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit in the combined statement of comprehensive income in the periods during which services are rendered by employees.

 

(i)

Provisions

A provision is recognised if, as a result of a past event, a present legal or constructive obligation exists that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.

Site restoration

Where an operating property lease contains a requirement to return the premises to the original condition upon exit, a provision to cover the estimated present value of the costs is recognised, when the obligation becomes probable.

 

16

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(j)

Revenue

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that the economic benefits will be realised and the revenue can be reliably measured. When a transaction is conducted in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made. The following specific recognition criteria must also be met before revenue is recognised:

 

(i)

Commission and brokerage fees

Commission and brokerage fees are recognised at “inception date”. This is the date on which the underlying insurance policy incepts.

 

(ii)

Premium funding income

Premium funding income, being interest based, is recognised on a time-proportion basis using the effective interest method.

 

(iii)

Interest

Interest revenue is recognised as interest accrues using the effective interest method.

 

(iv)

Dividends

Dividend revenue is recognised in the combined statement of comprehensive income on the date that the right to receive payment is established.

 

(k)

Finance costs

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and impairment losses recognised on financial assets (other than trade receivables). Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in the combined statement of comprehensive income using the effective interest method.

 

(l)

Income tax

Tax consolidation

Wholly owned Australian resident entities within the Group are part of Wesfarmers’ tax consolidated group with effect from 1 July 2002. Wesfarmers is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement, which provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is considered remote.

Tax effect accounting by members of the tax consolidated group in their annual financial statements

Current tax, deferred tax liabilities and deferred tax assets arising from temporary differences are allocated to members of the tax consolidated group using a group allocation approach. In this regard temporary differences are measured with reference to the carrying amount of assets and liabilities in the consolidated financial statements of Wesfarmers and the tax values within the tax consolidated group. Any current tax liabilities or assets and unused tax losses of the member entity are assumed by the head entity of the tax consolidated group and are recognised as amounts payable to / (receivable from) the parent entity in accordance with the tax funding arrangement in place. Any difference in these amounts is recognised by the member entity as an equity contribution from or distribution to the head entity.

 

17

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(l)

Income tax (continued)

 

Tax effect accounting by entities outside the tax consolidated group in their annual financial statements

Income tax expense comprises current and deferred tax. Current and deferred tax are recognised in the combined statement of comprehensive income except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax recoverable from or payable to the taxation authorities based on the current period’s taxable income, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences:

 

•

the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

 

•

differences relating to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

 

•

differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax effect accounting in the interim financial statements

Tax charges in the Interim Combined Financial Report are accrued using the tax rates that would be applicable to the expected total annual earnings of the individual entities making up the Broking Division.

 

(m)

Goods and services tax

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the ATO. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the combined statement of financial position.

Cash flows are included in the combined statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to the ATO.

 

18

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

3.	Significant accounting policies (continued)

 

(n)

New standards and interpretations

 

(i)

New and revised Accounting Standards and Interpretations

All new and amended Australian Accounting Standards and Interpretations, issued by the Australian Accounting Standards Board (‘the AASB’), mandatory as of 1 July 2013 to the Division have been adopted, including:

• AASB 10 Consolidated Financial Statements

• AASB 11 Joint Arrangements

• AASB 13 Fair Value Measurements

• AASB 119 Employee Benefits (Revised 2011)

• Annual Improvements to Australian Accounting Standards 2009—2011 Cycle

The adoption of new standards and interpretations has not resulted in a material change to the financial performance or position of the Group.

 

(ii)

Accounting Standards and Interpretations issued but not yet effective

The following standard has been identified as one which may impact the entity in the period of initial application. It is available for early adoption at 1 July 2013, but has not been adopted by the Group:

 

•

AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below.

 

(a)

Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

 

(b)

Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows:

 

•

The change attributable to changes in credit risk are presented in other comprehensive income (OCI)

 

•

The remaining change is presented in the combined statement of comprehensive income.

If this approach creates or enlarges an accounting mismatch in the combined statement of comprehensive income, the effect of the changes in credit risk are also presented in the combined statement of comprehensive income. The potential impact of the standard has yet to be determined.

 

4.	Changes in Accounting Policies

There have been no changes in accounting policies and all policies have been applied on a consistent basis across the periods presented.

 

19

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

5.	Revenue and expenses

 

		2013				2012
		Dec ‘000				Dec ‘000
Revenue
Interest—Premium Funding (a)			33,566				30,465
Commission and fees—Broking (b)			131,916				122,067
Interest – Broking (b)			4,097				3,935
Other revenue – Broking (b)			4,827				3,537
			174,406				160,004

 

		2013				2012
		Dec ‘000				Dec ‘000
Expenses (c)
Premium Funding (a)			21,471				19,487
Broking (b)			101,693				92,773
			123,164				112,260

 

(a)	Premium funding combines the following entities: WI Premium Funding Limited, Monument Insurance (NZ) Limited and Lumley Finance (NZ) Limited.

(b)	Broking combines all entities except those included in Premium funding.

(c)	Expenses exclude finance, amortisation and income tax expenses.

 

6a.	Cash and cash equivalents

 

		2013				2013				2012
		Dec ‘000				June ‘000				Dec ‘000
Cash at bank and on deposit			92,984				99,353				98,720
Broking trust accounts			187,769				198,372				179,608
			280,753				297,725				278,328

The cash held in the broking trust accounts is subject to trust account rules. It is used for the collection and dissemination of client monies to third parties and is not available for the Broking Division to fund general everyday operations. The balance includes undrawn fees and commission.

 

20

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

6b.	Reconciliation of cash flows from operating activities

 

		2013				2012
		‘000				‘000
Cash flows from operating activities
Profit for the period			23,613				22,225
Adjustments for:
Depreciation and amortisation			10,122				8,467
Interest on inter-company borrowings			9,116				7,973
(Increase)/decrease in assets:
Trade and other receivables			31,851				18,980
Other assets			(1,193	)			15
Increase/(decrease) in liabilities:
Trade and other liabilities			(72,156	)			(28,863	)
Other liabilities			(1,051	)			(1,242	)
Provisions			(7,394	)			(7,017	)
Premium funding borrowings			30,073				23,605
Tax liabilities			(6,227	)			(11,337	)
Cash generated from/(used in) operating activities			16,754				32,806

 

7.	Trade and other receivables

 

		2013				2013				2012
		Dec ‘000				June ‘000				Dec ‘000
Current
Trade receivables			164,287				253,824				163,271
Allowance for doubtful debts			(1,388	)			(1,283	)			(1,428	)
Deposits with related party			35,559				—				8,080
Other receivables			11,794				10,048				5,049
			210,252				262,589				174,972
Finance advances			339,450				308,296				303,497
Allowance for impairment			(550	)			(553	)			(497	)
			549,152				570,332				477,972

 

		2013				2013				2012
		Dec ‘000				June ‘000				Dec ‘000
Non—current
Related party			49,889				49,909				49,892
			49,889				49,909				49,892

The amounts receivable from related parties are non-interest bearing and are repayable on demand.

 

21

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

8.	Intangible assets

 

		Goodwill				Customer relationships				Total
		‘000				‘000				‘000
2013
Cost			523,498				130,511				654,009
Accumulated Amortisation			—				(75,333	)			(75,333	)
Carrying amount at 31 December 2013			523,498				55,178				578,676
2013
Cost			491,275				122,738				614,013
Accumulated Amortisation			—				(64,380	)			(64,380	)
Carrying amount at 30 June 2013			491,275				58,358				549,633
2012
Cost			471,202				117,956				589,158
Accumulated Amortisation			—				(56,100	)			(56,100	)
Carrying amount at 31 December 2012			471,202				61,856				533,058

 

9.	Trade and other payables

 

		2013				2013				2012
		Dec ‘000				June ‘000				Dec ‘000
Current
Trade payables			398,498				486,887				407,534
Amounts payable to related parties			35,102				39,694				29,974
			433,600				526,581				437,508

The amounts payable to related parties are non-interest bearing and are repayable on demand.

 

10.	Borrowings

 

		2013				2013				2012
		Dec ‘000				June ‘000				Dec ‘000
Current: unsecured
Inter entity borrowings			191,837				158,233				179,076
Inter entity borrowings (a)			324,349				290,150				269,364
			516,186				448,383				448,440

 

(a)

This relates to a floating rate loan provided to the Broking Division to fund its acquisition of Crombie Lockwood Holdings in 2007 from an entity under common control at a rate of 3.80% (2012: 4.45%). The loan is unsecured with no specific repayment terms. The Group’s ultimate parent entity has confirmed that they will not recall their loans in circumstances that would result in the Broking Division not being able to pay their debts as and when they fall due.

 

22

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Broking Division

Notes to the Interim Combined Financial Statements

For the interim period ended 31 December 2013

 

11.	Auditors’ remuneration

 

		2013
		$’000
Audit services
Auditors of the Broking Division
Ernst & Young- Australia:
Review of this combined financial report			108
			108

 

12.	Contingencies and commitments

The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

The Broking Division had contingent liabilities at 31 December 2013 in respect of:

Claims

The Broking Division had various outstanding legal claims in the ordinary course of the business which the Directors have reviewed in detail. Having regard to all known facts at this time and with the necessary insurance policies in place at balance date, the Directors do not anticipate any material losses in respect of these contingent liabilities.

Guarantees

Guarantees given in respect of the performance of its contracts to third parties and leases of rental premises amounting to $852,217 (2012: $852,217).

Operating lease commitments

The Broking Division has entered into commercial leases on office, retail and distribution properties, motor vehicles and office equipment. The lease terms and implicit interest rates vary significantly. For the lease of buildings, the lease terms range from one year to 25 years and have various renewal or purchase options, escalation clauses, termination rights and residual liability clauses.

Future undiscounted minimum rentals payable under non-cancellable operating leases not included within this financial report were as follows:

 

		2013				2012
		December				December
		‘000				‘000
Within one year			11,706				9,370
Greater than one year but not more than five years			29,596				24,574
More than five years			8,804				2,214
			50,106				36,158

Capital commitments

Commitments arising from contracts for capital expenditure contracted for at balance date not included in this financial report were as follows:

 

		2013				2012
		December				December
		‘000				‘000
Within one year			—				630
			—				630

 

13.	Subsequent events

In January 2014 the Broking Division acquired the TCIS business in New Zealand for approximately A$3 million.

Other than the matter noted above and throughout these financial statements, there have been no events subsequent to balance date which would have a material effect on the Broking Division’s combined financial report at 30 June 2013.

 

23

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Broking Division

Directors’ Declaration

For the half-year ended 31 December 2013

In accordance with a resolution of the Directors of Wesfarmers Insurance Investments Pty Ltd, I state that:

In the opinion of the Directors:

 

(a)

the Broking Division as defined in note 1 is not a reporting entity;

 

(b)

the interim combined financial statements and notes, set out on pages 4 to 23:

 

(i)

give a true and fair view of the combined financial position of the Broking Division as at 31 December 2013 and 31 December 2012 and of its performance, as represented by the results of its operations and its cash flows, for the period ended on that date in accordance with the statement of compliance and basis of preparation described in Notes 2 and 3; and

 

(ii)

complying with Australian Accounting Standards (including the Australian Accounting Interpretations) to the extent described in Notes 2 and 3; and

 

(c)

there are reasonable grounds to believe that the Broking Division will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Directors:

 

/s/ Anthony Natale Gianotti

Anthony Natale Gianotti Director

Sydney 7 April 2014

 

24