PROSPECTUS
GREENSTONE LIMITED
Initial Public Offering
ACN 075 949 432
Joint Lead Managers
Co-Lead Managers
ii
Important information
Greenstone Limited Prospectus
IMPORTANT INFORMATION
Offer
The Offer contained in this Prospectus is an invitation for you to
apply for fully paid ordinary shares (Shares) in Greenstone Ltd
(ACN 075 949 432) (the Company or Greenstone). This Prospectus
is issued by the Company and Greenstone SaleCo Pty Ltd (ACN
605 588 010) (SaleCo) under the Corporations Act 2001 (Cth)
(Corporations Act).
Lodgement and Listing
This Prospectus is dated 25 May 2015 and was lodged with
the Australian Securities and Investments Commission
(ASIC) on that date.
Greenstone will apply to the Australian Securities Exchange (ASX)
within seven days after the date of this Prospectus (Prospectus
Date) for admission of the Company to the Official List and
quotation of the Shares on the ASX (Listing). Neither ASIC nor the
ASX takes any responsibility for the content of this Prospectus or
for the merits of the investment to which this Prospectus relates.
Expiry Date
This Prospectus expires on the date which is 13 months after the
Prospectus Date (Expiry Date) and no shares will be issued or
transferred on the basis of this Prospectus after the Expiry Date.
Note to Applicants
The information contained in this Prospectus is not financial
product advice and does not take into account the investment
objectives, financial situation or particular needs (including
financial and tax issues) of any prospective investor.
It is important that you read this Prospectus carefully and in its
entirety before deciding whether to invest in the Company. In
particular, in considering the prospects of the Company, you
should consider the risk factors that could affect the performance
of the Company. You should carefully consider these risks in light
of your investment objectives, financial situation and particular
needs (including financial and tax issues) and seek professional
guidance from your stockbroker, solicitor, accountant, financial
adviser or other independent professional adviser before deciding
whether to invest in the Shares. Some of the key risk factors that
should be considered by prospective investors are set out in
Section 1.4 and Section 5. There may be risk factors in
addition to these that should be considered in light of your
personal circumstances.
You should also consider the best estimate assumptions underlying
the Forecast Financial Information, set out in Section 4, and the
risk factors set out in Section 5, that could affect the Company’s
business, financial condition and results of operations.
No person named in this Prospectus, nor any other person,
guarantees the performance of the Company, the repayment of
capital by the Company or the payment of a return on the Shares.
Important notice to New Zealand Investors
The offer to New Zealand investors is a regulated offer made
under Australian and New Zealand law. In Australia, this is Chapter
8 of the Corporations Act 2001 (Aust) and the regulations made
under that Act. In New Zealand, this is subpart 6 of Part 9 of the
Financial Markets Conduct Act 2013 and Part 9 of the Financial
Markets Conduct Regulations 2014.
This offer and the content of the offer document are principally
governed by Australian rather than New Zealand law. In the main,
the Corporations Act 2001 (Aust) and the regulations made under
that Act set out how the offer must be made.
There are differences in how financial products are regulated
under Australian law. For example, the disclosure of fees
for managed investment schemes is different under the
Australian regime.
The rights, remedies, and compensation arrangements available to
New Zealand investors in Australian financial products may differ
from the rights, remedies, and compensation arrangements for
New Zealand financial products.
Both the Australian and New Zealand financial products
regulators have enforcement responsibilities in relation to
this offer. If you need to make a complaint about this offer,
please contact the Financial Markets Authority, New Zealand
(http://www.fma.govt.nz). The Australian and New Zealand
regulators will work together to settle your complaint.
The taxation treatment of Australian financial products is not
the same as for New Zealand financial products.
If you are uncertain about whether this investment is appropriate
for you, you should seek the advice of an appropriately qualified
financial adviser.
The offer may involve a currency exchange risk. The currency for
the financial products is not New Zealand dollars. The value of the
financial products will go up or down according to changes in the
exchange rate between that currency and New Zealand dollars.
These changes may be significant.
If you expect the financial products to pay any amounts in a
currency that is not New Zealand dollars, you may incur significant
fees in having the funds credited to a bank account in New
Zealand in New Zealand dollars.
If the financial products are able to be traded on a financial
products market and you wish to trade the financial products
through that market, you will have to make arrangements for
a participant in that market to sell the financial products on
your behalf. If the financial products market does not operate
in New Zealand, the way in which the market operates, the
regulation of participants in that market, and the information
available to you about the financial products and trading
may differ from financial products markets that operate
in New Zealand.
Exposure Period
The Corporations Act prohibits the Company and SaleCo from
processing applications to subscribe for, or acquire, Shares offered
under this Prospectus (Applications) in the seven day period after
lodgement of this Prospectus with ASIC (Exposure Period). This
Exposure Period may be extended by ASIC by up to a further
seven days. The purpose of the Exposure Period is to enable this
Prospectus to be examined by market participants prior to the
raising of funds. The examination may result in the identification
of deficiencies in this Prospectus, in which case any Application
may need to be dealt with in accordance with section 724 of
the Corporations Act. Applications received during the Exposure
Period will not be processed until after the expiry of the Exposure
Period. No preference will be conferred on any Applications
received during the Exposure Period.
During the Exposure Period, this Prospectus will be made available
to Australian and New Zealand residents, without the Application
Form, at the Company’s offer website, www.greenstone.com.au.
Photographs and diagrams
Photographs and diagrams used in this Prospectus that do not
have descriptions are for illustration only and should not be
interpreted to mean that any person shown in them endorses
this Prospectus or its contents or that the assets shown in them
are owned by the Company. Diagrams used in this Prospectus are
illustrative only and may not be drawn to scale.
Disclaimer and forward looking statements
No person is authorised to give any information or make
any representation in connection with the Offer which is not
contained in this Prospectus. Any information or representation
not so contained may not be relied on as having been authorised
by the Company’s or SaleCo’s directors or any other person in
connection with the Offer. You should rely only on information in
this Prospectus. Except as required by law, and only to the extent
so required, none of the Company, SaleCo or any other person
warrants or guarantees the future performance of the Company,
or any return on any investment made pursuant to this Prospectus.
Greenstone Limited Prospectus
This Prospectus contains forward looking statements which
are statements that may be identified by words such as “may”,
“could”, “believes”, “estimates”, “expects”, “intends” and
other similar words that involve risks and uncertainties. The
Forecast Financial Information is an example of forward looking
statements. These statements are based on an assessment of
present economic and operating conditions and on a number of
best estimate assumptions regarding future events and actions
that, at the Prospectus Date, are expected to take place (including
the key assumptions set out in Section 4.8.2).
The Company has no intention to update or revise forward
looking statements, or to publish prospective financial information
in the future, regardless of whether new information, future
events or any other factors affect the information contained in this
Prospectus, other than to the extent required by law.
Such forward looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties,
assumptions and other important factors, many of which are
beyond the control of the Company, the directors of the Company
and SaleCo, and management. Forward looking statements
should therefore be read in conjunction with, and are qualified
by reference to, Section 1.4 and Section 4, and other information
in this Prospectus. The Company cannot and does not give any
assurance that the results, performance or achievements expressed
or implied by the forward looking statements contained in this
Prospectus will actually occur and investors are cautioned not to
place undue reliance on these forward looking statements.
This Prospectus, including the industry overview in
Section 2, uses market data, industry forecasts and projections.
The Company has obtained significant portions of this information
from market research prepared by third parties. There is no
assurance that any of the forecasts contained in the reports,
surveys and research of such third parties that are referred
to in this Prospectus will be achieved. The Company has not
independently verified this information. Estimates involve risks
and uncertainties and are subject to change based on various
factors, including the risk factors in Section 5.
As set out in Section 7.10.2, it is expected that the Shares will
be quoted on the ASX initially on a conditional and deferred
settlement basis. The Company, SaleCo, Link Market Services Ltd
ABN 54 083 214 537 (Share Registry) and the Joint Lead Managers
disclaim all liability, whether in negligence or otherwise, to persons
who trade Shares before receiving their holding statement.
Statements of past performance
This Prospectus includes information regarding the past
performance of the Company. Investors should be aware that
past performance should not be relied upon as being indicative of
future performance.
Financial information presentation
All references to FY13, FY14, FY15 and FY16 appearing in this
Prospectus are to the financial years ended or ending 30 June
2013, 30 June 2014, 30 June 2015 and 30 June 2016 respectively,
unless otherwise indicated. All references to 1H14 and 1H15
appearing in this Prospectus are to the half financial years ended
31 December 2013 and 31 December 2014.
All financial amounts contained in this Prospectus are expressed
in Australian dollars unless otherwise stated. Any discrepancies
between totals and sums and components in tables, figures and
diagrams contained in this Prospectus are due to rounding.
Section 4 sets out in detail the Financial Information referred
to in this Prospectus. The basis of preparation of the Financial
Information is set out in Section 4.2.
The Financial Information in this Prospectus is presented in
abbreviated form insofar as it does not include all of the
presentation disclosures, statements or comparative information
required by the Australian Accounting Standards (AAS) (as issued
by the Australian Accounting Standards Board (AASB)), applicable
to annual financial reports prepared in accordance with the
Corporations Act.
Important information
iii
The Historical Financial Information has been prepared and
presented in accordance with the recognition and measurement
principles of AAS which are consistent with International
Financial Reporting Standards and interpretations issued by the
International Accounting Standards Board.
This Prospectus includes Forecast Financial Information that
has been prepared by the Directors based on an assessment of
current economic and operating conditions and the Directors’
best estimate of general and specific assumptions regarding
future actions and events as set out in Section 4.8.1 and Section
4.8.2. The basis of preparation and presentation of the Forecast
Financial Information, to the extent relevant, is consistent with the
basis of preparation and presentation for the Historical Financial
Information. The Forecast Financial Information presented in this
Prospectus is unaudited.
The Financial Information in this Prospectus should be read
in conjunction with, and it is qualified by reference to, the
information contained in Section 4 and Appendix A and in the
case of the Forecast Financial Information, the general and specific
best estimate assumptions, sensitivity analysis, the risk factors in
Section 5 and the additional information in Section 8.
Pet insurance market information
This Prospectus contains statistics, data and other information
relating to the pet insurance industry in Australia that is based
on data provided by PetSure Australia Pty Ltd (PetSure). While
this information is based on information reasonably believed
by PetSure in good faith to be reliable, PetSure cannot give any
assurances as to the accuracy and completeness of the statements
relating to the broader Australian pet insurance market and
industry data contained in this Prospectus and extracted or derived
from data provided by PetSure. Accordingly, the accuracy and
completeness of such information is not guaranteed. Investors
should note that market data and statistics are inherently
predictive and subject to uncertainty and not necessarily reflective
of actual market conditions.
Obtaining a copy of this Prospectus
A hard copy of this Prospectus is available free of charge during
the Offer Period to any person in Australia or New Zealand by
calling the Greenstone Offer Information Line on 1800 285 677
(toll free within Australia) or +61 1800 285 677 (outside Australia)
between 8.30am and 5.30pm Australian Eastern Standard Time
(AEST), Monday to Friday.
This Prospectus is also available in electronic form to Australian
and New Zealand residents on the Company’s offer website,
www.greenstone.com.au. The Offer constituted by this Prospectus
in electronic form is available only to Australian and New Zealand
residents accessing the website within Australia. Hard copy and
electronic versions of this Prospectus are not available to persons
in other jurisdictions, including the United States.
Persons who access the electronic version of this Prospectus should
ensure that they download and read the entire Prospectus. Persons
who have received a copy of this Prospectus in its electronic form
may, during the Offer Period, obtain a hard copy of this Prospectus
by calling the Greenstone Offer Information Line on 1800 285 677
(toll free within Australia) or +61 1800 285 677 (outside Australia)
between 8.30am and 5.30pm (AEST), Monday to Friday.
Applications for Shares may only be made on the Application
Form attached to, or accompanying, this Prospectus in its
hard copy form, or in its soft copy form available online at
www.greenstone.com.au together with an electronic copy of this
Prospectus. By making an Application, you declare that you were
given access to this Prospectus, together with an Application Form.
The Corporations Act prohibits any person from passing the
Application Form on to another person unless it is attached to,
or accompanied by, this Prospectus in its paper copy form or the
complete and unaltered electronic version of this Prospectus. Refer
to Section 8 for further information.
iv
Important information
Cooling off rights do not apply to an investment in Shares
pursuant to the Offer. This means that, in most circumstances, you
cannot withdraw your Application once it has been accepted.
No offering where illegal
This Prospectus does not constitute an offer or invitation in any
place in which, or to any person to whom, it would not be lawful
to make such an offer or invitation. No action has been taken to
register or qualify the Shares or the Offer, or to otherwise permit
a public offering of the Shares in any jurisdiction outside Australia
and New Zealand. The distribution of this Prospectus (including
in electronic form) outside Australia and New Zealand may be
restricted by law and persons who come into possession of this
Prospectus outside Australia should seek advice on and observe
any such restrictions. Any failure to comply with such restrictions
may constitute a violation of applicable securities laws.
This Prospectus may not be distributed to, or relied upon,
by any person in the United States unless accompanied
by the Institutional Offering Memorandum as part of the
Institutional Offer.
This Prospectus does not constitute an offer to sell, or a solicitation
of any offer to buy, securities in the United States. This Prospectus
has been prepared for publication in Australia and New Zealand.
The Shares to be offered under the Offer have not been, and
will not be, registered under the U.S. Securities Act of 1933, as
amended (US Securities Act) or the securities laws of any state or
other jurisdiction in the United States, and may not be offered or
sold, directly or indirectly, in the United States, unless the Shares
are registered under the US Securities Act or are offered and sold
pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the US Securities Act and
applicable US state securities laws. The Offer is not being extended
to any investor outside Australia and New Zealand, other than
to certain Institutional Investors as part of the Institutional Offer.
See Section 8.15 for more detail on selling restrictions that apply
to the Offer and sale of Shares in jurisdictions outside Australia
and New Zealand.
Privacy
By completing an Application Form, you are providing personal
information to the Company and SaleCo through the Company’s
service provider, the Share Registry, which is contracted by the
Company to manage Applications. The Company and SaleCo, and
the Share Registry on their behalf, may collect, hold and use that
personal information to process your Application, service your
needs as a Shareholder, provide facilities and services that you
request and carry out appropriate administration.
If you do not provide the information requested in the Application
Form, the Company, SaleCo and the Share Registry may not be
able to process or accept your Application.
Once you become a Shareholder, the Corporations Act and
Australian taxation legislation require information about you
(including your name, address and details of the Shares you
hold) to be included on the Share register. In accordance with
the requirements of the Corporations Act, information on the
Share register will be accessible by members of the public. The
information must continue to be included on the Share register
if you cease to be a Shareholder.
The Company, SaleCo and the Share Registry may disclose your
personal information for purposes related to your investment to
their agents and service providers including those listed below
or as otherwise authorised under the Privacy Act 1988 (Cth):
■■ the Share Registry for ongoing administration of the
Share register;
■■ the Joint Lead Managers in order to assess your Application;
■■ printers and other companies for the purposes of
preparation and distribution of documents and
for handling mail;
Greenstone Limited Prospectus
market research companies for the purpose of analysing
the Company’s shareholder base; and
■■ legal and accounting firms, auditors, management
consultants and other advisers for the purpose of
administering, and advising on, the Shares and for
associated actions.
The Company’s agents and service providers may be located
outside Australia where your personal information may not
receive the same level of protection as that afforded under
Australian law.
You may request access to your personal information held by or
on behalf of the Company and SaleCo. You may be required to pay
a reasonable charge to the Share Registry in order to access your
personal information.
You can request access to your personal information or obtain
further information about the Company’s privacy practices by
contacting the Share Registry as follows:
Telephone:1800 502 355 (toll free within Australia)
+61 1800 502 355 (outside Australia)
Address: Link Market Services Ltd
Level 12, 680 George Street
Sydney NSW 2000
Australia.
The Company aims to ensure that the personal information it
retains about you is accurate, complete and up-to-date. To assist
with this, please contact the Company or the Share Registry if any
of the details you have provided change.
■■
Offer management
The Offer is being arranged and managed by Goldman Sachs
Australia Pty Ltd and Macquarie Capital (Australia) Limited.
Financial Services Guide
The provider of the independent review of the Financial
Information is required to provide Australian retail clients with
a Financial Services Guide in relation to that review under the
Corporations Act. The Financial Services Guide is provided in
Section 9 and Section 10.
Company website
Any references to documents included on the Company’s website
are provided for convenience only, and none of the documents
or other information on the Company’s website, or any other
website referred in this Prospectus, is incorporated in this
Prospectus by reference.
Defined terms and abbreviations
Defined terms and abbreviations used in this Prospectus, unless
specified otherwise, have the meaning given in the glossary in
Appendix B. Unless otherwise stated or implied, references to
times in this Prospectus are to AEST.
Unless otherwise stated or implied, references to dates or years
are calendar year references.
Questions
If you have any questions in relation to the Offer, contact the
Greenstone Offer Information Line on 1800 285 677 (toll free
within Australia) or +61 1800 285 677 (outside Australia) between
8.30am and 5.30pm (AEST), Monday to Friday.
This document is important and should be read in its entirety.
If you have any questions about whether to invest in Greenstone,
you should seek professional advice from your accountant,
financial adviser, stockbroker, lawyer or other professional adviser
before deciding whether to invest in Greenstone.
Greenstone Limited Prospectus
Table of contents
1
TABLE OF CONTENTS
Important information
ii
Key dates
2
Key Offer information
3
Chairman’s letter
4
1.
Investment overview
6
2.
Industry overview
27
3.
Company overview
45
4.
Financial information
65
5.
Key risks
110
6.
Key people, interests and benefits
120
7.
The Offer
138
8.
Additional information
154
9.
Investigating Accountant’s Report on Historical Financial Information
174
10.
Investigating Accountant’s Report on Forecast Financial Information
179
11.
Consulting Actuary’s Report
185
Appendix A
Significant accounting policies
190
Appendix B
Glossary
196
Application form
205
2
Key dates
Greenstone Limited Prospectus
KEY DATES
Prospectus lodgement date
25 May 2015
Retail Offer opens
2 June 2015
Retail Offer closes
10 June 2015
Bookbuild to determine the Final Price
11 June – 12 June 2015
Final Price and Share allocation announcement
15 June 2015
Commencement of trading on ASX on a conditional and deferred
settlement basis
16 June 2015
Settlement of the Offer
18 June 2015
Issue and Transfer of Shares under the Offer
19 June 2015
Shares commence trading on the ASX on an unconditional and deferred
settlement basis
19 June 2015
Expected despatch of holding statements
22 June 2015
Shares commence trading on the ASX on a normal settlement basis
23 June 2015
Note:
This timetable is indicative only and may be subject to change. Unless otherwise indicated, all times are stated in AEST. Greenstone, in consultation with the
Joint Lead Managers, reserves the right to vary any and all of the above dates and times without notice (including, subject to the ASX Listing Rules and the
Corporations Act, to close the Offer early, to extend the Closing Date, or to accept late applications, either generally or in particular cases, or to cancel or
withdraw the Offer before completion, in each case without notifying any recipient of this Prospectus or Applicants).
If the Offer is cancelled or withdrawn before the issue and transfer of Shares, then all amounts accompanying an application form will be refunded in full
(without interest) as soon as possible in accordance with the requirements of the Corporations Act. Investors are encouraged to submit their Applications as
soon as possible after the Offer opens.
The quotation and commencement of trading of the Shares is subject to confirmation from the ASX.
Greenstone Limited Prospectus
Key Offer information
3
KEY OFFER INFORMATION
Indicative Price Range1
$2.00 – $2.50 per Share
Total number of Shares to be issued or transferred under the Offer2
Total Shares to be issued or transferred under the Offer as a percentage of
total Shares on issue at Completion of the Offer3
Maximum number of shares that can be over-allocated4
Total number of Shares on issue at Completion of the Offer5
Market capitalisation at the Indicative Price Range6
Pro forma net debt (as at 31 December 2014)7
398.6 million
57.7%
60.7 million
691.0 million
$1,396.1 – $1,713.5 million
$103.8 million
$1,499.9 – $1,817.3 million
Enterprise value
8
Enterprise value/pro forma FY16 forecast EBITDA9
10.9x – 13.2x
Market Capitalisation at the Indicative Price Range/FY16 NPAT per Share10
15.5x – 19.0x
Gross proceeds from the Offer
11
Forecast dividend yield for final FY16 dividend12
$809.7 – $984.2 million
2.1% – 3.6%
Note:
1. In the Institutional Offer, the Final Price may be set below, within or above the Indicative Price Range. All Successful Applicants under the Offer will pay
the Final Price.
2. Comprises the Shares issued or transferred under the Institutional Offer, the Broker Firm Offer and the Priority Offer, assuming the mid-point of the
Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
3. Assuming the mid-point of the Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
4. Refer to Section 7.8 for further information.
5. Assuming the mid-point of the Indicative Price Range.
6. Calculated as the total number of Shares on issue following the Offer multiplied by the Indicative Price Range.
7. Pro forma net debt is calculated as the sum of senior debt less upfront fees paid and cash and cash equivalents as at 31 December 2014.
8. Enterprise value is calculated as the indicative market capitalisation of $1,396.1 to $1,713.5 million (based on the Indicative Price Range), plus pro
forma net debt of $103.8 million as at 31 December 2014.
9. This ratio is commonly referred to as an EV/EBITDA ratio. The EV/EBITDA ratio is calculated as the enterprise value (based on the Indicative Price Range)
divided by its forecast annual EBITDA.
10. This ratio is commonly referred to as a forward price to earnings ratio, or forward PE ratio. A forward PE ratio is a company’s share price divided by its
forecast annual earnings per share.
11. Assuming no Shares are over-allocated. See Section 7.8.
12. Indicative dividend yield is calculated as the implied dividend based on Greenstone’s target dividend payout ratio range of 40% – 55% and the Pro
Forma FY16 NPAT, divided by the Indicative Price Range. The low end of the range is calculated on the basis of a dividend payout ratio of 40% at the
high end of the Indicative Price Range. The high end of the range is calculated on the basis of a dividend payout ratio of 55% at the low end of the
Indicative Price Range. Refer to Section 4.10 for further details of Greenstone’s dividend policy.
4
Chairman’s letter
Greenstone Limited Prospectus
CHAIRMAN’S LETTER
25 May 2015
Dear Investor,
On behalf of the Board of Directors (the Board),
I am pleased to offer you the opportunity to become
a Shareholder in Greenstone Ltd.
Greenstone specialises in the design, marketing,
distribution and administration of personal
insurance products.
Since its formation in 2007, Greenstone has focussed
on developing simple and affordable direct
insurance product offerings for retail customers in
the mass market, leveraging technology to improve
convenience for customers and building a low cost
and efficient distribution model.
During this time Greenstone has expanded its
insurance product offering to include term life,
funeral, income protection and pet insurance
products. These insurance products are distributed
through Greenstone’s Proprietary Brands (Real
Insurance, Australian Seniors Insurance Agency,
Guardian Insurance and Prime Pet Insurance) and
Affinity Brands (Medibank, Woolworths and RSPCA).
In addition, Greenstone also distributes its proprietary
and affinity products as well as third party insurance
products, namely private health, car and home &
contents insurance products, through its online
comparison website, Choosi.
Between 2009 and 2014, Greenstone experienced
significant growth across its brands and distribution
channels, with annual new sales of insurance policies
growing at a compound annual growth rate (CAGR)
of more than 15%, total Gross Written Premium
(GWP) growing at a CAGR of more than 30% and
an increase in the agency revenue receivable asset
(ARRA) at a CAGR of more than 50%.
Today, Greenstone is known for outstanding value and
leading customer satisfaction and has one of the most
recognised brands in the Australian life insurance
market, Real Insurance.
Greenstone believes that it has a top two market
share in the Australian direct life insurance
distribution market and the leading market share in
the Australian pet insurance distribution market and
is a direct beneficiary of the high premium growth
experienced in these respective markets.
From 2009 to 2014, the Australian direct life insurance
in-force market grew at a CAGR of 13.2%1 driven
primarily by customers seeking convenient, simple
and affordable life insurance products and increasing
willingness of customers to transact over the
phone and the internet. This growth has materially
outpaced the total life insurance market, which grew
at a CAGR of 10.9% over the same period2 and is
forecast to grow at a CAGR of 11.0% from 2014 to
2019.3 In 1H15, life insurance (term life, funeral and
income protection insurance) accounted for 61% of
Greenstone’s total GWP.
The Australian pet insurance market also grew
rapidly between 2009 and 2014 at an estimated
CAGR of 48.4%.4 With approximately 7.5 million pets
in Australia5 and only an estimated 4%6 of these
pets presently covered by pet insurance, Greenstone
believes that there is significant further growth
potential for this market. In 1H15, pet insurance
accounted for 22% of Greenstone’s total GWP.
Additionally, through Choosi, Greenstone is also well
placed to benefit from the growing propensity of
consumers to use comparison websites to easily and
quickly compare insurance products. Greenstone’s key
product offering on Choosi, private health insurance,
accounted for 17% of Greenstone’s GWP in 1H15.
Central to Greenstone’s success is its simple, focussed
business model. Greenstone is not an insurance
company and does not have any prudential regulatory
capital requirements. All claims risk associated with
its insurance product offering is underwritten by third
parties, Hannover Re, Swiss Re and Hollard.7
Greenstone operates from a single location, with its
call centre supported by online and over the phone
underwriting processes. Combined with proprietary
data analytical capabilities to optimise marketing
spend and prioritise inbound calls to maximise return
on investment, Greenstone has developed an efficient,
low cost model to distribute insurance products
across Australia.
Underpinned by strong positions in high growth
markets, Greenstone believes that it is well placed to
deliver growth by focussing on optimising its three
core commercial disciplines of cost per lead, lead
conversion and customer retention.
Greenstone Limited Prospectus
As with all companies, there are a number of risks
associated with an investment in Greenstone, which
investors should consider as they may materially
adversely affect Greenstone’s financial performance
and Share price. These include: lower than expected
cash receipts, heightened competition, a decline
in demand for insurance products, changes in the
effectiveness of marketing, technological disruption,
regulatory risk, counterparty risk, interest rate
fluctuations and contract renewal risk. Investors
should refer to Section 5 for further information.
Greenstone’s Listing on the ASX will allow the
Company’s existing shareholder, Hollard Investments
B.V., to realise a portion of its investment, fund
the acquisition of options or rights over shares in
Greenstone’s most significant subsidiary (held by a
co-founder and former CEO of Greenstone Financial
Services Pty Ltd), provide the Company with access
to capital markets and an opportunity for others to
invest in Greenstone.
Chairman’s letter
Existing key executives will hold between 2.5 and 3.1
million Shares and will enter into voluntary escrow
agreements in respect of those Shares under which
the Shares will be released from escrow on a pro rata
basis over periods of one, three or five years.
Before deciding whether to invest in Greenstone,
you should read this Prospectus carefully and consult
with your solicitor, stockbroker, accountant or other
independent and qualified professional adviser.
On behalf of my fellow Directors, I look forward to
welcoming you as a Shareholder of Greenstone.
Yours sincerely,
Rick Lee
Chairman, Greenstone
At the time of Listing, Hollard Investments B.V.
and the Casey Trust will collectively hold between
291.7 and 293.2 million Shares, representing 42.0%
to 42.6% of the outstanding Shares, and will enter
into voluntary escrow agreements in respect of those
Shares until two business days following the release
of the Company’s FY16 results. Hollard Investments
B.V. intends to be a long term shareholder of
Greenstone and has confirmed that it intends to
retain its Shares until at least two business days
following the release of the Company’s FY17 results,
subject to any exceptions set out in the voluntary
escrow deed as if it applied until that date. Hollard
Investments B.V. remains a strong supporter of
Greenstone and is represented on the Board.
1. Plan for Life ‘Direct Life Insurance Report’ 2015.
2. DEXX&R Market Projections Report, November 2014.
3. DEXX&R Market Projections Report, November 2014. Forecasts have been made at both an overall and individual company level, taking into account
past statistical data, performance and capacity of each insurer to achieve ongoing sales and maintain in-force business. The results have been
prepared as a Standard or Central Model, which is effectively a best estimate based on information known at the time of preparing the forecast. Two
other models – a Low and a High – are also prepared and provided as a means of gauging a reasonable range of lower and higher performance.
The forecasts are not to be regarded as absolute and definitive statistics as to future Company and industry performance, but rather as reasonable
estimates which are intended to assist the Company in its future planning, especially the next three years where the forecasts have the greatest
likelihood of occurring.
4. Based on the policy growth of PetSure, the leading underwriter of pet insurance in Australia with a dominant market share.
5. Estimated in 2013 by the Animal Health Alliance (Pet Ownership in Australia 2013).
6. Determined using PetSure data and total estimate for number of pets by Animal Health Alliance (Pet Ownership in Australia 2013).
7. Some legacy product remains in-force which has been underwritten by AIA and St Andrews. All new business is underwritten by Hannover Re,
Swiss Re or Hollard.
8. Based on the Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
5
01
INVESTMENT
OVERVIEW
Greenstone Limited Prospectus
Section 01 – Investment overview
INVESTMENT OVERVIEW
1.1
Introduction to Greenstone
Topic
Who is
Greenstone?
Summary
■■
■■
■■
■■
■■
■■
What
products does
Greenstone sell?
■■
Greenstone Ltd (Greenstone or the Company) designs, prices
markets, distributes and administers personal insurance products.
For more
information
Section 3.1
Greenstone operates from a single location, with its call centre
supported by online and over the phone underwriting processes.
Combined with proprietary data analytical capabilities to optimise
marketing spend and prioritise inbound calls to maximise return
on investment, Greenstone has developed an efficient and low cost
business model to distribute insurance products across Australia.
Greenstone is not an insurance company. All claims risk associated
with the policies it sells are underwritten by third party insurers
(Insurance Carriers) (Hannover Re, Swiss Re and Hollard).
Greenstone had more than 350,000 in-force policies and 310,000
individual Australian customers as at 31 December 2014.
Greenstone is currently owned by Hollard Investments B.V. (Netherlands).
Greenstone has focussed on developing simple and affordable
direct insurance product offerings, targeting retail, mass market
customers:
——
——
These insurance products primarily include term life, funeral,
income protection and pet insurance.
Greenstone also distributes these insurance products and private
health, car and home & contents insurance products through its
100% owned online comparison website, Choosi.
Section 3
7
8
Section 01 – Investment overview
Topic
How does
Greenstone
distribute its
products?
Summary
■■
■■
■■
■■
■■
Does
Greenstone
bear any
claims risk?
Greenstone Limited Prospectus
■■
■■
■■
Greenstone distributes insurance products directly to retail
customers through brands developed or acquired by Greenstone
(Proprietary Brands): Real Insurance1, Guardian Insurance, Prime Pet
Insurance and Australian Seniors Insurance Agency2.
For more
information
Section 3.4
Greenstone also distributes products under brands (Affinity
Brands) belonging to corporate partners of Greenstone (Affinity
Brand Partners) which include Medibank, Woolworths and the
Royal Society for the Prevention of Cruelty to Animals (RSPCA).
Greenstone is able to utilise the strength of the Affinity Brands
to sell Greenstone products either direct to market (in the case of
RSPCA) or to the partners’ existing customer base (in the case of
Medibank and Woolworths).
Greenstone primarily distributes its insurance products through its
single location, in-house call centre in Sydney.
Greenstone also distributes products through an online comparison
website, Choosi. These products include both Greenstone’s
proprietary-branded insurance products and additional third
party products in categories including term life, funeral, income
protection, pet, health, car and home & contents insurance.
Since its launch in 2011, Choosi has quickly established itself as a strong
online comparison website with an average of 33,000 visitors per month.
No. Greenstone is not an insurance company. All claims risk
associated with the policies it sells is underwritten by third party
Australian licenced insurers.
Section 3.5
Greenstone has strong and long term relationships with its three
Insurance Carriers: Hannover Re, Swiss Re and Hollard.
Greenstone will continue to be entitled to the agency revenue if
the distribution agreement with an Insurance Carrier is terminated
or not renewed, as agency revenue survives termination of
these agreements.
1. The Real Insurance brand is owned by Hollard. Greenstone has an exclusive perpetual licence to use the Real Insurance brand for term life, income
protection and funeral insurance. Hollard continues to use the brand for other insurance products. See Section 8.5.4 for further details.
2. Greenstone has entered into a binding share purchase agreement to acquire Australian Seniors Insurance Agency Pty Ltd, which owns the Australian
Seniors Insurance Agency brand. The share purchase agreement is unconditional and the transfer will occur on 30 June 2015. See Section 8.4 for
further details.
Greenstone Limited Prospectus
Topic
What is
Greenstone’s
business model?
Section 01 – Investment overview
Summary
■■
■■
■■
Greenstone is remunerated through agency payments and
administration fees received over the life of the policy by its
Insurance Carriers. These payments and fees reflect the services
provided by Greenstone, which include (depending on the product)
product design, pricing, marketing, distribution and administration.
—— Life products: Greenstone designs, markets, distributes and
administers term life, funeral and income protection insurance
products under both its Proprietary Brands (Real Insurance,
Guardian Insurance and Australian Seniors Insurance Agency)
and Affinity Brands (Medibank, Woolworths and ACE Ltd (ACE)).
Greenstone receives agency revenue and administration fees for
the period the policy remains in-force.
—— Pet products: Greenstone designs, markets and distributes pet
insurance products under both its Proprietary Brands (Real
Insurance, Guardian Insurance, and Prime Pet Insurance) and
an Affinity Brand (RSPCA). Greenstone receives agency revenue
from Hollard for distributing this product for the period the
policy remains in-force. Agency payments for pet policies are
predominantly flat over the lives of the policies.
—— Online comparison website: For third party insurance
products (including private health insurance) sold through
the Choosi platform, Greenstone typically receives a one-off
upfront payment.
As agency payments are generally received over the life of the
policy, Greenstone has negotiated with some of its Insurance
Carriers a provision that allows Greenstone to elect to receive a
higher proportion of agency payments upfront to help cover the
upfront costs associated with the sale of insurance products (e.g.
marketing and employee costs). This limits the future working
capital constraints on the business as it grows. Under these
arrangements, cash flows from policies sold in FY16 (including both
agency and administration fee payments) are expected to cover
approximately 90% of Greenstone’s FY16 forecast total expenses.
In the case of products marketed under brands owned by Affinity
Brand Partners, Greenstone either remits a portion of the annual
revenue attributable to that brand or pays a fixed annual fee to the
Affinity Brand Partner.
For more
information
Section 3.3
9
10
Section 01 – Investment overview
Topic
How does
Greenstone
account for its
revenue and
expenses?
Summary
■■
■■
■■
■■
■■
■■
Who are
Greenstone’s
competitors?
Greenstone Limited Prospectus
■■
■■
■■
■■
Agency payments (depending on the product) are generally
received over the life of the policy.
This differs from the way the agency payments are accounted
for, whereby new business revenue is recognised at the time of
sale. As required under AASB 118 Revenue, the new business
revenue for a policy is recognised based upon the estimated net
present value of all future expected agency payments including an
allowance for future expected Affinity Brand Partner payments.
For more
information
Section 4.3.1,
Section 4.5 and
Appendix A
All agency revenue cash flows not yet received are recognised on
the balance sheet as an agency revenue receivable asset (ARRA).
All costs associated with new business such as marketing, loyalty
incentives and employment expenses, are expensed at the time
of sale.
Administration revenue is also recognised for the provision of
policy and claims administration services provided to customers
on behalf of various Insurance Carriers for life insurance products.
Administration revenue is recognised in the period in which the
services are provided.
All costs associated with the provision of administration services as
well as service and retention activities are expensed as incurred.
Greenstone has a top two market share in the Australian direct life
insurance distribution market and a leading market share for new
business in the Australian pet insurance distribution market.3
Section 2.3.4
and Section
2.4.3
Greenstone’s key competitor across term life, funeral insurance
and income protection insurance is TAL’s direct life insurance
business, InsuranceLine. There are a number of other competitors
in the Australian direct life insurance market including OnePath
(owned by ANZ), CommInsure (owned by CBA), Macquarie, Allianz,
Hallmark, MLC, Suncorp, St Andrew’s, AIA and BT.
The key brands under which pet insurance is distributed in Australia
are RSPCA, Prime Pet Insurance, Real Insurance and Guardian
Insurance (all controlled by Greenstone), Medibank and Woolworths
(underwritten by Hollard and administered by PetSure) and PetPlan
(underwritten by Allianz).
Choosi’s key competitors are iSelect and Compare the Market, who
Greenstone estimates are the leading online comparison websites
in Australia.
3. Direct life insurance market share based on Greenstone management estimates and available industry data of GWP. Estimated gross written premium
for the Australian direct life market is only for products that Greenstone offers. Pet insurance market share estimated based on Greenstone’s share of
PetSure premiums.
Greenstone Limited Prospectus
Topic
Summary
How is
Greenstone
regulated?
■■
■■
■■
1.2
Greenstone is not authorised or regulated as an insurer in
Australia. Accordingly, Greenstone is not subject to Australian
Prudential Regulation Authority (APRA) prudential regulation and
is not required to meet minimum prudential regulatory capital
requirements.
11
For more
information
Section 2.6
Two of Greenstone’s wholly-owned operating subsidiaries
(Greenstone Financial Services Pty Ltd (Greenstone Financial
Services) and Choosi Pty Ltd) hold Australian financial services
licences and compliance with these licences is regulated by the
Australian Securities and Investments Commission (ASIC).
Greenstone is also subject to consumer protection regulation
and ASIC reviews of insurance products distributed in Australia,
including product disclosure and sales procedures.
Key strengths of Greenstone’s business
Highlight
Leading
positions in
attractive and
high growth
markets
Summary
■■
■■
■■
■■
4.
5.
6.
7.
Section 01 – Investment overview
Greenstone is well positioned in highly attractive insurance markets.
Greenstone believes that it has a top two market share in Australian
direct life insurance distribution and the leading market share in the
Australian pet insurance distribution market. Greenstone also has a
significant presence in the online comparison website sector, within
which private health insurance is the most significant product sold.
For more
information
Section 2
From 2009 to 2014, the direct life insurance in-force market in
Australia grew at a CAGR of 13.2%4 driven by factors including
customers seeking convenient, simple and affordable life insurance
products and increasing receptiveness of customers to transact
directly over the phone and the internet. This growth has materially
outpaced growth in the broader life insurance market, which grew
at a CAGR of 10.9% from 2009 to 20145 and is forecast to grow
at a CAGR of 11.0% from 2014 to 2019.6 In 1H15, life insurance
accounted for 61% of Greenstone’s total GWP.
The Australian pet insurance market has also grown rapidly between
2009 and 2014 at an estimated CAGR of 48.4%.7 With approximately
7.5 million pets in Australia and only an estimated 4% of these pets
presently covered by pet insurance, Greenstone believes that there
is significant further growth potential for this market. In 1H15, pet
insurance accounted for 22% of Greenstone’s total GWP.
Additionally, through Choosi, Greenstone believes that it is also
well placed to benefit from the growing propensity of consumers
to use comparison websites to easily and quickly compare insurance
products. Greenstone’s key product offering on Choosi, private health
insurance, accounted for 17% of Greenstone’s total GWP in 1H15.
Plan for Life ‘Direct Life Insurance Report’ 2015.
DEXX&R Market Projections Report, November 2014.
DEXX&R Market Projections Report, November 2014.
Based on the policy growth of PetSure Australia Pty Ltd (PetSure), the leading underwriter of pet insurance in Australia with a dominant market share.
12
Section 01 – Investment overview
Greenstone Limited Prospectus
Highlight
Summary
Focussed and
differentiated
business model
Greenstone’s focussed approach to the distribution of life insurance is
differentiated from traditional models.
■■ Simple and affordable products: Greenstone is focussed on
leveraging technology and using its single location call centre to
improve convenience for customers and build a low cost, efficient
distribution model with no dispersed advisor footprint.
■■
■■
■■
■■
Strong growth
and high
margins
■■
■■
■■
Low cost
and efficient
distribution
model
■■
■■
■■
For more
information
Section 3.3
Scalable channel: Greenstone is focussed on leveraging technology
and using its single location call centre to improve convenience
for customers and build a low cost, efficient distribution model.
Unlike traditional distribution models it does not rely on a dispersed
network of advisors.
Automated systems and data intelligence: Greenstone has an
automated work flow process and a disciplined application of data
intelligence.
Focussed value proposition: Greenstone carries no underwriting
risk and as such can focus solely on design, pricing, distribution,
marketing and administration. It is not required to manage
appropriate reserving or asset/liability management.
Specialist focus on mass market: Greenstone targets mass market
customers, who are typically interested in insurance products
that have lower policy premiums than those products typically
recommended by financial advisers to high net worth clients
through indirect channels. Given the costs associated with providing
personalised advice in the indirect channel, particularly life
insurance, financial advisers are less incentivised to recommend
simpler insurance products with lower policy premiums that
typically appeal to the mass market customer.
Greenstone commenced operations in 2007 and had more than
350,000 in-force policies and 310,000 individual Australian
customers as at 31 December 2014.
Section 4.8
Underlying pro forma EBITDA is forecast to grow by 25.6% from
FY15 to FY16 excluding increases due to new business revenue
derived from increases in future expected agency payments as
a result of new contractual terms with Insurance Carriers and
the impact of the Australian Seniors Insurance Agency brand
acquisition.8
Greenstone is forecast to have a pro forma FY16 EBITDA margin
of 47%.
Greenstone leverages technology to build a low-cost, efficient
distribution model.
Section 3.3
Greenstone operates in one location, with one call centre and is
supported by one call optimisation model. This allows Greenstone
to rapidly expand with limited additional fixed costs.
Greenstone is not an insurance company and therefore does not
have prudential regulatory capital requirements.
8. While these items are expected to be sustainable in future periods, the enhanced growth that is generated by these items from FY15 to FY16 is not
expected to be recurring.
Greenstone Limited Prospectus
1.3
Section 01 – Investment overview
Key financial information and dividend policy
Topic
What is
Greenstone’s
historical and
forecast income
statement?
For more
information
Summary
Pro forma
historical
$m
Agency revenue
Administration
revenue
Other revenue
Total revenue
Marketing and
distribution
expenses
Employment
expenses
Occupancy and
other expenses
Total expenses
EBITDA
NPAT
Pro forma
forecast
Section 4.3
Pro forma
historical
FY13
FY14
FY15
FY16
1H14
1H15
203.1
9.7
187.8
11.2
238.6
9.2
281.1
11.3
98.5
5.7
122.5
4.3
0.9
213.7
(95.3)
1.7
200.7
(75.9)
0.7
248.5
(90.5)
0.8
293.2
(92.1)
0.3
104.5
(39.5)
0.3
127.1
(40.7)
(43.8)
(37.9)
(53.3)
(51.0)
(18.0)
(23.5)
(8.9)
(12.4)
(10.8)
(12.0)
(5.1)
(5.4)
(148.0)
65.7
36.3
(126.2)
74.5
45.2
(154.6)
93.9
60.4
(155.1)
138.1
90.3
(62.6)
41.9
25.7
(69.6)
57.5
37.5
Note: Refer to Section 4.2 for additional information on the basis of preparation of pro forma
historical and forecast information and reconciliations.
13
14
Section 01 – Investment overview
Topic
What is
Greenstone’s
historical and
forecast cash
flow statement?
What are
Greenstone’s
key
performance
metrics?
Greenstone Limited Prospectus
For more
information
Summary
Pro forma
historical
$m
EBITDA
Movement in
the ARRA
Movement in other
net working capital
items
Non-cash items
in EBITDA
Operating free
cash flow before
capital expenditure
Total capital
expenditure
Cash flow before
financing and tax
Interest and other
costs paid on
financial debt
Income tax paid
Repayment of
existing debt
Net cash flow
before dividend
Pro forma
forecast
FY13
FY14
FY15
FY16
1H14
1H15
65.7
(45.4)
74.5
(47.9)
93.9
(94.4)
138.1
(60.1)
41.9
(24.9)
57.5
(55.2)
(0.1)
(2.7)
(8.0)
(4.3)
(0.1)
4.5
0.1
0.7
–
–
0.6
–
20.8
23.9
(8.4)
74.4
16.9
6.8
(0.1)
(3.3)
(2.1)
(4.0)
(1.6)
(0.3)
20.7
20.6
(10.5)
70.4
15.3
6.5
(6.7)
(10.8)
(5.0)
47.9
Pro forma
historical
Gross Written
Premium (GWP)
($m)
Policies sold (’000)
Retention rate
Cost per
acquisition ($)
Agency revenue
growth
EBITDA margin
EBITDA growth
NPAT growth
Section 4.6
Pro forma
historical
Pro forma
forecast
Section 3.7 and
Section 4.3
Pro forma
historical
FY13
FY14
FY15
FY16
1H14
1H15
147.4
105.5
130.3
149.8
52.2
62.5
137.0
78.8%
695
104.1
79.8%
729
124.2
80.9%
728
139.9
80.4%
658
52.7
79.5%
749
60.0
80.9%
679
(8%)
27%
18%
na
24%
37%
13%
25%
38%
26%
34%
47%
47%
50%
40%
na
na
45%
37%
46%
na
31%
na
na
Greenstone Limited Prospectus
Topic
Summary
What is
Greenstone’s
dividend policy?
■■
■■
■■
■■
■■
When will the
first dividend be
paid?
■■
■■
1.4
Section 01 – Investment overview
The payment of a dividend by Greenstone is subject to the
discretion of the Directors and will be a function of a number of
factors including the general business environment, the operating
results, cash flows and the financial condition of Greenstone, future
funding requirements, capital management initiatives, taxation
considerations (including the level of Australian franking credits),
any contractual, legal or regulatory restrictions on the payment of
dividends by Greenstone and any other factors the Directors may
consider relevant.
15
For more
information
Section 4.10
The Directors intend to target a payout ratio of 40% to 55% of
Adjusted NPAT, which is a measure of reported NPAT adjusted for
non-cash basis changes and price adjustment revenue as well as
certain other non-recurring items. However, the level of payout ratio
is expected to vary between periods depending on the factors above.
No assurances can be given by any person, including the Directors,
about the payment of any dividends and the level of franking on any
such dividends.
It is the current intention of the Directors to pay interim dividends
in respect of half years ending 31 December and final dividends in
respect of half years ending 30 June each year. It is anticipated that
interim dividends will be paid in April and final dividends will be
paid in October following the relevant financial period. The Board
intends to weight dividend payments towards the final dividend.
The Directors’ current intention is that the interim and half
year dividends will be franked with Australian tax credits to the
maximum extent possible. No assurance can be provided about the
level of future dividends or the extent to which any of the dividends
will be franked.
The Directors intend to have the capacity to implement a dividend
reinvestment plan to provide flexibility in the future.
The Directors anticipate Greenstone’s first dividend will be the
interim dividend in respect to the half year ending 31 December
2015 and therefore expect Greenstone’s first dividend to be paid
in April 2016.
Section 4.10
For the interim and final dividends relating to FY16, the dividends
may be franked at less than 100% depending on the franking
capacity at that time, recognising that income for tax purposes is
expected to be lower than income under accounting principles.
Summary of key risks
The business, assets and operations of Greenstone are subject to certain key risk factors that have the potential
to influence operating and financial performance in the future. These risks may impact the value of an
investment in Greenstone. Some risks are unforeseeable and accordingly the extent to which these risks can be
effectively managed may be limited.
16
Section 01 – Investment overview
Greenstone Limited Prospectus
Set out below is a summary of specific key risks to which the Company is exposed. Further detail and additional
risks are outlined in Section 5.2. Other general risks associated with an investment in Greenstone are outlined
in Section 5.3.
Topic
Lower than
expected future
cash receipts
derived from
the ARRA
Summary
■■
■■
Greenstone
is exposed
to potential
breaches of
data security
■■
■■
■■
Heightened
competition
from existing
or new
competitors
■■
■■
The ARRA, which had a pro forma book value of $494.5 million as at
31 December 2014, represents the present value of future expected
agency payments on all insurance policies in-force based upon
multiple actuarially validated assumptions. Actual cash receipts
in relation to the ARRA may have a lower value than presently
expected, due to nominal cash receipts being lower than forecast.
For more
information
Section 5.2.1
The key assumptions that impact the calculation of the ARRA
include, but are not limited to, retention rates, the discount rate
and projection periods. Adverse changes in these underlying
assumptions could adversely impact the valuation of the ARRA and
subsequently Greenstone’s revenue, profitability and balance sheet.
Through the ordinary course of business, Greenstone collects a wide
range of personal and financial data from consumers and Affinity
Brand Partners. This includes information such as personal contact
details as well as payment information and credit card details.
Section 5.2.2
There is a risk that the measures taken by Greenstone to prevent
any potential data security will be insufficient to detect or
prevent breaches.
There is a risk that any data security breaches or Greenstone’s
failure to protect confidential information could result in the loss of
information integrity, breaches of Greenstone’s obligations under
applicable privacy laws, litigation and liability for damages under
customer agreements, Affinity Brand Partner agreements and other
third party agreements and website and system outages, each of
which may potentially adversely impact Greenstone’s reputation,
revenue and profitability.
The industries in which Greenstone operates are highly competitive
and Greenstone actively competes with numerous companies for
customers.
Heightened competition from new or existing competitors
(including comparison websites) could adversely affect Greenstone’s
revenue or profitability in a number of ways, including but not
limited to offering lower prices than Greenstone, building more
effective marketing models or outspending Greenstone on
marketing to drive leads and market share, having greater brand
recognition and therefore larger customer bases, introducing
new insurance products that are more attractive to Greenstone’s
customers or responding to changes in regulations, new
technologies or customer preferences or requirements faster
and more effectively than Greenstone.
Section 5.2.3
Greenstone Limited Prospectus
Topic
Decline in
demand for
insurance
products
Changes
in brand
reputation,
effectiveness
and cost of
marketing
Summary
■■
■■
■■
■■
Changes in,
or failure to
comply with,
government,
legal or
regulatory
policies or
requirements
■■
■■
Inability
to secure
underwriting
on acceptable
terms or an
increase in
the price of its
underwriting
Section 01 – Investment overview
■■
■■
For more
information
Demand for the insurance products that Greenstone distributes
is influenced by a number of macro-economic and demographic
factors and consumer preferences. Greenstone’s revenue or
profitability may be adversely impacted if macro-economic
conditions or favourable demographic factors deteriorate which
adversely impact the demand for insurance products distributed by
Greenstone or consumer preferences move away from the insurance
products Greenstone distributes.
Section 5.2.4
Greenstone’s business depends on the effectiveness of its marketing
spend and its ability to generate leads.
Section 5.2.5
Maintaining and improving the effectiveness of its advertising
and marketing campaigns relative to those of competitors are
particularly important given the significance of marketing to
generating leads in the direct insurance and online comparison
services markets.
If Greenstone’s campaigns are unsuccessful or are less effective than
those of competitors or if prices paid by Greenstone for advertising
rise or if Greenstone websites’ search engine rankings decline, the
volume of products sold by Greenstone could decline, which would
adversely impact Greenstone’s revenue and profitability.
Any changes to laws, regulations or government policies may
adversely impact Greenstone’s revenues or profitability by
increasing the cost of regulatory compliance, restricting the
products or services Greenstone may sell, the markets it may enter,
the methods by which it may sell its products and services, or the
prices it may charge for its services and the form of agency revenues
and fees it may accept from its customers, Insurance Carriers and
other partners.
Section 5.2.6
Similarly, if Greenstone fails to comply with applicable laws or
regulation, it may be subject to penalties that adversely impact the
profitability of Greenstone.
Greenstone is engaged in the design, pricing, marketing,
distribution and administration of insurance policies and derives
revenues from payments by Insurance Carriers for these activities.
If any of Greenstone’s Insurance Carriers terminate their
arrangements with Greenstone, or do not renew, or renew on less
favourable terms, and Greenstone is unable to secure alternative
underwriting on terms which are comparable to its current
arrangements, this may adversely affect Greenstone’s revenue
and profitability.
Section 5.2.7
17
18
Section 01 – Investment overview
Topic
Summary
Failure to renew
distribution
agreements
with key
Affinity Brand
Partners
Core
systems and
technologies
suffer
technological
disruption,
become
outdated
or cease to
function
efficiently
1.5
Greenstone Limited Prospectus
■■
■■
■■
■■
■■
A significant amount of Greenstone’s insurance product sales
relate to insurance products that are co-branded through licensing
agreements with partners including Medibank, Woolworths
and RSPCA.
For more
information
Section 5.2.8
These arrangements are typically on five year terms and under
some circumstances may be terminated. If Greenstone fails to
renew one or more of its distribution agreements with key Affinity
Brand Partners, this may adversely impact Greenstone’s revenue
and profitability.
Greenstone’s ability to distribute its insurance products depends
on the efficient and uninterrupted operation of its core systems
and technologies.
Section 5.2.9
There is a risk that Greenstone’s core systems and technologies
could be exposed to damage or interruption from systems failures,
computer viruses, cyber-attacks, power or telecommunications
providers’ failures, fire, natural disasters, terrorist acts, war or
human error.
Greenstone’s growth is also dependent on the success of
its proprietary technology and analytics system. There is a
risk that Greenstone’s various optimisation platforms fail to
accurately generate lead data or fail to deliver targeted levels
of lead conversion which would affect Greenstone’s revenue
and profitability.
Directors and senior management
Topic
Who is on the
Board?
Summary
■■
Rick Lee (Independent Chairman)
■■
Mark Reid (Managing Director and CEO)
■■
Richard Enthoven (Non-Independent Non-Executive Director)
■■
Andrew Kearnan (Non-Independent Non-Executive Director)
■■
■■
Samantha (Sam) Lewis (Independent Non-Executive Director, Chair
of the Audit and Risk Management Committee)
Nancy Milne (Independent Non-Executive Director, Chair of the
Remuneration, Organisation and Nomination Committee)
In addition, the Directors intend to appoint an additional Independent
Non-Executive Director prior to the 2015 annual general meeting.
For more
information
Section 6.1
Greenstone Limited Prospectus
Topic
For more
information
Summary
Who is on the
Greenstone
senior
management
team?
■■
Mark Reid (Managing Director and CEO)
■■
Derrick Jones (CFO)
■■
Brenard Grobler (Chief Commercial Officer)
■■
Christian Gostelow (Chief Information Officer)
■■
Ian Rakhit (General Manager, Sales)
■■
■■
1.6
Section 01 – Investment overview
Section 6.2
John Roche (General Manager, Legal, Compliance, Governance
and Risk)
Blazenka Skender (General Manager, People and Culture)
Significant interests of key people and related party transactions
For more
information
Topic
Summary
Who is the
Existing
Shareholder
and what will
be its interest at
Completion of
the Offer?9
The sole Existing Shareholder is Hollard Investments B.V. The details
of the ownership of Shares on Completion of the Offer are set out
below. The figures set out below assume no shares are over-allocated
(see Section 7.8) and exclude any shares acquired by the Directors
under the Offer.
Shares held
prior to the
Offer (m)
Hollard
Investments
B.V.
(Netherlands)
Section 7.3
Shares held Shares held
following
following
Shares
the
the
Shares held
aquired/ Completion Completion
prior to the
(sold) in of the Offer of the Offer
Offer (%) the Offer (m)
(m)
(%)
481.1
100.0
(261.8)
219.3
31.7
Novatrust
Limited as
trustee for the
Casey Trust
–
–
73.1
73.1
10.6
Management
and Board
–
–
2.8
2.8
0.4
Investors in the
Offer
Total
–
–
395.8
395.8
57.3
481.1
100.0%
209.9
691.0
100.0%
9. Shareholding levels and percentages are based on the assumption that the Final Price is at the mid-point of the Indicative Price Range.
19
20
Section 01 – Investment overview
Topic
What significant
benefits and
interests are
payable to
Directors and
other persons
connected with
the Company or
the Offer?
Greenstone Limited Prospectus
For more
information
Summary
Directors, key executives and other persons
Rick Lee
Mark Reid
Richard Enthoven
Andrew Kearnan
Sam Lewis
Nancy Milne
Total
Shares
held prior
to the
Offer
Section 6.5
Shares
held on
Listing (m)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
2.2
Nil
Nil
Nil
Nil
2.2
The above table is based on the assumption that the Final Price is at
the midpoint of the Indicative Price Range.
■■
■■
The Directors are entitled to apply for Shares under the Offer. The
above table does not take into account any Shares the Directors
may acquire under the Offer. The actual number of Shares that
Mark Reid will hold will depend on the Final Price as set out in
Section 6.5.1.
Directors and key executives are entitled to remuneration and fees
on commercial terms.
In addition:
■■
■■
■■
■■
Mark Reid will receive a payment of $533,700 pursuant to the
close out of legacy incentive arrangements in respect of FY15 and
will receive a payment of $15,530,000 pursuant to an entitlement
under Mark’s previous employment agreement to be funded by the
Existing Shareholder. Mark will use a portion of these payments to
subscribe for Shares in the Company at the Final Price and those
Shares will be subject to disposal restrictions. Further detail is set
out in Section 6.5.1.
Other members of the Executive Leadership Team will be entitled
to receive payments pursuant to the close out of legacy incentive
and bonus schemes and pursuant to IPO bonuses as set out in
Sections 6.5.2 and 6.5.3.
Andrew Kearnan will, in the event of Listing, receive a one-off
bonus of $351,000 as set out in Section 6.5.4.
Advisers and other service providers are entitled to fees for services
as set out in Section 6.4.
Greenstone Limited Prospectus
Topic
Summary
What are
the interests,
benefits and
related party
transactions
of the Existing
Shareholder?
■■
■■
■■
1.7 Section 01 – Investment overview
The Existing Shareholder will retain a 31.5% to 31.9% interest in
Greenstone on Completion of the Offer.10
For more
information
Section 6.6
The Existing Shareholder has entered into a non-compete
agreement with Greenstone (subject to carve-outs for the pet
insurance business conducted by Hollard) for three years in
Australia. Gavin Donnelly (the co-founder and former CEO of
Greenstone Financial Services) has also entered into a non-compete
agreement with Greenstone for three years in Australia.
Greenstone and its subsidiaries have entered into a number of other
transactions with entities associated with the Existing Shareholder,
which are detailed in Section 8.5.4.
Details of the Offer
Topic
Summary
For more
information
What is the
Offer?
The Offer is an initial public offering, comprising:
Section 7.8
■■
■■
the offer of 131.9 to 143.0 million New Shares by Greenstone Ltd
(ACN 075 949 432); and
the sale of 261.8 million Existing Shares by Greenstone SaleCo Pty
Ltd (ACN 605 588 010).11
The Shares to be issued or transferred under the Offer will represent
57.4% to 58.0% of the Shares on issue following Completion of
the Offer.
The Company and SaleCo, in consultation with the Joint Lead Managers,
may over-allocate up to 60.7 million additional Shares to Institutional
Investors under the Institutional Offer12
All Shares issued or transferred under this Prospectus will, from the
time they are issued or transferred (as applicable), rank equally with
all Existing Shares.
All Shares will be issued at, or transferred for, the Final Price.
10. Based on the Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
11. Based on the Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
12. Based on the Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
21
22
Section 01 – Investment overview
Topic
Why is the
Offer being
conducted?
For more
information
Summary
Section 7.3
The Offer is being conducted to:
■■
■■
■■
■■
■■
How will the
proceeds of the
Offer be used?
Greenstone Limited Prospectus
provide the Existing Shareholder with an opportunity to realise part
of its investment in the Company;
fund the acquisition of all outstanding rights and options over
shares in Greenstone Financial Services;
pay Offer costs, legacy incentive scheme settlement costs and
acquisition consideration for the Australian Seniors Insurance
Agency brand;
provide the Company with access to capital markets; and
provide a liquid market for the Shares and an opportunity for new
shareholders to invest in the Company.
Sources of funds
$m
%
Proceeds received
from the sale of
Existing Shares
by SaleCo
589.1
65.7
Proceeds received
from the issue of
New Shares by
Greenstone
307.9
34.3
Total sources
of funds
896.9 100.0%
Use of funds
$m
%
58.1
6.5
589.1
65.7
Acquisition of
outstanding rights
and options over
shares in Greenstone
Financial Services net
of the subscription
by Novatrust Ltd
as trustee for the
Casey Trust
249.8
27.8
Total uses of funds
896.9 100.0%
Payment of costs of
the Offer, acquisition
consideration for the
Australian Seniors
Insurance Agency
brand and other
costs by Greenstone
Payment of proceeds
to the Existing
Shareholder
Section 7.3
The Offer is expected to raise $809.7 to $984.2 million. The above table
details the sources of funding (including the proceeds of the Offer) and
the uses of those amounts. The figures set out above assume no Shares
are over-allocated (see Section 7.8).
Who are the
issuers of this
Prospectus?
Greenstone Ltd (ACN 075 949 432), incorporated in New South Wales,
and Greenstone SaleCo Pty Ltd (ACN 605 588 010) incorporated
in Victoria.
Section 8
Greenstone Limited Prospectus
Section 01 – Investment overview
For more
information
Topic
Summary
What is SaleCo?
SaleCo is a special purpose vehicle established to sell Shares acquired
from the Existing Shareholder. The Existing Shares which SaleCo
acquires from the Existing Shareholder will be transferred to successful
Applicants at the Final Price, along with the New Shares issued by
the Company.
Section 8.3
What is the
Over-allocation
Option?
The Over-allocation Option is the option granted by SaleCo, in
consultation with the Joint Lead Managers, to over-allocate up to
an additional 60.7 million Shares to Institutional Investors under the
Institutional Offer at the Final Price.
Section 7.8
A full allocation of the Over-allocation Option would result in the
issue and transfer of 452.7 to 465.6 million Shares at the Indicative
Price Range.
What are overallocations and
what is market
stabilisation?
The Company and SaleCo, in consultation with the Joint Lead
Managers, may over-allocate up to 60.7 million Shares to Institutional
Investors under the Institutional Offer.
Section 7.8
If Shares are over-allocated, the Stabilisation Manager will initially
satisfy these over-allocations by borrowing an equivalent number of
Shares from SaleCo. Ultimately, the over-allocations (or any borrowings
undertaken to satisfy the over-allocations) are expected to be
satisfied by:
■■ requiring SaleCo to transfer Shares at the Final Price under the
Over-allocation Option; or
■■
■■
purchasing Shares on the ASX at or below the Final Price once ASX
trading in the Shares commences; or
a combination of these means;
any time within the period of up to 30 days following Listing.
The purchase of Shares on the ASX during that period is referred
to as “market stabilisation”. Such purchases may have the effect of
stabilising the trading price for Shares on the ASX in circumstances
where the trading price is at or below the Final Price. There is no
guarantee that the trading price of Shares will not drop below the
Final Price (even if the Stabilisation Manager undertakes market
stabilisation).
What is the
Indicative Price
Range and what
are the key
Offer metrics?
Indicative Price Range
Total number of Shares offered under
this Prospectus
Total number of Shares on issue following
Completion of the Offer
Market capitalisation at the Indicative
Price Range
Enterprise value
Enterprise value/pro forma FY16 forecast EBITDA
Indicative Price Range/FY16 NPAT per Share
Gross proceeds from the Offer
Forecast dividend yield for final FY16 dividend
$2.00 – $2.50 per Share
398.6 million
691.0 million
$1,396.1 – $1,713.5 million
$1,499.9 – $1,817.3 million
10.9x – 13.2x
15.5x – 19.0x
$809.7 – $984.2 million
2.1% – 3.6%
Section 7.1
23
24
Section 01 – Investment overview
Topic
Summary
How is the Offer
structured?
The Offer comprises:
■■ the Retail Offer, consisting of:
——
——
——
■■
Greenstone Limited Prospectus
For more
information
Section 7.2
the Broker Firm Offer, which is open to retail clients of
participating Brokers who have received a firm allocation from
their Broker and who have a registered address in Australia
or New Zealand;
the Priority Offer, which is open to select investors in certain
eligible jurisdictions who have received a Priority Offer
invitation; and
the General Employee Retention Plan Offer, which is open to
Eligible Participants who have received an offer from Greenstone
to acquire, at no cost, the number of Performance Rights
(rounded down to the nearest whole Performance Right) equal
to $500 divided by the Final Price; and
the Institutional Offer, which consists of an offer to Institutional
Investors in Australia, New Zealand and certain other eligible
jurisdictions to apply for Shares.
No general public offer of Shares will be made under the Offer.
Is the Offer
underwritten?
The Offer is not underwritten.
Section 7.1
Are there any
voluntary
escrow
arrangements?
Yes.
Section 7.9
Will the Shares
be quoted?
■■
■■
Greenstone will apply for admission to the Official List and
quotation of Shares on the ASX (which is expected to trade under
the ticker GRS). It is expected that quotation will initially be on a
conditional and deferred settlement basis.
Completion of the Offer is conditional upon the ASX approving this
application. If approval is not given within three months after such
application is made (or any longer period as permitted by law), the
Offer will be withdrawn and all Application Monies received will
be refunded (without interest) as soon as practicable in accordance
with the requirements of the Corporations Act.
Section 7.4
Greenstone Limited Prospectus
Topic
What is the
allocation
policy?
Summary
■■
■■
■■
What is the
minimum and
maximum
Application
size?
■■
■■
■■
■■
When are the
Shares expected
to commence
trading?
Can the Offer
be withdrawn?
Section 01 – Investment overview
■■
■■
■■
■■
■■
The allocation of Shares between the Institutional Offer and the
Retail Offer (and between the components of the Retail Offer
i.e. the Broker Firm Offer, Priority Offer and General Employee
Retention Plan Offer) will be determined by the Company, SaleCo
and the Joint Lead Managers having regard to the allocation policy
outlined in Section 7.7.4 and Section 7.3.
For more
information
Section 7.7.4
and Section 7.3
With respect to the Broker Firm Offer, allocations among each
Broker’s retail clients will be at the discretion of the relevant Broker.
The Company, SaleCo and the Joint Lead Managers have absolute
discretion regarding the allocation of Shares under the Offer and
may reject an Application or allocate fewer Shares than applied for,
in their complete discretion.
Broker Firm Offer: The minimum and maximum Application under
the Broker Firm Offer is as directed by the Applicant’s Broker.
Section 7.4
Priority Offer: Applications under the Priority Offer must be for a
minimum of $2,000 worth of Shares and in multiples of $100 worth
of Shares thereafter.
General Employee Retention Plan Offer: Applicants under the
General Employee Retention Plan Offer are invited to apply for up
to a number of Performance Rights equal to $500 divided by the
Final Price, at no cost and subject to a vesting period of 12 months
based on continuing employment.
Greenstone, SaleCo and the Joint Lead Managers reserve the right
to reject any Application or to allocate a lesser number of Shares
than that applied for, in their absolute discretion.
The Shares are expected to commence trading on the ASX on
a conditional and deferred settlement basis on 16 June 2015.
Section 7.4
The Shares are expected to commence trading on the ASX on
a normal settlement basis on 23 June 2015.
Greenstone and SaleCo reserve the right not to proceed with the
Offer at any time before the issue of New Shares or transfer of
Existing Shares to successful Applicants.
If the Offer does not proceed, all relevant Application Monies will
be refunded.
No interest will be paid on any Application Monies refunded as
a result of the withdrawal of the Offer.
Section 7.12
25
26
Section 01 – Investment overview
Topic
How can I
apply?
Summary
■■
■■
■■
■■
■■
Is there any
brokerage,
commission
or stamp duty
payable by
Applicants?
What are the
tax implications
of investing in
the Shares?
When will
I receive
confirmation
that my
Application was
successful?
Where can I
find out more
information
about this
Prospectus or
the Offer?
Greenstone Limited Prospectus
■■
■■
■■
■■
■■
■■
■■
If you are an eligible investor under the Priority Offer, you may only
apply for Shares online at www.greenstone.com.au using the online
Application Form and paying Application Monies via BPAY (no
physical Application Form is required). Further instructions are set
out on the online Application Form.
For more
information
Section 7.5 and
Section 7.7
If you are an Eligible Participant under the General Employee
Retention Plan Offer, you may apply for Performance Rights in
accordance with the invitation to participate from Greenstone.
If you are making an Application under the Broker Firm Offer,
you should follow the instructions provided to you by your Broker.
If you are an Institutional Investor, separate instructions in relation
to the Institutional Offer will be provided to you by the Joint
Lead Managers.
To the extent permitted by law, an Application is irrevocable.
No brokerage, commission or stamp duty is payable by Applicants
on acquisition of Shares under the Offer.
Section 7.11
The tax consequences of any investment in the Shares will depend
upon an investor’s particular circumstances. Shareholders may be
subject to Australian income tax or withholding tax on any future
dividends paid. Applicants should obtain their own tax advice
prior to deciding whether to invest in Shares.
Section 8.8
It is expected that initial holding statements will be despatched
by priority post on or about 22 June 2015.
Section 7.4
Refunds to Applicants, who make an Application and are scaled
back, will be made as soon as possible post Settlement. The refunds
are expected to occur on or about 22 June 2015.
No refunds will be made where the overpayments relate solely
to rounding at the Final Price.
Please call the Greenstone Offer Information Line on 1800 285 677
(toll free within Australia) or +61 1800 285 677 (outside Australia)
from 8.30am until 5.30pm (AEST), Monday to Friday.
If you are unclear in relation to any matter or are uncertain as to
whether Greenstone is a suitable investment for you, you should
seek professional guidance from your solicitor, stockbroker,
accountant or other independent and qualified professional
adviser before deciding whether to invest.
Section 7.4
Greenstone Limited Prospectus
INDUSTRY OVERVIEW
02
Section 02 – Industry overview
27
28
Section 02 – Industry overview
Greenstone Limited Prospectus
INDUSTRY OVERVIEW
2.1Introduction
Greenstone primarily operates within the direct channel for the supply of personal insurance products
in Australia. Within this sector, Greenstone focuses on the design, pricing, marketing, distribution and
administration of insurance products. Greenstone’s competitors in this channel typically underwrite the claims
risk for insurance products. Greenstone is differentiated in this regard, as it is not an insurance carrier. All
claims risk associated with the policies it sells are underwritten by third party insurers. Table 1 below provides a
summary of the key activities involved in the supply of insurance products in Australia.
In addition, Greenstone operates within the online comparison website channel through its 100%-owned
website, Choosi, which enables customers to compare product pricing and features for multiple products across
a limited number of providers, including life, pet and private health insurance products. It also allows customers
to buy these products directly or through third party channels. More recently, Choosi has expanded its product
comparison to include home and contents and car insurance.
Table 1: Activities involved in the supply of insurance products in Australia
Industry value
chain
Does Greenstone
participate in this
activity?
Description of
Greenstone’s
activities
Product
design and
pricing
Marketing
and
Brands
Distribution
Administration
Capital and
underwriting
risk
✓
✗
✓
✓
✓
Design of product
features and
underwriting
processes, in
collaboration
with Insurance
Carriers, based on
target market
Generate leads
and enquiries
with respect to
insurance product
offering through
Proprietary
Brands and
Affinity Brands
Completes sales
and underwriting
process through
sales agents via
an in-house call
centre or via
straight-through
processes online
Manages
customer
interaction
during insurance
coverage period,
including claims
management,
customer service
and customer
retention
Greenstone bears
no claims risk
for insurance
products
Section 2.2 provides an overview of the channels for supply of insurance products in Australia, including the
direct and online comparison website channels.
This section also provides an overview of the life insurance (see Section 2.3), pet insurance (see Section 2.4)
and private health insurance (see Section 2.5) markets, which are the main insurance products that Greenstone
focuses on. These sections highlight the high levels of historical growth across these respective markets.
Section 2.6 provides an overview of the regulatory environment facing participants in the sector for the supply
of insurance products in Australia.
2.2
Insurance product distribution channels
Insurance products can be sold to retail customers in Australia through the direct channel (see Section 2.2.1),
online comparison websites (see Section 2.2.2) or the indirect channel (see Section 2.2.3).
Within these channels, Insurance Carriers that underwrite the claims risk will:
■■
■■
■■
design or, in some cases, approve the design of insurance products and underwriting processes with features
and characteristics based on a customer base or target market and their needs;
use a range of different marketing methods tailored by channel to promote their insurance
product offering; and
offer a range of different methods (such as through advisers and brokers, call centres and websites) for
customers to apply for cover.
Greenstone Limited Prospectus
Section 02 – Industry overview
29
Table 2 shows a summary of the direct, online comparison website and indirect channels.
Table 2: Comparison of channels for insurance products
Indirect channel
Direct channel
Customer base/
target market
Advice provided
Marketing
methods
Distribution
■■
■■
Mass market
Advisers and
brokers
■■
Mass market
■■
Mass market
■■
High net worth
■■
High net worth
■■
High net worth
■■
General advice
■■
■■
Online
■■
Online
■■
■■
Telephone
■■
Television/radio
■■
Direct mail
■■
Email
■■
Branch
■■
Television/radio
■■
Online
■■
Call centre
■■
■■
■■
Physical
branches
Simple to
understand
Convenient to
buy
Flexible
■■
■■
Lead
generation
model
■■
End-to-end
model
Proprietary
products
and/or third
party products
aggregated
for comparison
purposes
Superannuation
Mass market
General advice
■■
Bancassurance
■■
■■
■■
Product features
Mass market
Online
comparison
websites
■■
■■
Predominantly
personal advice
Aligned and
independent
advisers and
brokers
Intermediaries
(e.g. brokers or
financial
planners)
Comprehensive
Can be tailored
for personal
circumstances
■■
■■
Personal and
general advice
Aligned advisers
and brokers
■■
■■
■■
■■
■■
■■
■■
Bank
branches
Intermediaries
(e.g. brokers
or financial
planners)
Comprehensive
Can be tailored
for personal
circumstances
■■
■■
■■
■■
Predominantly
general advice
Avisers and
brokers
Aligned
superannuation
funds
Superannuation
funds
Intermediaries
(e.g. brokers or
financial
planners)
Comprehensive
Can be tailored
for personal
circumstances
Life insurance products1
Term life
✓
✓
✓
✓
✓
Income
Protection
✓
✓
✓
✓
✓
Funeral
✓
✓
✓
✗
✗
Other insurance products1
Pet
✓
✓
✗
✗
✗
Private Health
✓
✓
✗
✗
✗
Note:
1. Includes products focussed on by Greenstone.
30
Section 02 – Industry overview
2.2.1
Greenstone Limited Prospectus
Direct channel
The direct channel involves selling insurance products directly to retail consumers without the use of
intermediaries, and on a general advice basis (rather than personal advice basis). General advice does not take
into account the particular circumstances of the consumers, such as their objectives, financial situation and
needs. As a result, the direct channel requires consumers to develop their own understanding of whether the
insurance product they are purchasing is appropriate for their own personal circumstances. Simple, easy to
understand products, online information and tools, and the ability to compare products offered by different
brands are increasingly improving consumer awareness and understanding of the insurance products offered
through the direct channel sector.
Most participants in the direct channel directly underwrite the insurance products that they sell and accordingly
also design those insurance products’ underwriting processes. However, Greenstone does not underwrite
the claims risk on the policies it distributes, enabling it to focus on product design, pricing, distribution and
marketing. Instead, Greenstone partners with Insurance Carriers, who provide capital and underwrite claims risk
on those policies. As part of Greenstone’s partnership with those Insurance Carriers, it is involved in the design
of the insurance products it distributes and their associated underwriting processes.
Direct channel participants will generally manage the complete interaction with consumers in regards to
the sale and underwriting process. In addition, they also maintain the full relationship with the consumer
throughout the life of the insurance policy (including both managing claims and conducting everyday policy
administration activities such as customer enquiries, claims management and retention).
■■
In addition to designing and offering simple insurance product offerings as well as managing the customer
relationship, key features of the direct channel include:
■■
simplified, easy to understand products;
■■
importance of strong brands to achieve market penetration;
■■
relatively short underwriting time frames compared to those in the intermediated channel;
■■
ability to process large volumes of sales volumes with low marginal underwriting process costs; and
■■
data analytics capabilities to improve lead generation and customer retention.
These features allow direct distributors to market and distribute more effectively to certain targeted segments
of the broader population.
Methods to produce leads and sales for insurance products in the direct channel include:
■■
■■
■■
Inbound leads: Potential leads can be generated by television and radio advertisements, infomercials or,
increasingly, other digital or online mediums including online comparison websites, search engines and social
media. Resulting leads will generally come through to a call centre (in-house or outsourced) and require a
sales agent to complete the sale of the insurance product over the telephone, which can sometimes require
repeated customer interaction before sale completion;
Direct online sales: Increasingly, but currently to a much lesser extent, retail consumers are able to purchase
insurance products directly from a product provider’s website without the need for the applicant to contact
an intermediary or call centre before a sale can take place. This is referred to as straight-through processing.
Direct online sales are more common for pet and private health insurance products; and
Outbound leads: Potential leads can also be generated via Affinity Brand Partners’ customer lists or call lists
sourced from third parties or via outbound direct mail campaigns. In these approaches, potential applicants
are identified and selected as a result of demographics, data mining and customer analytics that indicate a
potential interest in the relevant insurance product. Direct mail generates leads for inbound telephone sales
or direct online sales.
Greenstone Limited Prospectus
2.2.2
Section 02 – Industry overview
31
Online comparison websites
Online comparison websites provide general advice and enable customers to compare product pricing and
features for multiple products across a limited number of providers. For insurance products, the online
comparison website sector allows customers to compare product pricing and features of certain brands across
a range of categories including health, term life, funeral, income protection, pet, travel, car, and home &
contents insurance.
Key attractions of online comparison websites for customers include: helping customers to make more informed
choices, simplifying complex information about insurance products, saving time and helping customers make
more efficient choices, and providing access to consumer reviews.
Unlike the direct channel, online comparison websites generally do not design insurance products and,
depending on the insurance product and business model, generally do not represent all brands in a particular
product category and therefore provide the comparison tool only for the represented brands and may or may
not manage the complete relationship with the customer, process claims or provide administration activities.
Other key features of participants operating in the online comparison website sector include:
■■
brand recognition of the online comparison website to attract users, built through marketing capabilities;
■■
importance of strong insurance brands featured;
■■
breadth and diversity of brand representation;
■■
ability to process large sales volumes; and
■■
data analytics capabilities to improve lead generation and customer retention.
Growth in this sector has historically benefited from growing internet usage and an increasing willingness of
consumers to compare product offerings and transact online. According to the Financial System Inquiry (FSI),
Australians shop online for insurance more than Americans or Europeans1 and two-thirds of Australians who
access the internet have used online comparison services2.
This increasing willingness to transact online has also been reflected in a broader trend of increased online
shopping in Australia. Market research found that there has been a steady rise in online shopping expenditure
by Australians and this was expected to continue to increase, with Australian online shopping expenditure
predicted to be $26.9 billion by 2016, up from $13.6 billion in 20113.
Online comparison websites generally require strong brand recognition to attract users. This may be achieved
through television, radio, magazine and newspaper and other forms of traditional advertising as well as digital
or online advertising such as search engines and social media.
Distribution of insurance products through this channel can occur under one of two main business models, or
a combination of both:
■■
■■
Lead generation model: The online comparison website is used as a platform to generate leads for the
product providers. For instance, the online comparison website may include a link to the product provider,
encourage the consumer to contact the product provider directly (online or by phone), or collect the
consumer’s details for the product provider to contact them directly. Lead generation comparison websites
will typically receive a fee from the product provider based on the number of leads or calls generated to the
product provider; and
End-to-end model: The online comparison website is used to directly sell products to customers on behalf
of the product provider. Sales can be direct (see Section ) or through a call centre. Operators of end-to-end
model websites tend to invest more effort in seeking to convert a contact to a sale. End-to-end comparison
websites typically receive commission fees from the product provider for each successful sale, with the
commission either paid upfront, through a series of trailing commissions or a combination.
1. Financial System Inquiry, 2014.
2. Financial System Inquiry, 2014.
3. PricewaterhouseCoopers and Frost & Sullivan, ‘Australian and New Zealand online shopping market and digital insights’, July 2012.
32
Section 02 – Industry overview
Greenstone Limited Prospectus
Choosi’s key competitors are iSelect and Compare the Market, who Greenstone estimates are the leading online
comparison websites in Australia. Prior to the entry to the market of iSelect in 2000, there was no significant
online-driven presence in the Australian private health insurance distribution market.
2.2.3
Indirect channel
The indirect channel is comprised of insurance products sold to consumers using intermediaries. Within the
indirect channel, there is a range of ways to market and sell insurance products to customers, including:
■■
■■
■■
Advisers and brokers: Insurance carriers offer products through financial advisers, including insurance
agents and brokers. Intermediaries may offer insurance products from either a single insurance carrier on
an exclusive basis or multiple insurance carriers on an independent basis. Intermediaries will often provide
a personal advisory service to consumers, meaning that the level of cover is tailored to a consumer’s personal
needs and situation;
Bancassurance: Insurance carriers may also sell products through a partnership with a bank, referred to as a
bancassurance partnership. This enables the insurance carrier to leverage the bank’s existing customer base
in order to sell insurance products; and
Superannuation funds: In Australia, under the MySuper laws, all APRA-regulated superannuation funds have
been required to offer basic levels of life insurance coverage to their members on an opt-out basis since July
2013. Superannuation funds typically only provide a basic level of cover as their default opt-out option.
The key differences between the direct and indirect channels are the level of face-to-face consumer
engagement, the type of advice provided, and the fee or commission structure. The indirect channel often
involves the provision of personal advice (especially with regard to advisers and brokers and bancassurance
segments), which requires the adviser to consider the potential consumer’s personal objectives, financial
situation and needs. As a result, the interaction with a consumer prior to any sale is generally longer in the
indirect channel than under the direct channel and online comparison websites. While the intermediary may
seek to assist the consumer following the sale of any insurance product, the insurance carrier underwriting
the insurance policy will generally have primary responsibility to manage any future claims and other
administration activities.
2.3
Life insurance
Life insurance provides protection against financial hardship that arises from death, permanent disability and
major illness or injury with loss of household income a common effect of such life events. The key life insurance
products that Greenstone focuses on are term life, income protection and funeral insurance.
2.3.1
Key life insurance products
2.3.1.1 Term life
Term life insurance is the most common life insurance product and generally provides a lump sum payment to
a nominated beneficiary in the event of death. Some term life insurance policies may also provide payment in
the event of serious illness or total and permanent disablement of the insured person. The insured person pays
premiums to the life insurer in periodic instalments over the term of the policy, with products subject to full
underwriting, limited underwriting or no underwriting:
■■
■■
Full underwriting: requires a range of underwriting questions to be asked at the time of application and the
underwriting assessment process to be completed upon application;
Limited underwriting: requires the applicant to answer a few health and lifestyle questions through
a short form questionnaire. The purpose is to identify whether they have any health issues or engage
in any dangerous occupations or pastimes that prevent the insurer from accepting the applicant on
standard terms; and
Greenstone Limited Prospectus
■■
Section 02 – Industry overview
33
No underwriting: requires only basic personal information to be provided on application and cover
commences immediately. However, risks to the Insurance Carrier are mitigated through the imposition of
exclusions (such as pre-existing conditions) or through accident-only cover for the initial period of coverage.
In addition, products with no underwriting have relatively low maximum cover levels.
2.3.1.2 Income protection
Income protection insurance products provide a monthly income benefit in the event that the insured person
suffers from a temporary disabling sickness or injury that results in a loss of income. This payment recurs over
the agreed benefit period. An alternative income protection product that has emerged is bill cover, which pays
a monthly amount over a short period of time to assist with covering the cost of short term living expenses
(generally a period of between six months and two years) if the insured person suffers from a temporary
disabling sickness or injury.
2.3.1.3Funeral
Funeral insurance products provide a lump sum payment to an insured person’s nominated beneficiary to
help cover funeral and other costs associated with the death of the life insured, such as the funeral, body
transportation and cremation; however, the benefit amount paid could be used for any final expenses. The
insured person pays premiums to the life insurer in periodic instalments over the term of the policy.
Funeral insurance products are generally available to those aged between 18 and 79; however, many are
specifically targeted at older consumers. The sum insured is typically much lower than for traditional life
insurance products because it is not intended to provide long-term financial support for dependants, but rather
to ensure no cash flow shortages occur around the time of death.
2.3.2
Key trends and outlook for life insurance
2.3.2.1 Premium growth
Total Australian life in-force premiums have grown at a CAGR of 10.9% from 2009 to 2014 and DEXX&R
forecasts that the premiums will continue to grow at a CAGR of 11.0% from 2014 to 2019. This strong growth is
underpinned by:
■■
■■
■■
■■
Real economic growth: As the general economy grows and individuals become wealthier and accustomed to
higher living standards, the sum insured becomes larger and there are corresponding premium increases in
line with sums insured;
Consumer Price Index (CPI)-based inflation: Life in-force premiums are index-linked to inflation. As such,
inflation drives nominal annual increases in life in-force premiums;
Population growth: The Australian population has grown by an average of 1.3% per annum between 1992
and 2012.4 As the population grows, total life insurance policies are expected to increase; and
Ageing population: The median age of the Australian population increased by four years between 1994 and
2014.5 Further, the proportion of the population aged 65 years and older increased from 11.8% to 14.7%
over the same period.6 As premiums for older individuals tend to be higher, total premiums are growing
along with the ageing population. Age-based annual premium inflation is typically factored into life
insurance policies at the time of sale.
4. Australian Bureau of Statistics Population Projections 2012, 26 November 2013.
5. Australian Bureau of Statistics Australian Demographic Statistics 2014, 18 December 2014.
6. Australian Bureau of Statistics Australian Demographic Statistics 2014, 18 December 2014.
34
Section 02 – Industry overview
Greenstone Limited Prospectus
Figure 1 illustrates the growth in historical and forecast Australian in-force annual life insurance premiums.
Figure 1: Australian life risk product in-force annual premiums
Risk product in-force annual premiums
$bn
Historical
5 yr CAGR: 10.9%
25
Forecast
5 yr CAGR: 11.0%
21.9
19.7
20
17.7
16.0
15
10
7.8
8.6
9.4
10.4
11.6
13.0
14.4
5
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: DEXX&R Market Projections Report, November 2014. Data is for June year end.
2.3.2.2Underinsurance
Despite the growth of life insurance in Australia, Australia is underinsured in life insurance coverage relative
to that in many other developed countries. In Australia, Rice Warner estimates that as at 30 June 2013 there
was $3.9 trillion underinsurance in term life insurance, $10.8 trillion underinsurance in total and permanent
disability insurance and $0.7 trillion underinsurance in income protection insurance. This underinsurance was
estimated to cost the Australian Government $1.5 billion annually through increased welfare payments to cover
spousal benefits upon death and social security payments based on unemployment from disability or sickness.7
Historically, the key reasons for the low levels of insurance in Australia have been low levels of awareness of the
benefits, the complexity of life insurance products, lengthy approval times, the upfront costs of financial advice,
overestimating the cost of life insurance and the perception that superannuation schemes in Australia with
default levels of life insurance cover are sufficient.
This presents an ongoing opportunity for the industry to increase take-up of life insurance products by
simplifying product offerings and processes, making purchasing more convenient and educating consumers
on insurance options and the value and benefits of increasing their life insurance coverage (in particular,
highlighting the differences between default life insurance cover provided by superannuation in Australia and
alternative products that are available on a discretionary basis).
7. ‘Underinsurance in Australia 2013’ – Rice Warner. $3,927 billion of extra term life insurance cover required to maintain existing living standards in the
event of the death of a family income earner using median levels of insurance coverage. $10,793 billion of extra total and permanent disablement
(TPD) insurance required to maintain current family living standards in the event of a permanent injury or disability on a median basis. $679 billion of
extra income protection insurance required to maintain living standards in the event of an inability to receive an income on a median basis. Estimated
impact of life, income protection and TPD underinsurance on Australian Government welfare annually.
Greenstone Limited Prospectus
Section 02 – Industry overview
35
Figure 2 shows life insurance premiums in Australia as a percentage of GDP in comparison to other
OECD countries.
Figure 2: Total life insurance premiums as a percentage of GDP for OECD member countries1
0%
2%
4%
6%
8%
10%
Japan
United Kingdom
Finland
South Korea
Denmark
Portugal
Ireland
France
Sweden
Italy
Switzerland
Belgium
Netherlands
USA
Germany
Australia
Canada
Norway
Chile
Israel
Spain
Luxembourg
Austria
Czech Republic
Slovenia
Poland
Hungary
Slovakia
Mexico
Greece
NZ
Turkey
Source: Swiss Re Sigma No. 3/ 2014, ‘World Insurance in 2013’.
Note:
1. All available OECD member countries. Swiss Re does not provide data on Estonia and Iceland.
2.3.2.3 Increasing influence of the direct channel
The direct channel for life insurance has grown at a significantly higher rate than the total life insurance market
over the last five years. In part, this reflects the introduction of simple and convenient to purchase products that
have opened up new segments of the Australian population. Demographic changes in the Australian market,
consumer sophistication, improved product disclosure statements and the growing availability and use of the
internet are other drivers. As consumers become more aware of the availability of directly-distributed life
insurance products, Greenstone expects that growth in this channel will continue.
36
Section 02 – Industry overview
2.3.3
Greenstone Limited Prospectus
Overview of the direct life insurance market
2.3.3.1 Market overview
While life insurance in Australia has been traditionally and primarily distributed to consumers through the
intermediated (e.g. insurance brokers or financial advisers) and bancassurance channels, it is increasingly
being distributed through the direct channel, which has been growing substantially faster than these
traditional channels.
The direct life insurance total market premiums grew by a CAGR of 13.2% per annum between 2009 and 2014,8
compared to a CAGR of 10.9% for the total life insurance market.9 Figure 3 shows the Australian direct life
insurance market growth.
Figure 3: Direct life insurance in-force premium
$m
2009 – 2014 CAGR: 13.2%
1,400
$1,253m
$1,133m
1,200
$1,013m
$922m
1,000
$793m
800
$674m
600
400
200
0
June 2009
June 2010
June 2011
June 2012
June 2013
June 2014
Source: Plan for Life ‘Direct Life Insurance Report’ 2015.10
Typically, participants in the direct life insurance market target a broader market of potential customers,
including the mass market, compared to the traditional intermediated life insurance channel, which tends to
target the high net worth customer base.
Strong data analytics, an ability to generate customer leads, marketing and distribution efficiency are core
competencies in the direct life insurance channel. Marketing strategies for direct life products may include:
building a strong brand identity with high consumer awareness, developing unique and appealing product
features, facilitating ease of purchase, or pricing products at attractive levels. Companies operating in the direct
life insurance market distribute insurance products using their own brands or using the third party partner’s
brand (referred to as ‘white-labelled’ products).
Participants in the direct life insurance market generally take on claims risk, while other participants, including
Greenstone, do not carry any claims risk but may perform underwriting activities on behalf of their insurance
carriers in order to process the sale.
Direct life insurance products are typically simpler, have less complex features and have shorter underwriting
processes, which typically consist of pre-agreed questionnaires between the distributor and the Insurance
Carrier, that are completed online or over the phone.
8. Plan for Life ‘Direct Life Insurance Report’ 2015.
9. DEXX&R Market Projections Report, November 2014.
10. Direct risk sales and in-force data have been derived using a combination of (a) data collected from companies; and (b) best estimates of particular
companies’ statistics, where data was not provided. The outputs of the above have subsequently been provided to companies, including all of the
leading companies, within the ‘Direct Life Insurance Report’ 2015. Companies have been given the opportunity to advise any changes to estimates, if
required, or to accept the estimates. Where appropriate these changes have subsequently been made to data; this is an ongoing process which enables
the data to be reviewed by the companies and arrive at data which represents the direct risk market as accurately as possible.
Greenstone Limited Prospectus
Section 02 – Industry overview
37
Participants in the direct life insurance market may further manage this underwriting risk either for themselves
or on behalf of insurance carriers through three key methods:
■■
■■
■■
the use of automated underwriting to ensure that the initial underwriting assessment is carried out
virtually in real-time;
the design of products with exclusions to overcome selection risks and risks associated with health,
occupation and pastimes; and
the limitation of the maximum sum insured, under products such as funeral plans and simple
trauma products.
Figure 4 and Figure 5 show the split of life insurance products sold in the direct life insurance market. Consistent
with term life and funeral insurance products being relatively simple insurance products and therefore
particularly suitable for the direct channel market, they represent the largest share of the direct life insurance
in-force and new premiums.
Figure 4: Direct life insurance, by premium in-flows as
at 31 December 201411
Figure 5: Direct life insurance, by new premiums as at
31 December 201412
Term Life
47%
Term Life
36%
Funeral Cover
11%
Funeral Cover
12%
Income
Protection
6%
Income
Protection
7%
TPD
1%
TPD
1%
Trauma
6%
Trauma
6%
Mortgage
Cover
22%
Mortgage
Cover
Accidental
Death
1%
Accidental
Death
0%
Other
5%
Other
8%
30%
Source: Plan for Life ‘Direct Life Insurance Report’ April 2015.
2.3.3.2 Outlook for the direct life insurance market
Several features of the direct life insurance market are expected to help drive ongoing growth, including:
■■
■■
■■
Convenience: Purchasing financial products online and over the phone is becoming more accepted by
customers. Life insurance products are generally available either over the phone or online and with no
need to complete complex forms. Short form underwriting is undertaken over the phone or online and
can often be completed in a short time frame (e.g. 15 minutes) with no medical examination required
as opposed to the indirect life insurance channel where approval can take a few days and may require a
medical examination;
Simple products: There is no need to engage the services of a financial adviser as direct life insurance
product manufacturers and distributors have developed simple products with easy to understand features.
This means that the terms and conditions are generally shorter and simpler than those for similar products
available via financial advisers as the design of products has generally been tailored specifically to the direct
life insurance channel;
Affordability: With product pricing information now readily available either over the phone or online,
consumers have an increasing understanding of the affordability and flexibility of life insurance. New
product features and product innovation are adding to this momentum;
11. The individual items’ percentages have been rounded to the nearest whole number for ease of reference in the figure.
12. The individual items’ percentages have been rounded to the nearest whole number for ease of reference in the figure.
38
■■
■■
Section 02 – Industry overview
Greenstone Limited Prospectus
Access to and availability of information: Default life insurance provided by superannuation funds in
Australia has been a large contributor to the rise in awareness of the need for life insurance. Default
coverage under superannuation policies in Australia is generally based on basic minimum coverage and
not tailored to individual requirements. In addition, there is increasing media advertising and awareness
campaigns regarding the importance of life insurance; and
Greater consumer empowerment: With information on life insurance products being readily available either
online or over the phone, consumers have increasingly been relying on independent research to inform
purchasing decisions rather than requiring intermediaries to explain and promote the benefits of a particular
product. In many cases, this means that prospective customers will generally rely on the strong brand of the
insurer and/or distributor of the product.
2.3.4
Competitive landscape for the direct life insurance channel
Greenstone management believes that Greenstone has a top two market share in the Australian direct life
insurance distribution market. This is based on an estimated total GWP of $325 million for the direct channel in
the Australian market. Greenstone’s key competitor across term life, income protection and funeral insurance
is TAL’s direct life insurance business, InsuranceLine (TAL is a Dai-ichi Life subsidiary that commenced selling life
insurance in Australia in 1990). Greenstone management believes that there are approximately 20 additional
players in the Australian direct life market including OnePath (owned by ANZ), CommInsure (owned by CBA),
Macquarie, Allianz, Hallmark, MLC, Suncorp, St Andrew’s, AIA and BT.
Figure 6 illustrates management’s estimates of the Australian direct life insurance market positions by new gross
written premium for the 12 months ended 31 December 2014.
Figure 6: Australian new direct life market gross written premium for 12 months ended 31 December 2014
($325 million)1
TAL
31%
Greenstone
23%
Insurer 3
8%
Insurer 4
7%
Insurer 5
Insurers 6-10
7%
20%
Rest of Market
4%
TOTAL = $325m
Note:
1. Based on Greenstone management estimates and available industry data. Estimated gross written premium for the Australian direct life market is only
for products that Greenstone offers.
Establishing a significant market share in the direct life insurance market is difficult for new entrants because
of the significant investment required to develop brand recognition and leads. Furthermore, new entrants do
not have the intellectual property (including a wealth of data) and experience that both allow for effective
marketing campaigns and inform underwriting and pricing decisions, each of which provides a competitive
advantage to the leading market participants.
Greenstone Limited Prospectus
2.4
Section 02 – Industry overview
39
Pet insurance
2.4.1Overview
Pet insurance provides cover for the cost of certain health treatments for pets, including veterinary or specialist
treatments for accidents, illnesses or preventative care. Generally, pet insurance products in Australia offer the
following levels of coverage:
■■
accident cover;
■■
accident and illness cover; or
■■
accident, illness and ‘routine care’ cover.
Pet insurance in Australia is primarily for cats and dogs. As at 31 December 2013, there were approximately
7.5 million cats and dogs owned as pets in Australia. In total, an estimated $8 billion is spent on all pets in
Australia annually.13
Figure 7 shows that the number of pet insurance policies of PetSure (an agent of and 50% owned by The
Hollard Insurance Company Pty Ltd, which underwrites the pet insurance risk) increased at a CAGR of 48.4%
between 2009 and 2014.14 PetSure is the leading administrator of pet insurance in Australia with a dominant
market share. PetSure estimates that it controls 80% of the Australian pet insurance market,15 with PetPlan
(underwritten by Allianz) the only other administrator of pet insurance in Australia. In total, over $200 million
was spent on pet insurance in Australia in 2014.16
The competitive landscape for pet insurance distribution (including Greenstone) is discussed in Section 2.4.3.
Figure 7: PetSure number of policies in Australia
$’000
2009 – 2014 CAGR: 48.4%
250
230
Number of policies
200
180
150
130
86
100
52
50
0
32
2009
2010
2011
Source: Based on data provided by PetSure.
13. Estimated in 2013 by the Animal Health Alliance (Pet Ownership in Australia 2013).
14. Based on data provided by PetSure.
15. Based on data provided by PetSure.
16. Based on data provided by PetSure.
2012
2013
2014
40
Section 02 – Industry overview
2.4.2
Greenstone Limited Prospectus
Key features and outlook for the pet insurance market
The Australian pet insurance market is a large and growing market with attractive market fundamentals.
Table 3 outlines the key fundamentals supporting this growth.
Table 3: Fundamentals of the pet insurance market
Factor
Description
Humanisation and greater
expenditure per pet
Over the past two generations, improvements in pet hygiene, including
effective flea and tick medication, have allowed pets to move from the
backyard into the home. This has made the household pet a more integral
part of the family, with increased emotional attachment between pet owners
and their pets. Based on a survey conducted by the Animal Health Alliance,
approximately 70% of pet owners reported that the primary reason that they
got their pet was for companionship.17 The end result has been an increased
willingness to pay for expensive products and services for their pets, such as
premium food and veterinary care.
Increasing veterinary costs
as a result of technological
advancements in
veterinary medicine
More sophisticated (and costly) treatments such as ultrasound, radiation
therapy, MRIs, CT scans, transplants and chemotherapy are gaining wider
acceptance. The cost of diagnostic testing alone can be expensive, in part
because pets are unable to communicate their symptoms.
Low penetration of pet
insurance in Australia
It is estimated that approximately 4% of cats and dogs are covered under
a pet insurance policy in Australia.18 Munich Re estimates that the level of
penetration of pet insurance policies is higher in a number of other countries,
including the United Kingdom with a 25% penetration and Sweden with
a 40% penetration.19 This may present ongoing opportunities for the
Australian industry to increase penetration by simplifying pet insurance
product offerings and processes, improving convenience of purchase or by
educating consumers on pet insurance benefits.
Greater consumer awareness
of pet insurance
As the pet insurance market has grown and market participants have
partnered with several well-known brands such as Medibank, Woolworths
and RSPCA, the level of consumer awareness of pet insurance has
increased substantially.
17. Animal Health Alliance (Pet Ownership in Australia 2013).
18. Estimated using PetSure data for the number of insured pets and the estimate for the total number of pets in Australia by the Animal Health Alliance
(Pet Ownership in Australia 2013).
19. Data published in 2013 by Munich Re.
Greenstone Limited Prospectus
Section 02 – Industry overview
Figure 8 shows the pet insurance penetration across a number of European countries.
Figure 8: Pet insurance policies as percentage of cats and dogs
%
45
40%
30
25%
14%
15
8%
0
<1.0%
1%
Italy
Germany
5%
5%
France
Denmark
Netherlands
Norway
UK
Sweden
Source: Data published in 2013 by Munich Re.
2.4.3
Competitive landscape for pet insurance distribution
The key brands under which pet insurance is distributed in Australia are RSPCA, Prime Pet Insurance, Real
Insurance and Guardian Insurance (all controlled by Greenstone), Medibank and Woolworths (underwritten by
Hollard and administered by PetSure) and PetPlan (underwritten by Allianz).
The key differentiators for pet insurance distributors are product pricing and the strength and trustworthiness
of the brand distributing the pet insurance product. Greenstone has a strong brand portfolio, in particular
through its exclusive white-label arrangement with RSPCA, which has supported its strong and improving
market position. Greenstone had distributed 35% of PetSure’s in-force premiums as at 31 December 2014, and
approximately 45% of PetSure’s new written premiums in the year ended 31 December 2014.
41
42
Section 02 – Industry overview
2.5
Greenstone Limited Prospectus
Private health insurance
Private health insurance complements the public healthcare system by providing affordable healthcare options
and additional choice for policyholders. The benefits of holding private health insurance include coverage for a
range of healthcare services that are not covered (or only partially covered) by the public healthcare system (e.g.
dental and physiotherapy services), treatment in private hospitals or as a private patient in public hospitals, the
choice of treating medical practitioner and location and reduced waiting periods for elective surgery.
2.5.1
Key features and outlook for private health insurance
Private health insurance continues to be an attractive high growth market. In Australia, total private health
insurance premium revenue was $19.3 billion in FY14 and has increased at a CAGR of 8.1% from FY09 to FY14.
Figure 9 illustrates this strong growth in total private health insurance premiums.
Figure 9: Private health insurance premiums for 12 months to 30 June
$bn
2009 – 2014 CAGR: 8.1%
19.3
20
18.0
Premium revenue
16.7
15
13.1
14.2
15.4
10
5
0
FY09
FY10
FY11
FY12
FY13
FY14
Source: PHIAC 2014 Report and Quarterly Statistics June 2014, Based on June year end.
Participation rates are supported by Australian Government initiatives and incentives that seek to encourage
private sector participation in funding healthcare to alleviate the burden of healthcare funding on
the public sector.
Underlying growth in private health insurance is supported by a number of factors including:
■■
favourable demographic trends, including a growing and ageing population;
■■
increasing wealth per capita in Australia relative to other OECD countries;
■■
increasing utilisation and healthcare spending as a percentage of GDP; and
■■
Australian Government initiatives and incentives for the population to take out private health insurance,
including tax relief.
Greenstone Limited Prospectus
2.5.2
Section 02 – Industry overview
43
Competitive landscape for private health insurance distribution
Private health insurance products are distributed and sold through a variety of channels including:
■■
retail store networks enabling potential customers to transact in person;
■■
call centres;
■■
health insurer websites;
■■
■■
■■
online comparison websites where private health insurers may market and advertise their private health
insurance products on a website operated by third parties (that charge private health insurers a commission
for sales), and potential customers can find and compare different private health insurance products and
purchase the policy that is best suited to their needs;
arrangements and contracts with corporations, often offering discounts, subsidies and benefits
to employees; and
partnerships and alliances with other businesses to encourage cross-selling and distribution of private health
insurance products.
The competitiveness of the private health insurance market in Australia has intensified with online distribution
and the emergence of online comparison websites to compare and evaluate services and prices across
certain brands. Online comparison websites, and standardised product disclosure, have increased the level
of information available to customers, and further enhanced competition within the industry as smaller
private health insurers gain greater market exposure. This increased competition has also led to an increase
in policyholders switching private health insurers across the industry, as well as increased costs and margin
pressures on private health insurers through increased commissions paid to intermediary and online comparison
websites that support product sales.
Private health insurance is frequently sold through online comparison websites. This is driven by:
■■
■■
■■
■■
the universal access and absence of underwriting for private health insurance in Australia, making switching
between providers relatively efficient;
more price conscious consumers, as private health insurance premiums have increased to reflect the increases
in healthcare costs;
the greater ability to easily compare multiple products, given the wide range of available private health
insurance product features and pricing structures in the Australian market; and
the willingness of leading private health insurers to distribute through online comparison websites (e.g. nib
and Medibank (through its ahm brand)).
2.6
Regulatory environment
2.6.1
Overview of the regulatory framework
ASIC is the corporate regulator and requires industry participants to hold an Australian financial services licence
(AFSL) in order to advise on and deal in insurance products. An AFSL can be granted that permits personal
advice or solely for general advice. In addition, insurance carriers are regulated by APRA and are required
to maintain minimum prudential regulatory capital levels. APRA does not regulate industry participants like
Greenstone who do not bear the claims risk.
Industry participants are also subject to consumer protection regulation, which is administered by ASIC. While
new insurance products do not require regulatory approval, they have to conform to APRA requirements before
marketing; the disclosure document utilised in the distribution of these insurance products is required to be
lodged within five days of first use, with ASIC. ASIC will regularly review the insurance products distributed in
Australia, including product disclosure and sales procedures. During a review, ASIC may consult with consumers,
insurers and distributors of insurance products. ASIC could then potentially request changes such as revising
disclosure, advertising, terms, or other features related to the insurance product.
44
Section 02 – Industry overview
2.6.2
Greenstone Limited Prospectus
Industry regulatory reviews
2.6.2.1 ASIC review of the funeral insurance product
An example of ASIC’s consumer protection role was its review of funeral insurance products, which was
launched in October 2011. This review was focussed on a number of consumer concerns related to affordability
and value of the funeral insurance product, including concerns that:
■■
■■
the majority of funeral products incorporated ‘stepped premiums’ that increase over the life of
the policy; and
in some instances, the premiums paid could eventually exceed the total insured amount.
Following the review and subsequent enquiries by ASIC, industry participants have changed their funeral
insurance product design and marketing. See Section 3.3.2 for a case study of Greenstone’s funeral insurance
product redesign.
2.6.2.2 Regulatory reviews with a focus on commission structure
In Australia, there have been a number of recent financial services industry reviews including the FSI as well
as the enactment of the Future of Financial Advice (FOFA) reforms that have focussed on the commission
structure of the intermediated channels, rather than direct channels or online comparison websites. The FOFA
laws and recommendations of the FSI review are not expected to have any direct impact on Greenstone’s direct
distribution business model. However, ongoing scrutiny of the intermediated channels may alter the nature of
certain products, result in broader regulation of the insurance sector (including the direct channel) or increase
competition in the direct market.
In March 2015, the ‘Review of Retail Life Insurance Advice’ (Trowbridge) report was published. The report was
focussed on addressing conflicted remuneration practices. The report was commissioned by two industry bodies
(the Association of Financial Advisers and the Financial Services Council) and recommended that financial
advisers be paid a maximum upfront advice payment, capped at the lower of $1,200 or 60% of the first year’s
premiums, and a maximum level commission of 20% of a client’s policy value during the duration of the policy.
The Trowbridge report, among other recommendations, will also address the issue of “churning”, which involves
financial advisers swapping their clients from one insurer to another to earn higher commissions. Upon release
of the Trowbridge report, the Association of Financial Advisers has expressed caution and recognises a need for
further comprehensive research to be undertaken before any commitment to support the recommendations
should be made. Greenstone believes that the current recommendations of the Trowbridge report (if enacted)
would not significantly impact its direct insurance business, as Greenstone does not distribute through financial
advisers and does not provide personal advice when it distributes insurance products. Greenstone has a much
broader involvement in the insurance products it distributes including designing, pricing, marketing, distributing
and administering these products, which differentiate it from financial advisers.
2.6.2.3 ACCC review of online comparison websites
The Australian Competition and Consumer Commission (ACCC) recently sought submissions relating to proposed
regulation of online comparison websites. The ACCC’s concerns were focussed on a number of issues including;
■■
the extent of the comparison service and product offering including market coverage;
■■
the savings which are achieved by using the online comparison service;
■■
■■
the level of bias, impartiality and independence of comparison services and the disclosure of any commercial
relationships that could affect recommendations to consumers; and
the content and quality assurance of product information.
The ACCC issued a report outlining that it would implement best practice guidelines to assist comparator
website operators and businesses to comply with Australia’s competition and consumer protection laws.20
Choosi was actively involved in the ACCC’s process. Greenstone believes that Choosi is broadly compliant
with the concerns raised by the ACCC in its report and expects that any operational impact on Choosi
would be minimal.
20. ACCC, “The comparator website industry in Australia” report – November 2014.
Greenstone Limited Prospectus
COMPANY OVERVIEW
03
Section 03 – Company overview
45
46
Section 03 – Company overview
Greenstone Limited Prospectus
COMPANY OVERVIEW
3.1Introduction
Greenstone designs, prices, markets, distributes and administers personal insurance products in Australia
under Proprietary Brands and Affinity Brands, and also markets and distributes insurance products through
its 100%-owned online comparison website. Greenstone sells term life, funeral, income protection and pet
insurance through its Proprietary Brands (including Real Insurance, Australian Seniors Insurance Agency,
Guardian Insurance and Prime Pet Insurance) and through licences with its Affinity Brand Partners. Products
marketed under brands belonging to third parties can be sold either to the Affinity Brand Partners’ customers
(e.g. Medibank and Woolworths) or direct to the consumer (e.g. RSPCA). In Australia, Greenstone has a top two
market share in the direct life insurance distribution market and a leading market share for new business in the
pet insurance distribution market.1
Greenstone also distributes insurance products through its online comparison website, Choosi. Choosi sells
Greenstone’s proprietary and affinity-branded insurance products as well as third party insurance products.
Insurance products offered through Choosi include private health, life (including term life, income protection
and funeral), pet, car and home & contents insurance.
Greenstone is not an insurance company. All claims risk associated with the policies it sells are underwritten by
third party Insurance Carriers including Hannover Re, Swiss Re and Hollard.
Greenstone has a focussed and differentiated business model, distributing simple and affordable insurance
products directly to customers. Greenstone targets the mass market utilising its scalable distribution model
(through its single location, in-house call centre based on centralised operations, integrated call centre and data
systems and unified training programs; refer to Section 3.7 for further information). For a further description of
Greenstone’s differentiated business model, refer to Section 3.3.
Greenstone commenced operations in 2007 and had more than 350,000 in-force policies and 310,000 individual
Australian customers as at 31 December 2014. During FY14, Greenstone sold over 100,000 policies, four times its
sales in 2008. Greenstone’s sales have increased at a CAGR of more than 15% since 2009. This policy growth has
driven an increase in agency revenue at a CAGR of more than 30% and an increase in the ARRA at a CAGR of
more than 50% over that same period.
Greenstone has won awards for ‘outstanding value’ and ‘customer satisfaction’.2 A ‘top of mind’ brand
awareness survey3 on life insurance brands had the Real Insurance brand second only to AMP, one of Australia’s
leading insurers and an organisation that has been in operation since 1849.
Greenstone subsidiaries, Greenstone Financial Services and Choosi, are each licensed to distribute
insurance products under a general advice model. Neither Greenstone nor any of its subsidiaries offers any
personal advice.
Greenstone is based in Sydney, New South Wales and had 456 full-time equivalent staff as at 28 February 2015.
1. Direct life insurance market share based on Greenstone management estimates and available industry data of GWP. Estimated gross written premium
for the Australian direct life market is only for products that Greenstone offers. Pet insurance market share estimated based on Greenstone’s share of
PetSure premiums.
2. Canstar Outstanding Value Direct Life Insurance 2010 – 2012. Roy Morgan Customer Satisfaction Awards Australia, ‘Risk and Life Insurer’ category,
2012 and 2013.
3. PHD Media Research, November 2014 on life insurance brands.
Greenstone Limited Prospectus
3.2
Section 03 – Company overview
47
Company history
In 1999, The Hollard Insurance Company Pty Ltd (Hollard) was established in Australia. A general insurance
licence was obtained from APRA in 2000 and the business commenced selling home insurance. Hollard later
began to sell car insurance and sold Australia’s first ‘pay as you drive’ motor insurance product (with adjusted
rates based on the number of kilometres the policyholder drives).
In 2005, Hollard started cross-selling basic term life insurance products to its existing general insurance customer
base in Australia. The take-up rates significantly exceeded expectations. While life insurance had traditionally
been sold into the high net worth market segments, predominantly through financial advisers, there seemed to
be demand in the mass market for life insurance and management expected that consumers would increasingly
buy life insurance directly. In addition, traditional life insurance distribution models were costly, providing an
opportunity for simple and affordable products sold directly to the consumer without personal advice.
To leverage this opportunity, Hollard co-founded (with a minority interest holder who assumed the role of
initial CEO) a separate life insurance distribution business, Greenstone Financial Services (now a subsidiary
of Greenstone). This new business began selling a range of life insurance products directly to mass market
consumers in 2007 through the Real Insurance brand.
Greenstone has a track record of innovation as a challenger and market disruptor in the Australian insurance
industry, bringing new products and approaches to the market. Since 2008, Greenstone has generated growth
through milestones including;
■■
developing relationships with Insurance Carriers, Swiss Re, in 2008 and Hannover Re in 2009;4
■■
introducing the Guardian Insurance brand in 2009;
■■
forming an Affinity Brand partnership with Medibank in 2008;
■■
launching the Choosi online comparison website in 2011;
■■
extending its product offering to include pet and private health insurance in 2011;
■■
partnering with RSPCA and Woolworths brands in 2011;
■■
launching Australia’s first ‘triple guaranteed’ funeral insurance product in 2014; and
■■
adding motor and home & contents insurance products to the Choosi online comparison website in 2015.
4. Hannover Re was reinsurer since 2005 of the Greenstone claims risk underwritten by AIA and St Andrew’s.
48
Section 03 – Company overview
Greenstone Limited Prospectus
Figure 10 illustrates the history of Greenstone, including its origins and evolution.
Figure 10: History of Greenstone
■■
Hollard obtains
an Australian
general licence
■■
Develops the
first specialised
pet insurance
product for
the Australian
market
■■
2000
■■
■■
Partnerships
with Swiss Re,
Australian
Seniors Insurance
Agency and
Medibank
formed
Greenstone
Financial
Services Pty
Ltd, through
the Real
Insurance
brand, starts
selling life
insurance
directly over
the phone
■■
Hollard
Australia
commences
distribution
of life
insurance
2005
2007
2008
■■
■■
Launch of the
Choosi online
comparison
website
■■
Extension of
product offering
to include pet
and private
health insurance
■■
Partnerships with
Woolworths,
RSPCA and ACE
formed
■■
Partnership
with Hannover
Re formed
■■
New brand,
Guardian,
introduced
2009
Real Insurance
brand awarded
No.1 for
customer
satisfaction in
the Risk & Life
Insurer category
in 20121
2011
■■
■■
2012
Addition of
motor and home
& contents
insurance
products to the
Choosi website
New ‘triple
guaranteed’
funeral product
developed
Real Insurance
brand awarded
No.1 for
customer
satisfaction in
the Risk & Life
Insurer category
in 20131
2013
2014
2015
Note:
1. Roy Morgan Customer Satisfaction Awards Australia, ‘Risk & Life Insurer’ category, 2012 and 2013.
3.3
Business model
Greenstone designs, prices, markets, distributes and administers insurance products. Greenstone is remunerated
for these services through agency payments and administration fees made from its Insurance Carriers. The
activities that Greenstone performs and the nature and timing of the payments that it receives will vary
depending on the insurance product:
■■
■■
Life insurance: Greenstone designs, prices, markets, distributes and administers life insurance products in a
number of categories including term life, income protection and funeral. These products are offered under
both Proprietary Brands (Real Insurance, Guardian Insurance and Australian Seniors Insurance Agency) and
Affinity Brands (Medibank, Woolworths and ACE). For these products, Greenstone receives annual agency and
administration fees for the period the policy remains in-force. Greenstone either remits a portion of the agency
fees received for the Affinity Brand product sales or pays a fixed annual fee to its Affinity Brand Partners;
Pet insurance: Greenstone markets and distributes a pet insurance product under both its own brands (Real
Insurance, Guardian Insurance and Prime Pet Insurance) and an Affinity Brand (RSPCA). Greenstone receives
annual agency revenue from Hollard for distributing this product. Agency payments for pet policies are
predominantly flat over the lives of the policies; and
Greenstone Limited Prospectus
■■
Section 03 – Company overview
49
Online website comparison: Greenstone also markets and distributes proprietary-branded, affinity-branded
and third party insurance products through its online comparison website, Choosi. The product range offered
through the Choosi website includes private health, pet, term life, funeral, income protection, car and home
& contents insurance. For third party insurance products (including private health insurance) sold through
the Choosi platform, Greenstone receives a one-off upfront agency fee and does not receive ongoing annual
agency or administration fees.
Greenstone has negotiated that it can elect to receive a higher proportion of agency payments upfront to
help cover the upfront costs associated with the sale of insurance products (e.g. marketing and employee costs).
This limits the future working capital constraints on the business as it grows. Under these arrangements, cash
flows from policies sold in FY16 (including both agency and administration fee payments) are expected to cover
approximately 90% of Greenstone’s FY16 forecast total expenses;
Greenstone does not bear the claims risk associated with the insurance policies that it distributes. All insurance
policies distributed and administered by Greenstone are underwritten by third party Insurance Carriers. In the
case of both its Proprietary Brands and Affinity Brands, Greenstone ‘owns’ the customer relationship and will
continue to be entitled to annual agency fees if the distribution agreement with the underlying Insurance
Carrier is terminated or not renewed.
Figure 11 provides a summary of Greenstone’s direct insurance business model (excluding the Choosi online
comparison website business).
Figure 11: Greenstone’s direct insurance business model
Insurance Carriers
Brands and
products
Straight-forward
products
■■
■■
■■
■■
Target market
segments
Simple product
features
New product
categories
Continually
innovating
Marketing
Drives inbound
enquiries
■■
■■
Distribution
Drives sales
■■
Branding
Advertising
(TV, radio,
digital and web
search engine
optimisation)
■■
■■
In-house contact
centre
Drives retention
■■
Inbound and
outbound
Affinity Brand
partnerships
Capital and
underwriting
risk
Administration
■■
Ongoing
customer
experience,
interactions and
monitoring
Provided by
third parties
■■
No insurance risk
is retained by
Greenstone
Greenstone does
not administer
pet insurance
Greenstone’s focussed approach to the distribution of life insurance is differentiated from traditional models.
Specifically, these differentiating factors include:
■■
■■
■■
Simple and affordable products: Greenstone has a range of simple, easy to understand, accessible
and affordable products and is not burdened by the costs and complexity of traditional or legacy
insurance products;
Scalable channel: Greenstone is focussed on leveraging technology and using its single location call centre
to improve convenience for customers and build a low cost, efficient distribution model. Unlike traditional
distribution models it does not rely on a dispersed network of advisors;
Automated systems and data intelligence: Greenstone has an automated work flow process and a disciplined
application of data intelligence;
50
■■
■■
Section 03 – Company overview
Greenstone Limited Prospectus
Focussed value proposition: Greenstone carries no underwriting risk and as such can focus solely on design,
pricing, distribution, marketing and administration. It is not required to manage appropriate reserving or
asset/liability management; and
Specialised focus on mass market: Greenstone targets mass market customers, who are typically interested
in simple and affordable insurance products. Given the costs associated with providing personalised advice in
the indirect channel, particularly life insurance, financial advisers are less incentivised to recommend simpler
insurance products with lower policy premiums that typically appeal to the mass market customer.
3.3.1
Product design and offering
For its proprietary life insurance products, Greenstone designs the features and characteristics for the products
based upon its understanding of its customer base, target market and their needs. The products are typically
targeted at the mass market and are designed to be simple, easy to purchase and affordable.
The product design is approved by Greenstone’s Insurance Carriers, who provide a risk pricing matrix that
captures the expected cost of claims, their expenses and their own profit margin.
A key consideration during the product design phase is to optimise availability of the product to potential
customers. Greenstone offers a range of ‘guaranteed acceptance’ products that can be taken up by customers
who were declined for other underwritten policies. For example, under life insurance products, these
guaranteed acceptance products include an accidental death product and a bill cover product (which provides
monthly payments to help cover living expenses while a policyholder is temporarily disabled as a result of
injury or sickness).5 Products are also offered in conjunction with optional benefits such as total and permanent
disability, trauma and children’s insurance.
Details of the design of Greenstone’s life insurance product offerings are provided in Table 4.
Table 4: Greenstone’s direct life insurance product offerings
Term Life
Income Protection
Description of cover
■■
Paid in the event of death
■■
Differentiator
■■
Tele-underwriting
■■
■■
$1,500,000
■■
■■
42.0 years
■■
Maximum sum
insured
Average customer
age at purchase
Paid in the event of injury
or sickness reducing
income
Tele-underwriting
75% of income capped at
$10,000 per month
38.9 years
Funeral
■■
Paid to cover funeral and
any other final expenses
■■
Guaranteed acceptance1
■■
$15,000
■■
55.4 years
Note:
1. Applicant must meet age-based eligibility requirement (e.g. between the ages of 18 and 79 years) in order to qualify for the guaranteed acceptance
funeral products.
Greenstone collaborates with PetSure to design pet insurance products including through the sharing of
data with PetSure. Greenstone does not design the third party products such as private health insurance,
car insurance and home & contents insurance sold through Choosi.
3.3.2Marketing
Greenstone’s marketing strategy is primarily focussed on generating leads and direct enquiries to its call centre.
Greenstone has a significant media and advertising budget, with approximately $60 million (around 50% of
total costs) in annual spend on marketing and lead generation activity.
5. Applicant must meet age-based eligibility requirements (e.g. be between the ages of 18 and 69 years for an accidental death product and between
the ages of 18 and 59 for a bill cover product) in order to qualify for the guaranteed acceptance products.
Greenstone Limited Prospectus
Section 03 – Company overview
51
In addition, Greenstone’s advertising campaigns aim to develop both its Proprietary Brands and its online
comparison site, Choosi. This direct marketing strategy focuses on building strong and differentiated customer
value propositions with each brand targeted at a different customer segment. For example, the Australian
Seniors Insurance Agency brand targets the growing seniors market while Real Insurance focuses on a
younger demographic. Each of Greenstone’s advertising campaigns is tailored to resonate with each of these
different segments.
Greenstone has developed a sophisticated lead generation intelligence system, whereby a set of proprietary
technology and systems (i.e. the tele-underwriting platform, return on media investment optimisation model
and return on call optimisation model) are utilised to optimise the return on investment on advertising spend
(see Section 3.7 for more information). The breakdown of marketing spend by product and media type is
provided in Figures 12 and 13.
Figure 12: Marketing spend by channel (FY14)
Figure 13: Marketing spend by product (FY14)
Television
Advertising
56%
Life
Funeral
50%
26%
Online
24%
Pet
12%
Mail
16%
Print
3%
Income
Protection
9%
Other
1%
Health
3%
This marketing is supported by ongoing customer relationship management. For example, customers are
provided with loyalty incentive rewards at certain points in the relationship. These loyalty incentive rewards may
include vouchers, short-term discounts or rebates.
A key component of Greenstone’s marketing strategy is its search engine optimisation (SEO) strategy. SEO is the
process of optimising the ranking of its website on the search results of key search engines. A high search ranking
facilitates website traffic from a search engine’s users and helps generate customer leads. There are two methods
for achieving a high rank on a search engine: paying the search engine for a high ‘inorganic’ ranking or optimising
your website to attract a higher ‘organic’ ranking (which does not require payment to the search engine).
In mid-2012, Greenstone maintained high organic rankings on Google (e.g. on a search for ‘life insurance’ in
Google, Greenstone maintained a number one ranking for the Choosi website and a number eight ranking for
the Real Insurance website). However, in late 2012, Google adjusted its organic page ranking algorithm and
penalised certain websites for the methods they were using to generate organic rankings (including a number
of Greenstone websites such as the Real Insurance and Choosi websites) through a manual reduction in their
search position for their SEO strategy. The penalty and change in the algorithm had a significant negative
impact on the organic ranking of key Greenstone websites, which resulted in a large decline in the number of
online leads generated. In response, Greenstone increased its spend on search engine advertising to improve
its inorganic search ranking and took action to fix its SEO strategy to achieve better organic search rankings. In
February 2014, Google removed the penalty on Greenstone. Since then, Greenstone has consistently improved
its organic rankings across key search terms, although this remains a work in progress.
52
Section 03 – Company overview
Greenstone Limited Prospectus
Illustrative product design and marketing case study: funeral insurance product development
Following an ASIC review of the funeral insurance product launched in October 2011, ASIC approached a
number of funeral insurance providers in September 2012 to discuss concerns about the industry. Following
these discussions, Greenstone responded by reducing its marketing spend on funeral insurance, repricing
the product downward for both existing and new customers and capping premiums for Greenstone’s
policyholders that were over 80 years old.
In addition, Greenstone initiated a design process to develop a new funeral insurance product. The design
process comprised of extensive research of the funeral market, agreeing risk pricing with Insurance Carriers
and establishing the systems and platform capability to distribute the new product. In late 2014, Greenstone
launched its new ‘triple guarantee’ funeral insurance product, which guarantees that:
■■ premiums for each individual customer will never increase over time;
■■ premiums will reduce by 5% for every five years that the policy is in-force, with no effect on the benefit
amount under the policy; and
■■ the benefit received under the policy will never be less than the aggregate premiums paid (i.e. the claim
will pay out the greater of the specified benefit amount or the total premiums paid in respect of the
policy for that life insured).
Throughout this process, Greenstone worked with ASIC and in consultation with consumer groups.
Figure 14 shows the timeline for the ASIC review of Greenstone’s funeral insurance product and the
subsequent response by Greenstone. In addition, the figure shows the quarterly year-on-year sales (i.e.
growth in quarter relative to growth in the previous year’s comparable quarter) of the Greenstone
funeral insurance product since the ASIC review. Shortly after the launch of the new funeral product in
October 2014, the number of funeral insurance policies sold demonstrated positive growth after a period
of declining sales since the commencement of ASIC’s review in September 2012.
Figure 14: Greenstone funeral insurance sales quarterly growth year-on-year1
September 2012
ASIC approaches a number
of funeral insurance
providers to discuss
concerns about
the industry
June 2013
Greenstone lowered pricing on both new and existing policies
and changed its terms to protect policyholders 80+ years
from premium increases on its funeral insurance policies.
“ASIC welcomes the additional changes HFS is making to
their product, which should result in direct financial benefits
for current and future customers,”
ASIC Deputy Chairman, Peter Kell.2
October 2014
Launched new funeral product
with ‘triple guarantee’.
“It’s positive that there’s now a
funeral insurance product with
improved terms”
Choice Director,
Matt Levey.3
%
20
0
-20
-40
Aug-12
Design
timetable:
Feb-13
Aug-13
Market research
Feb-14
Aug-14
Feb-15
Build system and processes
Agree risk pricing
Note:
1. Quarterly growth calculated on a year-on-year basis. Growth based on number of policies sold through inbound leads and the Real Insurance
brand only.
2. ASIC Deputy Chairman Peter Kell, as quoted in media release 13-152MR “ASIC acts to improve consumer understanding of funeral insurance”
on 26 June 2013. The reference to HFS is to Greenstone Financial Services (formerly Hollard Financial Services Pty Ltd).
3. Choice, 24 November 2014.
Greenstone Limited Prospectus
Section 03 – Company overview
53
3.3.3Distribution
Greenstone primarily distributes its insurance products through its single location, in-house call centre.
Inbound leads reflect approximately 80% of call centre work flow. At present, approximately 90% of leads are
generated from the internet, in response to television or digital media marketing activity. Outbound leads are
typically generated from Affinity Brand Partners’ customer lists and call lists sourced from third parties. Before
attempting to make contact with a potential customer, Greenstone executes a data selection and review process
to improve the quality of the outbound leads and the likelihood of converting a compliant sale.
As the conversion rate and cost per lead drives Greenstone’s financial performance, it is critical to effectively
and efficiently convert leads. Greenstone has developed an in-house return on call optimisation model that
ensures that its call centre agents are focussed on the lead that is most likely to convert and generate the
highest “return on call” for the Company. For a further description of Greenstone’s proprietary lead generation
management, see Section 3.7.
For term life, income protection, funeral and pet insurance products, Greenstone manages the product
application and underwriting process on behalf of its Insurance Carriers. Greenstone has developed a
proprietary underwriting rules engine, which includes a series of health and lifestyle questions that have been
developed in conjunction with its Insurance Carriers to find the optimal balance between risk pricing and
customer experience. This process, which is commonly referred to as tele-underwriting (meaning eligibility is
assessed via a telephone call), is particularly convenient for life insurance customers compared to the traditional
underwriting process that requires customers to complete a thorough underwriting process, which can include
medical examinations and/or blood tests.
Greenstone continuously refines the underwriting rules engine to optimise this process. Currently, approximately
83% of customer applicants who meet the age criteria are automatically accepted for underwritten products.
The underwriting rules engine automatically applies premium loadings or exclusions based on disclosure from
the applicant. Greenstone offers guaranteed acceptance products (e.g. accidental death and bill cover products)
to those applicants who meet the age criteria but were declined for cover under the underwritten products. This
ensures that every applicant that meets age-based requirements, regardless of health and lifestyle, will at least
qualify for some level of cover.
Advantages of the Greenstone underwriting and application process include:
■■
■■
■■
speed in underwriting decision (typically less than 15 minutes for a Greenstone underwritten term life
insurance policy);
convenient over the phone purchasing process with no requirement for medical tests or access to medical
history and no complicated forms to complete; and
lower and more scalable distribution costs.
Greenstone also distributes products online through Choosi, which enables customers to compare a range of
insurance products, including proprietary-branded, affinity-branded and third party products, including life, pet,
health, car and home & contents insurance. Consumers can then purchase a policy either over the internet or by
calling the in-house Choosi call centre.
For a further description of Greenstone’s approach to brands and distribution channels, refer to Section 3.4.
3.3.4Administration
For life insurance, Greenstone continues to manage the customer interaction throughout the full term of the
policy by interfacing with the customer on all matters including claims submission and processing (which means
that Greenstone collects the claim information from the customer and then passes that information on to the
Insurance Carrier in order to assess the claim) as well as managing any lapses. Greenstone earns an ongoing
administration fee for providing this service. Greenstone manages all the communication with the customer in
most circumstances. Neither the Insurance Carrier nor the Affinity Brand Partner typically has contact with the
customer in relation to their policy.
54
Section 03 – Company overview
Greenstone Limited Prospectus
Greenstone has a strong track record of high customer satisfaction levels. This is demonstrated through the
independent Roy Morgan Customer Satisfaction survey of 55,000 Australians for which Real Insurance was
awarded number 1 in customer satisfaction for life and risk insurance in 2012 and 2013.
3.4
Greenstone’s brands and distribution channels
Table 5 provides an overview of Greenstone’s Proprietary Brands, Affinity Brands and online
comparison website.
Table 5: Overview of Greenstone’s brands and online comparison website
Proprietary Brands
Description
Insurance
products
distributed
■■
Distribution under
Greenstone’s own brands
Affinity Brands
■■
Distribution of ‘whitelabelled’ insurance products
under brands owned by
Affinity Brand Partners
Online comparison
website
■■
■■
Term life
■■
Term life
■■
Private health
■■
Income protection
■■
Income protection
■■
Term life
■■
Funeral
■■
Pet
■■
Income protection
■■
Pet
■■
Funeral
■■
Pet
■■
■■
■■
In-house call centre and
online
Leads generated through
television and digital
marketing
■■
■■
■■
Brands
Distribution of products
under Greenstone’s own
brands and third party
brands
■■
■■
Distribution
model
Referral to third party
insurers
In-house call centre and
online
Leads generated through
television and digital
marketing
Additional leads may be
generated from existing
Affinity Brand Partners’
customers
■■
■■
Motor (commenced in
2H15)
Home & contents
(commenced in 2H15)
In-house call centre and
online
Leads generated
predominantly online
(although website itself
is also marketed through
television advertising)
Greenstone Limited Prospectus
3.4.1
Section 03 – Company overview
55
Proprietary Brands
Greenstone distributes insurance products directly to retail customers through its well-recognised Proprietary
Brands, including Real Insurance,6 Guardian Insurance, Prime Pet Insurance and Australian Seniors Insurance
Agency.7 Since 2007, Greenstone has invested over $300 million on television and online marketing to develop
these Proprietary Brands. The Real Insurance brand has strong brand awareness in life insurance relative
to established counterparts despite only being established in 2007. In a recent survey, the Real Insurance
brand ranked second only to AMP, one of Australia’s leading insurers and an organisation that has been in
operation since 1849, in terms of top of mind brand awareness in the Australian life insurance category as
indicated in Figure 15.
Figure 15: Top of mind brand awareness (life insurance)
% of respondents who named the brand
%
18
16
14
12
10
8
6
4
2
0
AMP
Real
MLC Allianz Suncorp RAC/ AAMI
Insurance
RACV/
NRMA
APIA Insurance ING
Line
GIO
AXA
Zurich
Youi Westpac Coles
Bupa
ANZ
NAB
Source: PHD Media (report commissioned by Greenstone). Data as at November 2014. Results based on survey response to the question “Thinking
specifically about life insurance companies/providers, which ones come to mind?” Respondents were allowed to provide multiple responses.
3.4.2
Affinity Brands
Beginning in 2008, Greenstone has sought to develop strong relationships with well-recognised Affinity
Brands in order to market insurance products under those brands. Greenstone is able to leverage the customer
networks of its Affinity Brand Partners to sell Greenstone products which have been designed for the Affinity
Brand Partners’ customer base. Greenstone’s key Affinity Brand Partners include Medibank, Woolworths and
RSPCA,8 which are Australian household names in private health insurance, grocery retailing and pet markets.
Greenstone distributes its term life and income protection insurance products under the Medibank brand and
distributes its term life insurance products through the Woolworths brand. Medibank and Woolworths provide
Greenstone access to their respective customer bases and get paid a fee on any sale. This fee comes out of the
agency revenue that Greenstone receives for those sales.
RSPCA licenses Greenstone to use its brand to sell pet insurance products directly to the consumer. RSPCA
receives a fixed monthly payment for use of the brand. After the expiry of the fixed term in December 2019,
the RSPCA licence will continue until terminated by one of the parties. December 2019 is the earliest date that
RSPCA could service notice of termination, and the required notice period is 12 months. During the 12 month
notice period, the fixed monthly payment for use of the brand is not payable.
6. The Real Insurance brand is owned by Hollard. Greenstone has an exclusive perpetual licence to use the Real Insurance brand for term life, income
protection and funeral insurance. Hollard continues to use the brand for other insurance products. See Section 8.5.4 for further details.
7. Greenstone has entered into a binding share purchase agreement to acquire Australian Seniors Insurance Agency Pty Ltd, which owns the Australian
Seniors Insurance Agency brand. The share purchase agreement is unconditional and the transfer will occur on 30 June 2015.
8. Greenstone also distributes some life insurance products under the ACE brand.
56
Section 03 – Company overview
Greenstone Limited Prospectus
Table 6 summarises details regarding Greenstone’s key Affinity Brand Partner relationships.
Table 6: Summary of key Affinity Brand Partner relationships
Key Affinity Brand
Partners
Latest
amendment/
renewal
Term of
contract
products
distributed
New direct
customers
2011
2014
20191
■■
Pet
3.8 million
Medibank
and ahm
policyholders
2008
2014
2019
■■
Term life
7.9 million
Everyday
Rewards
members
2011
Target
customers
■■
■■
■■
Insurance
Relationship
commencement date
■■
–
2016
■■
Income
protection
Term life
Note:
1. Continues until terminated, with a 12 month notice period if RSPCA were to terminate following expiry of the fixed term.
3.4.3
Online comparison website
Greenstone’s online comparison website, Choosi, was launched in 2011 and has grown quickly with
approximately 33,000 visitors per month to the website. This growth reflects the increasing consumer preference
to compare and buy simpler insurance products directly over the phone or online. Greenstone distributes
primarily term life, income protection, funeral, pet and private health insurance products to retail customers
through Choosi. More recently, Choosi introduced car and home & contents insurance to its product range.
Through the Choosi website, customers can compare product features and pricing structures across a range of
proprietary-branded, affinity-branded, and certain third party insurance products.
Choosi operates both an end-to-end model (for the life, pet and private health products sold on Choosi) and
a lead generation model (for the car and home & contents insurance products on Choosi).
■■
■■
End-to-end model: For the sale of life and pet products, Greenstone receives recurring agency fees, as
described in Section 3.3. For the sale of third party private health insurance products, Greenstone receives a
one-off upfront agency fee, which is based on the first year premiums. Greenstone does not receive ongoing
agency or administration fees over the duration of the private health insurance policies.
Lead generation model: For the sale of car and home & contents insurance products, Greenstone receives
a fee from the third party product provider based on the number of leads or calls generated to the
product provider.
Greenstone Limited Prospectus
Section 03 – Company overview
57
In 1H15, private health insurance products accounted for approximately 63% of the GWP generated on Choosi,
which includes third party products from ahm (a subsidiary of Medibank), nib, Australian Unity and Health
Partners brands. In addition, Choosi distributes third party insurance products on behalf of the Budget Direct,
ACE, Ozicare and 1st for Women Insurance brands. Figure 16 shows the third party brands, Proprietary Brands
and Affinity Brands whose products are distributed through Choosi.
Figure 16:
Brands distributed through Choosi
Third Party Health
3.5
Other Third Party
Proprietary and Affinity
Insurance Carriers
Greenstone has strong and long term relationships with three Insurance Carriers, who bear the underwriting
risk associated with the insurance products currently distributed and administered by Greenstone. These
Insurance Carriers are:
■■
■■
■■
Hannover Re: Underwrites term life, income protection and funeral insurance products sold through
Proprietary Brands including Real Insurance, Australian Seniors Insurance Agency and Guardian Insurance;9
Swiss Re: Underwrites term life and income protection sold through the Medibank and
Woolworths brands; and
Hollard: Underwrites pet insurance products sold through the Real Insurance, Guardian Insurance, RSPCA and
Prime Pet Insurance brands.
In addition, both AIA and St Andrew’s previously underwrote policies distributed by Greenstone. The remaining
in-force policies written through AIA and St Andrew’s are in run-off with all new insurance policies underwritten
by Hannover Re, Swiss Re and Hollard.
All private health, car and home & contents insurance products distributed through Choosi are provided by third
parties and underwritten by a range of different Insurance Carriers.
9. Hannover Re also underwrites the insurance products distributed under the ACE brand.
58
Section 03 – Company overview
Greenstone Limited Prospectus
Table 7 summarises Greenstone’s relationships with its Insurance Carriers.
Table 7: Summary of relationships with Insurance Carriers
Active Insurance Carriers
Partner since
2009
2008
Date of current
agreement
or last
amendment
2015
Renewal date
Run-off Insurance Carriers
2011
2006
2005
N/A/2014
2013
N/A
N/A
2020
2016/2019
2017
No new business
underwritten/
currently in
run-off
No new business
underwritten/
currently in
run-off
Term life
✓
✓
✓
✓
Income
protection
✓
✓
Funeral
✓
✓
✓
Pet
1
✓
Note:
1. Greenstone has two separate contracts with Swiss Re, relating to the Medibank and Woolworths Affinity Brand Partnerships respectively. The contract
with Swiss Re relating to Woolworths will be automatically extended in 2016 for a further five years provided certain performance hurdles are met and
no materially adverse legislative or regulatory change has occurred.
Hannover Re is currently Greenstone’s single largest insurance counterparty exposure and has been an
underwriter to the Company since 2009.10 Hannover Re has agreed to prepay future agency revenue
payments to Greenstone to provide working capital (see Section 8.5.3 for further details of the Hannover Re
arrangement). To date, there has been no increase in the risk rate that Hannover Re has charged to Greenstone
on any of its insurance products. The contract with Hannover Re continues until 31 December 2020 with a five
year renewal option.
There are no material profit or loss sharing agreements in the commercial terms with Greenstone’s Insurance
Carriers. In the event that a contract between Greenstone and one of its Insurance Carriers was terminated, all
agency revenue entitlements related to the in-force business would survive that termination, with only the new
business arrangements impacted. In such circumstances, Greenstone could also seek to replace that Insurance
Carrier by placing the risk with another Insurance Carrier.
There are no Clawback Provisions in the commercial terms with Greenstone’s Insurance Carriers, other than a
limited clawback for lapsed policies within the first 12 months for one Affinity Brand life insurance product
(which makes up less than 5% of Greenstone’s GWP). Any such clawback is shared equally between Greenstone
and the Affinity Brand. See Section 3.7.2. for further discussion.
10. Hannover Re was a reinsurer since 2005 of the Greenstone claims risk underwritten by AIA.
Greenstone Limited Prospectus
3.6
Section 03 – Company overview
59
Business mix
In 1H09, Real Insurance brand accounted for approximately 85% of GWP with Medibank-branded life products
accounting for the majority of the remaining GWP. On a product basis, term life products accounted for 50% of
GWP with funeral insurance products accounting for the remaining 50% of GWP.
By 1H15, Greenstone had enhanced the diversification of its sales with the Real Insurance brand GWP
contribution reducing to 41% of GWP and a range of brands accounting for the remaining 59% of GWP. On a
product basis, term life and funeral insurance sales represented 50% of total sales on a combined basis, with the
remaining 50% of GWP from pet insurance, income protection insurance and private health insurance products.
Figures 17 and 18 demonstrate the enhanced diversification of sales that has been achieved by Greenstone
between 1H09 and 1H15 by brand and by product. Given the different revenue models and the higher return
nature of the term life, income protection, funeral and pet insurance products, the revenue contribution of
those products and associated brands is greater than their contribution on a Gross Written Premium basis.
The business model for the different products is provided in Section 3.3.
Figure 17: Total GWP by brand
Figure 18: Total GWP by product
Total Half Year
GWP: $62.5m
Total Half Year
GWP: $62.5m
Prime 1.2%
Guardian 1.9%
Other Partners1
9.3%
Health
17.4%
Health Brands
17.4%
Pet
22.1%
RSPCA
18.9%
Income Protection
10.7%
Asia
9.5%
Total Half Year
GWP: $10.0m
Total Half Year
GWP: $10.0m
Other Partners1
13.8%
Asia
1.5%
Real
41.4%
Real
84.7%
1H09
Funeral
50.3%
Funeral
19.3%
Term Life
30.5%
Term Life
49.7%
1H15
Note:
1. Other Partners include the Affinity Brand Partners, Woolworths and Medibank.
1H09
1H15
60
Section 03 – Company overview
3.7
Greenstone Limited Prospectus
Key commercial levers
The Company is focussed on managing the following key commercial levers:
■■
Cost per acquisition: This is a measure of Greenstone’s ability to generate sales in a cost effective way,
calculated as marketing and distribution costs per policy written. Greenstone’s management team focuses on
two underlying commercial levers which drive cost per acquisition:
——
——
Cost per lead: This is a measure of Greenstone’s ability to generate leads in a cost effective way (i.e. to
attract new customers to its website and call centre); and
Conversion rate: This is a measure of Greenstone’s ability to generate sales from leads generated.
Both cost per lead and conversion rate metrics are best tracked at an individual channel, product and brand
level, with considerable variation period to period in the aggregated trends driven by mix and seasonality.
Therefore, at an aggregate Group level, a better guide to the underlying trend in these metrics is cost per
acquisition; and
■■
Retention rate: This is a measure of Greenstone’s ability to retain its current policyholders in order to
continue receiving agency revenues and administration fees over the life of the insurance policies.
The historical and forecast trends in cost per acquisition and retention rate are shown in Section 4.3.
In addition, Greenstone has rigorous oversight on operating expenditure and believes that over time, nonmarketing costs such as employment and administrative expenses should reduce relative to agency revenue
given the ability of Greenstone to leverage its centralised operations, call centre and data systems to more
efficiently operate its business.
3.7.1
Cost per acquisition
Greenstone has developed in-house lead management systems and call centre intelligence technology that it
believes provide the Company with distinct competitive advantages in optimising its cost per acquisition. The
following sections provide further detail on how Greenstone manages its cost per lead and conversion rate, the
two factors that drive Greenstone’s cost per acquisition.
3.7.1.1 Cost per lead
Greenstone’s marketing strategy is designed to generate leads and direct enquiries to the call centre.
Greenstone has a significant media advertising budget, with approximately $60 million (around 50% of
total costs) spent annually on marketing a variety of Proprietary Brands and products, as well as the online
comparison site Choosi. Greenstone’s marketing campaigns include online, radio, print, television and
direct mail advertising. Historically, a high proportion of the media spend has been on daytime television,
although marketing spend is gradually shifting to prime time television and online advertising such as Google
AdWords for SEO.
Greenstone has developed a lead generation management system. All teams meet on a monthly basis to agree
targets, resourcing and spend for the marketing program. A set of proprietary algorithms are utilised to forecast
the number of leads and optimise the cost per lead generated through its advertising campaigns across all
media. Based on this model, the Company aims to optimise its return on investment from marketing activities
through an efficient allocation of marketing spend between brands, product and media.
Greenstone also uses a proprietary Investment Return Model (IRM) to predict the optimal allocation of its
media spend. The model takes into consideration over 20 factors, including television spend, part of day,
brand, product, online spend, SEO ranking, school holidays, call centre resourcing and seasonality. The model
utilises Greenstone’s media and sales history and other data to predict how Greenstone can optimally spend
its marketing budget. The majority of Greenstone’s marketing spend is tied to the output of the IRM, but the
marketing team also has a ‘test budget’ that it uses to experiment with new marketing concepts and media.
The data from these experiments helps the IRM evolve and improve its output over time.
Greenstone Limited Prospectus
Section 03 – Company overview
61
Figure 19 provides an illustrative example of how Greenstone has been able to leverage the IRM to manage lead
generation to increase sales. Following two years of better than anticipated pet insurance leads in December
and January, the IRM forecasted the benefit of higher pet insurance marketing spend in December 2014 and
January 2015. With higher pet insurance marketing spend during this period, Greenstone was able to generate
a significant year-on-year increase in leads generated and ultimately increase sales in pet insurance products.
Figure 19: Illustrative example of forecast accuracy of analytical model for pet insurance – expected leads
compared to actual leads
8000
Pet insurance leads
7000
6000
5000
4000
3000
2000
1000
0
Dec 02
Actual leads
Jul 13
Jan 14
Aug 14
Feb 15
Expected leads
3.7.1.2 Conversion rate
Call centre intelligence systems are a key factor in driving conversion rates. The IRM provides Greenstone with
a strong indication of the level of leads to expect in a given period based on budgeted marketing spend. This
allows Greenstone to plan resourcing to match expected call demand and drive efficient conversion of leads. All
inbound and outbound calls are managed by Greenstone’s in-house call centre.
The call centre’s operations are enhanced through the use of Greenstone’s proprietary ‘return on call’
optimisation model. This model uses data provided by the potential customer or Affinity Brand Partners to
predict the type of lead, the probability of that lead converting to a sale and the value of that lead should it
convert. The probability of conversion is modelled based on historical data and other factors such as the product
and lead type, ageing of the lead, and the customer’s age and profile. The probable sale value is modelled
based on the customer profile, brand, product and assumed lapse rates relevant to the channel.
Based on this analysis, the model prioritises tasks uniquely for each agent, so that they are aware which call to
make and at what time each call should be made. For example, older potential customers may spend more time
on a call to make a purchase decision than younger customers and therefore that lead would be delegated to
an agent who is more attuned to this dynamic in order to convert the lead into the sale. The optimisation of
leads conversion is key to improving call centre employee productivity.
62
Section 03 – Company overview
Greenstone Limited Prospectus
This call centre intelligence system also provides the assigned call centre agent with a clear script tailored
to the customer and product to help guide the agent through the sales process in a manner compliant with
Greenstone’s licences. Information available to call agents at the time of call includes gender, customer call
history, eligible products, contact number and key phrases, closing outcome and reason. This script and available
information enable call centre agents to approve policies for customers within approximately 15 minutes.
The availability of data enhances the prospect of lead conversion and it lessens the risks of mis-selling. The
automated nature of the sales system requires less specialised skills for the call centre staff. This increases
the pool of potential sales staff that can be recruited and improves the scalability of the model relative to
traditional, advice-based distribution. Call centre management has access to real-time information on agent
performance, which allows management to manage staff to optimise conversion rates as well as quality
assurance in the long term.
3.7.2
Retention rate
The Company’s proprietary data system plays a key role in maximising retention rates through identifying
customers that are most at risk to lapse and utilising strategies to proactively manage retention. Retention
strategies include: initiating direct contact with the customer, offering incentives to encourage customer
retention and sending automated text messages alerting customers when they have not paid their premiums.
The expected cost of lapse and retention effort costs are built into the pricing of the policy, but lapse trends that
are better or worse than expected affect reported agency revenue (see Section 4.3.1 for further information).
In addition, the business intelligence team regularly analyses new data to improve retention. For example, the
business intelligence team has identified that the customers of one major Australian bank have a 35% higher
probability of dishonouring (when Greenstone requests the monthly premium payment from the policyholder
account) compared to the customers of the other three major Australian banks. Greenstone is now proactively
working with that bank to identify and resolve the underlying cause of this trend.
Since 2014, Greenstone has also introduced a number of retention initiatives to improve its retention
capabilities including:
■■
■■
■■
■■
Retention staff: Greenstone has doubled the size of the specialised retention team over the past 12 months
and has improved the retention agent training in order to deliver enhanced results;
Real-time premium collections: In February 2015, Greenstone introduced a system which enables call agents
to collect arrear premiums over the phone from customer credit cards. This initiative has reduced the number
of dishonours and maximised revenue from existing customers;
Loyalty premium discounts: Since May 2015, retention agents can offer premium discounts to existing
policies to retain customers facing affordability concerns and to counter competitor pricing; and
Lead management system: Greenstone has identified that speaking to dishonour customers significantly
increases the probability of retaining them. The lead management system predicts the optimal time and
most appropriate agent to contact customers with dishonoured premiums.
Figure 20 demonstrates the improvement of the retention rates across both the life (term life, income
protection and funeral insurance) and pet policies since the introduction of the various retention initiatives.
The retention rate for health is not provided because it is not a relevant metric given Greenstone’s business
model; Greenstone does not administer health insurance policies and the Company receives almost all of its
health agency payments upfront. For further information on the movements in the retention rate, please
refer to the management discussions regarding retention revenue in Section 4.7.
Greenstone Limited Prospectus
Section 03 – Company overview
63
Figure 20: Life and pet insurance retention rates
85%
Retention rate (%)
80%
78.2%
78.2%
79.7%
80.2%
65.5%
65%
81.6%
76.5%
75%
70%
80.6%
72.2%
71.7%
1H14
2H14
82.1%
82.5%
75.1%
74.1%
1H15
2H15
81.6%
75.4%
63.2%
62.8%
60%
55%
50%
0
1H12
2H12
1H13
2H13
FY16
Life (term life, income protection and funeral)
Pet
Additionally, for Proprietary Brand life policies sold under the revised insurance arrangements, a significant
portion of expected cash flows are received in the first year of the policy. Under this arrangement, whilst a
significant decline in the retention rate would impact future agency payments, Greenstone has no liability to
repay cash amounts already received (commonly referred to in the industry as a Claw-back Provision). The
potential impact of changes in the retention rate on future profit and cash flows are discussed in Section 4.9.
3.8Staff
As at 28 February 2015, Greenstone employed 456 staff on a full-time equivalent basis, all based at Greenstone’s
single location in Sydney, New South Wales. Call centre staff consisting of sales, retention, policy and claims and
quality assurance staff accounted for approximately 67% of Greenstone’s total staff.
Call centre staff are trained to sell the various insurance products distributed by Greenstone, including crosstraining such that staff sell a number of different types of insurance products. There is a transparent process for
providing incentives to sales staff and regular auditing to ensure that sales staff remain in compliance with the
non-provision of advice and other regulatory requirements.
On average, call centre staff consisting of sales, retention, policy and claims and quality assurance staff have
approximately 75% of their total annual remuneration as fixed remuneration and 25% incentive pay for
performance-linked remuneration. The variable component is tied to gross premiums written and retained,
conversion rates, retention rates, and other quality assurance metrics. This ensures sales targets are not achieved
through wastage of leads or poor quality sales.
Included within the sales staff category, approximately 9% of staff are employed to manage customer retention,
in particular focussed on those customers identified with a higher than average propensity to lapse. The
number of staff engaged in retention initiatives has increased over the past 12 months, reflecting the focus on
maximising future cash flows to recover upfront marketing spend over the life of the policies sold.
64
Section 03 – Company overview
Greenstone Limited Prospectus
Figure 21 below shows the breakdown of the Greenstone staff by occupation.
Figure 21: Staff breakdown by occupation as at 28 February 2015
456 staff
1
32.7%
Sales Staff
Business
operations
staff
Retention
Policy and claims
67.3%
Call centre staff
Quality Assurance
43.2%
8.6%
11.8%
3.7%
Technology and marketing
19.5%
Business Management
13.2%
Note:
1. Headcount as at 28 February 2015; any percentage discrepancies due to rounding.
3.9
Overview of Greenstone’s regulatory framework
Greenstone distributes insurance products underwritten by licensed Insurance Carriers. Greenstone is not
authorised or regulated as an insurer in Australia and does not assume claims risk. Accordingly, Greenstone
is not subject to APRA prudential regulation and is not required to maintain minimum prudential regulatory
capital requirements. However, Greenstone through two of its subsidiaries, Greenstone Financial Services and
Choosi, holds two AFSLs and compliance with these licences is regulated by the Australian corporate regulator,
ASIC. The AFSLs authorise Greenstone’s licensed subsidiaries to distribute insurance products under a general
advice model. Neither licence allows for the provision of personal advice.
Additionally, Greenstone is subject to consumer protection regulation, which is supervised by ASIC (see Section
2.6 for further details) and various legislative obligations including those contained within the Corporations
Act 2001 (Cth) Competition and Consumer Act 2010 (Cth), Privacy Act 1988 (Cth), and Insurance Contracts Act
1984 (Cth). In addition, Greenstone adheres to the codes of conduct and obligations of a number of different
agencies including the Australian Communication and Media Authority, the Advertising Standards Board, the
Australian Information Commissioner, the Financial Ombudsman Service and the Financial Services Council (of
which Greenstone is a member).
3.10 Greenstone’s quality assurance program
Greenstone has in place a quality assurance program to ensure compliance with relevant regulatory
requirements and high customer service standards. The quality assurance program includes a combination of
training and coaching, supervisory oversight and use of controls.
All incoming call centre employees participate in an initial training course that lasts approximately three weeks
depending on the products and brands that they are expected to sell. After this training course, call centre staff
continue to receive ongoing coaching and training and receive regular feedback on performance and areas
for improvement. To provide oversight of the compliance performance of the call centre operations, calls with
potential customers are recorded and monitored by call centre managers. Additionally, calls with customers are
predominantly scripted with a number of automated processes in place to help manage processes such as the
underwriting questionnaire.
Greenstone Limited Prospectus
FINANCIAL
INFORMATION
04
Section 04 – Financial information
65
66
Section 04 – Financial information
Greenstone Limited Prospectus
FINANCIAL INFORMATION
4.1Introduction
The financial information for Greenstone contained in
this Section 4 includes:
■■
Statutory Historical Financial Information of
Greenstone comprising:
——
——
——
statutory historical consolidated income
statements for FY13, FY14, 1H14 and 1H15
(Statutory Historical Results);
historical consolidated cash flows before
financing and tax extracted from the statutory
consolidated cash flow statements for FY13,
FY14, 1H14 and 1H15 (Statutory Historical
Cash Flows); and
statutory historical consolidated balance sheet
as at 31 December 2014 (Statutory Historical
Balance Sheet),
——
(together the Forecast Financial Information).
The Statutory Historical Financial Information and Pro
Forma Historical Financial Information together form
the Historical Financial Information.
The Historical Financial Information and the
Forecast Financial Information together form the
Financial Information.
Also included in this Section 4 are:
■■
■■
(together the Statutory Historical
Financial Information);
■■
Pro Forma Historical Financial Information of
Greenstone comprising:
——
——
——
pro forma historical consolidated income
statements for FY13, FY14, 1H14 and 1H15
(Pro Forma Historical Results);
pro forma historical consolidated cash
flows before financing and tax for FY13,
FY14, 1H14 and 1H15 (Pro Forma Historical
Cash Flows); and
pro forma historical consolidated balance sheet
as at 31 December 2014 (Pro Forma Historical
Balance Sheet),
(together the Pro Forma Historical Financial
Information); and
■■
Forecast Financial Information of
Greenstone comprising:
——
——
——
pro forma forecast consolidated income
statements for FY15 and FY16 (Pro Forma
Forecast Results);
pro forma forecast consolidated cash flows
before financing and tax for FY15 and FY16
(Pro Forma Forecast Cash Flows);
statutory forecast consolidated income
statements for FY15 and FY16 (Statutory
Forecast Results); and
statutory forecast consolidated cash flows
before dividends for FY15 and FY16 (Statutory
Forecast Cash Flows),
■■
■■
■■
■■
■■
■■
■■
a summary of the basis of preparation and
presentation of the Financial Information (refer
to Section 4.2);
management discussion and analysis of the Pro
Forma Historical Financial Information (refer
to Section 4.7);
the general assumptions and the Directors’
best estimate specific assumptions underlying
the Forecast Financial Information (refer
to Section 4.8);
a description of equity and indebtedness, debt
facilities and liquidity (refer to Section 4.4.2,
4.4.3 and 4.4.4);
an analysis of the sensitivity of the pro forma
forecast NPAT for FY16 to changes in certain key
assumptions (refer to Section 4.9);
a description of the ARRA (see Section 4.5);
a description of the proposed dividend policy
(see Section 4.10);
a description of the financial risk management
framework (see Section 4.11); and
a description of the critical accounting judgements
and estimates (see Section 4.12).
The information in Section 4 should also be read in
conjunction with the risk factors set out in Section 5
and other information contained in this Prospectus.
All amounts disclosed in the tables are presented in
Australian dollars and, unless otherwise noted, are
rounded to the nearest $0.1 million.
Greenstone Limited Prospectus
4.2 Basis of preparation and
presentation of the Financial Information
4.2.1Overview
The Financial Information has been prepared and
presented in accordance with the recognition and
measurement principles of the Australian Accounting
Standards (including the Australian Accounting
Interpretations) issued by the Australian Accounting
Standards Board, which are consistent with
International Financial Reporting Standards (IFRS) and
interpretations issued by the International Accounting
Standards Board. The Financial Information is
presented in an abbreviated form insofar as it
does not include all the disclosures, statements or
comparative information as required by the Australian
Accounting Standards applicable to general purpose
financial reports prepared in accordance with the
Corporations Act.
Accounting policies have been consistently applied
by Greenstone throughout the periods, other
than AASB 9 Financial Instruments which has been
adopted from 1 July 2014 and the effect of this has
been reflected throughout the Pro Forma Historical
Financial Information but not the statutory historical
consolidated income statements for FY13, FY14 and
1H14. A pro forma adjustment has been made to
FY13 to reflect the change in accounting policy had
it been in place from 1 July 2012 (refer to Section
4.3). Greenstone’s significant accounting policies
relevant to the Financial Information are set out
in Appendix A.
The Financial Information presented in this Prospectus
has been reviewed in accordance with the Australian
Standard on Assurance Engagements ASAE 3450 by
Deloitte Corporate Finance Pty Limited, as stated in
the Investigating Accountant’s Report on Historical
Financial Information provided in Section 9 and
the Investigating Accountant’s Report on Forecast
Financial Information provided in Section 10. Investors
should note the scope and limitations of these reports.
Section 04 – Financial information
67
4.2.2 Preparation of the Historical Financial
Information
The Statutory Historical Financial Information has
been extracted from the audited general purpose
consolidated financial statements of Greenstone
for FY13, FY14, 1H14 and 1H15 (Statutory Historical
Financial Statements). The general purpose
consolidated financial statements of Greenstone for
FY14, 1H14 and 1H15 were audited by Deloitte Touche
Tohmatsu who issued unqualified opinions in respect
of these periods. The general purpose consolidated
financial statements of Greenstone for FY13 were
audited by KPMG who issued an unqualified opinion
in respect of that period. The Statutory Historical
Financial Statements are available on the Greenstone
share offer website at www.greenstone.com.au.
The Pro Forma Historical Financial Information has
been prepared solely for inclusion in this Prospectus
and has been derived from the Statutory Historical
Financial Information.
Pro forma adjustments have been made to
the Statutory Historical Results (as discussed in
Section 4.3.2) to:
■■
■■
■■
■■
■■
■■
■■
■■
remove discontinued operations, including disposal
of interests in Hollard Holdings Australia Pty Ltd on
31 August 2012;
reflect the disposal of the Real
Home Loan business;
reflect the early adoption of AASB 9 Financial
Instruments and apply this accounting policy
change retrospectively to FY13;
give effect to the new debt structure put in place
prior to the Offer;
include estimated public company costs;
reflect the new management structure, cost of the
close out of previous incentive arrangements for
the CEO and IPO bonuses for senior management;
remove amortisation of an intangible asset (the
Real Insurance brand) reassessed as having an
indefinite life; and
apply a tax expense rate of 30%, which is the
Australian corporate tax rate.
68
Section 04 – Financial information
Additional pro forma adjustments have been made to
the Statutory Historical Balance Sheet and Statutory
Historical Cash Flows, as described below. A detailed
description of the pro forma adjustments that have
been made to the Statutory Historical Financial
Information is provided in the following sections:
■■
■■
■■
■■
Section 4.3.2, Table 11 sets out the pro forma
adjustments between the statutory consolidated
revenue of Greenstone for FY13, FY14, 1H14 and
1H15 to the pro forma consolidated revenue of
Greenstone for FY13, FY14, 1H14 and 1H15;
Section 4.3.2, Table 12 sets out the pro forma
adjustments between the statutory consolidated
NPAT of Greenstone for FY13, FY14, 1H14 and
1H15 to the pro forma consolidated NPAT of
Greenstone for FY13, FY14, 1H14 and 1H15;
Section 4.4.1, Table 13 provides a reconciliation of
the Statutory Historical Balance Sheet to the Pro
Forma Historical Balance Sheet; and
Section 4.6.1, Table 18 sets out the pro forma
adjustments between the Statutory Historical Cash
Flows to the Pro Forma Historical Cash Flows.
Greenstone Limited Prospectus
Information, and that this may have a material
positive or negative effect on Greenstone’s actual
financial performance.
Investors are advised to read the general assumptions
and the Directors’ best estimate specific assumptions
set out in Section 4.8, in conjunction with the
significant accounting policies included in Appendix
A, the sensitivity analysis set out in Section 4.9, the
risk factors set out in Section 5, the Investigating
Accountant’s Report on Historical Financial
Information set out in Section 9, the Investigating
Accountant’s Report on Forecast Financial Information
in Section 10 and other information set out in
this Prospectus.
The forecast consolidated income statement of
Greenstone has been presented on both a pro forma
and a statutory basis for FY15 and a statutory basis for
FY16, as follows:
■■
Investors should note that past results are not a
guarantee of future performance.
4.2.3 Preparation of the Forecast Financial
Information
The Forecast Financial Information has been prepared
solely for inclusion in this Prospectus, based on
an assessment of current economic and operating
conditions. The Directors have prepared the Forecast
Financial Information with due care and attention,
and consider all best estimate specific assumptions,
when taken as a whole, to be reasonable at the
time of preparing this Prospectus. However, this
information is not fact and investors are cautioned
not to place undue reliance on the Forecast
Financial Information.
The Forecast Financial Information has been
prepared on the basis of numerous assumptions,
including general assumptions and the Directors’
best estimate specific assumptions set out in Section
4.8. This information is intended to assist investors
in assessing the reasonableness and likelihood of
the assumptions occurring, and is not intended to
be a representation that the assumptions will occur.
Investors should be aware that the timing of actual
events and the magnitude of their impact might differ
from that assumed in preparing the Forecast Financial
■■
■■
the Statutory Forecast Results of Greenstone for
FY15 and FY16 present the forecast financial
performance that the Directors expect Greenstone
to report for the year ending 30 June 2015 and
the year ending 30 June 2016. The Statutory
Forecast Results and Statutory Forecast Cash
Flows of Greenstone for FY15 are based on the
audited results for 1H15 and the forecast results
for the remaining six months to 30 June 2015,
incorporating actual unaudited trading results for
January and February 2015. The Statutory Forecast
Results for FY15 assumes Completion of the Offer
will occur in June 2015;
the Pro Forma Forecast Results and Pro Forma
Forecast Cash Flows of Greenstone for FY15
are derived from the Statutory Forecast Results
and Statutory Forecast Cash Flows adjusted (as
discussed in Section 4.6.1) to give effect to the
new debt structure put in place prior to the
Offer; reflect the disposal of the Real Home
Loan business; include estimated public company
costs; reflect the cost of the close out of previous
incentive arrangements for the CEO and IPO
bonuses for senior management; reflect the Offer
costs; and apply a tax expense rate of 30%, which
is the Australian corporate tax rate; and
no pro forma adjustments have been made to
the Statutory Forecast Results or the Statutory
Forecast Cash Flows for FY16, and accordingly, the
Pro Forma Forecast Result and Pro Forma Forecast
Cash Flows for FY16 are identical to the Statutory
Forecast Results and Statutory Forecast Cash
Flows for FY16.
Greenstone Limited Prospectus
Reconciliations of the Statutory Forecast Financial
Information to the Pro Forma Forecast Financial
Information are provided in the following sections:
■■
■■
■■
Section 04 – Financial information
These include:
■■
Section 4.3.2, Table 11 sets out the pro forma
adjustments between the statutory forecast
consolidated revenue of Greenstone for FY15 to
the pro forma forecast consolidated revenue of
Greenstone for FY15;
Section 4.3.2, Table 12 sets out the pro forma
adjustments between the statutory forecast
consolidated NPAT of Greenstone for FY15 to
the pro forma forecast consolidated NPAT of
Greenstone for FY15; and
Section 4.6.1, Table 18 sets out the pro forma
adjustments between the Statutory Forecast
Cash Flows for FY15 to Pro Forma Forecast Cash
Flows for FY15.
■■
■■
The basis of preparation and presentation of the
Forecast Financial Information is consistent with the
basis of preparation and presentation of the Pro
Forma Historical Financial Information.
Except where required by law, the Directors have
no intention or obligation to update or revise the
Forecast Financial Information or other forward
looking statements following the issue of this
Prospectus, or to publish prospective financial
information in the future, regardless of whether new
information, future events or other factors affect the
information contained in this Prospectus.
■■
■■
4.2.4 Explanation of certain non-IFRS and other
financial measures
Greenstone uses certain measures to manage and
report on its business that are not recognised under
Australian Accounting Standards or IFRS. These
measures are referred to as non-IFRS financial
measures. These non-IFRS financial measures do
not have a prescribed definition under Australian
Accounting Standards or IFRS and therefore may not
be comparable to similarly titled measures presented
by other entities, nor should they be construed as
an indication of, or an alternative to, corresponding
financial measures determined in accordance with
Australian Accounting Standards or IFRS. Although
Greenstone believes these non-IFRS financial measures
provide useful information to users in measuring the
financial performance and condition of the business,
investors are cautioned not to place undue reliance
on any non-IFRS financial measures included in
this Prospectus.
69
■■
EBITDA is earnings before the cost of interest
on debt, tax, depreciation and amortisation.
Given the majority of new business revenue
constitutes the estimated net present value of
future expected agency payments, there has
historically been a significant difference between
cash flows and revenue. Historically, EBITDA has
exceeded cash flows due to the growth in new
sales and agency revenue. As a result, operating
free cash flow before capital expenditure and
cash flow before financing and tax are important
measures of cash flows;
EBITDA margin is EBITDA divided by total revenue;
operating free cash flow before capital
expenditure is EBITDA less the movement in
the ARRA as discussed in Section 4.5), other
working capital and non-cash items in EBITDA.
It is important to note that operating free cash
flow before capital expenditure does not take
into account capital expenditure, the cost of debt,
tax payments and dividends;
cash flow before financing and tax is EBITDA
less the movement in the ARRA, other working
capital, non-cash items in EBITDA and capital
expenditure. It is important to note that cash flow
before finance and tax does not take into account
financing costs such as the cost of debt, tax
payments and dividends;
net debt is interest bearing loans and borrowings
(before capitalised borrowing costs) net of cash
and cash equivalents; and
other net working capital items are trade and
other receivables (excluding the ARRA), other
assets (predominantly prepayments), trade
and other payables, provisions (predominantly
provision for customer loyalty incentive rewards)
and provision for employee entitlements.
70
Section 04 – Financial information
4.3
Greenstone Limited Prospectus
Consolidated income statements
Section 4.3 contains a summary of the Pro Forma Historical Results for FY13, FY14, 1H14 and 1H15, Pro Forma
Forecast Result for FY15 and FY16 and Statutory Forecast Results for FY15 and FY16.
Table 8: Summary of Pro Forma Historical Results, Pro Forma Forecast Results and Statutory Forecast Results
Pro forma historical
$m
Agency revenue
Administration revenue
Other revenue
Total revenue
Marketing and distribution
expenses
Employment expenses
Occupancy and other expenses
Offer costs
Total expenses
EBITDA
Depreciation and amortisation
Financing expenses
Income tax expense
NPAT
Note
1
2
3
4
5
6
7
8
9
Pro forma forecast
Pro forma historical
Statutory forecast
1H14
1H15
281.1
11.3
0.8
293.2
(92.1)
98.5
5.7
0.3
104.5
(39.5)
122.5
4.3
0.3
127.1
(40.7)
239.9
9.2
2.3
251.4
(92.3)
281.1
11.3
0.8
293.2
(92.1)
(53.3)
(10.8)
–
(154.6)
93.9
(1.0)
(6.9)
(25.6)
60.4
(51.0)
(12.0)
–
(155.1)
138.1
(2.2)
(6.7)
(38.9)
90.3
(18.0)
(5.1)
–
(62.6)
41.9
(1.5)
(3.7)
(11.0)
25.7
(23.5)
(5.4)
–
(69.6)
57.5
(0.5)
(3.5)
(16.0)
37.5
(74.8)
(9.5)
(17.8)
(194.4)
57.0
(1.0)
(6.2)
(23.1)
26.7
(51.0)
(12.0)
–
(155.1)
138.1
(2.2)
(6.7)
(38.9)
90.3
130.3
124.2
80.9%
728
27%
38%
26%
34%
149.8
139.9
80.4%
658
18%
47%
47%
50%
FY13
FY14
FY15 FY1618
203.1
9.7
0.9
213.7
(95.3)
187.8
11.2
1.7
200.7
(75.9)
238.6
9.2
0.7
248.5
(90.5)
(43.8)
(8.9)
–
(148.0)
65.7
(3.4)
(10.5)
(15.5)
36.3
(37.9)
(12.4)
–
(126.2)
74.5
(3.0)
(7.1)
(19.2)
45.2
147.4
137.0
78.8%
695
na
31%
na
na
105.5
104.1
79.8%
729
(8%)
37%
13%
25%
FY15 FY1618
Key metrics
Gross Written Premium ($m)
Policies sold (’000)
Retention rate
Cost per acquisition ($)
Agency revenue growth
EBITDA margin
EBITDA growth
NPAT growth
10
11
12
13
14
15
16
17
52.2
52.7
79.5%
749
na
40%
na
na
62.5
60.0
80.9%
679
24%
45%
37%
46%
na
na
na
na
na
na
na
na
149.8
139.9
80.4%
658
17%
47%
na
na
Note:
1. Agency revenue is comprised of four primary components being new business revenue, retention revenue, price adjustment revenue and discount and
risk premium unwind revenue (refer to Section 4.3.1 for further detail).
2. Administration revenue includes revenue for the provision of policy and claims administration services provided to customers on behalf of various
Insurance Carriers for life insurance products.
3. Other revenue includes, but is not limited to, interest income and fair value adjustments on investments.
4. Marketing and distribution expenses include marketing costs, loyalty incentive rewards and affinity brand payments.
5. Employment expenses include direct and indirect expenses for all employees. This includes functional areas of the business such as the call centre,
product partnerships, policy administration, risk and compliance, marketing, business intelligence, information and technology, finance and people and
culture, along with management.
6. Occupancy and other expenses relate to expenses incurred in relation to premises occupied by Greenstone, as well as other operating costs in relation
to information technology and communications.
7. Depreciation and amortisation includes depreciation and amortisation of software and computer hardware, amortisation of the Choosi brand in FY13
and FY14, and amortisation of intangible assets in FY16 as a result of the Australian Seniors Insurance Agency brand acquisition. The intangible assets
related to the Australian Seniors Insurance Agency acquisition are forecast to have an estimate useful life of 15 years.
8. Financing expenses reflect a market rate of interest expense based on the New Banking Facilities with Macquarie Bank (New Banking Facilities),
discussed further in Section 4.4.3.
9. An income tax rate of 30% has been applied, which is the Australian corporate tax rate.
10. GWP represents the aggregate annualised value of premiums, determined at the time of sale, across all of Greenstone’s insurance policies sold during
the reporting period, including policies sold on Greenstone’s comparison website, Choosi. Changes in GWP between periods may reflect the number
Greenstone Limited Prospectus
Section 04 – Financial information
71
of new policies sold as well as the average pricing trends experienced across all new insurance product sales during the reporting period. Changes
in GWP between periods can reflect changes in volume, product pricing as well as product composition mix sold, as discussed in further detail in
Section 4.7. Due to the varying contribution Greenstone makes to the distribution process (including design, marketing and distribution) of different
insurance products, the profile of payments accruing to Greenstone varies by insurance product. This leads to a variation between the revenue of
certain insurance products and associated brands and their GWP. For example, new business revenue for term life, income protection, funeral, and pet
insurance is larger relative to GWP than new business revenue associated with private health insurance. For additional details, see Section 4.7.1.
11. Policies sold are the aggregate number of new policy contracts distributed by Greenstone across all channels, including policies referred by Choosi and
policies which were previously in-force and have subsequently been acquired back and treated as new and not retained business.
12. Retention rate is the number of policies for life insurance products and pet insurance products that remain in-force at the end of the reporting period
as a percentage of the in-force policies at the start of the period, which is monitored for each individual insurance product, then weighted by premium
to determine the overall retention rate for Greenstone (discussed in further detail in Section 4.5.2 and Section 4.3.1). In determining the retention rate,
policies which were previously in-force and have subsequently been acquired back are treated as new and not retained business. This is consistent with
the recognition of these acquired back policies in the income statement (i.e. captured in new business revenue).
13. Cost per acquisition is defined as the ratio of the marketing and distribution expenses to the number of policies sold in the same reporting period. Cost
per acquisition is a measure of Greenstone’s ability to generate sales in a cost effective way. Cost per acquisition is described in detail in Section 4.7.1.
14. Agency revenue growth is the combined growth of the four primary components discussed in note 1 above (refer to Section 4.3.1 for further detail).
15. EBITDA margin is EBITDA divided by total revenue.
16. EBITDA growth is the period-on-period growth in EBITDA (refer to Section 4.2.4 for more detail).
17. NPAT growth is the period-on-period growth in NPAT.
18. Values for Pro Forma Forecast Results for FY16 and Statutory Forecast Results for FY16 are identical.
4.3.1
Composition of agency revenue
Table 9: Composition of agency revenue
Pro forma historical
$m
New business revenue
Retention revenue
Price adjustment revenue
Discount and risk premium
unwind revenue
Agency revenue
Note
1
2
3
4
Pro forma forecast
FY13
FY14
210.0
(21.8)
(19.5)
34.4
165.7
(27.3)
14.4
35.0
189.8
5.6
3.3
39.9
203.1
187.8
238.6
Pro forma historical
Statutory forecast
1H14
1H15
216.3
4.0
–
60.8
86.4
(5.0)
–
17.1
93.0
8.6
3.3
17.6
191.1
5.6
3.3
39.9
216.3
4.0
–
60.8
281.1
98.5
122.5
239.9
281.1
FY15 FY165
FY15 FY165
Note:
1. Historical movements in new business revenue are discussed in Section 4.7 and forecast movements in new business revenue are discussed in
Section 4.8.
2. Retention revenue includes monthly experience differences to the ARRA assumptions as well as basis changes. These may arise from differences
between the experienced and assumed retention rate underlying the ARRA, as well as experienced to assumed endorsements. Endorsements occur
as a result of changes initiated by the policyholder with respect to coverage and sums insured (these are unrelated to age increases and contractual
inflation adjustments). Historical movements in retention revenue are discussed in Section 4.7 and forecast movements in retention revenue are
discussed in Section 4.8.
3. At the time of sale of a new policy, arrangements are in place with policyholders and Insurance Carriers that determine the entitlements to agency
payments Greenstone is expected to receive over the life of the policy. To the extent that contracted entitlement arrangements change for in-force
policies with policyholders and Insurance Carriers, which impact the future expected agency entitlements to be received from these policies, the impact
is recognised as positive or negative price adjustment revenue, and a corresponding impact on the ARRA.
4. Agency payments received will be greater than the net present value at which these agency payments were recognised in the ARRA at the
commencement of that period. As agency payments are received, the attributable difference as well as the uplift in the ARRA as a result of recognising
the passage of time for future agency payments is recognised as discount and risk premium unwind revenue.
5. Pro forma forecast FY16 and statutory forecast FY16 values are identical.
72
Section 04 – Financial information
Agency revenue is comprised of four primary
components, being new business revenue, retention
revenue, price adjustment revenue and discount and
risk premium unwind revenue.
The key assumptions adopted in the initial recognition
of agency revenue are discussed below. The key
assumptions underlying the calculation of the
estimated net present value of future expected
agency payments not received at the time of sale,
which are recognised on the balance sheet as the
ARRA, are described in Section 4.5. Management is
focussed on accountability through disclosure of its
performance relative to key assumptions.
While it depends on product line and distribution
channel, the agency revenue Greenstone receives
can be in excess of 40% of the total premium of
an insurance policy sold, net of Affinity Brand
Partner payments.
New business revenue
Greenstone is remunerated, in the form of agency
payments, by its Insurance Carriers for the product
design, underwriting assessment, customer
management, marketing and distribution of insurance
policies. Agency payments are generally received over
the life of the policy. Accordingly, upon the sale of
a policy and as required under AASB 118 Revenue,
new business revenue is recognised based upon the
estimated net present value of all future expected
agency payments including an allowance for future
expected Affinity Brand Partner payments.
All costs associated with new business revenue such
as marketing, customer loyalty incentives rewards,
distribution, employment and administration, are
expensed at the time of sale.
Greenstone Limited Prospectus
Retention revenue
As actual monthly retention experience occurs, this
will be either better or worse than the assumed
retention rate (as discussed further in Section 4.5.2).
When the actual retention rate on in-force policies
varies from the assumed retention rate underlying
the ARRA, the actual agency payments received will
vary from the agency payments expected over the
reporting period. This variance can either be positive
or negative, and contributes to a proportion of
retention revenue.
A period of consistent retention rate variances
may demonstrate a need to amend the retention
assumption for future expected agency payments
underlying the ARRA. Amending retention
assumptions in the ARRA will give rise to a positive
or adverse basis change, the impact of which is
also included in retention revenue and will impact
expectations of future agency payments positively or
negatively. The resulting change in the estimated net
present value of future expected agency payments
will be reflected as a movement in the ARRA.
Greenstone’s retention strategies may involve
endorsements for certain insurance products, such as
reducing the sum insured for life insurance products,
gift vouchers and various other system-automated
offers, with the aim of improving retention
experience. An endorsement rate is assumed for inforce policies, and variations between the experienced
and assumed endorsement are recognised as
retention revenue.
Investors should consider the sensitivity of and risks
associated with retention rates as described in Section
4.5.2, Section 4.9. and Section 5.2.1.1.
One key assumption underlying the recognition
of new business revenue is the projection period,
which is discussed further in Section 4.5.2. On initial
recognition, future expected agency payments
are forecast for a maximum of seven years for pet
insurance products and a maximum of 15 years
for life insurance products. Each month after
initial recognition, to the extent a policy remains
in-force and does not have a benefit date within
the projection period, the net present value of an
additional month of expected agency payments
is recognised as new business revenue and
incorporated in the ARRA.
Price adjustment revenue
Investors should consider the sensitivity of and risks
associated with new business revenue as described in
Section 4.9 through sensitivity to number of policies
sold and GWP per policy.
Investors should consider the sensitivity of and
risks associated with contracted pricing changes
as described in Section 4.5.2, Section 4.9 and
Section 5.2.1.2.
Initial recognition of new business revenue includes
assumptions on premium pricing, such as contractual
future pricing changes of premium planned across
the life of the policy for policyholders, as well as
known or expected changes to agency payment
arrangements with Insurance Carriers over the life of a
policy. To the extent that product pricing amendments
with policyholders or arrangements with Insurance
Carriers change future expected agency payments,
the impact is recognised as a positive or negative
price adjustment revenue, which is reflected as a
movement in the ARRA.
Greenstone Limited Prospectus
Section 04 – Financial information
73
Discount and risk premium unwind revenue
Agency payments received will typically be greater than the estimated net present value at which these agency
payments were recognised in the ARRA at the commencement of that period. As agency payments are received,
the above difference as well as the uplift in the ARRA as a result of recognising the passage of time for future
agency payments is recognised as discount and risk premium unwind revenue.
Given the general trend of the ARRA increasing over time, as in-force policies grow, this revenue is
expected to increase.
Investors should consider the sensitivity of and risks associated with the discount rate and risk premium rate
assumption, in particular, circumstances in which an increase in the assumed discount rate could result in a
negative revenue impact, as described in Section 4.9 and 5.2.1.3.
4.3.2
Statutory and pro forma revenue and NPAT reconciliation
Table 10 sets out the Statutory Historical Results extracted from the Statutory Historical Financial Statements for
FY13, FY14, 1H14 and 1H15.
Table 10:Summary of Statutory Historical Results
Statutory historical
$m
Agency revenue
Investment revenue
Foreign exchange gain/(loss)
Other revenue
Total revenue
Operating expenses
Financing expenses
Total expenses
Profit before tax from continuing operations
Income tax expense
NPAT from continuing operations
Profit from discontinued operations
Profit on sale of discontinued operations
NPAT
Note
1
2
3
4
5
6
6
6
Statutory historical
FY13
FY14
1H14
1H15
219.2
0.9
0.9
–
221.0
(150.5)
(8.8)
(159.3)
61.7
(17.8)
43.9
1.4
75.7
121.1
199.0
0.9
0.9
0.8
201.6
(129.5)
(5.6)
(135.1)
66.5
(21.4)
45.1
–
–
45.1
104.2
0.3
0.3
–
104.8
(64.0)
(3.0)
(67.0)
37.8
(12.1)
25.7
–
–
25.7
126.8
0.3
(0.5)
–
126.7
(70.8)
(2.8)
(73.6)
53.1
(19.1)
34.0
–
–
34.0
Note:
1. In the Statutory Historical Financial Statements, the income statement line “Agency revenue” comprises agency revenue and administration revenue.
Refer to notes 1 and 2 following Table 8 in Section 4.3.
2. Investment revenue includes interest income mainly earned through short term deposits.
3. Foreign exchange gain/(loss) relates to the foreign exchange impacts associated with the South African Rand denominated borrowings which have
been excluded from the Pro Forma Historical Results and Pro Forma Forecast Results.
4. Other revenue relates to software licence fees received from a related party.
5. Operating expenses includes marketing and distribution expenses, employment expenses, occupancy and other expenses and depreciation and
amortisation. Refer to notes 5, 6 and 7 following Table 8 in Section 4.3.
6. During August 2012, Greenstone disposed of its interests in Hollard Holdings Australia Pty Ltd to the immediate parent, Hollard Investments B.V.
This disposal included The Hollard Insurance Company Pty Ltd (the current owner of the Real Insurance brand). Accordingly, and in accordance with
Australian Accounting Standards, the Statutory Historical Financial Statements for FY13 present and disclose historical financial information for FY13 of
continuing operations (which comprise Greenstone’s businesses) and discontinued operations (which comprise the Hollard Holdings Australia). Further
information on the allocation methodologies for separating the continuing and discontinued operations is presented in the significant accounting
policies set out in Appendix A and Note 4 to the FY13 Statutory Historical Financial Statements.
7. In the Statutory Historical Financial Statements for 1H14 and 1H15, “Administration revenue” has been separately disclosed from the “Agency
revenue” line. We have combined these in the “Agency revenue” line in the above table for consistency across the periods. Further, in the Statement
Historical Financial Statements for 1H14 and 1H15, the “Foreign exchange gain/(loss)” and “Other revenue” lines are combined into the “Other
Income” line. We have disaggregated this balance between the two lines for consistency across the periods.
74
Section 04 – Financial information
Greenstone Limited Prospectus
Table 11 should be read in conjunction with Table 10, which sets out the Statutory Historical Results extracted
from the Statutory Historical Financial Statements for FY13, FY14, 1H14 and 1H15.
Table 11:Pro forma adjustments to the statutory historical consolidated revenue and statutory forecast
consolidated revenue
Historical revenue
$m
Statutory revenue
Discontinued operations
Debt refinancing (foreign
exchange portion)
Accounting policy change
Disposal of Real Home
Loan business
Pro forma revenue
Forecast revenue
Historical revenue
FY13
FY14
FY15
FY16
1H141
1H151
1
2
221.0
4.1
(0.9)
201.6
–
(0.9)
251.4
–
0.9
293.2
–
–
104.8
–
(0.3)
126.7
–
0.5
3
8
(10.5)
–
Note
213.7
–
–
200.7
–
(3.8)
248.5
–
–
–
–
293.2
104.5
–
(0.1)
127.1
Note:
1. In the Statutory Historical Financial Statements for 1H14 and 1H15, “Administration revenue” has been separately disclosed from the “Agency
revenue” line. We have combined these in the “Agency revenue” line in the above table for consistency across the periods. Further, in the Statement
Historical Financial Statements for 1H14 and 1H15, the “Foreign exchange gain/(loss)” and “Other revenue” lines are combined into the “Other
Income” line. We have disaggregated this balance between the two lines for consistency across the periods.
Table 12 should be read in conjunction with Table 10, which sets out the Statutory Historical Results extracted
from the Statutory Historical Financial Statements for FY13, FY14, 1H14 and 1H15.
Table 12:Pro forma adjustments to the statutory historical consolidated NPAT and statutory forecast
consolidated NPAT
Historical NPAT
$m
Statutory NPAT
Discontinued operations
Debt refinancing
Accounting policy change
New management
structure and IPO bonuses
Public company expenses
Listing and equity raising
costs
Real brand amortisation
Disposal of Real Home
Loan business
Income tax effect
Pro forma NPAT
Note
Forecast NPAT
Historical NPAT
FY13
FY14
FY15
FY16
1H14
1H15
1
2
3
4
121.1
(74.0)
(2.5)
(10.5)
(1.0)
45.1
–
(2.4)
–
(1.0)
26.7
–
0.3
–
19.4
90.3
–
–
–
–
25.7
–
(1.0)
–
(0.5)
34.0
–
(0.3)
–
–
5
6
(2.0)
–
(2.0)
–
(1.8)
17.8
–
–
(1.0)
–
(1.0)
–
7
8
2.5
–
2.7
0.6
–
0.7
–
–
1.2
–
–
1.6
9
10
2.7
36.3
2.2
45.2
(2.7)
60.4
–
90.3
1.3
25.7
3.2
37.5
Note:
1. During FY13 (on 31 August 2012), Greenstone disposed of its interests in Hollard Holdings Australia Pty Ltd to Greenstone’s immediate parent, Hollard
Investments B.V. This disposal included the Hollard Insurance Company Pty Ltd (HIC) (the current owner of the Real Insurance brand). Accordingly, an
adjustment has been made to the Statutory Historical Results for FY13 to reflect Greenstone’s disposal of Hollard Holdings Australia as if the disposal
had occurred on 30 June 2012 as follows:
a.the statutory revenue in Table 11 reflects the revenue reported for continued operations, whilst the $4.1 million adjustment reflects the
reinstatement of revenue previously eliminated between Greenstone and Hollard Holdings Australia; and
b.the statutory NPAT in Table 12 reflects the total of continued and discontinued operations whilst the ($74.0) million adjustment removes the
trading results of the discontinued operations including the profit on disposal (together $77.6 million) and reinstates revenue and expenses
(together $3.6 million) which were previously eliminated between Greenstone and Hollard Holdings Australia.
Greenstone Limited Prospectus
Section 04 – Financial information
75
2. An adjustment has been made to the Statutory Historical Results for each period and the Statutory Forecast Results for FY15 to reflect the drawdown
from the New Banking Facilities as if it were drawn at 30 June 2012 and used to repay existing debt (including related party debt), which reflects the
new capital structure that will be in place prior to the Offer. The net interest expense, financing costs and foreign exchange gains or losses associated
with the related party debt and included in the Statutory Historical Results have been adjusted to reflect the differential interest margins, financing costs
and the currency of the New Banking Facilities applicable to Greenstone under the terms described in Section 4.4.3.
3. Greenstone has elected for early adoption of the new accounting standard, AASB 9 Financial Instruments (effective 1 July 2014). Under this standard,
the ARRA is measured at net present value on an amortised cost basis as opposed to fair value which had previously been the basis of measurement.
As a result, any changes in the discount rate are applied prospectively to new policies from the date of change, with no impact on in-force policies.
An adjustment has been made to FY13 to reflect the change in the accounting policy as if AASB 9 Financial Instruments had been applied as at
30 June 2012.
4. An adjustment has been made in FY13 and FY14 to reflect the incremental costs of new executive positions created in FY15 to enhance the
management structure and support the business for the growth ahead of the Offer and assumed over the forecast period (as described in Section
4.8) as if these new arrangements had been implemented from 30 June 2012. In FY15, an adjustment has been made to remove one-off costs
associated with the IPO incentive bonuses for certain senior executives, including close out of previous incentive arrangements for the CEO of $19.4
million (including associated payroll tax and comprised of cash and equity). The CEO incentive arrangement component of $16.4 million (comprising
$15.5 million plus payroll tax) will be settled using the proceeds of an $11.5 million (being the net after-tax cost to the Company of the $16.4 million
payment) subscription for Shares in the Company by the Existing Shareholder. This subscription will take place immediately prior to the IPO. For more
information on the close out of existing arrangements with the Managing Director and CEO, refer to section 6.5.1.
5. An adjustment has been made to the Statutory Historical Results for each period and the Statutory Forecast Results for FY15 to include Greenstone’s
estimate of the annual costs that it will incur as a listed public company as if it had been a public company from 30 June 2012. These costs include
Directors’ remuneration, listing fees, share registry fees, directors’ and officers’ insurance premiums, annual general meeting costs, annual report costs,
media and investor relations costs and higher levels of audit fees.
6. An adjustment has been made to FY15 to remove one-off forecast costs associated with the Listing and equity raising.
7. Historically, perpetual and exclusive rights to the use of the Real Insurance brand have been amortised over 15 years. Given the strength of and
contractual rights to the brand, Greenstone now recognises this intangible asset as having an indefinite life and no longer amortises the asset. An
adjustment has been made to FY13 and FY14 to reflect this reassessment as if it had been effective from 30 June 2012.
8. Greenstone Home Loans Pty Ltd, which conducts the Real Home Loans business, will be sold by Greenstone to its immediate parent immediately after
the Offer. This sale of this business is conditional on the Offer and is consistent with Greenstone’s strategic focus on the design, marketing, distribution
and administration of insurance products. A pro forma adjustment has been made to FY14 and FY15 to remove the trading results, profit on disposal
and cash flow impacts of this business to reflect a position whereby this subsidiary had not been part of Greenstone since its commencement of trading
in FY14.
9. A pro forma tax expense rate of 30% has been applied, which is the Australian corporate tax rate.
10. Historical movements in pro forma NPAT are discussed in Section 4.7 and forecast movements in pro forma NPAT are discussed in Section 4.8.
4.4
Historical consolidated balance sheet
4.4.1
Pro forma historical consolidated balance sheet adjustments
The pro forma historical consolidated balance sheet as at 31 December 2014 in Table 13 is based on the audited
consolidated balance sheet as at 31 December 2014, adjusted for certain pro forma adjustments, including the
impact of the Offer and the New Banking Facilities. These adjustments reflect the impact of the operating and
capital structure that will be in place following Completion of the Offer as if it had occurred or was in place as
at 31 December 2014.
In conjunction with the Offer, Greenstone will issue new equity (as described in Section 7). Proceeds from the
offer of New Shares will be used to fund: the acquisition of the Australian Seniors Insurance Agency brand (as
discussed further in Table 13, notes 1, 2 and 3); the acquisition of outstanding rights and options over shares in
Greenstone’s most significant subsidiary, Greenstone Financial Services, held by a co-founder and former CEO
of the Company; Offer costs; and close out of previous incentive arrangements with the CEO, legacy incentive
scheme settlement costs and IPO bonuses for senior management, discussed in Section 4.6.1.
Separately, New Banking Facilities will be put in place to repay existing bank and related party debt, which is
described in Section 4.4.3.
The pro forma historical consolidated balance sheet is provided for illustrative purposes only and is not
represented as being necessarily indicative of Greenstone’s view on its future financial position. Further
information on the sources and uses of funds of the Offer and the New Banking Facilities is contained in
Section 1.7, Section 4.4.3 and Section 7.3.
76
Section 04 – Financial information
Greenstone Limited Prospectus
Table 13:Pro forma adjustments to the Statutory Historical Balance Sheet and Pro Forma
Historical Balance Sheet
$m
Note
Statutory
31 December 2014
Offer transactions
and New Banking
Facilities
Pro forma
31 December 2014
Assets
Cash and cash equivalents
ARRA
Plant and equipment
Intangible assets
Other assets
Total assets
Liabilities
Trade and other payables
Borrowings
Provisions
Deferred tax liabilities
Employee entitlements
Total liabilities
Net assets
1
2
3
4
5
6
7
17.2
483.5
0.5
30.8
5.1
537.1
–
28.9
120.9
19.4
127.7
5.9
302.8
234.3
–
11.0
–
4.8
–
15.8
–
1.0
0.1
–
(6.7)
(3.0)
(8.6)
24.4
17.2
494.5
0.5
35.6
5.1
552.9
–
29.9
121.0
19.4
121.0
2.9
294.2
258.7
Equity
Contributed equity
Other equity interests
Retained earnings
Non-controlling interests
Total equity
8
9
10
9
0.1
(95.0)
241.3
87.9
234.3
470.4
(326.4)
(31.7)
(87.9)
24.4
470.5
(421.4)
209.6
–
258.7
Note:
1. Cash is expected to be unchanged as the proceeds of the sale of New Shares under the Offer of $307.9 million will be used to fund the following:
a.$414.3 million acquisition of rights in and options over Greenstone’s most significant subsidiary (assuming the midpoint of the Indicative Price
Range), Greenstone Financial Services, which will be partially offset by a $164.5 million subscription by Novatrust Ltd as trustee for the Casey Trust
(assuming the midpoint of the Indicative Price Range);
b. Offer transaction costs totalling $36.0 million;
c. acquisition of Australian Seniors Insurance Agency brand for $12.5 million (including transaction costs); and
d.payment of accrued legacy incentive scheme settlement costs for $3.4 million (which is not a pro forma NPAT adjustment), and payment of
$6.2 million for IPO bonuses for senior management (which is a pro forma NPAT adjustment).
2. The ARRA represents the estimated net present value of future agency payments expected to be received from in-force policies. The pro forma
adjustment to the ARRA is an increase of $11.0 million as a result of the acquisition of the Australian Seniors Insurance Agency brand. Refer to
Section 4.5 for a more detailed description of the ARRA.
3. Reflects the recognition of intangible assets as part of the acquisition of the Australian Seniors Insurance Agency brand. The value represents the excess
of the purchase price over the tax-effected value of the ARRA acquired.
4. Reflects the costs associated with management incentive schemes such as payroll tax which will be settled by operating cash flows, as opposed to
proceeds from New Shares under the Offer.
5. The proceeds from the drawdown of the New Banking Facilities will be used to repay existing related party and external debt.
6. Deferred tax liabilities are reduced by $6.7 million which relate to the following deferred tax impacts:
a.$3.3 million increase in relation to the $11.0 million of the ARRA recognised as part of the acquisition of the Australian Seniors Insurance Agency
brand. Income tax on the ARRA is assessable on the actual receipt, thus resulting in the build-up of deferred tax liabilities;
b. $5.9 million decrease in relation to the settlement of management incentive schemes; and
c. $4.1 million decrease in relation to the portion of Offer transaction costs which are tax deductible.
7. Reflects the release of accruals for employee entitlements of $3.0 million in relation to the settlement of legacy incentive scheme settlement costs.
Greenstone Limited Prospectus
Section 04 – Financial information
77
8.
Pro forma contributed equity increases by $470.4 million which is attributable to:
a. $307.9 million from New Shares offered as part of the Offer (assuming the midpoint of the Indicative Price Range);
b.$164.5 million from the subscription of shares by Novatrust Ltd as trustee for the Casey Trust (assuming the midpoint of the Indicative Price Range);
c. $0.7 million which is the equity-settled portion of the management incentive schemes;
d.$11.5 million which is an equity contribution from the Existing Shareholder to fully fund the after tax cost of the legacy incentive plans of the
current CEO; less
e.$14.2 million resulting from the portion of Offer transaction costs that have been capitalised (i.e. reduction in contributed equity) attributable to
the increase in contributed equity.
9. Following Completion of the Offer, Greenstone Financial Services will be wholly owned by Greenstone. Prior to the Offer, there are rights and options
held by a third party over 25% of the capital of Greenstone Financial Services. These rights and options will be acquired in connection with the Offer
by members (described above) of the Group.
10. Pro forma retained earnings reduces by $31.7 million which is attributable to:
a. $13.9 million (after tax) decrease in relation to the settlement of management incentive schemes; and
b. $17.8 million decrease in relation to the Offer transaction costs.
4.4.2
Equity and indebtedness
Table 14 sets out the indebtedness of Greenstone as at 31 December 2014, on a statutory basis (before
Completion of the Offer) and on a pro forma basis (after Completion of the Offer). At time of lodgement of this
Prospectus, indebtedness has not changed materially since 31 December 2014.
Table 14:Pro forma consolidated indebtedness of Greenstone as at 31 December 2014
Statutory (before
Completion
of the Offer)
Pro forma (after
Completion
of the Offer)
Current loans and borrowings
Non-current loans and borrowings
Total loans and borrowings
Cash and cash equivalents
Net debt
4.0
116.9
120.9
17.2
103.7
6.0
115.0
121.0
17.2
103.8
Contributed equity
Other equity interests
Retained earnings
Non-controlling interests
Total equity
Total equity and indebtedness
0.1
(95.0)
241.3
87.9
234.3
337.7
470.5
(421.4)
209.6
–
258.7
362.5
$m
Net debt/FY15 pro forma EBITDA
FY15 EBITDA interest coverage ratio
Gearing
Notes:
1. Defined as pro forma FY15 EBITDA/pro forma interest expense.
2. Defined as net total indebtedness/(net total indebtedness + total equity).
Note
1
2
1.11x
13.6x
28.6%
78
Section 04 – Financial information
4.4.3
Description of bank debt facilities
Historically, Greenstone has been funded by related
party debt (from Hollard Holdings Pty Ltd (South
Africa)) and external debt (from St.George Bank and
an unrelated private company). In preparation for the
Offer, this debt has been refinanced with the New
Banking Facilities, provided by Macquarie Bank.
The facilities comprise of:
■■
■■
■■
Tranche 1 – $40 million cash advance facility;
Tranche 2 – $80 million revolving cash
advance facility; and
Tranche 3 – $10 million overdraft facility,
(together the New Banking Facilities).
The New Banking Facilities are repayable in full five
years from the first drawdown date.
Tranche 1 and Tranche 2 have a variable interest rate
based on the bank bill swap rate (BBSY) plus a margin,
which is different for each facility, applied to the total
drawn amount. Tranche 3 has a variable interest rate
based on the Macquarie Reference Rate as published
from time to time by Macquarie Bank on its website
plus a margin, applied to the total drawn amount.
Tranche 2 and Tranche 3 also have a line fee calculated
on the nominal committed funds. Tranche 1 is
amortised at a rate of $5 million per year (amortising
monthly). In providing these facilities, Macquarie Bank
has charged upfront fees of $0.32 million.
Greenstone also has a $4 million debt facility on
arms’ length terms provided by an unrelated private
company which was first drawn on 30 September
2009 and expires in June 2015. This facility will be
repaid from the New Banking Facilities borrowings
prior to the IPO.
The fee and interest expenses on the new debt
facilities, as described above, will be higher than the
related party debt which was provided to Greenstone
by Hollard Holdings Pty Ltd (South Africa). The
differential has been included as debt refinancing
pro forma adjustments, which is the difference
between the rate charged under Tranche 1 and the
rate charged for related party debt. This differential
is assumed throughout the historical period when
calculating the pro forma adjustment.
Greenstone Limited Prospectus
4.4.4Liquidity
Following Completion of the Offer, Greenstone’s
principal source of funds will be cash flow from
operations. The majority of Greenstone’s capital
expenditure relates to IT and software development,
including the transition to a new policy administration
system which has been implemented but remains
subject to further development, as well as
miscellaneous property, plant and equipment.
Operating cash flows typically make up a proportion
of EBITDA, as agency revenue recognised represents
not only cash from agency payments received but also
the estimated net present value of future expected
agency payments of policies sold over the reporting
period. When agency revenue exceeds agency
payments received as cash, this difference leads to
corresponding positive movements in the ARRA
(and vice versa). A positive movement in the ARRA
represents the non-cash proportion of EBITDA and is
discussed further in Section 4.6. Therefore, changes to
agency payment terms agreed with policyholders and
Insurance Carriers can impact Greenstone’s EBITDA,
cash flows and movement in the ARRA. Historically,
EBITDA has exceeded operating cash flows due to the
growth in new sales and agency revenue.
Greenstone expects that it will have sufficient
cash flow from operations to meet its operational
requirements and business needs during the
forecast period.
Greenstone Limited Prospectus
4.4.5
Section 04 – Financial information
79
Pro forma contractual obligations and commitments
Table 15:Pro forma commitments as at 31 December 2014
$m
Note
Tranche 1 and 2
Tranche 3
Operating lease commitments
Total
1
2
3
Maturity
Pro
forma
drawn
Facility
commitment
total
<1 year
1-5 years
>5 years
120.0
1.0
4.4
125.4
120.0
10.0
4.4
134.4
5.0
1.0
2.1
8.1
115.0
–
2.3
117.3
–
–
–
–
Note:
1. Term debt provided by Macquarie Bank, with the $5.0 million recorded with less than one year maturity due to the amortising nature of Tranche 1,
discussed further in Section 4.4.3.
2. Working capital overdraft facility provided by Macquarie Bank, which is current debt, with five years of committed facilities.
3. Relates to commitments in relation to the leased office premises.
4.5
Agency revenue receivable asset
4.5.1
Movements in the ARRA
The ARRA represents the net present value of future expected agency payments. The ARRA is, therefore, the
discounted value of future expected agency payments on in-force insurance policies based upon assumptions for
retention, pricing, time value of money, counterparty risk and risk premium reflecting uncertainty as described
in Section 4.5.2.
Movement in the ARRA over a period is the result of the variation between agency revenue recognised, which
includes the estimated net present value of future expected agency payments, and agency payments received.
Therefore, the total value of the ARRA represents the accumulation of agency revenue less agency payments
received to date.
As described in Section 4.3.1, agency revenue comprises new business revenue, retention revenue, price
adjustment revenue and discount and risk premium unwind revenue. The ARRA does not include payments for
administration services, which are recognised in the period in which the service is provided.
The changes in the ARRA are detailed in Table 16. The ARRA has increased as the value of agency revenue has
exceeded agency payments received, which is forecast to continue. However, the extent of the increase in the
ARRA depends on the level of future new business revenue relative to the level of agency payments received
and contractual arrangements with the Insurance Carriers. Table 16 highlights that while the ARRA is forecast
to increase due to forecast agency revenue, this increase is partially offset by a significant increase in agency
payments, particularly in FY16, which reflects revisions to Insurance Carrier arrangements that have been agreed
for a term of five years. Movements in the pro forma ARRA period-on-period are discussed in Section 4.7.
The pro forma ARRA set out in Table 16 represents the value of the closing ARRA balance that the Directors
expect Greenstone to report for FY16. As a result, the figures below assume the ARRA movements associated
with the pro forma adjustments for the accounting policy change and disposal of the Real Home Loan business
and the ARRA movement arising as a result of the Australian Seniors Insurance Agency brand acquisition, have
all existed from the commencement of FY13.
80
Section 04 – Financial information
Greenstone Limited Prospectus
Table 16:Movement in pro forma ARRA
Pro forma historical
$m
Pro forma opening ARRA balance
Agency revenue
Agency payments received
Pro forma closing ARRA balance
4.5.2
Pro forma forecast
Pro forma historical
FY13
FY14
FY15
FY16
1H14
1H15
346.0
203.1
(157.7)
391.4
391.4
187.8
(139.9)
439.3
439.3
238.6
(144.2)
533.7
533.7
281.1
(221.0)
593.8
391.4
98.5
(73.6)
416.3
439.3
122.5
(67.3)
494.5
Assumptions used to estimate the value of the ARRA
As described in Section 4.5.1, the ARRA represents the accumulation of agency revenue less agency payments
received (including life and pet insurance), where agency revenue comprises new business revenue, retention
revenue, price adjustment revenue and discount and risk premium unwind revenue.
The new business revenue represents the estimated net present value of future expected agency payments at
the time of the life or pet insurance product sale, based on actuarially determined assumptions by insurance
product, and may differ by type, brand, channel and vintage. These assumptions include the retention rate,
product pricing terms and contracted agency payment terms with Insurance Carriers, discount rate and the
projection period, which are further discussed below.
References to assumptions underlying the ARRA represent a weighted average assumption across the portfolio
of life and pet insurance products in-force. These assumptions are set by internal actuaries on a routine basis
and reviewed by external actuaries at the end of the reporting period and are monitored by the Board and
management of Greenstone. For the purposes of this Prospectus, Greenstone appointed Deloitte Actuaries
& Consultants Limited to perform an independent actuarial review of Greenstone’s data, methodology and
assumptions in the value of the ARRA as at 31 December 2014. For more details see the Consulting Actuary’s
Report in Section 11.
Any changes to the assumptions underlying the life and pet insurance products in-force are carefully considered
by the Board and will impact the weighted average assumptions underlying the ARRA. Changes to these
assumptions are referred to as “basis changes” and will impact agency revenue and the ARRA as discussed in
Section 4.3.1.
The key assumptions currently used to estimate the value of the ARRA are described below. Investors should
consider the sensitivity of changes in these assumptions as described in Section 4.9, as well as the risks associated
with such changes as described in Section 5.2.1.
Retention rate
Retention rate is the number of policies that remain in-force at the end of the reporting period as a percentage
of the in-force policies at the start of the period, weighted by the premium of the various products that
comprise the mix. In determining the retention rate, policies which were previously in-force and have
subsequently been acquired back are treated as new and not retained business. The retention rate movement
is impacted by many factors which include changes to the mix of products, brands, premium value, distribution
channel and tenure.
Any subsequent changes to the retention rate of the in-force insurance products underlying the ARRA may have
a positive or negative impact on the estimated net present value of future expected agency payments to be
received from the in-force policies, giving rise to a corresponding change in retention revenue and the ARRA
Pricing changes
On the sale of a new policy, new business revenue is based on the contracted agency payment terms with
Insurance Carriers and pricing agreements with policyholders in place at the time of sale as they are expected
to apply over the life of the policy. These terms differ on a policy-by-policy basis and may change over the
life of the policy.
Greenstone Limited Prospectus
Section 04 – Financial information
81
Subsequent changes to these terms, to the extent
they apply to any in-force policies, would have a
positive or negative impact on the estimated net
present value of future expected agency payments
to be received from the affected in-force policies,
giving rise to a corresponding change in agency
revenue and the ARRA.
Projection period
Incorporated in the contractual terms are factors
used to drive the valuation of the ARRA. These
include known age increases and contractual
inflation adjustments.
Each following month after new business revenue is
recognised, to the extent a policy remains in-force and
does not have a benefit date within the seven year
(pet) or 15 year (life) projection period, an additional
month of agency payments is recognised. The
estimated net present value of these additional future
expected agency payments is included in new business
revenue and therefore the ARRA.
Discount rate and risk premium
Under AASB 9 Financial Instruments, the discount
rate is set when new business revenue is recognised.
The discount rate applied when calculating new
business revenue will change with underlying
financial market conditions (with a component based
on the risk free rate), along with management’s
estimate of counterparty risk of Insurance Carriers.
Additionally, a risk premium rate has been applied
to reflect uncertainty associated with the future
agency payments.
The forecast future expected agency payments
associated with new policies sold in FY15 and FY16
have been discounted at a rate of 8.0%. This compares
to new policies sold in FY13 and FY14, which were
discounted at a rate of 9.5%.
The FY15 and FY16 combined discount assumed for
new business revenue is the aggregate of:
■■
■■
the discount rate, which is based on a risk free rate
(linked to a weighted average of five and 10 year
government bond yields) and counterparty risk
(together, these currently total 5.0%); and
the risk premium, presently 3.0% (based on a
management estimate), which is a prudency buffer
and added to the risk free rate and counterparty
credit spread, in relation to additional uncertainty
associated with expected agency payments.
The discount rate and risk premium are reviewed
regularly and changed to reflect bond yield trends,
counterparty risk changes and retention trends. As
the in-force book matures, Greenstone can gain
better insights into the policy retention trends and
the appropriateness of the prudential margin held
for this component. Any changes to the discount rate
or risk premium require Board approval. Changes in
the assumed discount rate only impact the value of
new business revenue after the date the discount
rate is changed.
On sale of a new policy, Greenstone estimates new
business revenue, which impacts the ARRA, based on
future expected agency payments over the projected
life of the policy, which is either a maximum of seven
years (for pet insurance products) or 15 years (for life
insurance products).
The future expected agency payments across the
projection period for each insurance product sold
incorporates the retention rate assumption (e.g. lapse,
mortality). Therefore, while the maximum projection
period for any one policy is seven years (for pet
insurance products) and 15 years (for life insurance
products), the implied weighted average life of the
in-force policies is less.
4.5.3
Fair value of the ARRA
The pro forma fair value of the ARRA, as opposed to
the amortised cost approach required under AASB 9
Financial Instruments, as at 31 December 2014 was
$594 million. This value recognises the pro forma
impact from the acquisition of the Australian Seniors
Insurance Agency brand and the enhanced value of
amended contract terms with Insurance Carriers. The
fair market value has been arrived at on the basis of a
valuation carried out using actuarial valuation models
based on the discounted cash flow approach. In the
absence of an active market for assets of this nature,
fair value was determined based on the Directors’
estimate of an appropriate discount rate of 5% at
the reporting date having consideration for related
counterparty credit risk, the term of the underlying
assets and assumption that realisation would occur
in an orderly market plus a risk premium of 3% as a
prudency buffer in relation to additional uncertainty
associated with expected agency payments. The
difference between fair value of the ARRA and the
carrying value is expected to be received over the
next 15 years (which is the projection period of future
expected cash flows incorporated into the estimated
net present value of the ARRA) through additional
discount and risk premium unwind revenue.
82
Section 04 – Financial information
4.5.4
Greenstone Limited Prospectus
Expected agency payments
Agency payments represent the payments Greenstone receives from Insurance Carriers and Affinity Brand
Partners for Greenstone’s contribution to the design, marketing and distribution of insurance products. The
payment profile varies by insurance product and brand. The ARRA reflects the estimated net present value of
the future expected agency payments on the insurance products in-force, less any agency payments received in
relation to the insurance products in-force.
The agency payments which can be expected are a function of new business revenue, the size of the ARRA,
as well as the contractual terms with insurers in relation to agency payments, including the timing of those
agency payments.
As set out in Table 16, future expected agency payments are forecast to be significantly higher in FY16
compared to those in previous reporting periods. While this partly reflects the higher embedded cash flows
from the in-force policies in the ARRA in comparison to that in previous periods, this increase is largely driven
by revised arrangements with Insurance Carriers, which result in the acceleration of when agency payments are
received and an overall increase in agency payments received.
Figure 22 depicts the half yearly agency payment profile of the ARRA commencing from 1 July 2015.
This payment profile includes the new Insurance Carrier terms which became effective as at 1 June
2015 and assumes:
■■
■■
■■
no new business revenue from new policy sales is received after 31 December 2014;
experience is aligned with assumptions (discussed in Section 4.5.2 and Section 4.3.1) and assumptions do not
alter across the future payment profile; and
terms with Insurance Carriers and policyholders associated with the in-force policies underlying the ARRA as
at 30 June 2015 remain unchanged.
The agency payments included in this profile reflect the nominal future expected agency payments and not the
estimated net present value of the future expected agency payments. The existing ARRA is expected to result in
excess of $93 million in nominal cash receipts for Greenstone over FY16.
Figure 22: Future expected agency payments from 30 June 2015 from the ARRA
$m
50
40
30
20
10
0
Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec
15 16 16 17 17 18 18 19 19 20 20 21 21 22 22 23 23 24 24 25 25 26 26 27 27 28 28 29 29
Note:
1. Assumes no new business from 31 December 2014; experience is aligned with the assumptions; and the terms associated with the in-force policies
underlying the ARRA remain unchanged.
Greenstone Limited Prospectus
Section 04 – Financial information
83
The acceleration of new business agency payments is demonstrated in Figure 23. The chart is based on Real
Insurance branded life policies (term life, income protection and funeral) under the revised arrangements with
its Insurance Carrier. The chart shows that approximately 70% of the total agency payments expected to be
received are received in the first year that the policy is in force.
Figure 23: Cash flow receipts profile on Real Insurance life policies over time1
$m
New business
revenue upon
policy sale
2500
New business revenue
Cash flows
2000
1st year cash flow
approximately 70% of
new business revenue
1500
1000
Payment profile
extends to Year 15
500
0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Note:
1. This represents a single policy based on the blended average terms of Real Insurance life policies (term life, income protection and funeral) and assumes
the policy does not lapse. Does not include additional administration revenue.
4.6
Summary pro forma historical and forecast consolidated cash flow information
Set out below is a summary of the Pro Forma Historical Cash Flows for FY13, FY14, 1H14 and 1H15, Pro Forma
Forecast Cash Flows for FY15 and FY16 and Statutory Forecast Cash Flows for FY15 and FY16.
Operating free cash flow before capital expenditure and cash flow before financing and tax are being presented
as they are considered relevant to understanding the available free cash flow generated by Greenstone. The
forecast cash flows set out below reflect the forecast impact of the revised Insurance Carrier arrangements on
cash flow. As the majority of agency revenue represents the estimated net present value of future expected
agency payments, there is typically a significant difference between cash flows and revenue.
Movements in the ARRA represent the difference between the estimated net present value of future expected
agency payments recognised as agency revenue and agency payments received. Movements in the ARRA reflect
non-cash revenue, and are therefore subtracted from EBITDA along with movements in other net working
capital items to arrive at operating free cash flow before capital expenditure.
84
Section 04 – Financial information
Greenstone Limited Prospectus
Table 17:Summary of Pro Forma Historical Cash Flows, Pro Forma Forecast Cash Flows and Statutory
Forecast Cash Flows
Pro forma
historical
$m
EBITDA
Movement in the ARRA
Movement in other net working capital items
Non-cash items in EBITDA
Operating free cash flow before capital
expenditure
Total capital expenditure
Cash flow before financing and tax
Interest and other costs paid on financial debt
Income tax (paid)/received
Proceeds from repayment of related party loans
Acquisition of business
Proceeds from the sale of business
Offer transaction cost (capitalised to equity)
Proceeds from the issue of Shares
Acquisition of non-controlling interest (net
of proceeds received from the subscription of
Shares by the Casey Trust)
Proceeds from debt facilities
Repayment of existing debt
Net cash flow before dividend
Note
1
2
3
4
5
6
7
8
9
10
11
12
13
13
Pro forma forecast
Pro forma
historical
Statutory
forecast
FY15 FY1614
1H14
1H15
74.5
(47.9)
(2.7)
–
23.9
93.9
(94.4)
(8.0)
0.1
(8.4)
138.1
(60.1)
(4.3)
0.7
74.4
41.9
(24.9)
(0.1)
–
16.9
57.5
(55.2)
4.5
–
6.8
57.0
(95.2)
(3.2)
(0.8)
(42.2)
138.1
(60.1)
(4.3)
0.7
74.4
(3.3)
20.6
(2.1)
(10.5)
(4.0)
70.4
(6.7)
(10.8)
–
–
–
–
–
–
(1.6)
15.3
(0.3)
6.5
(2.1)
(44.3)
(6.2)
2.3
4.1
(12.5)
1.6
(18.2)
319.4
(249.8)
(4.0)
70.4
(6.7)
(10.8)
–
–
–
–
–
–
119.7
(122.6)
(6.5)
–
(5.0)
47.9
FY13
FY14
65.7
(45.4)
(0.1)
0.6
20.8
(0.1)
20.7
–
(5.0)
47.9
FY15 FY1614
Note:
1. Movements in the ARRA are a result of the difference between agency revenue recognised and agency payments received as cash over the period.
2. Other working capital movements relate, mainly, to the timing of payments of advertising expenses, employee entitlements and customer loyalty
incentive rewards. Customer loyalty incentive rewards represent future expected payments to holders of various life policies sold under the Real
Insurance brand. It is measured at amortised cost. A refund is dependent upon the policyholder reaching their first policy anniversary and is therefore
subject to the sensitivity of underlying assumptions relating to policy retention (discussed further in Section 3.3.2).
3. Non-cash items include the impairment of an investment (FY13) and the equity portion of long term incentives (FY15 and FY16). FY16 relates to the
portion of the legacy incentive scheme settlement costs which are settled through equity.
4. Capital expenditure is comprised of internally developed software, purchased computer hardware and sundry assets.
5. Interest paid comprises an estimate of interest paid on existing debt up to and including when the New Banking Facilities are drawn and estimated
interest costs to be paid on the New Banking Facilities.
6. No income tax payable is forecast for FY15 as Greenstone expects to be in a tax loss position for the year taking into account certain transaction costs.
FY16 includes an estimate of tax paid with respect to taxable income forecast for the period.
7. Existing loans to related parties will be repaid to Greenstone following the Offer.
8. Represents the consideration payable for the acquisition of the Australian Seniors Insurance Agency brand and associated transaction costs.
9. Represents the proceeds from the sale of Greenstone Home Loans Pty Ltd.
10. The FY15 statutory forecast EBITDA includes the portion of expenses of the Offer and other transaction costs expensed in the Statutory Forecast Results
for FY15. The amount payable represents the additional portion of these costs which have been capitalised to equity.
11.Represents:
• $307.9 million proceeds from the issue of New Shares under the Offer; plus
• $11.5 million proceeds from the issue of Shares to the Existing Shareholder to settle legacy CEO incentive arrangements.
12. $414.3 million acquisition of rights in and options over Greenstone’s most significant subsidiary, Greenstone Financial Services (assuming the midpoint
of the Indicative Price Range), which will be partially offset by a $164.5 million subscription by Novatrust Ltd as trustee for the Casey Trust (assuming
the midpoint of the Indicative Price Range).
13. Represents the non-recurring cash flows that are forecast to occur in FY15 in association with the drawdown of the New Banking Facilities and the
repayment of existing debt. Additionally, FY15 (for the month of June 2015) and FY16 includes repayments of the principal for amortising Tranche 1.
The repayment of the existing debt in FY15 includes a reduction of the existing debt facilities during the period prior to Settlement.
14. Pro forma forecast FY16 and statutory forecast FY16 values are identical.
Greenstone Limited Prospectus
Section 04 – Financial information
85
4.6.1 Reconciliation between the historical and forecast consolidated cash flows before financing
and tax
In presenting the Pro Forma Historical Cash Flows, adjustments to the Statutory Historical Cash Flows have been
made for certain pro forma transactions and/or other adjustments as summarised below.
Table 18:Pro forma adjustments to the Statutory Historical Cash Flows and Statutory Forecast Cash Flows
Historical cash flow
$m
Cash flow before financing and tax
Discontinued operations
New management structure and IPO bonuses
Public company expenses
Listing and equity raising costs
Disposal of Real Home Loan business
Pro forma cash flow before financing and tax
Note
1
2
3
4
5
6
Forecast cash flow
Historical cash flow
FY13
FY14
FY15
FY16
1H14
21.1
2.6
(1.0)
(2.0)
–
–
20.7
23.8
–
(1.0)
(2.0)
–
(0.2)
20.6
(44.3)
–
17.7
(1.8)
17.8
0.1
(10.5)
70.4
–
–
–
–
–
70.4
16.8
–
(0.5)
(1.0)
–
–
15.3
1H15
7.0
–
–
(1.0)
–
0.5
6.5
Note:
1. Cash flow before financing and tax can be derived from the Statutory Historical Financial Statements and the corresponding notes as follows:
a. net operating cash flows (from the consolidated statement of cash flows);
b. finance costs paid (from the consolidated statement of cash flows);
c.net tax paid or received (income tax expense from the consolidated statement of comprehensive income) less movements in tax balances (current
tax receivable and deferred tax liabilities per the consolidated balance sheet position); and
d. proceeds from or acquisition of property, plant and equipment (from the consolidated statement of cash flows).
Note that in the calculation of the movement in tax balances for FY13, the movement in deferred tax liabilities is reduced by the deferred tax asset of
disposal group and deferred acquisition costs movement as part of the Group restructure.
2. An adjustment has been made to the Statutory Historical Cash Flows for FY13 to reflect Greenstone’s disposal of Hollard Holdings Australia (described
in Table 5, Section 4.3.2) in August 2012, as if the disposal had occurred on 30 June 2012. This adjustment removes the negative cash flows of the
discontinued operations and reinstates the cash flows which were previously eliminated between Greenstone and Hollard Holdings Australia.
3. An adjustment has been made in FY13 and FY14 to reflect the incremental costs of new executive positions to enhance the management structure
and support the business for the growth assumed as if these arrangements had been implemented from 30 June 2012. For FY15 an adjustment has
been made to remove one-off costs associated with IPO incentive bonuses for certain senior executives, including close out of previous incentives
arrangements with Greenstone’s CEO.
4. Represents the inclusion of Greenstone’s estimate of the incremental annual costs that the Company will incur as a public entity.
5. Represents the removal of the portion of the estimated total costs of the Offer that will be expensed in the Statutory Forecast Results for FY15.
6. Represents the removal of the cash flow before financing and tax associated with the disposal of the Real Home Loan business.
86
Section 04 – Financial information
4.7 Management discussion and
analysis of the Pro Forma Historical
Financial Information
4.7.1 Main factors affecting historical financial
performance
Set out below is a discussion of the main factors which
affected Greenstone’s historical financial performance
in FY13, FY14, 1H14 and 1H15 and which the Directors
expect may affect its future performance.
The discussion of these factors is intended to provide
a brief summary only and does not detail all the
factors that affected Greenstone’s historical financial
performance, or may affect Greenstone’s future
financial performance.
New business revenue and marketing expenditure
A key driver of new business revenue is the number
of policies sold. Historically, the number of policies
sold and consequently, new business revenue have
been highly sensitive to marketing expenditure
and its effectiveness. Marketing expenditure has
an important role in building Greenstone’s brand
recognition across its products, generating leads
and other inbound enquiries directly to Greenstone’s
call centre and websites, which Greenstone seeks
to convert into policies sold. Marketing expenses
include television, internet and radio advertising
as well as online marketing and search engine
optimisation (SEO).
While historically television advertising has been
the most significant driver of Greenstone’s media
targeted marketing expenditure, Greenstone’s
operating results have been increasingly impacted
by its online marketing expenditure, and in particular
its SEO strategy.
Any adverse change in one channel can impact the
effectiveness of Greenstone’s overall marketing
strategy. For example, lower search engine rankings
for key words relating to Greenstone’s insurance
product offering will likely result in lower lead
generation and therefore lower policy sales, as it
may impact how quickly and easily customers can
find Greenstone’s insurance products through search
engines such as Google, following a television
advertisement. Therefore, a change in organic
search engine rankings can change the effectiveness
of all advertising campaigns, including television.
An example of this occurred in FY13, when Google
adjusted its organic page ranking algorithm and
penalised certain websites for the methods they
Greenstone Limited Prospectus
were using to generate organic rankings (including
a number of Greenstone websites such as the Real
Insurance and Choosi websites) through a manual
reduction in their search position, as discussed further
in Section 3.3.2.
In order to manage the effectiveness of Greenstone’s
marketing expenditure, management may reallocate
or even intentionally reduce marketing expenditure
to reduce sales in certain insurance product categories
in order to achieve the best possible return from
that expenditure. An example of when Greenstone
management has intentionally reduced marketing
expenditure to reduce sales of insurance products is
when an insurance product is undergoing a review
or redesign, such as was the case for Greenstone’s
funeral insurance products in FY14, as discussed
further in Section 3.3.2.
As discussed in Section 3.7.1.1, Greenstone uses a
proprietary Investment Return Model (IRM) to predict
the optimal allocation of its marketing expenditure.
The IRM takes into consideration over 20 factors,
including television expenditure, time of day, brand,
product, online expenditure, SEO ranking, school
holidays and seasonality. The IRM utilises Greenstone’s
media and sales history and other data, collected
over a historical time frame of just over four years,
to predict how Greenstone can optimally spend its
marketing budget. While the marketing team has
a ‘test budget’ with which they can introduce new
marketing concepts and measure their efficiency
through the IRM, the majority of Greenstone’s
marketing expenditure is tied to the output of the
IRM. With continued development of the IRM output,
marketing expenditure is expected to become more
effective going forward.
Product mix
As Greenstone’s product mix changes, a number of
key performance indicators reported on an aggregate
basis may change (e.g. new business revenue, GWP,
cost per acquisition, retention rates and policies sold).
Greenstone’s product mix has changed significantly
over the historical period, which has resulted in a
reduced weighting towards funeral and private health
insurance products and an increased weighting to
term life and pet insurance products.
This is of particular importance to the interpretation
of Greenstone’s key performance indicators,
including cost per acquisition, retention rates, new
business revenue, GWP and policies sold, which at
a management level, are generally best tracked at
an individual insurance product, channel, brand
Greenstone Limited Prospectus
or customer segment level, due to considerable
variation period to period in the aggregated
trends driven by mix.
GWP
Movements in GWP provide context to movements
in new business revenue by showing the impact
of product, channel, brand or customer segment
mix. For instance:
■■
Product mix: different products, which may have
a similar GWP per policy, may have a different
new business revenue per product driven by
factors such as:
——
——
——
■■
■■
■■
product type (i.e. proprietary versus third party
products): new business revenue received by
Greenstone for its proprietary products such as
life and pet insurance policies reflects higher
new business revenue commensurate with
Greenstone being responsible for the design,
marketing and distribution of these insurance
products. In contrast, new business revenue
received by Greenstone for third party private
health insurance policies sold via Choosi is
lower, which reflects Greenstone’s contribution
solely to product distribution;
projection period: new business revenue for pet
insurance products represents the estimated
net present value of agency payments over a
maximum of seven years, compared to 15 years
for life insurance products; and
retention rate assumptions: income protection
and pet insurance products typically experience
lower retention rates, which is reflected in
the weighting of Greenstone’s retention
rate assumptions (as described below) and
reduces the new business revenue per sale for
these products;
Channel mix: sales from different channels of
the same product may have similar GWP per sale
but exhibit different new business revenue per
product. For example, outbound sales initiated
by Greenstone (rather than sales generated
from inbound leads generated by Greenstone’s
marketing campaigns) are assumed to have lower
retention rates than inbound sales;
Brand mix: the GWP may be similar for certain
insurance types; however, the mix of sales between
brands impacts value of new business due the
customer segments each brand targets; and
Customer segment mix: while sales of the same
product to different customer segments will result
Section 04 – Financial information
87
in the same GWP per sale, customer segments
may have varying retention rates. For example,
initiatives started in FY15 involved selling and
cross-selling insurance products to existing and
pre-existing customers. Customers with a preexisting relationship with Greenstone are currently
assumed to have a lower assumed retention rate,
which results in lower new business revenue than
Greenstone would assume for a new relationship.
However, customers with pre-existing relationships
are also associated with a lower cost of acquisition
and therefore can be economically attractive, as
discussed below.
Given the above factors, the relationship between
new business revenue and GWP on an aggregated
basis across the portfolio of insurance policies sold
by Greenstone may change, reflecting the possible
period-to-period shift in Greenstone’s product mix.
Policies sold
An increase in the number of policies sold will
generally be associated with an increase in GWP,
future expected agency payments in the case of life
and pet insurance and new business revenue for all
insurance products.
While this will generally apply on a product-byproduct basis, this may not be true on an aggregated
basis across the portfolio, given it is possible for
Greenstone to sell a lower number of policies with
higher GWP per policy or for Greenstone to generate
higher new business revenue on a per policy basis,
depending on product mix.
Retention rate
The actuarially determined assumptions discussed in
Section 4.3.1 and Section 4.5.2 underlying the future
expected agency payments, such as retention rates,
differ by policy. Individual assumptions have been
made for term life, income protection, funeral and pet
insurance products; Proprietary Brands and Affinity
Brands; inbound and outbound sales; and targeted
customer segments.
Retention rates measure Greenstone’s ability to
retain its current policyholders in order to continue
receiving agency payments and administration
fees over the lives of both life and pet insurance
policies. Improving retention rates will result in more
policies being retained and more agency payments
and administration revenue being generated from
in-force policies.
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Section 04 – Financial information
Greenstone is focussed on improving retention rates
on a product-by-product basis and has implemented
various retention strategies in 1H15 as part of
proactively managing retention. These retention
initiatives, which positively impacted Greenstone’s
FY15 revenue, are discussed in Section 3.7.2.
However, successful execution of this strategy may
not be entirely apparent on an aggregate basis due
to changes in Greenstone’s product mix, including
variations in Proprietary Brands and Affinity Brands,
inbound and outbound sales, average tenure of
policies, and targeted customer segments.
For example, if product mix shifts away from
insurance products with inherently higher retention
rates to insurance products with inherently lower
retention rates, the aggregated retention rate may
not reflect the improvements in the retention rates
being delivered in each of the relevant insurance
product categories. Similarly, this may occur if the mix
between proprietary and affinity brands, inbound
and outbound sales, or customer segments changes,
as some brands, sales channels or customer segments
may have inherently higher or lower retention rates.
Cost of acquisition
Two of the key commercial levers that Greenstone’s
management considers are conversion rate and
cost per lead, reflecting leads which are successfully
converted to sales and the costs associated with
converted leads respectively.
Both cost per lead and conversion rate are tracked at
an individual insurance product and channel level. At
an aggregate level, a better guide to the underlying
trend in these metrics is cost per acquisition as this is
better related to the economic outcome of a sale.
Cost per acquisition is a measure of Greenstone’s
ability to generate sales in a cost effective way,
calculated as marketing and distribution costs per
policy distributed.
The aggregate costs involved in the design, marketing
and distribution of life and pet insurance products are
expensed as incurred and will generally be greater
than the costs involved in solely the distribution of
third party insurance policies sold via Choosi, such as
private health insurance.
Marketing and distribution expenses may also differ
between term, income protection, funeral and
pet insurance products; proprietary and affinity
brands; inbound and outbound sales; and targeted
customer segments.
Greenstone Limited Prospectus
Therefore, while cost per acquisition is a focus for
Greenstone’s management at an aggregate group
level, it is possible that management may intentionally
shift the product mix to products, channels, brands or
customer segments associated with higher marketing
and distribution expenses, which will result in a higher
cost per acquisition, as this shift may generate higher
new business revenue and margins.
EBITDA margin
The margin between revenue generated and expenses
incurred by Greenstone is a key focus for management
and will also vary by product, channel, brand or
customer segment. This focus may warrant a shift
to certain products, channels, brands or customer
segments associated with a lower GWP per policy,
higher cost per acquisition or lower retention rates.
The success of such product mix strategies would
be expected to be reflected in an improvement to
Greenstone’s EBITDA margin.
Employment, occupancy and other expenses
Employment expenses include direct and indirect
expenses for all employees. This includes functional
areas such as the call centre, product partnerships,
policy administration, risk and compliance, marketing,
business intelligence, information technology, finance
and people and culture.
Also, as previously discussed in Section 3.8, staffing
expenses can change in response to management’s
strategy, such as an increased focus on retention over
FY14 and 1H15, with the dedicated retention team
growing from 23 at the end of March 2014 to 46
people at the end of March 2015.
Other variable expenses are linked to Greenstone’s
remuneration policy, with 25% of call centre
employees’ remuneration linked to incentives such as
retention, sales performance and compliance.
Critical to Greenstone’s success is its focussed, simple
distribution model, which can distribute insurance
products across Australia from a single location
and call centre in Sydney. The automated process
supporting Greenstone’s employees distributing
insurance products, as well as operating from a single
location are expected to provide a relatively fixed cost
base in terms of occupancy and other expenses (as
demonstrated in 1H15 compared to 1H14) following
a period of significant growth in FY13 and FY14.
Greenstone Limited Prospectus
Section 04 – Financial information
89
Basis changes affecting agency revenue and the ARRA
As discussed in Section 4.3.1 and Section 4.5.2, actual retention experience and changes to the underlying
assumptions used in calculating the ARRA can create volatility in agency revenue and earnings in subsequent
financial periods.
In each period, Greenstone undertakes an analysis of actual experience compared to the assumptions in the
ARRA. Basis changes occur when the variance of actual experiences results in a revision to actuarial assumptions
for the overall ARRA value. Historically, basis changes in these assumptions have created volatility in agency
revenue and profitability. These changes occur in the ordinary course of business and may occur again in the
future. For example:
■■
■■
■■
in FY13, when Greenstone reduced the price of its funeral insurance product in response to ASIC’s enquiry
(discussed in Section 3.3.2), this resulted in a $19.5 million reduction in the ARRA and a corresponding
impact on revenue;
in FY14, management determined the cost of administration services more accurately and agreed with
Insurance Carriers to reallocate a portion of administration revenue cash flows (which is recognised in the
year the administration services are provided) to agency revenue. This, in effect, increased all future expected
agency payments, resulting in a $14.4 million increase in the ARRA; and
in FY14, management revised the modelling of retention rate assumptions to reflect separate assumptions
for inbound and outbound sales (with outbound sales historically experiencing lower retention rates)
rather than modelling these on a combined basis as historically had been done, which together with other
factors such as general market conditions contributed to the adverse retention basis change and consequent
reduction in the ARRA of $23.7 million.
Discount and risk premium unwind
Discount and risk premium unwind revenue is more predictable and largely depends upon the value of the
ARRA and the discount rate and risk premium assumptions made when the policies were sold. This predictable
revenue stream is expected to increase as the ARRA increases and is not correlated to marketing and
distribution, employment or occupancy and other expenses.
Greenstone regularly reviews this discount rate with any changes requiring Board approval. While the discount
rate can change, the new discount rate will only be applied prospectively to new policies sold from the
date of change.
In FY15, Greenstone’s discount rate and risk premium used to determine the value of new business revenue
was 8% compared to 9.5% in FY14. All things being equal, the reduction in the discount rate and risk premium
improves new business revenue in the period the lower rate applies.
90
Section 04 – Financial information
Greenstone Limited Prospectus
General market factors
Greenstone is primarily involved in the direct channel of distribution for insurance products in Australia
including life, pet and private health insurance and also operates an online comparison website. A range
of market factors will impact demand for insurance products through these channels in Australia including
developments in the competitive landscape, as well as other demographic, population, economic and regulatory
developments and changes in consumer behaviour. These factors can impact the ability of Greenstone to
generate revenue. Historically, certain of these factors have impacted each of Greenstone’s key products
differently. For example:
■■
■■
■■
■■
■■
■■
■■
increased focus by regulators, especially in regards to the direct distribution industry, can also have an impact
on sales. For example, in September 2012, ASIC approached a number of funeral insurance providers to
discuss potential concerns regarding the disclosure and terms of funeral insurance products offered in the
market. Following these discussions, Greenstone responded by reducing its marketing expenditure on funeral
insurance, repricing the product downward for both existing and new customers and capping premiums for
Greenstone’s policyholders that were over 80 years old, as discussed further in Section 3.3.2;
growing propensity of consumers to transact online, increased awareness and acceptance of new product
categories, such as pet insurance, and access to, and utilisation of, the internet have had, and are expected
to continue to have, a significant impact on Greenstone’s direct distribution business, and online comparison
website, Choosi;
changes in the competitive landscape, for example, such as the entry of new competitors in the comparison
website sector, may have a significant impact on Greenstone’s businesses;
economic activity impacting the demand for insurance products and services. For example, demand typically
increases as the overall level of economic activity increases and can fall as such activity and discretionary
expenditure decreases. However, under certain circumstances, for example during economic downturns,
customers may seek additional insurance coverage, particularly in certain categories of insurance such
as term life and income protection or may reduce discretionary expenditure on certain products such as
pet insurance;
demographic changes including population growth leading to an increased demand for insurance products
and the ageing of the Australian population being associated with higher premiums and therefore
agency payments;
while Greenstone’s life insurance products do not demonstrate any discernible seasonality, pet insurance
products typically exhibit greater sales in December and January due to increased purchasing of pets over the
holiday period. Also private health insurance generally receives greater activity in the second half reporting
period, due to private health insurers setting their annual premium rates in this period encouraging
customers to review and compare alternative private health insurance products; and
while Greenstone is not an insurance company, it may be impacted by the insurance pricing cycle with the
majority of Greenstone’s income generated from agency revenue (for life and pet insurance), earned on
insurance policies sold. Greenstone’s agency revenue received is the difference between the price charged
to consumers and the rate of premium retained by the Insurance Carrier. Greenstone partners with a
number of Insurance Carriers. Any trends or cyclical variations that impact Insurance Carriers, which have
a relationship with Greenstone, such as a hardening or softening of rates depending on the stage in the
insurance cycle, could result in changes in pricing arrangements and could impact the agency revenues
received by Greenstone.
Greenstone Limited Prospectus
4.7.2
Section 04 – Financial information
91
Pro forma historical consolidated financial statements: 1H15 compared to 1H14
Tables 19 and 20 set out the selected Pro Forma Historical Results and selected Pro Forma Historical Cash Flows
for 1H14 and 1H15.
Table 19:Pro Forma Historical Results: 1H15 compared to 1H14
Pro forma historical
$m
New business revenue
Retention revenue
Price adjustment revenue
Discount and risk premium unwind revenue
Agency revenue
Administration revenue
Other revenue
Total revenue
Marketing and distribution expenses
Employment expenses
Occupancy and other expenses
Total expenses
EBITDA
Depreciation and amortisation
Financing expense
Income tax expense
NPAT
1H14
1H15
86.4
(5.0)
–
17.1
98.5
5.7
0.3
104.5
(39.5)
(18.0)
(5.1)
(62.6)
41.9
(1.5)
(3.7)
(11.0)
25.7
93.0
8.6
3.3
17.6
122.5
4.3
0.3
127.1
(40.7)
(23.5)
(5.4)
(69.6)
57.5
(0.5)
(3.5)
(16.0)
37.5
Variance
6.6
13.6
3.3
0.5
24.0
(1.4)
–
22.6
(1.2)
(5.5)
(0.3)
(7.0)
15.6
1.0
0.2
(5.0)
11.8
Variance
7.6%
nm
nm
2.9%
24.4%
(24.6%)
–
21.6%
3.0%
30.6%
5.9%
11.2%
37.2%
(66.7%)
(5.4%)
45.5%
45.9%
Key metrics
Gross Written Premium ($m)
Policies sold (‘000)
Retention rate
Cost per acquisition ($)
EBITDA margin
52.2
52.7
79.5%
749
40%
62.5
60.0
80.9%
679
45%
10.4
7.2
140 bps
70.4
514 bps
19.9%
13.7%
9.4%
Table 20:Pro Forma Historical Cash Flows: 1H15 compared to 1H14
Pro forma historical
$m
1H14
1H15
EBITDA
Movement in the ARRA
Movement in other net working capital items
Non-cash items in EBITDA
Operating free cash flow before capital expenditure
Total capital expenditure
Cash flow before financing and tax
41.9
(24.9)
(0.1)
–
16.9
(1.6)
15.3
57.5
(55.2)
4.5
–
6.8
(0.3)
6.5
Variance
15.6
(30.3)
4.6
–
(10.1)
1.3
(8.8)
Variance
37.2%
121.7%
nm
nm
(59.8%)
(81.3%)
(57.5%)
92
Section 04 – Financial information
4.7.2.1 1H14 compared to 1H15 discussion
Greenstone’s NPAT increased by $11.8 million
(or 45.9%), from $25.7 million in 1H14 to $37.5
million in 1H15.
Revenue
Total revenue increased by $22.6 million (or 21.6%),
from $104.5 million in 1H14 to $127.1 million in 1H15.
Agency revenue
Agency revenue increased by $24.0 million (or 24.4%),
from $98.5 million in 1H14 to $122.5 million in 1H15.
This increase was primarily driven by growth in new
business revenue and retention revenue.
The modest growth in new business revenue
(excluding the impact of the discount rate change)
also corresponded with a period of modest
growth in marketing and distribution expenses, as
discussed below.
New business revenue increased by $6.6 million (or
7.6%), from $86.4 million in 1H14 to $93.0 million
in 1H15, of which approximately $5.0 million was a
result of a reduction in the discount rate to estimate
net present value of future expected agency payments
from 9.5% in 1H14 to 8% in 1H15.
The number of policies sold increased by 13.7% over
the same period (from 52,742 in 1H14 to 59,982 in
1H15). GWP increased by 19.9% (from $52.2 million
in 1H14 to $62.5 million in 1H15). This increase in
policies and GWP was primarily as a result of the
launch of Greenstone’s new ‘triple guaranteed’
funeral insurance product, which occurred in late
October 2014 and contributed strongly over the
last two months of 1H15, along with pet insurance
premium and policy growth and a marginal increase
in life insurance product sales. Lower new business
revenue growth, relative to growth in the number of
policies sold, from 1H14 to 1H15 also reflects targeted
customer segment mix. While all products experienced
growth from 1H14 to 1H15, growth was skewed
differently across targeted customer segments,
including a successful direct marketing campaign
during 1H15 to acquire back policies that were
previously in-force. While parts of these customer
segments are currently associated with lower assumed
retention rates, which negatively impact new business
revenue, they are also associated with significantly
lower cost per acquisition and therefore can be
economically attractive.
Greenstone Limited Prospectus
Retention revenue increased by $13.6 million, from
a negative retention revenue of $5.0 million in 1H14
to a positive retention revenue of $8.6 million in
1H15. The improvement in retention revenue reflects
improved retention rates, which increased from 79.5%
in 1H14 to 80.9% in 1H15, primarily as a result of
Greenstone’s new retention initiatives, which began
in June 2014. This increase also reflects an increased
weighting in the in-force book towards insurance
policies which have been in-force for a longer period.
These retention initiatives continue and are a key
focus of Greenstone (as discussed further in Section
3.7.2). The increase in retention rates was affected
by a dilution impact from the policies acquired back
under the direct marketing campaign to customers
where their policy was previously in-force and where
the retention rate per policy is expected to be lower.
Price adjustment revenue of $3.3 million in 1H15
(compared to nil in 1H14) reflected the impact of
new contract pricing schedules agreed with Insurance
Carriers on insurance policies currently in-force.
Administration revenue
Administration revenue decreased by $1.4 million (or
24.6%), from $5.7 million in 1H14 to $4.3 million in
1H15. This reflects the reduction in the administration
revenue rate (and corresponding increase in agency
revenue rate) referred to in Section 4.7.1.
Total expenses
Total expenses increased by $7.0 million (or 11.2%),
from $62.6 million in 1H14 to $69.6 million in 1H15.
This was largely due to increases in employment
expenses, as described below.
Marketing and distribution expenses increased by
$1.2 million (or 3.0%), from $39.5 million in 1H14
to $40.7 million in 1H15. Greenstone implemented
a deliberate reduction in marketing expenditure
throughout FY14, which impacted 1H14 marketing
expenditure, due to changes in Google’s algorithms
and ASIC’s review of funeral insurance products. The
change in Google’s algorithms lowered the ranking
of Greenstone’s search engine results and reduced
the efficiency of Greenstone’s marketing campaigns.
Greenstone therefore reduced marketing expenditure
during this period. Greenstone also reduced marketing
expenditure in response to decreased demand for
funeral insurance products following ASIC’s review,
which reduced the expected efficiency of marketing
campaigns based on IRM recommendations. This
deliberate reduction in marketing and distribution
expenses continued throughout most of 1H15.
Greenstone Limited Prospectus
However, marketing expenditure did increase in late
1H15 following the introduction of Greenstone’s
new funeral insurance product in October 2014
and an increased focus on supporting inorganic
Google ranking through paid advertising links. The
variations in marketing expenditure were driven by
recommendations made by the IRM, and were reflected
in the improved efficiency of marketing expenditure,
with cost per acquisition decreasing by $70 per policy
(or 9.4%) from $749 in 1H14 to $679 in 1H15.
Employment expenses increased by $5.5 million (or
30.6%), from $18.0 million in 1H14 to $23.5 million
in 1H15. This increase was primarily driven by
adjustments to remuneration to reflect market
rates, adjustments to long term executive incentive
structures and growth in headcount in the
retention team, information technology team and
compliance team.
Occupancy and other expenses of $5.4 million in 1H15
were broadly in line with those of $5.1 million in
1H14, and increased only slightly by $0.3 million (or
5.9%) reflecting a relatively fixed cost base.
EBITDA
EBITDA increased by $15.6 million (or 37.2%), from
$41.9 million in 1H14 to $57.5 million in 1H15,
primarily as a result of growth in agency revenue
outpacing growth in expenses. EBITDA margins
increased from 40% in 1H14 to 45% in 1H15, driven
predominantly by the improvement in retention
revenue and the improvement in new business
revenue which outpaced the growth in marketing and
distribution expenses.
Operating free cash flow before capital expenditure
Operating free cash flow before capital expenditure
decreased by $10.1 million (or 59.8%), from
$16.9 million in 1H14 to $6.8 million in 1H15. This was
largely due to the movement in the ARRA.
Agency revenue in 1H14 was $98.5 million compared
to agency payments received of $73.6 million in 1H14.
This difference gave rise to an increase in the ARRA
of $24.9 million, which represents an increase in
the estimated net present value of future expected
agency payments and a difference between EBITDA
and cash flows received in 1H14.
Agency revenue in 1H15 was $122.5 million compared
to agency payments received of $67.3 million in 1H15.
This difference gave rise to an increase in the ARRA
of $55.2 million, which represents an increase in
Section 04 – Financial information
93
the estimated net present value of future expected
agency payments and a difference between EBITDA
and cash flows received in 1H15.
Consequently, the growth in the ARRA increased by
$30.3 million (or 121.7%), from $24.9 million in 1H14
to $55.2 million in 1H15.
Other net working capital increased by $4.6 million
in 1H15, from negative $0.1 million in 1H14 to
$4.5 million in 1H15. This was mainly attributable to
the timing of the payment of marketing expenses
which was expensed in 1H15 but not paid until 2H15.
This other net working capital movement is expected
to be reversed in 2H15.
Capital expenditure
Total capital expenditure decreased by $1.3 million
(or 81.3%), from $1.6 million in 1H14 to $0.3 million
in 1H15. The capital expenditure in 1H14 related
to the capitalisation of labour costs involved in the
development of a new policy administration system,
which was implemented in February 2014 at a total
cost of $3.1 million.
94
Section 04 – Financial information
4.7.3
Greenstone Limited Prospectus
Pro forma historical consolidated financial statements: FY14 compared to FY13
Tables 21 and 22 set out the selected Pro Forma Historical Results and selected Pro Forma Historical Cash Flows
for FY13 and FY14.
Table 21:Pro Forma Historical Results: FY14 compared to FY13
Pro forma historical
$m
New business revenue
Retention revenue
Price adjustment revenue
Discount and risk premium unwind revenue
Agency revenue
Administration revenue
Other revenue
Total revenue
Marketing and distribution expenses
Employment expenses
Occupancy and other expenses
Total expenses
EBITDA
Depreciation and amortisation
Financing expense
Income tax expense
NPAT
FY13
FY14
210.0
(21.8)
(19.5)
34.4
203.1
9.7
0.9
213.7
(95.3)
(43.8)
(8.9)
(148.0)
65.7
(3.4)
(10.5)
(15.5)
36.3
165.7
(27.3)
14.4
35.0
187.8
11.2
1.7
200.7
(75.9)
(37.9)
(12.4)
(126.2)
74.5
(3.0)
(7.1)
(19.2)
45.2
147.4
137.0
78.8%
695
31%
105.5
104.1
79.8%
729
37%
Variance
Variance
(44.3)
(5.5)
33.9
0.6
(15.3)
1.5
0.8
(13.0)
19.4
5.9
(3.5)
21.8
8.8
0.4
3.4
(3.7)
8.9
(21.1%)
25.2%
nm
1.7%
(7.5%)
15.5%
88.9%
(6.1%)
(20.4%)
(13.5%)
39.3%
(14.7%)
13.4%
(11.8%)
(32.4%)
23.9%
24.5%
(42.0)
(32.9)
100 bps
(33.5)
638 bps
(28.5%)
(24.0%)
Key metrics
Gross Written Premium ($m)
Policies sold (‘000)
Retention rate
Cost per acquisition ($)
EBITDA margin
(4.8%)
Table 22:Pro Forma Historical Cash Flows: FY14 compared to FY13
Pro forma historical
$m
EBITDA
Movement in the ARRA
Movement in other net working capital items
Non-cash items in EBITDA
Operating free cash flow before capital expenditure
Total capital expenditure
Cash flow before financing and tax
FY13
FY14
65.7
(45.4)
(0.1)
0.6
20.8
(0.1)
20.7
74.5
(47.9)
(2.7)
–
23.9
(3.3)
20.6
Variance
8.8
(2.5)
(2.6)
(0.6)
3.1
(3.2)
(0.1)
Variance
13.4%
5.5%
nm
nm
14.9%
nm
(0.5%)
Greenstone Limited Prospectus
4.7.3.1 FY14 compared to FY13 discussion
NPAT increased by $8.9 million (or 24.5%), from
$36.3 million in FY13 to $45.2 million in FY14.
Revenue
Total revenue decreased by $13.0 million (or 6.1%),
from $213.7 million in FY13 to $200.7 million in FY14.
Agency revenue
Agency revenue decreased by $15.3 million (or 7.5%),
from $203.1 million in FY13 to $187.8 million in FY14.
This decrease was largely due to a decrease in new
business revenue, which was partially offset by an
increase in price adjustment revenue.
New business revenue declined by $44.3 million (or
21.1%), from $210.0 million in FY13 to $165.7 million
in FY14, which was broadly in line with the number of
policies sold decreasing by 24% over the same period
(from 137,040 in FY13 to 104,125 in FY14). This decline
in new business revenue and the number of policies
sold was due to a deliberate reduction in marketing
expenditure, which consequently reduced the number
of leads and policies sold.
GWP reduced by 28.5% (from $147.4 million in FY13
to $105.5 million in FY14). Policies sold reduced across
all product types with the exception of pet insurance
products, a product that has a relatively low GWP
per policy. As a result of this product mix shift, in
particular from life and funeral insurance products
to pet insurance products, GWP experienced a higher
reduction rate than policies sold.
Retention revenue fell by $5.5 million (or 25.2%),
from a negative retention revenue of $21.8
million in FY13 to a negative retention revenue of
$27.3 million in FY14, primarily due to the impact of
adverse basis changes.
The negative retention revenue in FY13 and FY14 was
a result of adverse basis changes to retention rates
caused by deterioration in actual retention experience
against retention assumptions for the in-force life and
funeral insurance policies. The adverse basis change
in FY13 also reflected a refinement of the actuarial
model used in estimating future expected agency
payments on pet insurance policies in-force, while the
adverse basis change in FY14 also reflected a more
granular approach to the measurement of retention
(in particular, Greenstone introduced different
retention assumptions associated with sales made
through inbound versus outbound sales channels,
whereby outbound sales do not display the same level
of retention as inbound sales).
Section 04 – Financial information
95
The adverse basis changes in FY13 and FY14 represent
changes in underlying retention rate assumption in
the calculation of the ARRA. Overall, actual retention
rates experienced improved from 78.8% in FY13 to
79.8% in FY14, which in part reflects an increased
weighting in the product mix towards insurance
policies that have been in-force for a longer period.
Insurance policies of longer tenure are generally
associated with higher retention rate experience.
The decrease in new business revenue was partly
offset by an improvement in price adjustment
revenue, which increased by $33.9 million, from
negative $19.5 million in FY13 to positive $14.4 million
in FY14. In FY13, the price adjustment was a result
of Greenstone repricing all in-force funeral policies
downwards in response to ASIC’s market-wide review
of funeral insurance products. In contrast, in FY14, the
price adjustment revenue was driven by a contractual
change with Insurance Carriers, following Greenstone
determining the cost of administration services more
accurately, as a result of which Greenstone reallocated
a portion of administration revenue cash flows (which
are recognised in the year the administration services
are provided) to agency revenue payments (which are
recognised upon sale of the policy). This, in effect,
increased all future expected agency revenue
payments in the calculation of the ARRA, giving rise to
price adjustment revenue of $14.4 million, which was
also reflected in a corresponding increase in the ARRA.
Administration revenue
Administration revenue increased by $1.5 million
(or 15.5%), from $9.7 million in FY13 to $11.2 million
in FY14. This increase was primarily driven by
the increase in the number of policies under
administration.
Total expenses
Total expenses decreased by $21.8 million (or 14.7%),
from $148.0 million in FY13 to $126.2 million in FY14.
This was primarily driven by decreased marketing
and distribution expenses and lower employment
expenses, as described below.
Marketing and distribution expenses decreased by
$19.4 million (or 20.4%), from $95.3 million in FY13
to $75.9 million in FY14. Greenstone implemented
a deliberate reduction in marketing expenditure
throughout FY14 primarily in response to Google’s
change in algorithms, which lowered the ranking
of Greenstone’s search engine results, resulting
in reduced efficiency of Greenstone’s marketing
campaigns. In addition, Greenstone reduced its
96
Section 04 – Financial information
marketing expenditure on funeral insurance products
in FY14 in response to decreased demand for funeral
insurance products following ASIC’s funeral insurance
product review discussed further in Section 3.3.2,
which reduced the expected efficiency of marketing
campaigns based on IRM recommendations.
Greenstone also reduced marketing expenditure in
relation to the distribution of private health insurance
products through the Choosi platform, as the IRM
highlighted to management that current marketing
expenditure was not resulting in an optimal return
on investment. Despite the reduced marketing
expenditure, cost per acquisition was broadly in
line between FY13 and FY14, increasing by $34 per
policy (or 4.8%) from $695 to $729, as a result of
Google’s change in algorithms and ASIC’s funeral
insurance review.
Employment expenses decreased by $5.9 million
(or 13.5%), from $43.8 million in FY13 to
$37.9 million in FY14. This was due to a reduction in
incentive‑linked remuneration as well as a reduction
in headcount, in particular in the size of the sales
team, in response to lower expected sales volumes
due to the planned lower marketing expenditure
as recommended by the IRM.
Occupancy and other expenses increased by
$3.5 million (or 39.3%), from $8.9 million in FY13 to
$12.4 million in FY14, due to increased administration
costs, with occupancy costs, which are relatively
fixed, remaining relatively flat. Administration
expenses include campaign reinstatement costs
and additional costs incurred as a result of the
implementation of, and transition to, the new
policy administration system.
EBITDA
EBITDA increased by $8.8 million (or 13.4%), from
$65.7 million in FY13 to $74.5 million in FY14,
primarily as a result of the growth in price adjustment
revenue and lower expenses, which were partially
offset by lower new business revenue. EBITDA
margin increased from 31% in FY13 to 37% in
FY14, driven predominantly by the improvement
in price adjustment revenue (described above) which
directly improves EBITDA, along with the reduction
in marketing expenditure.
Greenstone Limited Prospectus
Operating cash flow before capital expenditure
Operating free cash flow before capital expenditure
increased by $3.1 million (or 14.9%), from
$20.8 million in FY13 to $23.9 million in FY14. This
was largely due to a movement in the ARRA.
Agency revenue in FY13 was $203.1 million compared
to agency payments received of $157.7 million in
FY13. This difference gave rise to an increase in the
ARRA of $45.4 million, which represents an increase
in the estimated net present value of future expected
agency payments and a difference between EBITDA
and cash flows received in FY13.
Agency revenue in FY14 was $187.8 million compared
to agency payments received of $139.9 million in
FY14. This difference gave rise to an increase in the
ARRA of $47.9 million, which represents an increase
in the estimated net present value of future expected
agency payments and a difference between EBITDA
and cash flows received in FY14.
Consequently, the growth in the ARRA increased by
$2.5 million (or 5.5%), from $45.4 million in FY13 to
$47.9 million in FY14.
The difference in the movement of other net working
capital from an outflow of $0.1 million in FY13
to an outflow of $2.7 million in FY14 was mainly
attributable to a reduction in payables, driven by
a reduction in overhead costs.
Capital expenditure
Total capital expenditure increased by $3.2 million,
from $0.1 million in FY13 to $3.3 million in FY14,
which predominantly related to labor costs capitalised
in relation to the development of the new policy
administration system which was implemented in
February 2014 at a total cost of $3.1 million.
4.8
Forecast Financial Information
The basis of preparation of the Forecast Financial
Information is detailed in Section 4.2.3. Section 4.8
includes the general assumptions and the Directors’
best estimate specific assumptions adopted in
preparing the Forecast Financial Information.
4.8.1
General assumptions
The following general assumptions are incorporated
in the Forecast Financial Information:
■■
there is no material change in the competitive,
operating or regulatory environment in which
Greenstone operates;
Greenstone Limited Prospectus
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
■■
there is no change in applicable Australian
Accounting Standards and International Financial
Reporting Standards that would have a material
impact on Greenstone’s accounting policies,
financial reporting or disclosure requirements;
there is no significant deviation from current
market expectations regarding factors that affect
demand for life, pet and private health insurance
policies sold through direct channels in Australia
including demographic, population, economic and
regulatory developments as well as changes to the
competitive landscape and consumer behaviour;
there are no significant deviations from the
assumptions underlying the valuation of the ARRA;
there is no material change in legislation (including
taxation) and regulatory environment other than
as disclosed in this Prospectus in which Greenstone
and its Insurance Carriers operate;
there are no material losses of Insurance
Carrier contracts;
there is no material amendment to any material
agreement relating to Greenstone’s business other
than as disclosed in this Prospectus;
there are no significant disruptions to the
continuity of operations of Greenstone
and there are no other material changes in
Greenstone’s business;
there are no material acquisitions, divestments,
restructuring or investments that are completed,
other than set out in, or contemplated by,
this Prospectus;
there are no material changes to Greenstone’s
corporate and funding structure other than as set
out in, or contemplated by, this Prospectus;
there is no loss of key management personnel and
Greenstone will maintain the ongoing ability to
recruit and retain required personnel other than as
set out in, or contemplated by, this Prospectus;
there is no material litigation that will arise or be
settled to the benefit or detriment of Greenstone;
the Offer proceeds in accordance with the
timetable set out in the Key Dates section; and
none of the risks set out in Section 5 occurs.
Section 04 – Financial information
97
4.8.2 Directors’ best estimate specific
assumptions
The Forecast Financial Information has had regard to
the current trading performance of Greenstone up
until 30 April 2015.
Forecasts for the last two months of FY15, and
for FY16, have been prepared by management
having regard to marketing and product
strategies considered appropriate for the current
market conditions.
The Forecast Financial Information is based on best
estimate assumptions, of which the key material
assumptions are set out below. The assumptions
below are a summary only and do not represent all
the factors that could affect Greenstone’s forecast
financial performance. This information is intended
to assist investors in assessing the reasonableness and
likelihood of the assumptions occurring and is not
intended to be a representation that the assumptions
will occur. It should be read in conjunction with
the basis of preparation of the Forecast Financial
Information set out in Section 4.2.3, the general
assumptions set out in Section 4.8.1 and the risk
factors set out in Section 5.
The material Directors’ best estimate assumptions
incorporated in the Forecast Financial Information
include the following key areas.
New business revenue
A key driver of new business revenue is the number
of policies sold. Historically, the number of policies
sold (which is driven by leads and conversion rates)
and consequently, new business revenue have been
highly sensitive to marketing expenditure and
the effectiveness of this marketing expenditure in
generating leads. This relationship is expected to
continue for the forecast period.
In FY15, the correlation between marketing
expenditure and new business revenue will be
impacted as a result of Greenstone undertaking
certain non-lead generating marketing activity (such
as developing marketing material and broad brandbuilding costs), as well as exploratory marketing
expenditure relating to new channels, which
typically do not result in the optimal level of leads
generating marketing expenditure (when compared
to IRM recommended marketing expenditure).
However, the additional data points provided
by the exploratory marketing expenditure are
expected to assist in further enhancing the long term
effectiveness of the IRM.
98
Section 04 – Financial information
Based on the forecast marketing expenditure and
expenditure allocation recommended by IRM, an
increase in leads in FY16 is forecast. This forecast
increase in leads is primarily driven by an increased
portion of marketing expenditure allocated to leads
generating expenditure (following the non-lead
generating investment in FY15) and assumes no
further exploratory marketing expenditure and also
assumes adherence to the nature of expenditure
recommended by the IRM.
Combined with management’s expectations of
improved sales agent productivity and stable
conversion rates, this increase in lead generating
marketing expenditure in FY16 is expected to result
in an increase in policies sold across Greenstone’s
insurance product portfolio, particularly in
the targeted product categories of funeral
and pet insurance.
The new business revenue forecasts for FY15 and
FY16 assume the continuation of terms contained
within revised Insurance Carrier arrangements and
take into account the acquisition of the Australian
Seniors Insurance Agency brand but do not assume
any new business revenue from new insurance or
other products offerings, new Proprietary Brands and
Affinity Brands or other initiatives during the forecast
period. New business revenue from the acquisition
of the Australian Seniors Insurance Agency brand
is assumed at minimal incremental cost in terms of
marketing expenditure.
Product mix
Greenstone’s forecast product mix for FY15 and
FY16 is based on the product mix recommended
by the IRM based on the potential new business
revenue generated by the various insurance products
compared to their expected cost of acquisition.
The product mix which is based on the IRM’s
recommended mix involves increasing the
proportion of funeral and pet insurance policies sold
in FY15 and FY16.
This change in product mix is also relevant in
considering changes in the acquisition cost per
policy, retention rates, income statement revenue
and expense items and other reported metrics
discussed below.
GWP
A higher GWP per product has been forecast across
the portfolio of insurance products in FY15 and
FY16, reflecting increased pricing agreed with
Insurance Carriers.
Greenstone Limited Prospectus
Higher GWP is generally associated with higher new
business revenue. However, new business revenue on
an aggregated basis is forecast to increase at a slower
rate than GWP on an aggregated basis over the
forecast period due to product mix changes, given the
new business revenue associated with pet insurance
products is lower than life insurance products (due
to the shorter projected life and lower assumed
retention rates). At the same time and as noted below,
the cost of acquisition for pet insurance products is
also expected to be lower over the forecast period.
Policies sold
An increase in the number of policies sold is
forecast in FY15 and FY16 which is anticipated to be
generated through increases in the expected leads
predicted by the IRM based on the recommended
level and allocation of marketing expenditure,
management expectations and company specific
initiatives, including:
■■
■■
■■
expected leads generated by the forecast
marketing expenditure and management
expectations of stable conversion rates by product
category and improved sales agent productivity;
product mix targeted, which is expected to result
in increases in the number of pet and funeral
insurance policies sold; and
continued focus on acquiring back policies no
longer in-force. Part of this target customer
segment is currently associated with lower assumed
retention rates, and hence lower new business
revenue (all else equal). However, this customer
segment is also estimated to have a lower cost per
acquisition and on this basis is estimated to remain
economically attractive.
Retention rate
A number of retention assumptions are made in the
calculation of future expected agency payments from
in-force policies as well as new business written in
FY15 and FY16. The forecast assumes no positive or
negative changes in these assumptions from current
assumptions and therefore no basis changes relating
to retention as a result of continued positive or
negative variance.
Overall improved retention experience has been
observed for the eight months up to February 2015
due to the retention initiatives undertaken since
June 2014. However, retention revenue over January
and February 2015 was impacted by endorsement
initiatives. Given the ongoing execution of retention
strategies, the forecasts acknowledge the potential
Greenstone Limited Prospectus
for positive retention experience to continue. Positive
retention revenue has been forecast assuming the
continuation of these retention rate trends.
Section 04 – Financial information
■■
Cost per acquisition
The cost per acquisition of a policy has been forecast
on a product level based on:
■■
■■
The level of marketing and distribution
expenses expected to optimise new business
revenue levels; and
The number of policy sales that are expected to be
generated from the IRM recommended marketing
expenditure allocation, which is used to calculate
cost per acquisition by dividing marketing and
distribution expenses by expected insurance
policies sold.
The forecast trend in the cost per acquisition of
policies on an aggregated basis reflects a reallocation
of marketing expenditure to lead generating
expenditure and consequently increased policy
sales, changes in product mix including weighting
towards funeral and pet insurance products, which
are associated with lower cost per acquisition, general
improved effectiveness of marketing expenditure
(following investment in brand building in FY15),
improved search engine rankings and generally
enhanced IRM effectiveness.
Employment, occupancy and other expenses
Greenstone’s forecast expenditure is based upon the
following considerations:
■■
■■
■■
■■
■■
employee expense forecasts reflect detail for each
individual, using known salary information and
wage increases or otherwise assumes market based
wage inflation. Employee headcount is assumed
to be relatively stable in FY16 compared to that in
FY15 on the assumption that the current scale of
operations is sufficient to achieve the growth in
revenue expected in the forecast, consistent with
management’s expectations of improved sales
agent productivity;
no long term incentive expenditure is forecast
for FY16, as the long term incentive expense only
arises if the Prospectus forecast is exceeded;
anticipated information technology expenditure
based on current expenses and management plans;
anticipated occupancy costs based on projected
rent under current rental agreement;
anticipated other costs include general
administrative expenses, utilities, cleaning and
waste costs, many of which are covered by
agreements with suppliers;
■■
■■
■■
99
listed public company costs take into account such
items as Directors’ fees, share registry expenses,
ASX fees, general meetings, publications, financial
reporting requirements and additional directors’
and officers’ liability insurance in addition to
incremental remuneration adjustments, which are
based on underlying contracts, publicly available
information or advice from applicable experts;
depreciation and amortisation is forecast on
existing depreciation and amortisation rates and
expected capital expenditure;
interest expenditure on debt is forecast assuming
consistent utilisation of debt facilities with a
contractually agreed margin on BBSY which in
FY16 is forecast to remain at the average rate paid
through FY15; and
income tax expense is assumed at a corporate
tax rate of 30%.
Key assumptions around the ARRA
The key assumptions underlying the forecast ARRA in
FY15 and FY16 include:
■■
■■
■■
■■
■■
the discount rate used to determine new business
revenue generated from new policies sold in
the forecast period is 8.0% and is applied using
the methodology as described in Section 4.5.2.
The FY16 rate is consistent with the discount
rate used in FY15;
an ARRA increase in FY16 due to the acquisition of
the Australian Seniors Insurance Agency brand;
a general increase in new business revenue in FY15
and FY16 which is expected to be larger than the
increase in agency payments over the period;
the discount and risk premium revenue is forecast
to grow significantly from FY15 to FY16, which
represents the inherent growth in the ARRA
and an improved profile of agency revenue
received under the revised Insurance Carrier
arrangement; and
there are no forecast changes to contractually
agreed pricing arrangements.
Cash flows
Agency payments received are expected to increase
in FY16 due to increased insurance product sales and
a change in the contractual arrangements with an
Insurance Carrier.
Additional cash outflow is forecast to be required
due to amortisation of Tranche 1 of the New Banking
Facilities, as discussed in Section 4.4.3.
100 Section 04 – Financial information
4.8.3
Greenstone Limited Prospectus
Pro forma consolidated financial statements: FY15 compared to FY14
Tables 23 and 24 set out the selected pro forma results and selected pro forma cash flows for FY15 and FY14.
Table 23:Pro Forma Forecast Results for FY15 compared to Pro Forma Historical Results for FY14
$m
New business revenue
Retention revenue
Price adjustment revenue
Discount and risk premium unwind revenue
Agency revenue
Administration revenue
Other revenue
Total revenue
Marketing and distribution expenses
Employment expenses
Occupancy and other expenses
Total expenses
EBITDA
Depreciation and amortisation
Financing expenses
Income tax expense
NPAT
Pro forma
historical
FY14
Pro forma
forecast
FY15
165.7
(27.3)
14.4
35.0
187.8
11.2
1.7
200.7
(75.9)
(37.9)
(12.4)
(126.2)
74.5
(3.0)
(7.1)
(19.2)
45.2
189.8
5.6
3.3
39.9
238.6
9.2
0.7
248.5
(90.5)
(53.3)
(10.8)
(154.6)
93.9
(1.0)
(6.9)
(25.6)
60.4
105.5
104.1
79.8%
729
37%
130.3
124.2
80.9%
7281
38%
Variance
24.1
32.9
(11.1)
4.9
50.8
(2.0)
(1.0)
47.8
(14.6)
(15.4)
1.6
(28.4)
19.4
2.0
0.2
(6.4)
15.2
Variance
14.5%
nm
(77.1%)
14.0%
27.1%
(17.9%)
(58.8%)
23.8%
19.2%
40.6%
(12.9%)
22.5%
26.0%
(66.7%)
(2.8%)
33.3%
33.6%
Key metrics
Gross Written Premium ($m)
Policies sold (‘000)
Retention rate
Cost per acquisition ($)
EBITDA margin
24.8
20.1
110 bps
0.5
67 bps
23.6%
19.3%
0.1%
Note:
1. If adjusted to exclude the one-off brand building marketing expenses of $5.0 million, the FY15 cost per acquisition is expected to be $688.
Table 24:Pro Forma Forecast Cash Flows for FY15 compared to Pro Forma Historical Cash Flows for FY14
Pro forma historical
$m
EBITDA
Movement in the ARRA
Movement in other net working capital items
Non-cash items in EBITDA
Operating free cash flow before capital expenditure
Total capital expenditure
Net cash flow before financing and tax
FY14
FY15
74.5
(47.9)
(2.7)
–
23.9
(3.3)
20.6
93.9
(94.4)
(8.0)
0.1
(8.4)
(2.1)
(10.5)
Variance
19.4
(46.5)
(5.3)
0.1
(32.3)
1.2
(31.1)
Greenstone’s NPAT is forecast to increase by $15.2 million (or 33.6%), from $45.2 million in FY14 to
$60.4 million in FY15.
Variance
26.0%
97.1%
196.3%
nm
nm
(36.4%)
nm
Greenstone Limited Prospectus
Revenue
Total revenue is forecast to increase by $47.8 million (or
23.8%), from $200.7 million in FY14 to $248.5 million
in FY15.
Agency revenue
Agency revenue is forecast to increase by $50.8 million
(or 27.1%), from $187.8 million in FY14 to
$238.6 million in FY15. This increase is forecast to
be primarily driven by new business revenue and
retention revenue, which are forecast to increase
by $57.0 million in aggregate, offset by a forecast
decrease of $11.1 million in price adjustment revenue,
as described further below.
New business revenue is forecast to increase by
$24.1 million (or 14.5%), from $165.7 million in FY14
to $189.8 million in FY15. This increase is expected to
be largely due to the:
■■
■■
■■
■■
■■
forecast change to the discount rate and risk
premium assumption underlying new business
revenue, which changed from 9.5% in FY14 to
8.0% in FY15. This change is forecast to have
a positive impact on new business revenue of
approximately $10.0 million in FY15;
increasing number of policies expected to be sold
in FY15 due to an increase in leads as a result
of increased marketing expenditure in FY15,
compared to FY14. Investors should note, however,
that some of the growth in marketing expenditure
in FY15 has been dedicated to non-lead generating
marketing expenditure, such as developing
marketing material and brand-building costs;
increasing volumes of policies that were previously
in-force and expected to be subsequently acquired
back, which are associated with lower assumed
retention rates and hence lower new business
revenue per policy. However, these policies have a
lower cost per acquisition;
changes in product mix with an increase in sales
of funeral and pet insurance policies, which are
associated with lower new business revenue (but
also lower cost of acquisition) relative to other life
insurance products; and
launch of the new ‘triple guaranteed’ funeral
insurance product at the end of 1H15, which is
expected to deliver improved funeral insurance
product sales in FY15 relative to FY14.
Section 04 – Financial information 101
The number of policies sold is forecast to increase by
20,112 (or 19.3%), from 104,125 in FY14 to 124,237 in
FY15. GWP is forecast to increase by $24.8 million (or
23.6%), from $105.5 million in FY14 to $130.3 million
in FY15. While all insurance products are forecast
to experience growth from FY14 to FY15, growth is
expected to be skewed to sales of life, funeral and pet
insurance products. The increased GWP per policy on
the new funeral product is higher than the traditional
funeral product which, combined with price increases
in pet insurance, has resulted in the growth in GWP to
be higher than the growth in policies sold.
Retention revenue is forecast to increase by
$32.9 million from negative retention revenue of
$27.3 million in FY14, caused mainly by a negative
basis change in FY14 (as described in Section 4.7.3.1),
to positive retention revenue of $5.6 million in FY15.
The improvement in retention revenue predominantly
reflects forecast improved retention rate experience
based on the first eight months of FY15. The retention
rate increased from 79.8% in FY14 to 80.9% as at
March 2015, primarily as a result of Greenstone’s
new retention initiatives, which began in June 2014.
However, FY15 retention revenue also includes a
positive basis change of $1.6 million.
While retention revenue in 1H15 was $8.6 million, the
full year forecast of retention revenue of $5.6 million
includes the cost of certain endorsement initiatives in
January and February 2015, which have since ceased
and are not expected to further negatively impact on
retention revenue in FY15.
Price adjustment revenue is forecast to decline by
$11.1 million (or 77.1%) from $14.4 million in FY14 to
$3.3 million in FY15. In FY14, Greenstone determined
the cost of administration services more accurately
and agreed with Insurance Carriers to reallocate a
portion of administration revenue cash flows (which is
recognised in the year the administration services are
provided) to agency revenue. This, in effect, increased
all future expected agency payments in the calculation
of the ARRA, which resulted in a $14.4 million uplift
in the ARRA and price adjustment revenue in FY14.
In FY15, the price adjustment relates to pricing
changes agreed with Insurance Carriers for the pet
insurance products.
Discount and risk premium unwind revenue is forecast
to grow by $4.9 million (or 14.0%), from $35.0 million
in FY14 to $39.9 million in FY15. This increase in the
discount and risk premium unwind revenue is mainly
due to an increase in the ARRA over the period.
102 Section 04 – Financial information
Greenstone Limited Prospectus
Administration revenue
■■
Administration revenue is forecast to decrease by
$2.0 million (or 17.9%), from $11.2 million in FY14
to $9.2 million in FY15. While insurance policies
in-force increased, the decrease in administration
fee revenue reflects a reclassification of certain
administration revenue to agency revenue in FY14,
as discussed above.
■■
Total expenses
Total expenses are forecast to increase by
$28.4 million (or 22.5%), from $126.2 million in FY14
to $154.6 million in FY15. This increase is mainly
due to marketing and distribution expenses and
employment expenses, which are forecast to increase
by $30.0 million in aggregate.
Marketing and distribution expenses are forecast
to increase by $14.6 million (or 19.2%), from
$75.9 million in FY14 to $90.5 million in FY15. This
forecast increase reflects:
■■
■■
■■
growth in marketing costs allocated by the IRM
to drive lead generation to achieve forecast new
business revenue;
growth in exploratory marketing expenditure
relating to new channels; and
additional non-lead generating marketing
expenditure of $5.0 million of marketing expense
for a broader brand building campaign, not
allocated by the IRM but expected to improve the
effectiveness of future marketing expenditure.
Despite the forecast increase in marketing
expenditure, cost per acquisition is expected to be
broadly in line between FY14 and FY15, decreasing by
$0.50 per policy (or 0.1%) from $729 in FY14 to $728
in FY15, as policies sold and marketing expenditure
are forecast to increase by a proportionally similar
amount. Adjusting for the non-lead generating
marketing expenditure in FY15 of $5.0 million, the
cost per acquisition is expected to be $688 in FY15.
Employment expenses are forecast to increase by
$15.4 million (or 40.6%), from $37.9 million in FY14
to $53.3 million in FY15. This increase is expected
to be driven by:
■■
■■
growth in the size of Greenstone management in
preparation for the Offer;
payments made to meet the legislative and
contractual entitlements of departing executives;
market based remuneration adjustments,
consistent with cost of living adjustments, and
incentive/commission schemes to grow and retain
internal talent; and
new talent hires, with a particular focus on the
development of retention capabilities with the
dedicated retention team growing from 23 people
at the end of March 2014 to 46 people at the end
of March 2015. Employment expenses also include
the hire of a new CEO, and individuals with specific
capabilities to support the long term growth
strategy of Greenstone, which include signing-on
bonuses and relocation allowances.
Occupancy and other expenses are forecast to decline
by $1.6 million (or 12.9%), from $12.4 million in FY14
to $10.8 million in FY15. This is due to additional
expenses incurred during FY14 in relation to the
migration of the new policy administration system,
which was implemented in February 2014.
EBITDA
EBITDA is forecast to increase by $19.4 million (or
26.0%), from $74.5 million in FY14 to $93.9 million in
FY15. EBITDA margin is forecast to increase from 37%
in FY14 to 38% in FY15, driven predominantly by the
improvement in new business and retention revenue,
offset partially by an increase in total expenses.
Operating cash flow before capital expenditure
Operating free cash flow before capital expenditure
is forecast to decrease by $32.3 million, from cash
flow of $23.9 million in FY14 to cash outflow of
$8.4 million in FY15. This is largely due to the increase
in marketing and distribution and employment
expenses described above.
Agency revenue in FY14 was $187.8 million compared
to agency payments received of $139.9 million in
FY14. This difference gave rise to an increase in the
ARRA of $47.9 million, which represents an increase
in the estimated net present value of future expected
agency payments and a difference between EBITDA
and cash flows received in FY14.
Agency revenue in FY15 is expected to be
$238.6 million compared to agency payments expected
to be received of $144.2 million in FY15. This difference
is expected to give rise to a positive movement in the
ARRA of $94.4 million, which represents an increase
in the estimated net present value of future expected
agency payments and a difference between EBITDA
and cash flows received in FY15.
Greenstone Limited Prospectus
Section 04 – Financial information 103
Consequently, growth in the ARRA is expected to increase by $46.5 million (or 97.1%), from $47.9 million in
FY14 to $94.4 million in FY15.
The forecast difference in the movement of other net working capital from an outflow of $2.7 million in FY14
to an outflow of $8.0 million in FY15 was primarily attributable to the reduction in provisions for employee
costs on the assumption that existing incentive schemes will be settled prior to the Offer.
Capital expenditure
Capital expenditure is forecast to decrease by $1.2 million, from $3.3 million in FY14 to $2.1 million in
FY15, a decrease of 36.4%. The FY14 capital expenditure had included the capitalisation of the new policy
administration system while some of the IT product development in FY15 was considered to be operational
and not capitalised. This operational IT includes current product and system enhancements, data analytics
enhancements and a range of smaller product developments not considered sufficiently material to capitalise.
4.8.4
Pro forma forecast consolidated financial statements: FY16 compared to FY15
Tables 25 and 26 set out the selected Pro Forma Forecast Results and selected Pro Forma Forecast Cash Flows
for FY16 and FY15.
Table 25:Pro Forma Forecast Results: FY16 compared to FY15
Pro forma forecast
$m
New business revenue
Retention revenue
Price adjustment revenue
Discount and risk premium unwind revenue
Agency revenue
Administration revenue
Other revenue
Total revenue
Marketing and distribution expenses
Employment expenses
Occupancy and other expenses
Total expenses
EBITDA
Depreciation and amortisation
Financing expenses
Income tax expense
NPAT
FY15
FY16
189.8
5.6
3.3
39.9
238.6
9.2
0.7
248.5
(90.5)
(53.3)
(10.8)
(154.6)
93.9
(1.0)
(6.9)
(25.6)
60.4
216.3
4.0
–
60.8
281.1
11.3
0.8
293.2
(92.1)
(51.0)
(12.0)
(155.1)
138.1
(2.2)
(6.7)
(38.9)
90.3
130.3
124.2
80.9%
7281
38%
149.8
139.9
80.4%
658
47%
Variance
26.5
(1.6)
(3.3)
20.9
42.5
2.1
0.1
44.7
(1.6)
2.3
(1.2)
(0.5)
44.2
(1.2)
0.2
(13.3)
29.9
Variance
14.0%
(28.6%)
nm
52.4%
17.8%
22.8%
14.3%
18.0%
1.8%
(4.3%)
11.1%
0.3%
47.1%
120.0%
(2.9%)
52.0%
49.5%
Key metrics
Gross Written Premium ($m)
Policies sold (‘000)
Retention rate
Cost per acquisition ($)
EBITDA margin
19.5
15.7
(50) bps
70.2
931 bps
Note:
1. If adjusted to exclude the one-off brand building marketing expenses of $5.0 million, the FY15 cost per acquisition is expected to be $688.
14.9%
12.6%
9.6%
104 Section 04 – Financial information
Greenstone Limited Prospectus
Table 26:Pro Forma Forecast Cash Flows: FY16 compared to FY15
Pro forma historical
$m
EBITDA
Movement in the ARRA
Movement in other net working capital items
Non-cash items in EBITDA
Operating free cash flow before capital expenditure
Total capital expenditure
Cash flow before financing and tax
FY15
FY16
93.9
(94.4)
(8.0)
0.1
(8.4)
(2.1)
(10.5)
138.1
(60.1)
(4.3)
0.7
74.4
(4.0)
70.4
Variance
44.2
34.3
3.7
0.6
82.8
(1.9)
80.9
Variance
47.1%
(36.3%)
(46.3%)
600.0%
nm
90.5%
nm
Greenstone’s NPAT is forecast to increase by $29.9 million (or 49.5%), from $60.4 million in FY15 to
$90.3 million in FY16.
Revenue
Total revenue is forecast to increase by $44.7 million (or 18.0%), from $248.5 million in FY15 to
$293.2 million in FY16.
Agency revenue
Agency revenue is forecast to increase by $42.5 million (or 17.8%), from $238.6 million in FY15 to $281.1 million
in FY16. As discussed below, this increase is expected to be driven by an increase in new business revenue and
discount and risk premium unwind revenue which are forecast to increase by $47.4 million in aggregate.
New business revenue is forecast to grow by $26.5 million (or 14.0%), from $189.8 million in FY15 to
$216.3 million in FY16. This is expected to be driven by:
■■
■■
■■
an increased portion of marketing expenditure allocated to lead generating expenditure consistent with
the specific nature of marketing expenditure recommended by the IRM (following a period of exploratory
marketing expenditure and non-lead generating marketing expenditure in FY15, including developing
marketing material and brand development costs in FY15);
price increases, which are expected in certain product categories and which improve new business revenue in
these product categories;
a continuing product mix shift towards pet and funeral insurance policy sales, which are associated with
lower new business revenue (as well as lower cost per acquisition) relative to other life insurance products;
■■
enhancement in the agency payment structure as a result of a revised Insurance Carrier arrangement; and
■■
a full year contribution from the acquisition of the Australian Seniors Insurance Agency brand.
The reallocation of marketing expenditure to lead generating marketing expenditure is expected to be the
key driver of policy sale growth, with policies sold forecast to grow by 15,673 policies (or 12.6%), from 124,237
policies in FY15 to 139,910 policies in FY16, with targeted growth expected in pet insurance products. GWP is
forecast to increase by $19.5 million (or 14.9%), from $130.3 million in FY15 to $149.8 million in FY16 reflecting
both an increase in number of insurance policies sold and price increases, which will be partially offset by a
product mix change as a result of the increased proportion of sales of pet insurance products, which have a
relatively lower GWP per sale.
The retention rate is expected to reduce slightly from 80.9% in FY15 to 80.4% in FY16, which is expected to be
due to a function of product and channel mix and not an actual underlying reduction in retention rates in FY16.
Retention revenue is forecast to decrease by $1.6 million (or 28.6%), from $5.6 million in FY15 to $4.0 million
in FY16 as retention revenue in FY16 does not assume any basis change, compared to a basis change that is
expected to positively impact FY15 retention revenue by $1.6 million (which occurred in the actual trading of
FY15 as opposed to the forecast).
Greenstone Limited Prospectus
Price adjustment revenue is forecast to decline by
$3.3 million in FY15 to nil in FY16. This is because
there is no repricing of in-force policies or repricing of
agreements with Insurance Carriers expected in FY16.
Discount and risk premium unwind revenue is
forecast to increase by $20.9 million (or 52.4%), from
$39.9 million in FY15 to $60.8 million in FY16. This
increase is largely due to the accounting impact of
improved agency revenue terms under the terms of a
revised Insurance Carrier arrangement (relating to the
historical in-force policies with the Insurance Carrier),
the acquisition of Australian Seniors Insurance Agency
brand and general growth in agency revenue relative
to agency payments received. A significant portion
of this increase is expected to remain reflected in the
discount and risk premium unwind revenue in future
periods, while the terms of the current arrangement
with Insurance Carriers remain in place. However,
the level of growth in the discount and risk premium
unwind revenue between FY15 and FY16 is not
expected to be recurring.
Administration revenue
Administration revenue is forecast to increase by
$2.1 million (or 22.8%) from $9.2 million in FY15 to
$11.3 million in FY16 due to a forecast increase in
the number of life insurance policies in-force and
therefore under administration.
Total expenses
Total expenses are forecast to decrease by $0.5
million (or 0.3%), from $154.6 million in FY15 to
$155.1 million in FY16.
Marketing and distribution expenses are forecast to
increase by $1.6 million (or 1.8%), from $90.5 million
in FY15 to $92.1 million in FY16. While marketing
and distribution expenses are relatively flat, the
reallocation of marketing expenditure aimed at
specific lead generating advertising campaigns is
expected to deliver new business growth and revenue,
due to the correlation between lead generating
marketing expenditure and leads generation and
the lower anticipated expenditure on exploratory
marketing and non-lead generating marketing.
Cost per acquisition is expected to decrease by $70 per
policy (or 9.6%) from $728 in FY15 to $658 in FY16,
due to a forecast increase in direct lead generating
marketing that is expected to result in an increase in
the number of policies sold and a change in mix to
policies with lower cost per acquisition.
Section 04 – Financial information 105
Employment expenses are forecast to decrease by
$2.3 million (or 4.3%), from $53.3 million in FY15
to $51.0 million in FY16. This decrease is expected
to be driven primarily by the absence of long term
incentive costs in FY16 on the basis that these would
only be payable if management considerably exceeds
FY16 forecasts in this Prospectus. The Directors expect
that any additional long term incentive cost due
to management exceeding FY16 forecasts would
be self-funding from improved performance above
the forecasts. Furthermore, due to management
expectations of improved agent sales productivity,
employment expenses are expected to support
an increase in the number of policy sales and new
business revenue forecast in FY16.
Occupancy and other expenses are forecast to increase
by $1.2 million (or 11.1%), from $10.8 million in FY15
to $12.0 million in FY16, driven by incremental growth
in IT and occupancy costs.
New business revenue from the acquisition of the
Australian Seniors Insurance Agency brand is assumed
at minimal incremental costs.
EBITDA
EBITDA is forecast to increase by $44.2 million (or
47.1%), from $93.9 million in FY15 to $138.1 million
in FY16. EBITDA margin is forecast to increase from
38% in FY15 to 47% in FY16, reflecting the additional
discount and risk premium unwind revenue, as well
as improved market efficiency, improved sales agent
productivity and general scalability of employment,
occupancy and other expenses.
The forecast increase in pro forma EBITDA during
this period reflects, among other factors, new
policy sales driven by lead generating marketing
expenditure, productivity improvements, relaunch of
the new ‘triple guarantee’ funeral insurance product
in 1H15 and increased pet insurance sales, which
are associated with higher new business revenue
and lower costs per acquisition. These new sales
are expected to result in Gross Written Premium
increasing by a forecast 14.9% from FY15 to FY16.
The forecast growth in pro forma EBITDA is also partly
driven by increases in discount and risk premium
unwind revenue and new business revenue derived
from increases in future expected agency payments
as the result of new contractual terms with Insurance
Carriers and the full year impact of the Australian
Seniors Insurance Agency brand acquisition. While
a contribution from these items is expected to
106 Section 04 – Financial information
continue in future periods, the enhanced growth
that is generated by these items from FY15 to FY16
is not expected to be recurring. Excluding the impact
of these items from both FY15 and FY16, underlying
pro forma EBITDA is forecast to grow by 25.6%
from FY15 to FY16.
Operating cash flow before capital expenditure
Operating free cash flow before capital expenditure
is forecast to increase by $82.8 million, from negative
$8.4 million in FY15 to $74.4 million in FY16.
As set out in Table 16 in Section 4.5.1, agency
payments received are forecast to increase by $76.8
million (or 53.3%), from $144.2 million in FY15
to $221.0 million in FY16. The increase in agency
payments received in FY16 relative to FY15 is primarily
due to enhanced Insurance Carrier arrangements,
which accelerate the timing of agency payments
received. This acceleration of agency payments
is expected to be sustainable over the current
contract terms.
Agency revenue in FY15 is expected to be
$238.6 million compared to agency payments
expected to be received of $144.2 million in FY15.
This difference is expected to result in a positive
movement in the ARRA of $94.4 million, which
represents an increase in the estimated net present
value of future expected agency payments and
a difference between EBITDA and cash flows
received in FY15.
Agency revenue in FY16 is expected to be
$281.1 million compared to agency payments
expected to be received of $221.0 million in FY16. This
difference is expected to result in a positive movement
in the ARRA of $60.1 million, which represents an
increase in the estimated net present value of future
expected agency payments and a difference between
EBITDA and cash flows received in FY16.
Consequently, the growth in the ARRA is expected
to decrease by $34.3 million (or 36.3%), from
$94.4 million in FY15 to $60.1 million in FY16.
Other net working capital is forecast to grow by
$4.3 million in FY16, which is primarily attributable
to changing terms of the customer loyalty incentive
rewards offered by specific Greenstone brands. In
FY15, other net working capital was forecast to grow
by $8.0 million, which is mainly attributable to the
reduction in the provision for employee entitlements.
Greenstone Limited Prospectus
Capital expenditure
Total capital expenditure is expected to increase
by $1.9 million (or 90.5%), from $2.1 million in
FY15 to $4.0 million in FY16. This forecast capital
expenditure consists mainly of labour costs related
to the development of IT systems (such as enhanced
business intelligence reporting) and product builds
(for potential new products) and mainly relates to risk
and security projects with a continued focus to be at
the forefront of design and data analytics.
4.9
Sensitivity analysis
The Forecast Financial Information is based on a
number of estimates and assumptions that are subject
to business, economic and competitive uncertainties
and contingencies, many of which are beyond the
control of Greenstone, its Directors and management,
and depends upon assumptions with respect to future
business development, which are subject to change.
Investors should be aware that future events cannot
be predicted with certainty and as a result, deviations
from the figures forecast in this Prospectus are to be
expected. To assist investors in assessing the impact of
these assumptions on the forecasts, set out below is a
summary of the sensitivity of certain Forecast Financial
Information to changes in a number of key variables.
The changes in the key variables as set out in the
sensitivity analysis are not intended to be indicative
of the complete range of variations that may be
experienced. For the purposes of the analysis below,
the effect of the changes in key assumptions on
the FY16 pro forma forecast NPAT of $90.3 million
and FY16 pro forma net cash flow before dividend
of $47.9 million is presented. As revenue includes
the estimated net present value of future expected
agency payments, there is a variation between
revenue recognition and cash payments received,
resulting in a disconnect in the sensitivity of cash flow
and NPAT to certain variable assumptions.
The sensitivity analysis is intended as a guide only and
variations in actual performance could exceed the
ranges shown. There is additional forecast risk related
to FY15, for which sensitivities are not shown, as the
risk profile of Greenstone is best considered on an
annual basis due to monthly variations.
Greenstone Limited Prospectus
Section 04 – Financial information 107
Table 27:Sensitivity analysis on pro forma forecast FY16 NPAT and FY16 net cash flow before dividend
Assumption
Change in policy sales
Change in GWP per policy
Change in retention rate (experience)
Change in retention rate (basis change)
Change in cost per acquisition
Change in discount rate
Note
Variance
1
2
3
4
5
6
+/-10%
+/-10%
+/-50 bps
+/-50 bps
+/-10%
+/-50 bps
FY16 NPAT
impact ($m)
+13.2/-13.2
+13.2/-13.2
+3.6/-3.2
+17.6/-15.0
-12.0/+14.7
-3.7/+3.7
FY16 net cash
flow before dividend
impact ($m)
+9.2/-9.1
+9.2/-9.1
+1.0/-0.9
+1.0/-0.9
-8.3/+10.2
-0.8/+0.8
Note:
1. Sensitivity based on +/-10% on policy sales volumes (assuming a consistent product mix).
2. Sensitivity based on +/-10% on average GWP per policy (assuming a consistent product mix).
3. Sensitivity based on +/-50 basis points variance to assumption. This assumes no change to retention assumptions made in the calculation of the ARRA.
Due to the timing of the future expected cash flow underlying the calculation of the ARRA, the magnitude of the FY16 NPAT impact is not identical for
a positive and negative change to retention rate changes. The impact from a change in the retention rate (without a corresponding basis change) will
predominantly be reflected in the retention revenue line. The movement in the retention rate may not translate to a change in NPAT due to the fact
that a change in the average retention rate across the in-force book may also be attributable to a range of other factors such as a change in the mix
of products, sales distribution channels, average tenure of policies and average GWP. The sensitivity assumes an improvement or deterioration in the
retention rate, assuming there is no change in the assumed mix of products, sales distribution channels, average tenure of policies and average GWP.
4. Sensitivity based on +/-50 basis points variance to assumption. This assumes retention assumptions are changed in the calculation of the ARRA, at the
commencement of the year, through a basis change. Following the change in assumption, retention variances would then emerge in accordance with
the revised retention assumption. Due to the timing of the future expected cash flow underlying the calculation of the ARRA, the magnitude of the
FY16 NPAT impact is not identical for a positive and negative change to retention rate changes. The impact from a change in the retention rate (with
a corresponding basis change) may impact subsequent new business revenue, retention revenue and discount and risk premium unwind revenue. The
impact of this sensitivity assumes there is no change in the mix of products, sales distribution channels, average tenure of policies and average GWP.
There are no basis changes forecast for FY16.
5. Sensitivity based on +/-10% in the average acquisition cost per acquisition. In calculating this sensitivity, marketing expenditure and mix are fixed and
the impact is on the volume of policy sales and therefore new business revenue as a result of the improvement or deterioration of assumed marketing
effectiveness. Note that a +10% change to cost of acquisition is equivalent to a 9.1% reduction to sales volume and a -10% change to cost per
acquisition is equivalent to an 11.1% increase to sales volume.
6. Sensitivity based on +/-50 basis points in the discount rate used to calculate new business revenue and a +/-50 basis point change in the interest cost of
debt. The impact affects new business revenue, retention revenue, discount rate and premium unwind revenue and financing expenses.
Care should be taken in interpreting these sensitivities. The estimated impact of changes in each of the variables
has been calculated in isolation from changes in other variables, in order to illustrate the likely impact on the
forecast. In practice, changes in variables may offset each other or be additive, and it is likely that Greenstone
management would respond to any adverse change in one variable by seeking to minimise the net effect on
Greenstone’s NPAT and net cash flow before dividend.
108 Section 04 – Financial information
4.10 Dividend policy
The payment of a dividend by Greenstone is subject to
the discretion of the Directors and will be a function
of a number of factors including the general business
environment, the operating results, cash flows and
the financial condition of Greenstone, future funding
requirements, capital management initiatives,
taxation considerations (including the level of
Australian franking credits), any contractual, legal or
regulatory restrictions on the payment of dividends by
Greenstone and any other factors the Directors may
consider relevant.
The Directors intend to target a payout ratio of 40%
to 55% of Adjusted NPAT (a measure of reported
NPAT adjusted for non-cash basis changes and price
adjustment revenue as well as certain other nonrecurring items). However, the level of payout ratio
is expected to vary between periods depending on
the factors above. No assurances can be given by any
person, including the Directors, about the payment
of any dividends and the level of franking on any
such dividend.
It is the current intention of the Directors to pay
interim dividends in respect of half years ending
31 December and final dividends in respect of half
years ending 30 June each year. It is anticipated
that interim dividends will be paid in April and final
dividends will be paid in October following the
relevant financial period. The Board intends to weight
dividend payments towards the final dividend. The
Directors anticipate Greenstone’s first dividend will be
the interim dividend in respect to the half year ending
31 December 2015 and therefore expect Greenstone’s
first dividend to be paid in April 2016.
The Directors’ current intention is that the interim and
half year dividends will be franked with Australian
tax credits to the maximum extent possible. For the
interim and final dividends relating to the FY16
period, dividends may be franked at less than 100%
depending on the franking capacity at that time,
recognising that taxable income for tax purposes
is expected to be lower than taxable income under
accounting principles. No assurance can be provided
about the level of future dividends or the extent to
which any of the dividends will be franked.
The Directors intend to put in place a dividend
reinvestment plan (DRP) to provide flexibility
in the future.
Greenstone Limited Prospectus
4.11 Financial risk management
framework
Greenstone undertakes transactions in a range
of financial instruments including: cash assets;
receivables; payables; loans and borrowings; and term
deposits. Greenstone’s activities expose it to a number
of financial risks including credit risk, liquidity risk and
market risk (cash flow and fair value interest rate risk,
retention rate risk and pricing risk).
Greenstone manages financial risk through Board
approved policies and procedures. The finance
team is tasked with the day-to-day management
of financial risk, with the CFO of Greenstone
responsible for the management of all financial risk
exposure. The key objectives of Greenstone’s asset
and liability management strategy are to ensure
sufficient liquidity is maintained at all times to meet
Greenstone’s obligations.
Greenstone does not enter into derivative
financial instruments.
4.11.1 Credit risk
Credit risk refers to the risk that a counterparty or
customer will default on its contractual obligations
resulting in financial loss to Greenstone. Greenstone
is exposed to credit risk arising from trade and other
receivables, investments and credit exposures.
As part of its operating activities, Greenstone holds
trade and other receivables with larger counterparties
of Greenstone (by agency revenue) which are typically
regulated by APRA. Given this counterparty base,
management does not expect a material counterparty
to default on a receivable.
Greenstone limits its exposure to credit risk by
investing in cash with counterparties that have
at least an A1/A+ credit rating from Standard &
Poor’s or Moody’s equivalent. There is no significant
concentration of credit risk given these high credit
ratings and management does not expect any
counterparty to fail to meet its obligations.
Greenstone Limited Prospectus
4.11.2 Liquidity risk
Liquidity risk is the risk that Greenstone will not have
sufficient funds to meet its financial obligations as
and when they fall due. Greenstone’s approach to
managing liquidity is to ensure that it will always
have sufficient liquidity to meet its liabilities when
due, without incurring unacceptable losses or risking
damage to Greenstone’s reputation. The consolidated
entity monitors the level of expected cash flows
through rolling forecasts. The consolidated entity has
access to an overdraft facility.
4.11.3 Market risk
Market risk is the risk that changes in market prices,
such as interest rates, and policy retention rates and
policy price changes will affect Greenstone’s income
or the value of its exposure to various financial assets.
Interest rate risk is the risk that the value or future
cash flows in relation to various financial assets will
fluctuate because of changes in market interest rates.
Greenstone manages this risk for its cash and
investments by maintaining an appropriate mix of
fixed and variable rate investments and through
appropriate cash management for short and long
term cash requirements.
Greenstone is also exposed to interest rate risk via the
discount rate applied to future cash flows inherent
to its recognition of its ARRA at net present value.
The Board reviews the discount rate applied in
recognition of the ARRA each reporting period based
on underlying market interest rate movements. If
changes are made to the discount rate, this impacts
the net present value of new business written
from that date.
Section 04 – Financial information 109
counterparty credit risk, the term of the underlying
assets and assumption that realisation would occur in
an orderly market. The risk premium is reviewed each
reporting period by the Board in conjunction with its
review of discount rates.
Greenstone is exposed to price risk if Insurance
Carriers change the risk pricing of insurance
policies. Any changes will impact on the value of
the ARRA in future periods. This risk is managed by
Greenstone through monitoring its underwriting
policies and procedures as well as actively monitoring
sales processes by its sales team. Additionally, it
works closely with Insurance Carriers to ensure
that emerging issues with its in-force book are
appropriately managed through pricing, underwriting
or policy design. Additionally, the Insurance Carriers
perform periodic audits of the underwriting processes
performed by Greenstone.
4.12 Critical accounting judgements
and estimates
Preparing financial statements in accordance with
AAS requires management to make judgements,
estimates and assumptions about income recognition,
carrying values of assets and liabilities that are not
readily apparent from other sources. The estimates
and associated assumptions are based on historical
experience and other factors that are considered
to be relevant. Actual results may differ from
these estimates.
Greenstone is exposed to policy retention rate risk
if policies lapse and manages this risk by monitoring
retention revenue (lapse variances) on a monthly
basis. If the absolute value of the sum of the lapse
variances over the previous six months, expressed
as a percentage of the average in-force gross ARRA,
is more than 1%, an experience investigation is
triggered to determine if a basis change is required.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the
estimate is revised if the revision affects only that
period, or in the period of the revision and future
periods if the revision affects both the current and
future periods. Judgements made by management
in the application of the AAS that have significant
effects on the financial statements and estimates with
a significant risk of material adjustments in the next
year are disclosed, where applicable, in the relevant
notes to the audited financial statements.
In order to compensate for unforeseen risks,
Greenstone includes a risk premium across all
insurance policies (currently 3%) in its recognition
of the expected value of future agency payments,
which is in addition to the Directors’ estimate of an
appropriate discount rate of 5% at the reporting date
(as set during FY15), having consideration for related
The key areas in which critical estimates and
judgements are applied by Greenstone are in respect
of customer loyalty provisions, agency revenue and
related ARRA, and in particular the assumptions
around retention rate, discount rate and projection
period, described in the Significant Accounting
Policies outlined in Appendix A.
110 Section 05 – Key risks
KEY RISKS
05
Greenstone Limited Prospectus
Greenstone Limited Prospectus
Section 05 – Key risks 111
KEY RISKS
5.1Introduction
Greenstone is subject to a number of risks both
specific to Greenstone’s business activities and of a
general nature, which may either individually or in
combination adversely affect the future operating and
financial performance of Greenstone, its investment
returns and the value of its Shares.
Section 5 describes some of the potential risks
associated with Greenstone’s business, the industry in
which it operates and an investment in Shares. The
selection of risks has been based on an assessment of
a combination of the probability of the risk occurring
and impact of the risk if it did occur. The assessment
is based on the knowledge of the Directors as at
the Prospectus Date, but there is no guarantee or
assurance that the importance of risks will not change
or other risks will not emerge.
Investors should note that Section 5 does not purport
to list every risk that may be associated with an
investment in Shares now or in the future, and the
occurrence or consequences of some of the risks
described in Section 5 are partially or completely
outside the control of Greenstone, its Directors
and management. There can be no guarantee that
Greenstone will achieve its stated objectives, or deliver
on its business strategy, or that the Forecast Financial
Information or any forward looking statement or
forecasts will be achieved or realised. Investors should
note that past performance is not a reliable indicator
of future performance. Before applying for Shares,
investors should satisfy themselves that they have
sufficient understanding of the risks of investing in
Greenstone, and of investing in shares generally, with
regard to their own investment objectives, financial
circumstances and taxation position. Investors should
read this Prospectus in its entirety and should consider
seeking professional advice from their accountant,
financial adviser, stockbroker, lawyer or other
professional adviser before deciding whether to
apply for Shares.
5.2 Risks specific to an investment in
Greenstone
5.2.1 Lower than expected future cash receipts
derived from the ARRA
The ARRA, which had a pro forma book value of
$494.5 million as at 31 December 2014, represents the
present value of future expected agency payments
on all insurance policies in-force based upon multiple
actuarially validated assumptions. Actual cash receipts
in relation to the ARRA may have a lower value than
presently expected, due to nominal cash receipts
being lower than forecast.
The key assumptions that impact the calculation of the
ARRA include, but are not limited to; retention rates,
pricing changes, the discount rate, risk premium and
projection period (see Section 4.5.2 of this Prospectus
for further information). The assumptions and model
for valuing the ARRA are subject to ongoing review by
internal actuaries and the external auditors. If there
are any errors in the actuarial analysis underlying
these assumptions, or if the actual experience of these
assumptions differs materially from the model used by
Greenstone for valuing the ARRA, the difference could
adversely impact the present value of Greenstone’s
future expected agency payments in a material
manner which would adversely impact Greenstone’s
revenue, profitability and balance sheet.
5.2.1.1 Lower than expected retention rates
Retention rates represent the proportion of the
number of insurance policies retained by policyholders
(see Section 3.7.2 of this Prospectus for further
information). The retention rate can be impacted
by a number of factors including, but not limited to,
macro-economic conditions, competition, regulatory
changes and demographics.
There is a risk that lower than expected retention
rates will shorten the projected policy life of
Greenstone’s insurance policies and result in lower
future agency payments than expected. In addition,
there is a risk that the retention rate assumptions
underlying the ARRA are reduced as a result of an
experienced variance from the assumed retention
rates. A reduction in the retention rate assumptions
would negatively impact the valuation of the ARRA
at the time that the assumption is reduced and would
result in a negative impact on Greenstone’s revenue,
profitability and balance sheet. Further, efforts to
arrest decreases in retention rates may result in
further expenditure on staff and marketing.
Administration fee revenue is also impacted by a
decrease in retention rates because the number of
policies administered is lower, and may result in a
decrease to Greenstone’s administration fee cash
receipts, which would adversely impact Greenstone’s
revenue and profitability. Finally, based on the
arrangement with a key Insurance Carrier, there is
a risk that a decline in retention rates on in-force
112 Section 05 – Key risks
policies could impact the receipt of agency payments
on new policies sold by Greenstone, which may result
in lower revenues and profitability.
5.2.1.2 Changes to policy pricing assumptions
At the time of sale of a new policy, there are
assumptions made for future policy premium increases
with policyholders over the life of a policy. These
assumptions are based on CPI increases, aged-based
increases and contractual limitations. The agency
payments that Greenstone receives are based on
a percentage of premiums paid by a policyholder
for certain products such as life, funeral and pet
insurance. As such, future agency payments are
directly related to the product price increases of
in-force policies as outlined in the relevant product
disclosure statements. There is a risk that the product
price increases could be lower than expected due to
competitive pressures, strategic business decisions,
supplier cost increases, regulatory pressures or
determinations to reduce the pricing of certain
products. Planned product price increases below the
policy pricing assumptions underlying the ARRA will
negatively impact the ARRA and result in a negative
impact on Greenstone’s cash receipts, revenue,
profitability and balance sheet.
In addition, administration fees are also calculated as
a percentage of premiums paid by policyholders on
Greenstone’s range of life insurance products (term,
funeral and income protection). Accordingly, lower
assumptions for policy pricing for in-force policies
would result in administration fee cash receipts
declining, which would adversely impact both revenue
and profitability.
5.2.1.3 Higher than expected discount rates
The ARRA represents the present value of future
expected agency payments owing on in-force policies.
The discount rate used to discount these expected
agency payments is set when revenue is recognised
under AASB 9 Financial Instruments and based on a
combination of a risk free rate and a risk premium
rate (see Section 4.5.2). There is a risk that the
discount rate may increase in a rising interest rate
environment, if inflation exceeds expectations, if
counterparty risk increases and spreads widen, or if
the Board determines to increase the discount rate
assumptions. An increase in the assumed discount rate
would negatively impact the value of new business
revenue written after the date that the discount
rate is changed and result in a negative impact on
Greenstone’s revenue and profitability.
Greenstone Limited Prospectus
5.2.2 Greenstone is exposed to potential
breaches of data security
Through the ordinary course of business, Greenstone
collects a wide range of personal and financial data
from consumers and Affinity Brand Partners. This
includes information such as personal contact details as
well as payment information and credit card details.
There is a risk that the measures taken by Greenstone
to prevent any potential data security breaches
will be insufficient to detect or prevent breaches.
Advancements in computing capabilities and
cryptography (or other similar developments)
may lead to a compromise or even breach of the
technology platform used by Greenstone to protect
confidential information. Third parties may attempt
to penetrate the Greenstone network security and
misappropriate consumer information.
There is a risk that any data security breaches
or Greenstone’s failure to protect confidential
information could result in the loss of information
integrity, breaches of Greenstone’s obligations under
applicable privacy laws (which will soon result in heavy
penalties for serious and repeated breaches), litigation
and liability for damages under customer agreements,
Affinity Brand Partner agreements and other third
party agreements and website and system outages,
each of which may potentially adversely impact
Greenstone’s reputation, revenue and profitability.
5.2.3 Heightened competition from existing or
new competitors
The industries in which Greenstone operates are
highly competitive and Greenstone actively competes
with numerous companies for customers. For further
information on Greenstone’s primary competitors, see
Section 2.3.4 and Section 2.4.3.
Heightened competition from new or existing
competitors (including comparison websites) could
adversely affect Greenstone’s revenue or profitability
in a number of ways, including but not limited to
such competitors:
■■
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offering lower prices than Greenstone to gain
increased market share;
bundling life or pet insurance products
with other products they offer (e.g. general
insurance products);
building more effective marketing models or
outspending Greenstone on marketing to drive
leads and market share, resulting in increases to
Greenstone’s cost per lead;
Greenstone Limited Prospectus
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■■
building a lower cost or more effective direct
distribution model than that of Greenstone,
particularly if they have greater financial, technical
and marketing resources;
Section 05 – Key risks 113
in Australia, in these or other areas, may have
a significant impact on consumer demand for the
insurance products sold by Greenstone.
having greater brand recognition and therefore
larger customer bases;
5.2.5 Change in brand reputation, effectiveness
and cost of marketing
introducing new insurance products that are more
attractive to Greenstone’s customers; or
Greenstone’s business depends on the effectiveness
and cost of its marketing and its ability to generate
leads. Greenstone undertakes distinctive advertising
and marketing campaigns and other efforts to
improve brand recognition, enhance consumers’
perceptions of Greenstone’s brands, generate new
business and enhance the retention of Greenstone’s
current customers. Greenstone believes that
maintaining and improving the effectiveness of its
advertising and marketing campaigns relative to
those of competitors is particularly important given
the significance of marketing and the continuing
high level of advertising and marketing spend across
the direct insurance and online comparison services
markets. If Greenstone’s campaigns are unsuccessful
or are less effective than those of competitors, the
volume of products sold by Greenstone could decline,
which would adversely impact Greenstone’s revenue
and profitability.
responding to changes in regulations, new
technologies or customer preferences or
requirements faster and more effectively
than Greenstone.
In addition, some of Greenstone’s larger competitors
can underwrite their own insurance policies, which
makes them less reliant on key supply relationships
with third party underwriters. Because of these
variables, there is a risk that Greenstone will not be
able to compete effectively against existing or new
competitors, which may adversely impact Greenstone’s
revenue and profitability.
5.2.4
Decline in demand for insurance products
Demand for the insurance products that Greenstone
distributes is influenced by a number of macroeconomic and demographic factors, consumer
preferences and government policies. There is a risk
that changes in general economic conditions could
adversely affect consumer sentiment, disposable
income and wealth of individuals, which in turn may
impact consumer behaviour and consumers’ ability to
purchase insurance. In addition, consumer perceptions
of the value and benefits of certain insurance products
may change over time, and certain insurance products
or services may become less popular or demand
for them may be eroded entirely. This may impact
the demand for insurance products distributed by
Greenstone, which may adversely impact Greenstone’s
revenue and profitability.
Furthermore, demand for certain classes of insurance,
such as life insurance, income protection and private
health insurance, can be significantly influenced
by government policies in Australia. For example,
the private health insurance rebate funded by the
Australian Government reduces the cost of private
health insurance premiums for Australians whose
taxable income is below the set threshold. Historically,
changes in who has been eligible for this rebate have
led to consumers selecting lower-premium levels
of insurance coverage, and there being increased
lapse rates. Future changes in government policies
5.2.5.1 Increase in marketing costs
Greenstone has a significant media and advertising
budget with approximately $60 million spent on
media based lead generation activity in FY14. Media
spend is likely to remain high in order to maintain or
improve Greenstone’s market position, particularly
in life and pet insurance. There is a risk that the
prices paid by Greenstone for its television, online
and print advertising could rise due to increased
competition. These factors could increase Greenstone’s
cost of generating sales leads and negatively impact
Greenstone’s profitability. Furthermore, such increased
costs could cause Greenstone to balance the benefits
of such advertising costs with the increased costs,
and reduce advertising in certain areas or of certain
products. If Greenstone’s marketing strategy is
affected, this could have a material adverse impact
on the volume of products sold by Greenstone,
which would adversely impact Greenstone’s revenue
and profitability.
5.2.5.2 Reduction in volume of traffic to
Greenstone’s websites
Search engines in particular are a key driver of
consumer traffic to the Greenstone websites, and
the Company’s success depends heavily on strong
114 Section 05 – Key risks
organic search rankings. There is a risk that a decline
in the level of traffic to Greenstone’s websites could
have a material adverse effect on Greenstone’s ability
to generate leads and ultimately impact agency
revenues and fees from the sale of products. There
are a number of factors that can negatively affect
the volume of traffic to Greenstone’s websites,
which include:
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changes to the algorithms or terms of service
of search engines, such as Google, which cause
Greenstone’s websites either to be ranked lower
or to be excluded from search results presented on
those search engines;
increases in the amounts which Greenstone
must spend to maintain its paid advertisement
placement in response to particular search terms or
a decision by Greenstone not to compete for, or to
reduce its budget for, particular search terms;
decreases in the quality of, or changes to, the
customer experience on Greenstone’s website or
through its call centre;
decreasing variety, competitiveness and
affordability of the insurance products that
Greenstone offers;
unsuccessful advertising and marketing campaigns
across both online and traditional media; and
consumers’ internet use which may not continue
to develop at historical rates or may be impacted
by a loss of confidence in the security or reliability
of internet tools and consumers may not use
the internet to research, select or purchase
insurance products.
If Greenstone is unable to quickly recognise and adapt
to any adverse changes in its search results, this can
adversely impact the number of leads resulting in
lower sales, revenue and profitability.
5.2.5.3 Operational incidents impact
Greenstone’s brands
Greenstone’s marketing success could be adversely
affected by operational incidents that reflect
negatively on Greenstone or its Affinity Brand
Partners and Insurance Carriers. These situations might
include, among others, failing to protect sensitive
customer information, systems failures, effects of
cyber-attacks (such as computer hacking, data theft,
system disruption or security breaches, and viruses
and malware), errors in handling a customer’s policy,
inappropriate handling of claims, telemarketing
complaints, negative publicity, misconduct by
Greenstone Limited Prospectus
Greenstone’s officers, directors or employees or others
acting on Greenstone’s behalf, inability to service
outstanding policies or write new business due to
Greenstone systems’ failures or the failure of third
party systems that Greenstone uses, facility shutdowns
or other causes. In addition, litigation or regulatory
actions challenging Greenstone’s business practices,
or actions by Greenstone’s other business partners,
including Affinity Brand Partners through which
Greenstone offers certain products, could adversely
impact Greenstone’s brands and reputation. Moreover,
the negative impacts of these or other events may
be aggravated as the perceptions of consumers
and others are influenced rapidly based on modern
communication and social media tools over which
Greenstone has no control.
Furthermore, Greenstone does not have exclusive use
regarding the use of the Real Insurance brand which
is owned by Hollard but licensed to Greenstone. There
is a risk that Hollard’s actions could negatively affect
the Real Insurance brand and as a result, this could
adversely affect Greenstone’s marketing success.
5.2.6 Changes in, or failure to comply with,
government, legal or regulatory policies
or requirements
Greenstone is subject to a range of laws, regulations,
and government policies relating to the markets in
which Greenstone operates, and there have been a
number of recent financial services industry reviews
including the FSI, FOFA reforms, Trowbridge report
and ACCC review of online comparison websites (see
Section 2.6 and Section 3.9 for further information).
Any changes to laws, regulations or government
policies (or how those laws, regulations or policies
are interpreted or applied) may adversely impact
Greenstone’s profitability or growth by increasing the
cost of regulatory compliance, restricting the products
or services Greenstone may sell, the markets it may
enter, the methods by which it may sell its products
and services, or the prices it may charge for its services
and the form of payments it may accept from its
customers, Insurance Carriers and other partners.
See Section 3.3.2 for further details around ASIC’s
industry-wide review of funeral insurance products.
There is a risk that if Greenstone does not comply with
applicable laws, regulations, or Government policies,
it may be subject to corrective action, penalties,
liabilities, restrictions on activities or fee models,
suspension of operations, forced sale of an operation
or other impacts by regulators, which may adversely
Greenstone Limited Prospectus
impact the operational and financial performance
and reputation of Greenstone. Greenstone’s licensed
businesses appoint several of its Affinity Brand
Partners (including Medibank, Woolworths and
RSPCA) as authorised representatives under its AFSL
and Greenstone can in some circumstances be liable
for the conduct of those authorised representatives
under its AFSL. Any failure by Greenstone to comply
with terms of the AFSL could result in Greenstone not
being able to market and distribute its products.
Both the direct insurance business and the online
comparator website, Choosi, are relatively new and
the regulation applicable to those businesses may
evolve over time. There is a risk that future regulation
could have an adverse effect on Greenstone’s business
operations or financial results. If Greenstone fails to
adequately respond to such changes, including by
implementing effective operational and strategic
initiatives, or does not do so as effectively as its
competitors, its business, operations and financial
results may be materially adversely affected.
Each of these changes, in isolation or in aggregate,
may adversely impact the demand or the financial
returns associated with Greenstone’s insurance
products, which in turn may adversely impact
Greenstone’s revenue and profitability.
5.2.7 Inability to secure underwriting on
acceptable terms or an increase in the price
of its underwriting
Greenstone is primarily engaged in the design,
pricing, marketing, distribution and administration
of insurance policies and derives revenues from
payments by Insurance Carriers for these activities.
The payments are typically based upon a percentage
of premiums paid by customers for such insurance
products. Greenstone’s Insurance Carrier relationships
are relatively concentrated. For the 12 months ended
31 December 2014, Hannover Re, Swiss Re and
Hollard were Greenstone’s three active Insurance
Carriers and represented 55.1%, 9.1% and 18.3% of
Greenstone’s total Gross Written Premium respectively
(the remainder being various health insurers). The
arrangements with these Insurance Carriers are
typically for a five year term and, under certain
circumstances, an Insurance Carrier may terminate its
relationship with Greenstone, or change the product
mix available for Greenstone to distribute, because
of changes in market conditions, certain insurance
policies becoming unviable, changes in risk appetite
or collapse or withdrawal of an insurer due to poor
Section 05 – Key risks 115
loss ratios or other factors. In addition, if Greenstone
is unable to negotiate competitive risk pricing with
an Insurance Carrier, it may be required to either
increase premiums charged to customers or accept
reduced margins (or a combination of both). If any
Insurance Carriers terminate their arrangements
with Greenstone, or do not renew, or renew on
less favourable terms, and Greenstone is unable
to secure alternative underwriting on terms which
are comparable to its current arrangements, this
may materially adversely affect Greenstone’s future
revenue and profitability.
In addition, for some products, Greenstone can elect
to receive higher payments in the first year of a policy
and lower payments in subsequent years to help fund
working capital requirements associated with the
sale of the insurance product. If an Insurance Carrier
terminates its contract, or Greenstone is not able to
renew the contract at similar terms, this may adversely
impact Greenstone’s ability to generate cash and fund
its working capital requirements.
5.2.8 Failure to renew distribution agreements
with key Affinity Brand Partners
A significant proportion of Greenstone’s sales relate
to insurance products that are sold through licensing
agreements with partners including Medibank,
Woolworths and RSPCA. Through these arrangements,
Greenstone distributes products under the brands
of Medibank, Woolworths and RSPCA, either direct
to Medibank and Woolworths customers or directly
to external consumers in the case of RSPCA (see
Section 3.4 for further information). Not all of these
relationships are exclusive and certain partners (e.g.
Woolworths) may also sell products of Greenstone’s
competitors. These arrangements are typically on
five year terms and under some circumstances may
be terminated early upon standard breach without
rectification clauses or if directed by a regulator.
If Greenstone (or, in the case of Medibank or
Woolworths, Swiss Re in its capacity as underwriter)
fails to renew one or more of its distribution
agreements with key Affinity Brand Partners, this
may adversely impact Greenstone’s revenue and
profitability. In addition, if the volume of insurance
products distributed by Affinity Brand Partners
declines or if it is less than expected (including,
for example, if the Affinity Brand Partner loses
market share to competitors or to other distribution
channels), this may adversely impact Greenstone’s
revenue and profitability.
116 Section 05 – Key risks
5.2.9 Core systems and technologies suffer
technological disruption, become outdated or
cease to function efficiently
Greenstone’s ability to distribute its products depends
on the efficient and uninterrupted operation of its
core systems and technologies, which include the
customer relationship management system, data
processing and administrative systems, lead and call
optimisation and analytics systems and internet,
telephone and other communication systems.
Greenstone’s Insurance Carriers also rely on their own
core systems and technologies.
There is a risk that Greenstone’s core systems and
technologies, or the core systems and technologies
of Greenstone’s Insurance Carriers, could be
exposed to damage or interruption from systems
failures, computer viruses, cyber-attacks, power or
telecommunications providers’ failures, fire, natural
disasters, terrorist acts, war or human error. Any
systemic failure or sustained interruption in service
provision could negatively impact Greenstone’s
ability to generate new business or manage its
existing customers; impair Greenstone’s operations,
customer service levels and customer satisfaction; or
could require increased expenditure on technology
and marketing to protect Greenstone’s reputation;
which could adversely impact Greenstone’s revenue
and profitability.
In addition, Greenstone’s growth is dependent on
the success of its proprietary technology and analytics
systems. There is a risk that Greenstone’s various
optimisation platforms fail to accurately generate
lead data or fail to deliver targeted levels of lead
conversion. There is also a risk that the intelligence
provided by these systems is either not adhered to or
misinterpreted by management, leading to inefficient
spend, resourcing or other activities. Furthermore,
the assumptions Greenstone makes about consumer
preferences, products, costs, investment spend and
other factors in determining the return on investment
of marketing spend and resource allocation between
branding, products and marketing channels may
prove to be inaccurate, and accordingly these analytics
may not accurately reflect the cost invested per lead
generated. This may lead to misdirected business
resources and slower growth, which could adversely
impact Greenstone’s revenue and profitability.
Greenstone Limited Prospectus
5.2.10 Deterioration of the financial position or
reputation of Greenstone’s key Insurance Carriers
Greenstone relies on the ability of its Insurance
Carriers to meet their obligations under the various
insurance policies that Greenstone has distributed to
date and expects to distribute in the future. While
Greenstone is not liable for claims under any of the
insurance policies it has distributed or expects to
distribute, there is a risk that a significant financial
failure by, or insolvency of, one of its Insurance
Carriers may impact that Insurance Carrier’s ability to
honour insurance policies distributed by Greenstone
and that such a failure could have a material impact
on Greenstone’s reputation, brands, customer
relationships and/or contractual relationships with its
Affinity Brand Partners. This would adversely impact
Greenstone’s reputation, revenue and profitability and
would potentially impact the Insurance Carrier’s ability
to make the future payments due to Greenstone on
existing policies.
5.2.11 Decisions from third party product
providers adversely affecting the Choosi website
Choosi offers private health insurance and other
insurance products from a variety of third party
product providers. Contracts between Choosi and
product providers are generally terminable at will by
either party on relatively short notice (one to three
months) and accordingly there is no guarantee that
the third party product providers that currently make
their products available through Choosi will continue
to do so. If a relationship with a Choosi product
provider is lost or impaired, there is no guarantee
that the terms of an alternative agreement will be as
favourable or that the products will be as attractive to
customers of Choosi as its current product offering.
In addition, product providers may make fewer
products available or may not make certain products
available. This may be for a number of reasons,
including decisions they take to limit the number of
new policies that they write in accordance with their
internal risk management processes, a lack of the
capital or funds required to sustain new policy growth
or in response to changes in market conditions and/or
their perception of the best allocation of their capital.
As Choosi is an online comparison website, it requires
a critical mass of products to be available in order
to provide a meaningful and useful comparison
tool to its customers. The loss of, or significant
Greenstone Limited Prospectus
reduction in, products offered by third party product
providers could lead to the Choosi website becoming
less attractive to potential customers. In turn, this
could lead to Choosi becoming less attractive as a
platform for third party product providers to offer
their products.
The loss or impairment of any of these relationships
with third party product providers, or a reduction
in the nature and amount of products they make
available, could adversely impact the performance
of Choosi and accordingly could adversely impact
Greenstone’s revenue and profitability.
5.2.12 Changes in accounting standards
Australian Accounting Standards are set by the
Australian Accounting Standards Board and hence
are outside the control of either Greenstone or
its Directors.
There is a risk that interpretations of existing
Accounting Standards, including those relating to
the measurement and recognition of key income
statement and balance sheet items, including revenue
and receivables, may differ. Changes to Australian
Accounting Standards issued by the AASB or changes
to the commonly held views on the application
of those Accounting Standards could adversely
impact Greenstone’s reported financial performance
and position.
For example, Greenstone has chosen to adopt
AASB 9 Financial Instruments early which affects
the measurement and recognition of key income
statement and balance sheet items, including revenue
and receivables. For further details, refer to Appendix
A. The AASB issued AASB 15 Revenue from Contracts
with Customers in December 2014 which will first
be applicable to Greenstone for its financial year
ending 30 June 2018. There remain a number of
implementation issues arising from AASB 15 Revenue
from Contracts with Customers that are subject to
ongoing discussion by the IASB and other standard
setting boards and as a consequence Greenstone
has not completed a full assessment of the potential
impact, if any, on its current revenue recognition
policies (refer Appendix A.2 for details).
Notwithstanding the early adoption of AASB 9
Financial Instruments, there is currently no specific
guidance in the Australian Accounting Standards
as to the recognition and measurement of trailing
Section 05 – Key risks 117
agency revenue and receivables other than the
principles contained in general revenue recognition
and financial instruments Australian Accounting
Standards. There is a risk that if the AASB issues
specific amendments or interpretation guidance
relating to future agency revenue and receivables,
which differs to the manner in which Greenstone
currently accounts for future agency revenue and
receivables, Greenstone may need to change the
way in which it accounts for future agency revenue
and receivables, potentially affecting the initial and
subsequent recognition of future agency revenue
which may adversely impact key income statement
and balance sheet items or recognise an impairment
in relation to the manner in which it has historically
recognised such agency revenue and receivables.
5.2.13 Inability to refinance debt on attractive
terms or adverse changes to interest rates
Greenstone relies on debt funding to help fund its
business operations. Greenstone is subject to the risk
of not being able to refinance its debt when it falls
due. If this occurs, the terms available to Greenstone
(including in relation to pricing) on refinancing
with a new debt facility may not be available on as
favourable terms as those under its existing debt
facilities and, if there is a deterioration in the level of
debt market liquidity, this may prevent Greenstone
from being able to refinance some or all of its debt at
all. The terms of the debt funding, including pricing,
which investors are willing to offer Greenstone will
depend on prevailing macro-economic conditions and
investors’ assessment of Greenstone’s business and
financial performance, and the risks associated with
the intended use of the funds.
In addition, Greenstone’s debt facilities are floatingrate borrowings, which will be affected by changes
in the interest rate. There is a risk that any increase
in the interest rate will affect Greenstone’s costs of
servicing these borrowings, which may adversely
affect its financial position. In certain cases, the
agency payments in the Insurance Carrier contracts
depend on the interest rate. Therefore, interest rate
fluctuations may also affect the size and timing of
agency payments received by Greenstone under its
contracts with Insurance Carriers. Any adverse change
in the interest rate is likely to impact the availability
of cash and adversely affect profitability.
118 Section 05 – Key risks
5.2.14 Skilled personnel are not attracted to
Greenstone or its personnel underperform
Greenstone’s future success depends, to a significant
extent, on the performance and expertise of key
staff and its ability to attract and retain senior
management who are very important to the
execution of its business model. There is a risk that
failure to retain current management, or recruit
suitably qualified replacements on acceptable terms,
may adversely impact Greenstone’s revenue and
profitability and financial position.
5.2.15 The Existing Shareholder retains a
significant stake in Greenstone post-Listing
After Completion of the Offer, the Existing
Shareholder will hold 31.5% to 31.9% of the total
Shares on issue, and will continue to have the ability
to exert significant influence over Greenstone,
including in relation to the election of Directors and
the potential outcome of matters submitted to the
vote of Shareholders. There is a risk that the interests
of the Existing Shareholder may be different from the
interests of investors who purchase Shares under the
Offer, particularly given their Shares were acquired
prior to Completion of the Offer and at different
prices to the Final Price.
There is also a risk that a significant sale of Shares
by the Existing Shareholder after the end of the
Escrow Period, or the perception that such a sale
might occur, could adversely impact the price of
Shares. The continued shareholding of the Existing
Shareholder may also negatively impact the timing
and effectiveness of any capital raising activities
of Greenstone, which could adversely impact
Greenstone’s cost of capital and financial position.
In Section 8.5.4, reference is made to a range of
related party agreements between Greenstone
and Hollard. There is a risk that the interests of
the Existing Shareholder, which owns 100% of The
Hollard Insurance Company Pty Ltd and (indirectly)
50% of PetSure, may be different from the
interests of Greenstone. The ability of the Existing
Shareholder to exert influence over Greenstone
may impact the commerciality of those agreements
between Greenstone, on the one hand, and The
Hollard Insurance Company Pty Ltd and/or PetSure,
on the other.
Greenstone Limited Prospectus
5.2.16 Potential litigation and disputes
Greenstone may from time to time be involved in
legal proceedings arising from the conduct of its
businesses, including from customers, past and present
employees, regulators, other insurers or suppliers,
including but not limited to as a consequence
of misrepresenting to customers their rights and
entitlements under their insurance policies and/
or failing to comply with Commonwealth or state
regulations, including the financial services licensing
regime. The loss arising from such litigation may not
be covered by insurance or the aggregate potential
liability in respect of possible legal proceedings may
exceed any insurance coverage. Any material legal
proceedings could have a material adverse impact
on Greenstone’s financial performance and position
and may also impact the pricing of premiums. Even if
Greenstone was to ultimately prevail in the litigation,
it could divert management’s attention and resources
from Greenstone’s operations and business, and
Greenstone could also suffer significant reputational
damage which could have an adverse effect
on Greenstone.
5.3 General risks associated with an
investment in Greenstone
5.3.1
Potential fluctuations in the price of Shares
There are risks associated with any stock market
investment. Once Greenstone becomes listed on the
ASX, it will be subject to general risks applicable to all
securities listed on a stock exchange. This may result in
fluctuations in the Share price that are not explained
by the performance of Greenstone.
The price at which Shares are quoted on the ASX
may be subject to fluctuations in response to
factors such as:
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actual or anticipated variations in Greenstone’s
operating results;
changes to government fiscal, monetary or
regulatory policy, legislation or the regulatory
environment in which Greenstone operates;
changes in financial outcomes estimated by
securities analysts;
inclusion in or removal from market indices;
changes in the market valuation of other
comparable companies and the nature of the
market in which Greenstone operates;
Greenstone Limited Prospectus
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announcements by Greenstone or its competitors
of significant changes to their businesses
or operations;
announcements by Greenstone or its competitors
of significant acquisitions;
strategic alliances, joint ventures or capital
commitments;
additions or departures of key personnel;
an event of force majeure, such as terrorism, fire,
flood, earthquake, war or strikes;
fluctuations in the domestic and international
market for listed stocks; and
fluctuations in general domestic and global
economic conditions, including interest rates,
exchange rates, commodity and oil prices.
In addition, in recent years, stock markets have
generally experienced a high level of price and
volume volatility and the market prices of equity
securities of many listed companies have experienced
wide price fluctuations not necessarily related to the
operating performance of such companies. There is
also no assurance that the price of the Shares will
increase following Listing.
5.3.2
Potential non-franking of dividends
To the extent that Greenstone pays any dividends,
Greenstone may not have sufficient franking credits in
the future to frank dividends, or the franking system
may be subject to review or reform. The value and
availability of franking credits to a Shareholder will
differ depending on the Shareholder’s particular tax
circumstances. Shareholders should also be aware
that the ability to use franking credits, either as a tax
offset or to claim a refund after the end of the income
year, will depend on the individual tax position of
each Shareholder.
5.3.3
Liquidity of Shares
There is currently no public market through which the
Shares may be sold. There can be no guarantee that
an active market in Shares will develop or that the
price of Shares will increase. There may be relatively
few buyers or sellers of Shares on the ASX at any
given time. In addition, in aggregate, 34.3% to 42.5%
of Shares on issue1 will be the subject of escrow
arrangements, as described in Section 7.9. As a result,
it could be expected that there will be less liquidity in
the market for Shares during the Escrow Period.
Section 05 – Key risks 119
These factors may increase the volatility of the market
price of Shares. It may also affect the prevailing
market price at which Shareholders are able to sell
their Shares. This may result in Shareholders receiving
a market price for their Shares that is less than or
more than the Final Price.
5.3.4 Shareholder dilution
In the future, Greenstone may elect to issue Shares,
to engage in fundraisings and also to fund or raise
proceeds for acquisitions Greenstone may decide
to make. While Greenstone will be subject to the
constraints of the ASX Listing Rules regarding the
percentage of its capital it is able to issue within a
12 month period (other than where exceptions apply),
there is a risk that Shareholders may be diluted as a
result of such issues of Shares and fundraisings.
5.3.5
Force majeure events
Events may occur within or outside Australia that
could impact upon the global and Australian
economies, the operations of Greenstone and the
price of the Shares. These events include but are
not limited to acts of terrorism, an outbreak of
international hostilities, fires, floods, earthquakes,
labour strikes, civil wars, natural disasters, outbreaks
of disease or other man-made or natural events or
occurrences that can have an adverse effect on the
demand for Greenstone’s products and its ability
to conduct business. Greenstone has only a limited
ability to insure against some of these risks.
5.3.6 General economic and financial
market conditions
The operating and financial performance of
Greenstone is influenced by a variety of general
domestic and global economic and business conditions
that are outside the control of Greenstone. There is a
risk that prolonged deterioration in general economic
conditions may impact the demand for Greenstone’s
products and negatively impact Greenstone’s financial
performance, financial position, cash flows, dividends,
growth prospects and share price.
1. Based on the Indicative Price Range and assuming no Shares are over-allocated. See Section 7.8.
120 Section 06 – Key people, interests and benefits
KEY PEOPLE,
INTERESTS AND
BENEFITS
06
Greenstone Limited Prospectus
Greenstone Limited Prospectus
Section 06 – Key people, interests and benefits 121
KEY PEOPLE, INTERESTS AND BENEFITS
6.1
Board of Directors
The Board comprises five Non-Executive Directors (three of whom are Independent Directors) and one Executive
Director. The Chairman is an Independent Non-Executive Director. Table 28 below provides further details
on the Board.
Having a majority of independent directors on a company’s board is one of the ASX’s Corporate Governance
Principles and Recommendations (ASX Recommendations). A director is independent if he or she is a
non‑executive director, not a member of management and free of any business or other relationship that
could materially interfere with (or be perceived to materially interfere with) the independence of his or her
judgement. Rick Lee, Sam Lewis and Nancy Milne are Independent Directors. The Board does not comply with
this ASX Recommendation as it does not have a majority of Independent Directors.
The Board intends to appoint an additional Independent Non-Executive Director. The Board is in discussions with
a potential candidate and expects to finalise the appointment prior to the 2015 annual general meeting. Upon
the appointment of an additional Independent Non-Executive Director, the Company will comply with the ASX
Recommendation that the Company’s Board has a majority of Independent Directors.
Table 28:Board of Directors
Name and title
Experience
Rick Lee
Independent Chairman
Rick Lee has extensive executive experience in resource banking, finance and
international commerce. His previous senior executive roles include 16 years
with CSR and nine years as CEO of NM Rothschild Australia.
Rick has had considerable experience as an independent director. His current
board roles are chairman of Oil Search and a director of Newcrest Mining
(serves as member of the Audit and Risk Committee and chairman of the
Human Resources and Remuneration Committee). He has been chairman of
Salmat and deputy chairman of Ridley Corporation. In addition, he has been a
director of a variety of companies including Wesfarmers General Insurance (a
subsidiary of ASX listed Wesfarmers) and CSR and an independent member of
the Trading Risk Management Committee of Graincorp.
Rick studied chemical engineering at the University of Sydney, graduating with
first class honours in 1972. He completed a second degree at the University of
Oxford in 1974 under a Rhodes Scholarship and was awarded a Master of Arts,
majoring in Economics and Modern History. He is also a fellow and former
chairman of the Australian Institute of Company Directors.
Mark Reid
Managing Director and CEO
Mark Reid joined Greenstone in August 2014 as Managing Director and
CEO, following more than 25 years in senior leadership positions within
the financial services sector. Mark has strong commercial and leadership
experience both internationally and domestically, together with a proven
track record in developing and executing strategies in both organic and
transformational businesses.
Mark spent 12 years with Bankwest where he held the Chief Executive position
of both the Business and more recently, the Retail bank. Prior to that, he held
various senior roles at Halifax Bank of Scotland for over 14 years.
Mark has a Master of Business Administration from Curtin University and a
Bachelor of Business Studies (Honours) from Liverpool John Moores University.
122 Section 06 – Key people, interests and benefits
Richard Enthoven
Non-Independent
Non‑Executive Director
Greenstone Limited Prospectus
Richard Enthoven is the founder of The Hollard Insurance Company and the
co-founder of the Greenstone business. He currently serves as the CEO of The
Hollard Insurance Company and has served as the chairman of Greenstone
until the IPO. He has also served as a director of The Hollard Insurance
Company and The Hollard Life Insurance Company in South Africa since 2004,
including Chairman of both companies from 2008 to 2014.
Richard is also a director of the Insurance Council of Australia and serves on
the Advisory Board of Head Over Heels, a not-for-profit organisation that
supports a portfolio of high-potential women-owned businesses.
Richard holds a Master of Science from the London School of Economics and a
Bachelor of Arts from the University of Southern California.
Andrew Kearnan
Non-Independent
Non‑Executive Director
Andrew Kearnan has extensive executive experience in the Australian finance
sector and Australian investment markets. His previous senior executive roles
include 18 years with Bank of America Merrill Lynch, the last five years of
which he was head of Australian Research and a member of the Country Exco.
Andrew has more than 20 years’ experience working in, analysing and advising
on the Australian insurance and financial services sector.
Andrew was appointed to the Board in May 2015 and is a member of the Audit
and Risk Management Committee. Andrew is a non-executive director of The
Hollard Insurance Company and chair of the Investment Committee. He is a
member of the Australian Accounting Standards Board.
Andrew has a Bachelor of Science (Honours) from the University of Western
Australia and a Master of Business Administration from the University of
Western Australia.
Samantha (Sam) Lewis
Independent
Non‑Executive Director
Sam Lewis is the Chair of the Audit and Risk Management Committee for
Greenstone. Sam has extensive financial and accounting experience, including
as a lead auditor of a number of major Australian listed entities. Sam has
significant experience working with consumer business organisations, and in
addition to external audits, has provided accounting and transactional advisory
services to other major organisations in Australia. Sam joined Deloitte Touche
Tohmatsu in 1994 where she held the position of Assurance & Advisory Partner
from 2000 to 2014. Sam is currently a non-executive director of Orora (chair
of the Audit and Compliance Committee) and Aurizon (member of the Audit,
Governance and Risk Management Committee).
Sam holds a Bachelor of Arts, Economics from the University of Liverpool in
the UK, and is a member of The Institute of Chartered Accountants in Australia
and The Institute of Chartered Accountants in England and Wales.
Greenstone Limited Prospectus
Nancy Milne
Independent
Non‑Executive Director
Section 06 – Key people, interests and benefits 123
Nancy Milne is Chair of the Remuneration, Organisation and Nomination
Committee for Greenstone. Nancy is a former lawyer practising in the
insurance and risk area. Nancy retired as a partner from Clayton Utz at the
end of 2003.
Nancy has been a director of a variety of companies including ASX listed and
unlisted companies, government corporations and not-for-profit organisations.
Current board roles include Novion Property Group, ALE Property Group,
Pillar Administration, Securities Exchange Guarantee Corporation and Good
Beginnings Australia. Previous board roles have included Australand Holdings,
Crowe Horwath, Munich Reinsurance Australasia, Zurich Financial Services
Australia and the Medical Research and Compensation Fund.
Nancy holds a Bachelor of Laws from The University of Sydney. She is a fellow
of the Australian Institute of Company Directors and has been awarded a
Medal of the Order of Australia.
The composition of the Board committees and details of its key corporate governance policies are set out in
Section 6.8.3.
Each Director above has confirmed to the Company that they anticipate being able to perform their duties as a
non-executive Director or executive Director of the Company, as the case may be, without constraint from other
commitments.
In addition, the Directors intend to appoint an additional Independent Non-Executive Director prior to the 2015
annual general meeting.
124 Section 06 – Key people, interests and benefits
6.2
Greenstone Limited Prospectus
Executive leadership team
Table 29 below provides details around the senior management team of Greenstone.
Table 29:Senior management team
Name and position
Experience
Mark Reid
Managing Director and
Chief Executive Officer
See Table 28 above.
Derrick Jones
Chief Financial Officer
Derrick Jones joined the Hollard Australia Group in November 2008 which
then included the businesses which today form the separate Hollard Holdings
Australia and Greenstone businesses. In January 2015, Derrick resigned from
all of his roles at Hollard Holdings Australia to focus on his management
responsibilities at Greenstone.
Derrick has over 30 years experience in financial management across various
sectors. Derrick’s career began in the audit profession with Deloitte in
South Africa before transitioning into a finance manager role with a global
logistics company.
After making the transition into commerce in 1988, Derrick gained extensive
operational and strategic experience and held a number of CFO roles within
the pharmaceutical and insurance industries, including with the Australian
subsidiary of Quintiles Transnational and IC Frith (part of Steadfast Group).
Derrick has a Bachelor of Commerce and Bachelor of Accounting from the
University of the Witwatersrand. Derrick is a member of The Institute of
Chartered Accountants in Australia.
Brenard Grobler
Chief Commercial Officer
Brenard Grobler joined Greenstone in 2008 following more than 19 years
senior management experience specific to insurance distribution. Prior to
joining Greenstone, Brenard spent nine years in senior management roles
at Standard Bank, one of South Africa’s largest financial services groups.
He also gained significant industry experience working for Old Mutual, an
international investment, savings, insurance and banking group. Brenard also
spent seven years as the Chief Accountant for the Meat Board in South Africa.
Brenard completed his Bachelor of Commerce (Accountancy) at the University
of Pretoria and is also a Certified Financial Planner.
Christian Gostelow
Chief Information Officer
Christian Gostelow joined Greenstone in January 2015 as Chief Information
Officer bringing with him 22 years of financial services sector experience.
Prior to joining the business, Christian worked at Halifax Bank of Scotland
for 14 years in various leadership roles before moving to Sydney in 2007 as a
Program Director and then, in 2008, head of Sales Operations at Bankwest.
Christian has over 15 years’ experience in the delivery of transformational
change and technology programs within the financial services industry
and during his time at Bankwest, he managed the delivery of major bankwide change initiatives resulting in significant cost savings and improved
productivity measures.
Christian completed his Bachelor of Arts (Honours) in Geography and Town
Planning at the University of Sheffield.
Greenstone Limited Prospectus
Ian Rakhit
General Manager, Sales
Section 06 – Key people, interests and benefits 125
Ian Rakhit joined Greenstone in 2015 and brings more than 30 years’
experience working in financial services. Ian started his career with Halifax
Bank of Scotland in 1985 and over 22 years held various senior leadership roles
across the retail division of the bank.
Ian left the UK in 2007 to lead the Bankwest expansion into the East Coast of
Australia and successfully took the start-up business division to profitability
within three years. In 2010, Ian became the Head of Specialist Banking
at Bankwest before being appointed Head of Retail Broker Sales where
he was accountable for the largest revenue stream of the country’s fifth
biggest lender.
Ian completed his Diploma in Marketing and Sales at the Institute of
Marketing in the UK.
John Roche
General Manager,
Legal, Compliance,
Governance and Risk
John Roche joined the Hollard Australia Group in 2004 with responsibility for
Group Compliance. Prior to this, John acquired substantial experience within
the insurance and banking sectors having worked for St.George Bank, Arthur
Andersen, Dresdner RCM Global Investors and Insurance Australia Group.
John joined Greenstone in the role of General Manager, Legal, Compliance,
Governance and Risk. John is also the Company Secretary.
He holds a Bachelor degree in Commerce and Law (Honours) from University
College Dublin as well as a Masters in Corporate and Commercial Law from the
University of New South Wales.
Blazenka Skender
General Manager,
People and Culture
Blazenka Skender joined Greenstone in 2013, with more than 20 years
experience working in the financial services and insurance industries. Blazenka
has worked in executive leadership roles with a focus on human resources
management, talent acquisition, culture and change management, leadership
and organisational development and employee engagement within Australia
and throughout Asia Pacific, Europe and South Africa.
Blazenka has a solid track record in driving business performance by
developing and executing strategic solutions in the areas of employee
relations, recruitment and selection, training and development, performance
management and remuneration strategies.
Blazenka completed her Bachelor of Arts at the University of Sydney.
126 Section 06 – Key people, interests and benefits
6.3
Interests and benefits
Greenstone Limited Prospectus
■■
Sections 6.4 and 6.5 set out the nature and extent of
the interests and fees of certain persons involved in
the Offer. Other than as set out below or elsewhere
in this Prospectus, no:
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■■
■■
■■
director or proposed director of
Greenstone or SaleCo;
person named in this Prospectus and who has
performed a function in a professional, advisory or
other capacity in connection with the preparation
or distribution of this Prospectus;
■■
promoter of the Company; or
underwriter to the Offer or financial services
licensee named in this Prospectus as a financial
services licensee involved in the Offer,
holds as at the time of lodgement of this Prospectus
with ASIC, or has held in the two years before
lodgement of this Prospectus with ASIC, an interest in:
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■■
the formation or promotion of the Company;
property acquired or proposed to be acquired by
the Company in connection with its formation or
promotion or the Offer; or
the Offer,
and no amount (whether in cash, Shares or otherwise)
has been paid or agreed to be paid, nor has any
benefit been given or agreed to be given, to any
such person for services in connection with the
formation or promotion of the Company or the
Offer or to any director or proposed director to
induce them to become, or qualify as, a director of
Greenstone or SaleCo.
6.4
Interests of advisers
The Company has engaged the following professional
advisers in relation to the Offer:
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Goldman Sachs Australia Pty Limited and
Macquarie Capital (Australia) Limited have acted
as Joint Lead Managers to the Offer and the fees
payable to the Joint Lead Managers pursuant to
the Offer Management Agreement are described
in Section 8.5.1;
Citigroup Global Markets Pty Ltd, Deutsche Bank
AG, Sydney Branch and J.P. Morgan Australia Ltd
have acted as Co-Lead Managers to the Offer and
will be paid fees by the Joint Lead Managers on
behalf of the Company to Co-Lead Managers as
described in Section 8.5.1;
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Gilbert + Tobin has acted as Australian legal
adviser to the Company in relation to the
Offer. The Company has paid, or agreed to
pay, approximately $1,375,000 (excluding
disbursements and GST) for these services up until
the Prospectus Date. Further amounts may be paid
to Gilbert + Tobin in accordance with its normal
time based charges;
Deloitte Corporate Finance Pty Limited has
acted as the Investigating Accountant on, and
has performed work in relation to, the Financial
Information and has performed work in relation
to its Investigating Accountant’s Report on
Historical Financial Information in Section 9 and
the Investigating Accountant’s Report on Forecast
Financial Information in Section 10. The Company
has paid, or agreed to pay, approximately
$1,045,000 (excluding disbursements and GST) for
these services up until the Prospectus Date. Further
amounts may be paid to Deloitte Corporate
Finance Pty Limited under time based charges;
Deloitte Actuaries & Consultants Limited has acted
as the Consulting Actuary on, and has performed
work in relation to, the Financial Information and
has performed work in relation to its Consulting
Actuary’s Report in Section 11. The Company has
paid, or agreed to pay, approximately $180,000
(excluding disbursements and GST) for these
services up until the Prospectus Date. Further
amounts may be paid to Deloitte Actuaries &
Consultants Limited under time based charges; and
PricewaterhouseCoopers has acted as the
Australian taxation and remuneration adviser in
relation to the Offer. The Company has paid, or
agreed to pay, approximately $910,000 (excluding
disbursements and GST) for these services up until
the Prospectus Date. Further amounts may be paid
to PricewaterhouseCoopers in accordance with its
normal time based charges.
These amounts, and other expenses of the Offer, will
be paid by Greenstone out of funds raised under the
Offer or available cash. Further information on the
use of proceeds and payment of expenses of the Offer
is set out in Section 7.3.
Greenstone Limited Prospectus
6.5 Directors’ interests and
remuneration
6.5.1
Managing Director and CEO
Mark Reid is employed by Greenstone Financial
Services, a wholly-owned subsidiary of Greenstone,
in the position of Managing Director and CEO, and
reports to the Board of Greenstone. Under the
terms of his agreement, Mark will, upon Completion
of the Offer, be entitled to receive annual fixed
remuneration of $1,000,000 (comprising base salary,
superannuation and other non-cash benefits). Mark
will also be entitled to participate in Greenstone’s new
cash and equity Performance Incentive Plan (PIP).
Section 06 – Key people, interests and benefits 127
As part of the discussions for Mark to take on the
role of Managing Director and CEO, Mark voluntarily
agreed to apply a significant portion of his incentive
entitlements into the acquisition of Greenstone Shares
at the Final Price. Mark also agreed to a voluntary
escrow to apply to these Shares over a three or five
year period (as set out below).
Under the terms of Mark’s previous employment
contract, Mark will receive the following amounts
on Completion of the Offer:
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Mark’s employment agreement may be terminated
by Mark or Greenstone Financial Services by giving
at least six months’ notice in writing, or where
terminated by Greenstone Financial Services, by
making payment in lieu of notice. In the event
of termination, Greenstone may direct Mark to
take enforced leave during any notice period of
termination, during which time he will remain an
employee and entitled to receive remuneration and
all other contractual benefits.
Greenstone Financial Services may terminate Mark’s
employment immediately and without payment in
lieu of notice in certain circumstances, including for
wilful misconduct, serious or persistent breach of
his employment agreement or serious or persistent
breach of his duties. Mark’s employment contract
also includes a post-employment restraint period of
six months. The enforceability of the restraint clause
is subject to all usual legal requirements.
Close out of existing arrangements by agreement
with pre-IPO Shareholder
On joining Greenstone as a private company, Mark
entered an agreement with the Existing Shareholder
to participate in a long term incentive plan focussed
on increasing the enterprise value over a five
year period.
As a result of the IPO, Mark and the Existing
Shareholder agreed that the legacy incentive plans
should be closed out and any awards due crystallised.
The full costs of the close out of the incentive plans
will be borne and expensed by Greenstone in the FY15
results, but the amounts payable under Item 2 below
will be fully funded to the extent of the after tax cost
to Greenstone by way of an equity contribution from
the Existing Shareholder (inclusive of the associated
payroll tax).
Item 1: pursuant to the close out of legacy
incentive arrangements in respect of FY15, Mark
will receive $533,700 (less any applicable taxes).
Of this amount:
——
——
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$266,850 (i.e. half) will be paid in cash (less
applicable taxes); and
$266,850 (i.e. half) will be used (on an after
tax basis being approximately $136,094) to
subscribe for Shares at the Final Price on
Completion of the Offer. These Shares will be
subject to continued service conditions and
disposal restrictions. One third of these Shares
will be released from escrow each year for
three years from Completion of the Offer. If the
service condition ceases to be met any Shares
that remain subject to escrow restrictions will
be forfeited; and
Item 2: pursuant to an entitlement under Mark’s
previous employment agreement, Mark will receive
a payment of $15,530,000, funded by the Existing
Shareholder. Of this amount:
——
––
$6,010,000 will be payable in cash (less
applicable taxes); and
$9,520,000 will be used (on an after tax basis
being $4,855,200) to subscribe for Shares at the
Final Price on Completion of the Offer. These
Shares will be subject to bad leaver forfeiture
provisions and disposal restrictions. One fifth
of these Shares will be released from escrow
each year for five years from Completion
of the Offer.
Mark may subscribe for and hold his interests in
Shares as described above directly, or indirectly
through holdings by companies or trusts. Details of
the escrow arrangements applicable to Mark Reid
are set out in Section 7.9.
128 Section 06 – Key people, interests and benefits
The Shares subscribed for in relation to Item 1 above
are subject to a continued service condition, which
provides that if Mark’s employment with Greenstone
is terminated during the three year escrow
period due to:
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■■
wilful misconduct (fraud or malfeasance) justifying
termination of his employment;
his resignation; or
him becoming ineligible to hold his office for the
purposes of Part 2D.6 of the Corporations Act,
then all Shares issued under Item 1 which are still
subject to escrow as at the date of such termination
will be forcibly divested for de minimus consideration
of $1 in aggregate.
The Shares subscribed for in relation to Item 2 above
are subject to a bad leaver forfeiture provision, which
provides that if Mark’s employment with Greenstone
is terminated during the five year escrow period
due to either:
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■■
wilful misconduct (fraud or malfeasance); or
him becoming ineligible to hold his office for the
purposes of Part 2D.6 of the Corporations Act,
then all Shares issued under Item 2 which are still
subject to escrow as at the date of such termination
will be forcibly divested for de minimus consideration
of $1 in aggregate.
Pre-IPO incentive arrangements for Mark Reid to
be funded by the Existing Shareholder
The Existing Shareholder will subscribe for additional
equity in Greenstone immediately prior to Completion
of the Offer for an amount equal to the after tax cost
to Greenstone of the payments described in Item 2
above (inclusive of the associated payroll tax).
6.5.2
Chief Financial Officer
Derrick Jones is employed by Greenstone Financial
Services in the position of CFO, and reports to the
CEO and Board. Under the terms of his agreement,
Derrick will, upon Completion of the Offer, be entitled
to receive annual fixed remuneration of $500,000
(comprising base salary, superannuation and other
non-cash benefits). Derrick will also be entitled to
participate in Greenstone’s new cash and equity PIP.
Greenstone Limited Prospectus
Derrick’s employment agreement may be terminated
by Derrick or Greenstone Financial Services by
giving at least three months’ notice in writing, or
where terminated by Greenstone Financial Services,
by making payment in lieu of notice. In the event
of termination, Greenstone may direct Derrick to
take enforced leave during any notice period of
termination, during which time he will remain an
employee and entitled to receive remuneration and
all other contractual benefits.
Greenstone Financial Services may terminate Derrick’s
employment immediately and without payment in lieu
of notice in certain circumstances, including for serious
and wilful misconduct or serious or persistent breach
of his employment agreement or serious or persistent
breach of his duties. Derrick’s employment contract
also includes a post-employment restraint period of
12 months. The enforceability of the restraint clause is
subject to all usual legal requirements.
Under the terms of Derrick’s employment contract,
Derrick will receive a one-off IPO bonus payment
of $1,053,000 (less any applicable taxes). All of this
amount will be used (on an after tax basis being
$537,030) to subscribe for Shares at the Final Price
on Completion of the Offer. These Shares will be
subject to bad leaver forfeiture provisions and
disposal restrictions. These Shares will be released
from escrow two business days after the date on
which Greenstone’s full-year results for the period
ending 30 June 2016 are released to the ASX. Derrick
may subscribe for and hold his interests in Shares
as described above directly, or indirectly through
holdings by companies or trusts. Details of the escrow
arrangements applicable to Derrick Jones are set
out in Section 7.9.
The Shares that Derrick subscribes for using his IPO
bonus payment are subject to a bad leaver forfeiture
provision which provides that if Derrick’s employment
with Greenstone is terminated during the escrow
period due to:
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■■
wilful misconduct (fraud or malfeasance); or
him becoming ineligible to hold his office for the
purposes of Part 2D.6 of the Corporations Act
(if applicable),
then all such Shares which are still subject to
escrow as at the date of such termination will be
forcibly divested for de minimus consideration of
$1 in aggregate.
Greenstone Limited Prospectus
Section 06 – Key people, interests and benefits 129
6.5.3 Executive Leadership Team (other than the
CEO and CFO)
one-off IPO Bonus payments. The form of these
bonuses varies between individuals and may be
paid out all in cash or with some portion being
used (on an aggregated after tax basis, being
$204,000) to subscribe for Shares at the Final Price
at Completion of the Offer. Any Shares acquired
pursuant to such a subscription requirement will
be escrowed and subject to bad leaver forfeiture
provisions. These Shares will be released from
escrow on 30 September 2016. If the service
condition ceases to be met any Shares that remain
subject to escrow restrictions will be forfeited.
The other members of the Executive Leadership Team
(ELT) (excluding Mark Reid and Derrick Jones) are
employed under individual employment agreements.
These establish:
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variable notice and termination provisions
(typically three months);
termination by Greenstone without notice in the
event of serious misconduct or gross negligence
in the performance of duties;
restraint of trade provisions of three months after
termination of employment. The enforceability
of the restraint clause is subject to the usual
legal requirements;
eligibility to participate in the PIP subject to the
Maximum PIP Pool limitations and individual
performance. Refer to Section 6.7 for further
details about the PIP; and
leave entitlements in accordance with applicable
legislation.
Under the terms of the individual employment
agreements, the other members of the ELT (excluding
Mark Reid and Derrick Jones) will receive, in
aggregate, the following payments on Completion
of the Offer:
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Item 1: a total amount of $2,534,088 (less any
applicable taxes) pursuant to the close out
of legacy incentive and bonus schemes. Of
this amount:
——
——
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$1,427,132 (less any applicable taxes) will be
paid in cash; and
$1,106,955 will be used (on an after tax basis
being $564,547) to subscribe for Shares at
the Final Price on Completion of the Offer.
These Shares will be escrowed and subject to
continued service conditions. One third of these
Shares will be released from escrow each year
for three years from Completion of the Offer.
If the service condition ceases to be met, any
Shares that remain subject to escrow restrictions
will be forfeited.
Item 2: a one-off IPO bonus payment of an
aggregate amount of $1,500,000 (less applicable
taxes). Only certain key executives will receive the
Members of the ELT may subscribe for and hold their
interests in Shares as described above directly, or
indirectly through holdings by companies or trusts.
Details of the escrow arrangements applicable to
members of the ELT are set out in Section 7.9.
The Shares subscribed for in relation to Item 1 above
are subject to a continued service condition, which
provides that if the relevant executive’s employment
with Greenstone is terminated during relevant escrow
period due to:
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wilful misconduct (fraud or malfeasance) justifying
termination of their employment;
their resignation; or
becoming ineligible to hold their office for the
purposes of Part 2D.6 of the Corporations Act (if
applicable),
then all Shares which are still subject to escrow as at
the date of such termination will be forcibly divested
for de minimus consideration of $1 in aggregate.
The Shares subscribed for in relation to Item 2 above
are subject to a bad leaver forfeiture provision, which
provides that if the relevant executive’s employment
with Greenstone is terminated during relevant escrow
period due to:
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wilful misconduct (fraud or malfeasance); or
becoming ineligible to hold their office for the
purposes of Part 2D.6 of the Corporations Act (if
applicable),
then all Shares which are still subject to escrow as at
the date of such termination will be forcibly divested
for de minimus consideration of $1 in aggregate.
130 Section 06 – Key people, interests and benefits
6.5.4
Non-executive Director remuneration
Under the Constitution, the Board decides the total
amount paid to each Director as remuneration for
their services as a Director to the Company. However,
under the ASX Listing Rules, the total amount of fees
paid to all Directors for their services (excluding, for
these purposes, the salary of any Executive Director)
must not exceed in aggregate in any financial year the
amount fixed by the Company in general meeting.
This amount has been fixed by the Company in
general meeting at $1.5 million per annum. Any
change to that aggregate annual sum needs to
be approved by Shareholders. The aggregate sum
includes any special and additional remuneration for
special exertions and additional services performed by
a Director as determined appropriate by the Board.
The ASX Listing Rules require that the remuneration
of Directors must not include a commission on, or a
percentage of, operating revenue.
Annual Directors’ fees currently agreed to be paid
by the Company are $310,500 to the Chairman
and $135,000 each to the other Non-Executive
Directors. In addition, the Chair of the Audit and
Risk Management Committee and the Chair of
the Remuneration, Organisation and Nomination
Committee will each be paid an additional $24,000
annually. Each other Director serving as a member
of either committee will be paid an additional
$12,000 annually.
Superannuation payments are included in
these amounts.
The Directors’ fees for FY15 will be paid from 1 April
2015 for Rick Lee, Sam Lewis and Nancy Milne. The
Directors’ fees for Richard Enthoven will be paid from
the date of Listing and the Directors’ fees for Andrew
Kearnan will be paid from 1 July 2015.
In addition to the fees set out above,
Andrew Kearnan:
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will, in the period from 1 January 2015 until
30 June 2015, receive total remuneration of
$27,375 per month (gross of any applicable
tax or superannuation payments) from the
Company in connection with the Offer; and
will, in the event of Listing, receive a one-off
bonus of $351,000.
Greenstone Limited Prospectus
6.5.5 Directors’ interests in Shares and
other securities
The Directors are not required by the Constitution to
hold any Shares.
The Directors’ interests in Shares as at Completion of
the Offer are set out in Table 30.
Table 30:Directors’ interests in Shares
Director
Shares held on
Completion of the Offer
Rick Lee
Nil
Mark Reid
2.0 – 2.5
Richard Enthoven
Nil
Andrew Kearnan
Nil
Sam Lewis
Nil
Nancy Milne
Nil
The Directors are entitled to apply for Shares under
the Offer. The above table does not take into account
any Shares the Directors may acquire under the Offer.
The actual number of Shares that Mark Reid will hold
will depend on the Final Price.
Final Directors’ security holdings will be notified to
the ASX on Listing. Directors may hold their interests
in securities shown above directly, or indirectly
through holdings by companies or trusts.
See Section 7.9 for details of the Shares that will be
subject to escrow arrangements.
6.5.6 Deeds of access, insurance and indemnity
for Directors
Greenstone has entered into a deed of access,
indemnity and insurance with each Director which
contains the Director’s right of access to certain books
and records of the Company or Group Company for
the period from the date of the deed until seven
years after the Director ceases to hold office of
the Company or Group Company. This seven year
period can be extended where certain proceedings
or investigations commence before the seven year
period expires.
Pursuant to the Constitution, the Company must
indemnify all Directors and executive officers, past
and present, against all liabilities that arise from
their position as an officer of the Company or Group
Greenstone Limited Prospectus
Company to the extent permitted by law. Under the
deed of access, insurance and indemnity, the Company
indemnifies each Director against any liability that
may arise from their position as an officer of the
Company or Group Company, to the extent permitted
by law. The deed provides that the Company must
meet the full amount of any such liabilities, including
legal costs that are reasonably incurred, charges
and expenses.
Pursuant to the Constitution, the Company must
arrange and maintain directors’ and officers’ insurance
for its Directors to the extent permitted by law. Under
the deed of access, insurance and indemnity, the
Company must maintain such insurance for the period
from the date of the deed until seven years after
the Director ceases to hold office of the Company
or Group Company. This seven year period can be
extended where certain proceedings or investigations
commence before the seven year period expires.
In this summary, Group Company means a subsidiary
of the Company, any companies which are 50% or
more owned directly or indirectly by any other Group
Company, or any partnership or unincorporated joint
venture in which any Group Company or a related
body corporate of the Company has an interest of
50% or more.
6.5.7
Other information and interests
Directors may also be reimbursed for travel and
other expenses reasonably incurred in attending to
the Company’s affairs. Non-executive Directors may
be paid such additional or special remuneration as
the Directors decide is appropriate where a Director
performs extra work or services which are not in the
capacity as Director of the Company or a subsidiary.
There are no retirement benefit schemes for Directors,
other than statutory superannuation contributions.
The interests of Directors and management are set out
in this Section 6.5.
6.6
Related Party Arrangements
As set out in Section 6.1, certain Directors hold
director positions with other entities. These entities
may transact with Greenstone from time to time.
Any such transactions occur in the normal course
of business, and the terms and conditions of the
transactions are no more favourable than those
available, or which might reasonably be expected to
be available, for similar transactions with unrelated
Section 06 – Key people, interests and benefits 131
entities on an arms’ length basis. Section 8.5.4 details
the related party transactions between Greenstone
and entities associated with The Hollard Insurance
Company Pty Ltd.
6.7
Incentive Plans
6.7.1
FY16 Performance Incentive Plan
Features of the Performance Incentive Plan
The Company is in the process of establishing a cash
and equity-based PIP to assist in the motivation,
retention and reward of certain employees. The PIP
will be designed to align the interests of employees
with the interests of Shareholders by providing an
opportunity for employees to receive an equity
interest in the Company through the granting of
performance rights (Performance Rights).
It is intended that participation in the PIP will include
the CEO, Mark Reid, and other members of the ELT
who are invited by the Board to participate. The
Board retains its discretion to invite other individuals
(beyond members of the ELT) to participate in the PIP
from time to time.
It is intended that the PIP will first apply for FY16 and
that no awards will be made under the PIP for FY15.
The maximum value of awards that can be made
under the PIP for all participants (PIP Pool) will be
determined as a percentage of Adjusted Net Profit
After Tax subject to a cap on the total size of the PIP
Pool (Maximum PIP Pool). The allocation of the PIP
Pool among PIP participants will be determined by the
Board and actual payouts from the PIP Pool will be
based on individual performance and their share of
the PIP Pool.
Adjusted Net Profit After Tax (Adjusted NPAT) will be
determined by the Board having regard to the actual
net profit after tax achieved in the relevant financial
year as well as any abnormal and/or extraordinary
events that should be disregarded for the purposes
of determining PIP awards. Any adjustments made
to reported net profit after tax to derive Adjusted
NPAT and the incentive awards made under the PIP
will be disclosed in the remuneration report as well as
reasons why the Board believed that the adjustments
were appropriate.
132 Section 06 – Key people, interests and benefits
Greenstone Limited Prospectus
The PIP Pool represents the total value of awards that could be made in any given year and may not be fully
allocated to participants. Any amount allocated to the PIP Pool that is not awarded to participants will be
released and will not be used for future awards.
Performance Incentive Plan for FY16
The inaugural awards made under the PIP will be determined by assessing performance over FY16. The award
will be made in August 2016 and will be paid 50% in cash and 50% in Performance Rights. With respect to Mark
Reid, the issue of Performance Rights will be subject to Shareholder approval.
For the FY16 awards, the Board has determined that:
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the Maximum PIP Pool will be capped at $5,000,000;
there will be no PIP awards unless Adjusted NPAT exceeds forecast NPAT. The percentage of NPAT that will
be contributed to the PIP Pool will be staged such that awards made under the PIP are fully funded from the
outperformance of Adjusted NPAT and the full contribution of 4.4% of Adjusted NPAT to the PIP Pool will
only be achieved where Adjusted NPAT exceeds forecast NPAT by 25%;
subject to the above, the PIP Pool will commence accruing as a percentage of the Adjusted NPAT over and
above the forecast NPAT subject to the $5,000,000 PIP Pool cap; and
the CEO’s Maximum PIP Participation will be 30% of the PIP Pool; the balance of the PIP Pool being 70% will
be shared among other participants of the PIP.
For example, if the Maximum PIP Pool of $5,000,000 was achieved and Mark Reid had met all performance
conditions for that period, then the maximum award he would be entitled to under the PIP would be
$1,500,000, being 30% of the PIP Pool.
Additional key terms of the PIP for FY16 will be as per the below table.
Eligibility
Offers may be made at the Board’s discretion to employees of the Company or
its related bodies corporate or any other person that the Board determines to be
eligible to receive a grant under the PIP.
Offers under the PIP
The Board may make offers at its discretion. The Board has the discretion to set
the terms and conditions on which it will offer Performance Rights in individual
offer documents.
Awards under the PIP,
performance conditions
and Performance Period
Awards will be made under the PIP on the basis of certain performance conditions.
Performance conditions will be set at the beginning of each financial year and
tested over that financial year (Performance Period). Following determination
of performance outcomes, participants will be allocated a portion of the PIP
Pool based on their individual performance (PIP Awarded). The PIP Awarded will
be paid 50% in cash and 50% in Performance Rights (refer below for details of
vesting of Performance Rights).
For the FY16 awards (inaugural awards), performance assessment will be subject
to a gate, being achievement of Target NPAT for FY16, such that no awards will
be available if the Target NPAT is not achieved. If the Target NPAT is met, FY16
awards will then be made subject to achievement against a scorecard of strategic
key performance measures. The Board is still considering the make up of the FY16
performance measures.
Performance Rights
A Performance Right entitles the holder to acquire a Share for nil consideration
at the end of the Performance Period, subject to meeting specific performance
conditions and/or service conditions and/or other conditions.
Issue price
The Performance Rights will be issued for nil consideration.
Greenstone Limited Prospectus
Section 06 – Key people, interests and benefits 133
Exercise price
No exercise price is payable in respect of the Performance Rights.
Vesting of
Performance Rights
For the FY16 awards (inaugural awards), Performance Rights granted under the
PIP will vest subject to a service condition. Participants must remain employed
with Greenstone over a period of three years after the grant date of the
Performance Rights (Service Period). Performance Rights will vest in full after
a three year Service Period.
Rights associated with
Performance Rights
The Performance Rights do not carry rights to dividends or voting rights
prior to vesting.
Restrictions on dealing
There is currently no intention for a disposal restriction to apply to Shares issued
pursuant to the exercise of Performance Rights. Participants will be free to deal
with the Shares issued on exercise of the Performance Rights, subject to the
requirements of the Company’s securities trading policy.
The PIP arrangements for the ELT for FY17 onwards are yet to be determined by the Board. The Board will need
to determine a scheme which provides incentives to the executives and aligns these with growth in Shareholder
value. Once an agreed plan design is determined, this will be put to shareholders for approval.
6.7.2
General Employee Retention Plan Offer
Under the General Employee Retention Plan Offer, Greenstone will offer a number of Performance Rights equal
to $500 divided by the Final Price (rounded down to the nearest whole Performance Right) to each Eligible
Participant. The Performance Rights will vest on 1 July 2016, subject to continued employment with the Group.
The awards are made to encourage retention of employees during the forecast period. It is expected
that approximately $200,000 worth of Performance Rights will be granted under the General Employee
Retention Plan Offer at Listing. The number of Performance Rights to be issued under the General Employee
Retention Plan Offer will be determined by dividing $500 by the Final Price and multiplying by the number of
acceptances received.
The Shares resulting from the vesting and exercise of Performance Rights issued under the General Employee
Retention Plan Offer will rank equally in all respects with other Shares. Greenstone will apply for quotation of
these Shares on the ASX (like all other Shares).
Information on the terms of the Performance Rights to be issued under the General Employee Retention Plan
Offer is outlined in Section 7.5.3.
134 Section 06 – Key people, interests and benefits
6.8
Corporate governance
This Section 6.8 explains how the Board oversees the
management of Greenstone’s business. The Board is
responsible for the overall corporate governance of
Greenstone, including establishing and monitoring
key performance goals. The Board monitors the
operational and financial position and performance
of Greenstone and oversees its business strategy,
including approving the strategic goals of Greenstone
and considering and approving an annual business
plan (including a budget). The Board is committed
to maximising performance, generating appropriate
levels of Shareholder value and financial return, and
sustaining the growth and success of Greenstone.
In conducting Greenstone’s business with these
objectives, the Board seeks to ensure that Greenstone
is properly managed to protect and enhance
Shareholder interests, and that Greenstone and
its Directors, officers and personnel operate in an
appropriate environment of corporate governance.
Accordingly, the Board has created a framework for
managing Greenstone, including adopting relevant
internal controls, risk management processes and
corporate governance policies and practices which
it believes are appropriate for Greenstone’s business
and which are designed to promote the responsible
management and conduct of Greenstone.
Greenstone is seeking a listing on the ASX.
The ASX Corporate Governance Council has
developed and released its third edition of the ASX
Recommendations for Australian listed entities in
order to promote investor confidence and to assist
companies in meeting stakeholder expectations.
The ASX Recommendations are not prescriptions,
but guidelines. However, under the ASX Listing
Rules, Greenstone will be required to provide a
statement in its annual report disclosing the extent
to which it has followed the ASX Recommendations
in the reporting period. Where Greenstone does
not follow a recommendation, it must identify the
recommendation that has not been followed and give
reasons for not following it.
The Company does not currently comply with ASX
Recommendation 2.4, being that the majority of
the Board are independent Directors. However, the
Company considers that the Board is appropriately
structured notwithstanding this ASX Recommendation
given the extensive knowledge of each of the
Directors regarding the Company and its business
and their substantial experience and recognition
Greenstone Limited Prospectus
in the direct insurance industry and the Company’s
operations. For these reasons, and the stage of the
development of the Company, Greenstone takes the
view that it is in the best interests of members that
the current Directors, with their extensive background
and experience, be Directors of the Board. In
addition, the Board intends to appoint an additional
Independent Non-Executive Director prior to the 2015
annual general meeting. Upon the appointment of an
additional Independent Non-Executive Director, the
Company will comply with ASX Recommendation 2.4.
Otherwise, the Board anticipates that it will not
depart from the ASX Recommendations; however,
it may do so in the future, if it considers that such
departure would be reasonable.
Copies of Greenstone’s key policies and practices and
the charters for the Board and each of its committees
will be available at www.greenstone.com.au during
the Offer Period.
6.8.1
Board appointment and composition
The Board is comprised of the Managing Director and
CEO, three Independent Non-executive Directors and
two Non-Independent Non-Executive Directors:
■■
Rick Lee – Non-Executive, Independent Chairman;
■■
Mark Reid – Managing Director and CEO;
■■
■■
■■
■■
Richard Enthoven – Non-Executive, NonIndependent Director;
Andrew Kearnan – Non-Executive, NonIndependent Director;
Sam Lewis – Non-Executive, Independent
Director; and
Nancy Milne – Non-Executive,
Independent Director.
The Board intends to appoint an additional
Independent Non-Executive Director prior to the 2015
annual general meeting.
Biographies of the Directors and proposed Director
are provided in Section 6.1.
The Board considers an Independent Director to
be a Non-Executive Director who is free of any
interest, position, association or relationship that
might influence, or reasonably be perceived to
influence, his or her capacity to bring an independent
judgement to bear on issues before the Board and
to act in the best interests of Greenstone and its
security holders generally. The Board will consider the
materiality of any given relationship on a case-by-
Greenstone Limited Prospectus
case basis and has adopted guidelines to assist in this
regard. The Board reviews the independence of each
Director in light of interests disclosed to the Board
from time to time.
The Board charter sets out guidelines of materiality
for the purpose of determining independence
of Directors in accordance with the ASX
Recommendations and has adopted a definition of
independence that is based on that set out in the
ASX Recommendations.
The Board will consider whether there are any factors
or considerations which may mean that a Director’s
interest, position, association or relationship might
influence, or reasonably be perceived to influence,
the capacity of the Director to bring independent
judgement to bear on issues before the Board and to
act in the best interests of Greenstone and its security
holders generally.
The Board considers that each of Rick Lee, Sam Lewis
and Nancy Milne is free from any interest, position,
association or relationship that might influence, or
reasonably be perceived to influence, the independent
exercise of the Director’s judgement and that each of
them is able to fulfil the role of independent Director
for the purpose of the ASX Recommendations. Sam
Lewis was Assurance & Advisory Partner at Deloitte
Touche Tohmatsu (Deloitte was Greenstone’s FY15
auditor and investigating accountant) until 31 March
2014, but did not act in relation to Greenstone or any
of its related bodies corporate.
Mark Reid is currently considered by the Board not to
be independent on the basis that he is the Managing
Director and CEO of Greenstone. Richard Enthoven
is currently considered by the Board not to be
independent on the basis that he is employed as the
CEO of The Hollard Insurance Company Pty Ltd, which
was a related entity of Greenstone within the last
three years. Andrew Kearnan is currently considered
by the Board not to be independent on the basis
that he is a non-executive director of The Hollard
Insurance Company Pty Ltd and has received payment
from Greenstone as an adviser to the IPO.
Section 06 – Key people, interests and benefits 135
6.8.2
Board charter
The Board charter adopted by the Board sets
out the responsibilities of the Board in greater
detail. It provides that the Board should comprise
Directors with the appropriate mix of skills,
experience, expertise and diversity which are
relevant to Greenstone’s businesses and the Board’s
responsibilities. The Board charter allows the
Board to delegate powers and responsibilities to
committees established by the Board. The Board
retains ultimate accountability to Shareholders in
discharging its duties.
6.8.3
Board committees
The Board may from time to time establish
appropriate committees to assist in the discharge
of its responsibilities. The Board has established
an Audit and Risk Management Committee
and a Remuneration, Organisation and
Nomination Committee.
Other committees may be established by the Board as
and when required. Membership of Board committees
will be based on the needs of Greenstone, relevant
legislative and other requirements, and the skills and
experience of individual Directors.
Under the Board charter, Board committee
performance evaluations will occur regularly.
6.8.3.1 Audit and Risk Management Committee
The role of the Audit and Risk Management
Committee is to assist the Board in fulfilling its
responsibilities for corporate governance and
overseeing Greenstone’s financial reporting, internal
control structure, risk management systems and
internal and external audit functions. This includes
confirming the quality and reliability of the financial
information prepared by Greenstone, working
with the external auditor on behalf of the Board
and reviewing non-audit services provided by the
external auditor to confirm they are consistent with
maintaining external audit independence.
The Audit and Risk Management Committee provides
advice to the Board and reports on the status and
management of the risks to Greenstone. The purpose
of the Committee’s risk management process is to
assist the Board in relation to risk management
policies, procedures and systems and ensure that risks
are identified, assessed and appropriately managed.
136 Section 06 – Key people, interests and benefits
The Audit and Risk Management Committee
comprises Sam Lewis (Chair), Nancy Milne and
Andrew Kearnan.
The Board has adopted a policy regarding the
services that Greenstone may obtain from its external
auditor. It is the policy of the Company that its
external auditor:
■■
■■
must be independent of Greenstone and the
Directors and senior executives. To ensure this,
Greenstone requires a formal report from its
external auditor on an annual basis setting out the
relationships that may affect its independence; and
may not provide services to Greenstone that
may impair, or appear to impair, the external
auditor’s judgement or independence in respect
of Greenstone.
The charter of the Audit and Risk Management
Committee provides that the committee should
comprise at least three Directors, to the extent
practicable given the size and composition of the
Board from time to time, each of whom are NonExecutive Directors, and a majority of whom are
independent. A member of the Audit and Risk
Management Committee, who does not chair the
Board, shall be appointed the chair of the committee.
All Directors are able to and do review and challenge
policies and practices to ensure decisions taken are in
the best interests of the Company.
The Audit and Risk Management Committee will
meet as often as is required by the Audit and Risk
Management Committee Charter or other policy
approved by the Board to govern the operations of
the Audit and Risk Management Committee. The
Audit and Risk Management Committee may invite
other Directors, members of senior management and
representatives of the internal or external auditor to
be present at a meeting of the committee and seek
advice from external advisers. The Audit and Risk
Management Committee will regularly report to the
Board about committee activities, issues and related
recommendations.
The Board is responsible for overseeing the
establishment of and approving risk management
strategies, policies, procedures and systems of
Greenstone. Greenstone management is responsible
Greenstone Limited Prospectus
for establishing Greenstone’s risk management
framework. Greenstone will regularly undertake
reviews of its risk management procedures to
ensure that it complies with its legal obligations,
including assisting the CEO or CFO to provide the
required declaration under section 295A of the
Corporations Act.
6.8.3.2 Remuneration, Organisation and
Nomination Committee
The role of the Remuneration, Organisation and
Nomination Committee is to review and make
recommendations to the Board on remuneration
packages and policies related to the Directors and
senior executives and to ensure that the remuneration
policies and practices are consistent with Greenstone’s
strategic goals and human resources objectives.
The Remuneration, Organisation and Nomination
Committee is also responsible for administering short
term and long term incentive plans (including any
equity plans) and reviewing Greenstone’s claw back
policy in respect of performance-based remuneration.
In addition, the committee is responsible for
reviewing and making recommendations in relation
to the composition and performance of the Board and
its committees and ensuring that adequate succession
plans are in place (including for the recruitment and
appointment of Directors and senior management).
Independent advice will be sought where appropriate.
The Remuneration, Organisation and Nomination
Committee will meet as often as is required by
the Remuneration, Organisation and Nomination
Committee Charter or other policy approved by the
Board to govern the operation of the Remuneration,
Organisation and Nomination Committee. Following
each meeting, the Remuneration, Organisation
and Nomination Committee will report to the
Board on any matter that should be brought to the
Board’s attention and on any recommendation of
the Remuneration, Organisation and Nomination
Committee that requires Board approval.
The Committee comprises Nancy Milne (Chair), Sam
Lewis and Richard Enthoven.
Greenstone Limited Prospectus
6.8.4
Diversity policy
The workforce of Greenstone is made up of
individuals with diverse skills, backgrounds,
perspectives and experiences and this diversity is
recognised, valued and respected. Greenstone’s
diversity policy aims to align Greenstone’s business
operations with the positive outcomes that can be
achieved through a diverse workforce that recognises
and utilises the contribution of diverse skills and
talent from its workforce.
6.8.5
Continuous disclosure policy
Section 06 – Key people, interests and benefits 137
6.8.7
Securities trading policy
Greenstone has adopted a securities trading policy
which will apply to Greenstone and its Directors,
company secretary and senior management and other
persons nominated by the Board from time to time
(Greenstone Persons).
The securities trading policy is intended to explain
the types of conduct in relation to dealings in Shares
that is prohibited under the Corporations Act and to
establish procedures in relation to Greenstone Persons
dealing in the Shares.
Once listed, Greenstone will be required to comply
with the continuous disclosure requirements of
the ASX Listing Rules and the Corporations Act.
Greenstone will be required to disclose to the ASX
any information concerning Greenstone which a
reasonable person would expect to have a material
effect on the price or value of Greenstone’s securities
were that information to be generally available.
Greenstone is committed to observing its disclosure
obligations. Information will be communicated
to Shareholders through the lodgement of all
relevant financial and other information with the
ASX and continuous disclosure announcements
will be made available on Greenstone’s website at
www.greenstone.com.au.
Subject to certain exceptions, including severe
financial hardship, the Securities Trading Policy defines
certain “Blackout Periods” during which trading in
Shares by Greenstone Persons is prohibited. Those
Blackout Periods are currently defined as any of the
following periods:
6.8.6
■■
Shareholder communications
The Board’s aim is to ensure that Shareholders are
informed in a timely and readily accessible manner of
all major developments affecting the state of affairs
of Greenstone. Information will be communicated to
Shareholders through the lodgement of information
with the ASX as required by Greenstone’s continuous
disclosure obligations and publishing information on
Greenstone’s website, www.greenstone.com.au.
Greenstone’s website will contain information about
the Company, including media releases, key policies,
the terms of reference of Board committees and
other information relevant to Shareholders. All
announcements made to the market and any other
relevant information will be posted on Greenstone’s
website at www.greenstone.com.au as soon as they
have been released to the ASX.
■■
■■
from the close of the ASX trading day on 15 June
each year, until 10.00am AEST on the ASX trading
day following the day on which the Company’s
full-year results are released to the ASX;
from the close of the ASX trading day on
15 December each year, until 10.00am AEDT of
the ASX trading day following the day on which
the Company’s half-year results are released to
the ASX; and
any other period that the Board specifies from
time to time.
If 15 June or 15 December are not ASX trading days,
then the Blackout Period begins on the preceding
ASX trading day.
In all instances, buying or selling Shares is not
permitted at any time by any person who possesses
inside information in a manner contrary to the
Corporations Act.
6.8.8
Code of conduct
The Board recognises the need to observe the highest
standards of corporate practice and business conduct.
Accordingly, the Board has adopted a code of conduct
which sets out the way Greenstone conducts business.
Greenstone will carry on business honestly and fairly,
acting only in ways that reflect well on Greenstone in
strict compliance with all laws and regulations.
Responsibilities include protection of Greenstone’s
business, using Greenstone’s resources in an
appropriate manner, protecting confidential
information and avoiding conflicts of interest.
138 Section 07 – The Offer
THE OFFER
07
Greenstone Limited Prospectus
Greenstone Limited Prospectus
Section 07 – The Offer 139
THE OFFER
7.1
Description of the Offer
This Prospectus relates to an IPO of $809.7 to $984.2
million, based on the issue of 131.9 to 143.0 million
New Shares and transfer of 261.8 million Existing
Shares at an Indicative Price Range of $2.00 to
$2.50 per Share.1 The Final Price per Share will be
determined through the Bookbuild. The total number
of Shares on issue at Completion of the Offer is
expected to be 685.4 to 698.1 million and all Shares
will rank equally with each other. The Shares offered
under this Prospectus will represent approximately to
57.4% to 58.0% of the Shares on issue on Completion
of the Offer.2
■■
the Institutional Offer, which consists of an
offer to Institutional Investors in Australia,
New Zealand and certain other eligible
jurisdictions to apply for Shares.
No general public offer of Shares will be made
under the Offer.
Details of each component of the Retail Offer are set
out in Section 7.5 and details of the Institutional Offer
are set out in Section 7.7 respectively.
7.3 Purpose of the Offer and use of
proceeds
The Company and SaleCo, in consultation with the
Joint Lead Managers, may over-allocate up to 60.7
million additional Shares to Institutional Investors
under the Institutional Offer. SaleCo has granted
the Stabilisation Manager an option to purchase up
to 60.7 million additional Shares at the Final Price.
A full allocation of Shares and the exercise of the
Over-allocation Option would result in the issue and
transfer of 452.7 to 465.6 million Shares. Further
information on the Over-allocation Option is set out
in Section 7.8.
The Offer is being conducted to:
The Offer is made on the terms, and subject to the
conditions, set out in this Prospectus. The Offer is not
underwritten.
■■
7.2
Structure of the Offer
The Offer comprises:
■■
the Retail Offer, consisting of:
——
——
——
the Broker Firm Offer, which is open to retail
clients of participating Brokers who have
received a firm allocation from their Broker and
who have a registered address in Australia or
New Zealand;
the Priority Offer, which is open to select
investors in certain eligible jurisdictions who
have received a Priority Offer invitation; and
the General Employee Retention Plan Offer,
which is open to Eligible Participants who
have received an offer from Greenstone to
acquire, at no cost, the number of Performance
Rights (rounded down to the nearest whole
Performance right) equal to $500 divided by
the Final Price; and
1. This assumes no shares are over-allocated. See Section 7.8.
2. This assumes no shares are over-allocated. See Section 7.8.
■■
■■
■■
■■
provide the Existing Shareholder with an
opportunity to realise part of its investment in
the Company;
fund the acquisition of all outstanding
rights and options over shares in Greenstone
Financial Services;
pay Offer costs, legacy incentive scheme settlement
costs and acquisition consideration for the
Australian Seniors Insurance Agency brand;
provide the Company with access to capital
markets; and
provide a liquid market for the Shares and an
opportunity for new shareholders to invest in
the Company.
Table 31 below outlines the sources and uses of funds.
The figures in Table 31 assume that the Final Price will
be set at the mid-point of the Indicative Price Range
and assumes no Shares are over-allocated.
140 Section 07 – The Offer
Greenstone Limited Prospectus
Table 31:Sources and uses of funds
Sources of funds
$m
%
Proceeds received from
the sale of Existing
Shares by SaleCo1
589.1
65.7
Proceeds received from
the issue of New Shares
by Greenstone2
307.9
34.3
Total sources of funds
896.9
100.0%
Uses of funds
$m
%
Payment of costs of
the Offer, acquisition
consideration for the
Australian Seniors
Insurance Agency brand
and other costs by
Greenstone by SaleCo3
58.1
6.5
Payment of proceeds to
the Existing Shareholder4
589.1
65.7
Acquisition of outstanding
rights and options over
shares in Greenstone
Financial Services net
of the subscription by
Novatrust Ltd as trustee
for the Casey Trust5
249.8
27.8
Total uses of funds
896.9
100.0%
Note:
1. See Section 7.8 for further information. This assumes no Shares are over-allocated.
2. See Section 7.8 for further information.
3. Other costs paid by Greenstone include legacy incentive scheme settlement costs, and acquisition consideration for the Australian Seniors Insurance
Agency brand.
4. See Section 7.8 for further information. This assumes no Shares are over-allocated.
5. Relates to the acquisition of outstanding rights and options over an aggregate 25% interest in Greenstone Financial Services. The total consideration
paid to acquire these rights is calculated as 25% of the market value of Greenstone implied by the Final Price, plus $116.9 million. Following
Completion of the Offer, Greenstone Financial Services will be wholly owned by Greenstone.
The details of the ownership of Shares on Completion of the Offer are set out below. The figures set out in
Table 32 below assumes no Shares are over-allocated (see Section 7.8) and exclude any Shares acquired by the
Directors under the Offer.
Table 32:Shareholding structure
Shares held
following
Completion
of the Offer
(m)
Shares held
following
Completion
of the Offer
(%)
(261.8)
219.3
31.7
Shares
acquired/
(sold) in the
Offer (m)
Shares held
prior to the
Offer (m)
Shares held
prior to the
Offer (%)
481.1
100.0
Novatrust Limited as trustee
for the Casey Trust
–
–
73.1
73.1
10.6
Management and Board
–
–
2.8
2.8
0.4
Investors in the Offer
–
–
395.8
395.8
57.3
481.1
100.0%
209.9
691.0
100.0%
Shareholders
Hollard Investments B.V.
(Netherlands)
Total
Greenstone Limited Prospectus
Section 07 – The Offer 141
This includes $11,468,905 of Shares that will be subscribed for by the Existing Shareholder at the Final Price
immediately prior to Completion in connection with the payment to be made to the CEO as described in
Section 6.5.1.
7.4
Terms and conditions of the Offer
Table 33:Terms and conditions of the Offer
Topic
Summary
What is the type of security
being offered?
Shares (being fully paid ordinary shares in Greenstone).
What are the rights and
liabilities attached to the
security being offered?
A description of the Shares, including the rights and liabilities attaching to
these, is set out in Section 8.6.
What is the consideration
payable for each security
being offered?
The Indicative Price Range for the Offer is $2.00 to $2.50 per Share.
Successful Applicants under the Offer will pay the Final Price, which will be
determined at the conclusion of the Bookbuild and may be set at a price
below, within or above the Indicative Price Range.
Applicants under the Broker Firm Offer, Priority Offer and General
Employee Retention Plan Offer will apply for a set dollar value of Shares or
Performance Rights (as applicable). Accordingly, Applicants will not know
the number of Shares or Performance Rights they will receive at the time
they make their investment decision, nor will they know the Final Price.
Except as required by law, Applicants cannot withdraw their Applications
once the Final Price and allocations of Shares and Performance Rights have
been determined.
What is the Retail Offer period?
The Retail Offer open date is expected to be 2 June 2015 and the Retail
Offer close date is expected to be 10 June 2015. Other key dates are set out
in the Key dates section of this Prospectus.
What are the cash proceeds
to be raised?
Between $809.7 and $984.2 is expected to be raised under the Offer (based
on the Indicative Price Range and assuming no Shares are over-allocated
(see Section 7.8)).
What is the minimum and
maximum Application size
under the Broker Firm Offer?
The minimum and maximum Applications under the Broker Firm Offer are
as determined by the Applicant’s Broker. Greenstone, SaleCo and the Joint
Lead Managers reserve the right to reject any Application or to allocate a
lesser number of Shares than that applied for, in their absolute discretion.
What is the minimum and
maximum Application size
under the Priority Offer?
Applications under the Priority Offer must be for a minimum of $2,000
worth of Shares and in multiples of $100 worth of Shares thereafter.
Greenstone, SaleCo and the Joint Lead Managers reserve the right to reject
any Application or to allocate a lesser number of Shares than that applied
for, in their absolute discretion.
What is the minimum and
maximum Application size
under the General Employee
Retention Plan Offer?
Applicants under the General Employee Retention Plan Offer are invited to
apply for a number of Performance Rights calculated by dividing $500 by
the Final Price (rounded down to the nearest whole Performance Right) at
no cost. Greenstone, SaleCo and the Joint Lead Managers reserve the right
to reject any Application or to allocate a lesser number of Performance
Rights than that applied for, in their absolute discretion.
142 Section 07 – The Offer
Greenstone Limited Prospectus
Topic
Summary
What is the pricing and
allocation policy?
The Final Price will be determined by the Company in consultation with the
Joint Lead Managers.
The allocation of Shares between the Broker Firm Offer, the Priority Offer
and the Institutional Offer will be determined by the Joint Lead Managers,
in agreement with the Company, having regard to the allocation policy as
outlined in Section 7.5 and Section 7.7.
With respect to the Broker Firm Offer, it will be a matter for the Brokers
to determine how they allocate Shares among their eligible retail clients,
and they (and not Greenstone, SaleCo nor the Joint Lead Managers) will
be responsible for ensuring that eligible retail clients who have received an
allocation from them receive the relevant Shares.
The allocation of Shares under the Institutional Offer will be determined
by the Joint Lead Managers, in agreement with the Company.
Greenstone, SaleCo and the Joint Lead Managers have absolute discretion
regarding the allocation of Shares to Applicants under the Offer and may
reject an Application, or allocate a lesser number of Shares than applied
for. Greenstone, SaleCo and the Joint Lead Managers also reserve the
right to aggregate any Applications that they believe may be multiple
Applications from the same person.
Greenstone has absolute discretion regarding the allocation of Performance
Rights under the General Employee Retention Plan Offer. The Joint Lead
Managers do not have any responsibility for the allocation or delivery of
Performance Rights under the General Employee Retention Plan Offer.
For further information on the:
■■
Broker Firm Offer, see Section 7.5.1;
■■
Priority Offer, see Section 7.5.2;
■■
General Employee Retention Plan Offer, see Section 7.5.3; and
■■
Institutional Offer, see Section 7.7.
Will the securities be listed?
Within seven days of the Prospectus Date, Greenstone will apply for Listing
under the code GRS. Completion of the Offer is conditional on the ASX
approving the application. If approval is not given within three months
after such application is made (or any longer period permitted by law),
the Offer will be withdrawn and all Application Monies received will be
refunded (without interest) as soon as practicable in accordance with the
requirements of the Corporations Act.
When are the securities
expected to commence
trading?
It is expected that trading of the Shares on the ASX will commence
on or about 16 June 2015, initially on a conditional and deferred
settlement basis.
Trading will be on a deferred settlement basis until Greenstone has advised
the ASX that holding statements have been despatched to Shareholders.
Normal settlement trading is expected to commence on or about 23 June
2015. If Settlement has not occurred within 14 days (or such longer period
as the ASX allows) after the day Shares are first quoted on the ASX, the
Offer and confirmations of allocations will be cancelled and of no further
effect and all Application Monies will be refunded (without interest).
Greenstone Limited Prospectus
Section 07 – The Offer 143
Topic
Summary
Is the Offer underwritten?
The Offer is not underwritten.
Are there any escrow
arrangements?
Yes. Details are provided in Section 7.9.
Are there any taxation
considerations?
Refer to Section 8.8.
Are there any brokerage,
commission or stamp duty
considerations?
No brokerage, commission or stamp duty is payable by Applicants on
acquisition of Shares under the Offer. See Section 8.5.1 for details of
various fees payable by Greenstone to the Joint Lead Managers and by the
Joint Lead Managers to certain Brokers.
What should you do with
any enquiries?
All enquiries in relation to this Prospectus should be directed to the
Greenstone Offer Information Line on 1800 285 677 (toll free within
Australia) or +61 1800 285 677 (outside Australia) from 8.30am until
5.30pm (AEST), Monday to Friday.
If you are unclear in relation to any matter or are uncertain as to whether
Greenstone is a suitable investment for you, you should seek professional
guidance from your solicitor, stockbroker, accountant or other independent
and qualified professional adviser before deciding whether to invest.
7.5
Retail Offer
7.5.1
Broker Firm Offer
7.5.1.1 Who may apply
The Broker Firm Offer is open to retail investors who are clients of a participating Broker, who have received
an invitation to participate from their Broker and who have a registered address in Australia or New Zealand.
Investors who are offered a firm allocation of Shares by a Broker will be treated as an Applicant under the
Broker Firm Offer in respect of that allocation.
You should contact your Broker to determine whether you will receive an invitation from them under the
Broker Firm Offer.
7.5.1.2 How to apply
If you have received an invitation to participate from your Broker and wish to apply for those Shares under the
Broker Firm Offer, you should contact your Broker for information about how to submit your Broker Firm Offer
Application Form and for payment instructions. Applicants under the Broker Firm Offer must not send their
Application Forms or Application Monies to the Share Registry.
Applicants under the Broker Firm Offer should contact their Broker or the Greenstone Offer Information Line
on 1800 285 677 (toll free within Australia) or +61 1800 285 677 (outside Australia) to request a Prospectus and
Application Form, or download a copy at www.greenstone.com.au. Your Broker will act as your agent and it is
your Broker’s responsibility to ensure that your Broker Firm Offer Application Form and Application Monies are
received before 5.00pm (AEST) on the Closing Date or any earlier closing date as determined by your Broker.
If you are an investor applying under the Broker Firm Offer, you should complete and lodge your Broker Firm
Offer Application Form with the Broker from whom you received your firm allocation of Shares. Broker Firm
Offer Application Forms must be completed in accordance with the instructions given to you by your Broker and
the instructions set out on the reverse of the Broker Firm Offer Application Form.
144 Section 07 – The Offer
By making an Application, you declare that you
were given access to this Prospectus, together with
an Application Form, which may be downloaded
in its entirety from www.greenstone.com.au. The
Corporations Act prohibits any person from passing
an Application Form to another person unless it is
included in, or accompanied by, a hard copy of this
Prospectus or the complete and unaltered electronic
version of this Prospectus. Your Application represents
an offer to acquire Shares on the terms and conditions
set out in this Prospectus and the Broker Firm Offer
Application Form. In particular, you will be deemed to
have made the representations set out in Section 8.15,
and represented that you are eligible to participate
in the Offer under the selling restrictions set out in
Section 8.15.
The Company, SaleCo, the Share Registry and the Joint
Lead Managers take no responsibility for any acts or
omissions committed by your Broker in connection
with your Application.
The Broker Firm Offer opens at 9.00 am (AEST) on
2 June 2015 and is expected to close at 5.00pm
(AEST) on 10 June 2015. The Joint Lead Managers,
in consultation with the Company and SaleCo, may
elect to close the Broker Firm Offer or any part of
it early, extend the Broker Firm Offer or any part of
it, or accept late Applications either generally or in
particular cases. The Broker Firm Offer, or any part of
it, may be closed at any earlier time and date, without
further notice. Your Broker may also impose an earlier
closing date. Applicants are therefore encouraged to
submit their Applications as early as possible. Contact
your Broker for instructions.
7.5.1.3 How to pay
Applicants under the Broker Firm Offer must pay their
Application Monies to their Broker in accordance with
instructions provided by the Applicant’s Broker.
The Joint Lead Managers, in consultation with the
Company and SaleCo, reserve the right to reject
any Application which is not correctly completed or
which is submitted by a person who they believe is
ineligible to participate in the Broker Firm Offer, or to
waive or correct any errors made by the Applicant in
completing their Application.
Successful Applicants in the Broker Firm Offer will be
issued or transferred Shares at the Final Price and will
receive the number of Shares equal to the value of
Greenstone Limited Prospectus
their Application accepted by Greenstone divided by
the Final Price (rounded down to the nearest whole
Share). No refunds pursuant solely to rounding will
be provided.
The Company, the Joint Lead Managers and SaleCo
will exclusively determine whether a successful
Applicant receives an issue of New Shares, a transfer
of Existing Shares, or a combination of both.
7.5.1.4 Allocation policy under the Broker Firm
Offer
The allocation of firm stock to Brokers will be
determined by agreement between the Joint Lead
Managers, the Company and SaleCo. Shares that
have been allocated to Brokers for allocation to their
Australian resident clients will be issued or transferred
to the applicants nominated by those Brokers. It will
be a matter for each Broker as to how it allocates
firm Shares among its retail clients, and it (and not
the Company, SaleCo or the Joint Lead Managers) will
be responsible for ensuring that retail clients who
have received a firm allocation from it receive the
relevant Shares.
7.5.2
Priority Offer
7.5.2.1 Who may apply
The Priority Offer is open to certain investors
nominated by Greenstone. If you are a Priority Offer
Applicant, you will receive a personalised invitation to
participate from Greenstone.
7.5.2.2 How to apply
Priority Offer Applicants must apply online and
comply with the instructions on the Offer website at
www.greenstone.com.au. The Priority Offer opens
at 9.00am (AEST) on 2 June 2015 and is expected to
close at 5.00pm (AEST) on 10 June 2015. The Joint
Lead Managers, in consultation with the Company
and SaleCo, may elect to close the Priority Offer or any
part of it early, extend the Priority Offer or any part
of it, or accept late Applications either generally or in
particular cases. The Priority Offer, or any part of it,
may be closed at any earlier time and date, without
further notice.
7.5.2.3 How to pay
Applicants under the Priority Offer must pay
their Application Monies by BPAY in accordance
with instructions on their personalised online
Greenstone Limited Prospectus
Section 07 – The Offer 145
Application Form. For more details, Priority Offer Applicants should refer to www.greenstone.com.au or
contact the Greenstone Offer Information Line on 1800 285 677 (toll free within Australia) or +61 1800 285 677
(outside Australia).
When completing your BPAY payment, please make sure to use the specific biller code and unique Customer
Reference Number (CRN) generated by the online Application Form. Application Monies paid via BPAY must
be received by the Share Registry no later than 5.00pm (AEST) on 10 June 2015 and it is your responsibility
to ensure that this occurs. You should be aware that your financial institution may implement earlier cut-off
times with regard to electronic payment, and you should therefore take this into consideration when making
payment. None of the Company, SaleCo or the Joint Lead Managers take any responsibility for any failure to
receive Application Monies or payment by BPAY before the Priority Offer closes arising as a result of, among
other things, delays in processing of payments by financial institutions.
7.5.2.4 Allocation policy under the Priority Offer
Allocations under the Priority Offer will be at the absolute discretion of Greenstone, provided that those
allocations (in aggregate) do not exceed $5 million.
7.5.3
General Employee Retention Plan Offer
7.5.3.1 Who may apply
The General Employee Retention Plan Offer is open to Eligible Participants. The definition of Eligible Participant
is outlined in the Glossary in Appendix B. If you are an Eligible Participant, you will be sent an invitation email
detailing the terms of the General Employee Retention Plan Offer, together with this Prospectus.
7.5.3.2 Terms of the Performance Rights
A summary of the terms applicable to the Performance Rights issued under the General Employee Retention
Plan Offer is set out below.
Nature of a Performance Right
A Performance Right entitles the holder to acquire a Share for nil
consideration at the end of the Performance Period, subject to meeting
specific performance conditions and/or service conditions and/or
other conditions.
Number of Performance Rights
The total number of Performance Rights which each Eligible Participant
will be granted will be determined by dividing $500 by the Final Price
(rounded down to the nearest whole number), or such lesser number as
the Eligible Participant applies for.
At the Indicative Price Range of $2.00 to $2.50, an Eligible Participant
who takes up their entitlement in full will be issued 200 to 250
Performance Rights.
The Final Price may be set below, within or above the Indicative Price
Range. The number of Performance rights granted will be calculated based
on the Final Price.
Issue price
The Performance Rights will be issued for nil consideration.
Exercise price
No exercise price is payable in respect of the Performance Rights.
146 Section 07 – The Offer
Greenstone Limited Prospectus
Vesting and deemed exercise
The Performance Rights will vest subject to the holder being continuously
employed by or with one or more members of the Group during the period
from the grant date (which is expected to be 18 June 2015 and will in any
event be before 1 July 2015) to 1 July 2016 (inclusive).
Forfeiture of
Performance Rights
If a holder ceases employment before 1 July 2016, any Performance
Rights held by that holder will be forfeited, unless the Board
determines otherwise.
Disposal restrictions
The Performance Rights are not transferable and may not be sold,
encumbered or otherwise dealt in or disposed of under any circumstances.
Participants will be free to deal with the Shares issued on exercise of
the Performance Rights, subject to the requirements of the Company’s
securities trading policy.
Change of control event
On the occurrence of a change of control, the Board will determine how
Performance Rights will be dealt with.
Adjustment of
Performance Rights
The Performance Rights may be adjusted upon certain events occurring
including a reorganisation of the issued share capital in the Company, a
bonus issue of Shares and a rights issue.
Rights associated with
Performance Rights
The Performance Rights do not carry rights to dividends or voting rights
prior to vesting.
7.5.3.3 How to apply
Eligible Participants who wish to participate in the General Employee Retention Plan Offer are required to
complete the Application Form made available online at www.greenstone.com.au, a link to which will be
attached in the invitation email.
7.5.3.4 How to pay
No payment is required under the General Employee Retention Plan Offer.
7.5.3.5 Allocation policy under the General Employee Retention Plan Offer
Eligible Participants who are successful Applicants will receive a guaranteed allocation of Performance Rights
equal to $500 divided by the Final Price (rounded down to the nearest whole Performance Right), or such lesser
number of Performance Rights as the Eligible Participant applied for.
7.6
Application acceptances and Application Monies
An Application in the Broker Firm Offer or Priority Offer is an offer by the Applicant to the Company to apply
for Shares in the Australian dollar amount specified in the Application Form at the Final Price, and on the
terms and conditions set out in this Prospectus and the Application Form. To the extent permitted by law, an
Application by an Applicant under the Offer is irrevocable.
An Application may be accepted in respect of the full amount, or any amount lower than that specified in the
Application Form, without further notice to the Applicant. Acceptance of an Application will give rise to a
binding contract on allocation of Shares to successful Applicants, conditional on the quotation of Shares on the
ASX and Settlement.
The Joint Lead Managers, in consultation with the Company and SaleCo, reserve the right to reject any
Application which is not correctly completed or which is submitted by a person who they believe is ineligible to
participate in the Broker Firm Offer or Priority Offer, or to waive or correct any errors made by the Applicant in
completing their Application.
Greenstone Limited Prospectus
Successful Applicants in the Broker Firm Offer or
Priority Offer will be issued or transferred Shares at
the Final Price and will receive the number of Shares
equal to the value of their Application accepted by
Greenstone divided by the Final Price (rounded down
to the nearest whole Share). No refunds pursuant
solely to rounding will be provided.
The Company, the Joint Lead Managers and SaleCo
will exclusively determine whether a successful
Applicant receives an issue of New Shares, a transfer
of Existing Shares, or a combination of both.
7.7
Institutional Offer
Section 07 – The Offer 147
7.7.3
The Final Price will not necessarily be the highest price
at which Shares could be issued or transferred under
the Offer and may be set above, within or below the
Indicative Price Range.
In determining the Final Price, consideration will be
given to, but not limited to, the following factors:
■■
■■
■■
7.7.1
Invitations to bid
The Company, SaleCo and the Joint Lead Managers
will invite certain Institutional Investors to bid for
Shares in the Institutional Offer.
The Institutional Offer is comprised of three parts:
■■
■■
■■
an invitation to Australian and New Zealand
resident Institutional Investors – made under
this Prospectus;
an invitation to Brokers who elect to bid for Shares
at the Final Price under the Institutional Offer on
behalf of Australian and New Zealand resident
retail investors – made under this Prospectus; and
an invitation to Institutional Investors in the
United States and other eligible jurisdictions to
bid for Shares – made under the Institutional
Offering Memorandum.
7.7.2
■■
Institutional Investors can only bid into the Bookbuild
for Shares through the Joint Lead Managers. They
may bid for Shares at a specific price or prices.
Institutional Investors may bid above, within or below
the Indicative Price Range, which is $2.00 to $2.50 per
Share. Under the terms of the Offer Management
Agreement, the Final Price will be determined after
the close of the Institutional Offer.
All successful bidders in the Institutional Offer will pay
the Final Price for each Share allocated to them.
the level of demand for Shares in the Institutional
Offer at various prices;
the level of demand for Shares in the Retail Offer;
the objective of maximising the proceeds of
the Offer; and
the desire for an orderly secondary market
in the Shares.
It is expected that the Final Price will be determined
and announced by 15 June 2015 in accordance with
Section 7.4.
7.7.4
Allocation policy under the Institutional Offer
The allocation policy will also be influenced, but not
constrained, by the following factors:
■■
■■
■■
■■
Bookbuild process and Indicative Price Range
The Institutional Offer will be conducted using
a Bookbuild process managed by the Joint Lead
Managers. Full details of how to participate in the
Bookbuild, including bidding instructions, will be
provided to eligible Institutional Investors by the Joint
Lead Managers in due course.
Determination of the Final Price
The Bookbuild process will be used to determine the
Final Price.
■■
■■
■■
■■
■■
the price and number of Shares bid for by
particular bidders;
the timing of bids by particular bidders;
the desire for an informed and active trading
market in Shares following Listing;
the desire to establish a wide spread of
institutional Shareholders;
the size and type of funds under the management
of particular bidders;
the likelihood that particular bidders will be long
term Shareholders;
any credit risk presented by the bidding
Institutional Investor having regard to the
amount of its bid;
whether any Shares are to be allocated as
over-allocation Shares for the purposes of the
market stabilisation activities referred to in
Section 7.8; and
any other factors that the Company, SaleCo and
the Joint Lead Managers consider appropriate, in
their absolute discretion.
148 Section 07 – The Offer
7.8
Market stabilisation activities
The Company and SaleCo may over-allocate up to 60.7
million additional Shares to Institutional Investors
under the Institutional Offer. The maximum number
of Shares that can be over-allocated and the maximum
size of the Over-allocation Option represents 8.7% of
the Shares on issue at Completion of the Offer (based
on the assumption that the Final Price is at the bottom
of the Indicative Price Range).
If Shares are over-allocated, the Stabilisation
Manager may initially satisfy these over-allocations
by borrowing an equivalent number of Shares
from SaleCo at settlement of the Institutional
Offer (Settlement). Shares delivered on Settlement
under the borrowing arrangements and transferred
to Institutional Investors will be delivered and
transferred under this Prospectus or the Institutional
Offering Memorandum.
The Stabilisation Manager may satisfy its obligation
to return Shares borrowed from SaleCo by the
Stabilisation Manager by:
■■
■■
■■
requiring SaleCo to transfer Shares at the Final
Price under an option granted by SaleCo to
the Stabilisation Manager to acquire up to an
additional 60.7 million Shares at the Final Price
(Over-allocation Option);
Greenstone Limited Prospectus
The Existing Shareholder and Novatrust Limited
as trustee for the Casey Trust have entered into
securities lending and option arrangements with
SaleCo, which will allow SaleCo to loan the overallotment Shares to the Stabilisation Manager and to
grant the Over-allocation Option to the Stabilisation
Manager. The effect of these arrangements is
that, to the extent that the Stabilisation Manager
exercises the Over-allocation Option, the Existing
Shareholder will increase the number of Existing
Shares that it sells to SaleCo. If the Over-allocation
Option is exercised in full, the retained shareholding
of the Existing Shareholder and Novatrust Limited as
trustee for the Casey Trust in aggregate will reduce to
between 33.3% and 33.4% (based on the Indicative
Price Range).
If an over-allotment of Shares is made to Institutional
Investors under the Offer, the Stabilisation Manager
may, on any day during the Stabilisation Period
on which the Stabilisation Manager has consulted
with the Company and SaleCo, engage in market
stabilisation activities by bidding for, and purchasing,
Shares up to the number of the Shares the subject
of the over-allotment on the ASX in accordance
with conditions imposed by ASIC and the ASX. These
conditions include:
■■
purchasing Shares on the ASX at or below
the Final Price once ASX trading in the Shares
commences; or
a combination of these means,
■■
at any time within the period of up to 30 days
following the date of Listing (Stabilisation Period).
The final number of Shares sold by SaleCo under the
Offer will depend upon whether the Stabilisation
Manager exercises the Over-allocation Option at all, in
part or in full. To the extent that the Over-allocation
Option is exercised, the obligation of SaleCo to
transfer Shares on exercise will be offset against the
Stabilisation Manager’s obligation to return Shares
borrowed from SaleCo. So, for example, if the Overallocation Option is exercised in full, the Stabilisation
Manager’s obligation to return the borrowed Shares
will be set off completely by SaleCo’s obligation to
transfer Shares under the Over-allocation Option. The
effect of this will be that the final number of Existing
Shares sold by SaleCo under the Offer will increase to
59.1 to 60.7 to million Shares, being 8.6% to 8.7% of
the number of Shares on issue at Completion of the
Offer (based on the Indicative Price Range).
■■
any stabilising bids by the Stabilisation Manager
must not, on any trading day, be higher than the
lower of the highest current independent bid on
the ASX or the Final Price;
the purchases made by the Stabilisation Manager
on a given trading day for the purposes of
satisfying its obligations to deliver Shares will be
disclosed on the ASX Company Announcements
platform prior to commencement of trading on
the following trading day (with such disclosure to
be made on a daily basis over the course of the
Stabilisation Period); and
bids on the ASX by the Stabilisation Manager to
satisfy over-allocations will be identified on ASX’s
trading platform at the time the bid is made.
Such purchases may have the effect of stabilising
the trading price for Shares on the ASX at a level
higher than may otherwise have been the case in
circumstances where the trading price is at or below
the Final Price.
Greenstone Limited Prospectus
During the Stabilisation Period, the Stabilisation
Manager may resell some or all of the Shares so
purchased. This resale may also affect the trading
price of Shares (e.g. this may have the effect of
creating a lower price than may otherwise have been
the case), although the Stabilisation Manager is not
able to resell Shares for less than the Final Price in
these circumstances.
Section 07 – The Offer 149
7.9
Shares held at Completion of the Offer by the
Escrowed Shareholders (other than any additional
Shares acquired by them under the Offer) (Escrow
Shares) will be subject to voluntary escrow
arrangements and, subject to the exceptions outlined
below, will be escrowed as follows:
■■
There is no guarantee that the trading price of Shares
will not drop below the Final Price.
The proceeds received by the Stabilisation Manager
for any Shares that are over-allocated under the
Offer will be released to SaleCo at the end of the
Stabilisation Period. If the Over-allocation Option is
not exercised in full, the Stabilisation Manager will
transfer to SaleCo at that time the Shares purchased
in market stabilisation activities which have not
been resold, by way of return of Shares borrowed
from SaleCo.
■■
Any Shares returned to SaleCo following the
Stabilisation Period (as a result of the Over-allocation
Option not being exercised by the Stabilisation
Manager) will be treated as Escrow Shares and will
be subject to the Escrow arrangements set out in
Section 7.9.
in respect of Hollard Investments B.V. and
Novatrust Ltd as trustee for The Casey Trust, the
Escrow Period for all Escrow Shares lasts until two
business days after the date on which Greenstone’s
full year results for FY16 are released to the ASX;
in respect of Mark Reid:
——
SaleCo will be entitled to receive any profits arising
from market stabilisation activities, and also any
interest earned on the proceeds received by the
Stabilisation Manager in respect of the overallocated Shares up until the time those proceeds are
released to SaleCo.
SaleCo indemnifies the Stabilisation Manager against
certain taxes and duties that may arise in connection
with the Over-allocation Option and market
stabilisation activities and is also required to reimburse
the Stabilisation Manager for third party costs and
expenses incurred by it in connection with the Overallocation Option and market stabilisation activities.
Escrow arrangements
——
■■
■■
a number of shares equal to $136,094 divided
by the Final Price will be escrowed for up to
three years following Completion of the Offer
(with one-third of those Escrow Shares being
released from escrow each year, subject to the
continued service condition in relation to those
Shares as described in Section 6.5.1); and
a number of shares equal to $4,855,200 divided
by the Final Price will be escrowed for up to five
years following Completion of the Offer (with
one-fifth of those Escrow Shares being released
from escrow each year, subject to the bad leaver
forfeiture provisions in relation to those Shares
as described in Section 6.5.1); and
in respect of Derrick Jones, the escrow period for
all Escrow Shares lasts until two business days after
the date on which Greenstone’s full-year results
for the period ending 30 June 2016 are released
to the ASX, subject to the bad leave forfeiture
provisions in relation to those Shares as described
in section 6.5.2; and
in respect of the other Escrowed Shareholders,
——
——
a number of shares equal to $204,000 divided
by the Final Price will be escrowed until 30
September 2016, subject to the bad leaver
forfeiture provisions in relation to those Shares
as described in section 6.5.3; and
a number of shares equal to $564,547 divided
by the Final Price will be escrowed for up to
three years following completion of the Offer
(with one-third of those Escrow Shares being
released from escrow each year, subject to the
bad leaver forfeiture provisions in relation to
those Shares as described in section 6.5.3),
being in each case that Escrowed Shareholder’s
relevant Escrow Period.
150 Section 07 – The Offer
Each of the Escrowed Shareholders has entered into
an escrow deed in respect of their Escrow Shares.
This deed will prevent them from disposing of their
Escrow Shares for the applicable escrow period. The
restriction on ‘disposing’ is broadly defined and
includes, among other things, selling, assigning,
transferring or otherwise disposing of any interest in
the Escrow Shares, encumbering or granting a security
interest over the Escrow Shares, granting or exercising
an option over the Escrow Shares, doing, or omitting
to do, any act if the act or omission would have the
effect of transferring effective ownership or control
of any of the Escrow Shares, or agreeing to do any
of those things.
All of the Escrowed Shareholders may be released
early from these escrow obligations to enable:
■■
■■
■■
the Escrowed Shareholders to accept an offer
under a takeover bid in relation to their Escrow
Shares if holders of at least half of the Shares the
subject of the bid that are not Escrow Shares have
accepted the takeover bid;
the Escrowed Shareholders to tender their Escrow
Shares into a bid acceptance facility established
in connection with a takeover bid if holders of
at least half of the Shares the subject of the bid
that are not Escrow Shares have accepted the bid
or tendered their Shares into the bid acceptance
facility; and/or
the Escrow Shares held by the Escrowed
Shareholders to be transferred or cancelled
as part of a merger or acquisition by scheme
of arrangement under Part 5.1 of the
Corporations Act.
Greenstone Limited Prospectus
During the Escrow Period, the Escrowed Shareholders
whose Shares are subject to escrow may deal in any
of their Shares to the extent the dealing is required
by applicable law (including an order of a court of
competent jurisdiction).
The Existing Shareholder has also given a formal
statement of intent to the Company, in which the
Existing Shareholder states that it intends to be a
long term shareholder of the Company and confirms
that it intends to hold its Escrow Shares until at least
two Business Days after the release of the Company’s
FY17 financial results to the ASX, subject to any
exceptions in its Escrow Agreement (as if the
Escrow Agreement continued to apply).
The number of Shares subject to the Escrow
arrangements will depend on the extent to which the
shares are over-allocated, whether the Over-allocation
Option is exercised (described in Section 7.8) and the
Final Price. In aggregate, the Shares subject to the
escrow arrangements will represent approximately
34.3% to 42.5% of the issued Shares post this Offer.
The low end of the range assumes a full overallocation exercise of the Over-allocation Option and
the high end of the Indicative Price Range while the
high end of the range assumes that no shares were
over-allocated or that the Over-allocation Option is
not exercised and the low end of the Indicative Price
Range. This is not expected to have a material effect
on the liquidity of trading in Shares on the ASX during
the Escrow Period. Details of Escrow Shares and
Escrow Periods are set out in Table 34.
Greenstone Limited Prospectus
Section 07 – The Offer 151
Table 34: Details of the Escrow Shares and Escrow Periods
Escrowed Shareholder
Escrow Shares (m)
Escrow Shares as
a percentage of
total Shares held by
Escrowed Shareholder
at Completion of
the Offer
Hollard Investments
B.V. (Netherlands)
174.5 - 219.9
100.0%
Escrow Period
Two Business Days following
release of the FY16 fullyear results (pursuant to its
Escrow Agreement)
Two Business Days following
release of the FY17 full-year
results (as indicated through its
statement of intent)3
Novatrust Limited
as trustee for
the Casey Trust
58.1 - 73.3
100.0%
Two Business Days following
release of the FY16
full-year results
Mark Reid
0.1
2.7%
Up to three years following
Completion of the Offer
(one‑third of Escrow Shares being
released each year)
1.9 - 2.4
97.3%
Up to five years following
Completion of the Offer
(one‑fifth of Escrow Shares being
released each year)
Derrick Jones
0.2 - 0.3
100.0%
Two Business Days following
release of the FY16
full-year results
Other senior executives
0.2 - 0.3
73.5%
Up to three years following
completion of the Offer
(one‑third of Escrow Shares being
released each year)
0.1
26.5%
30 September 2016
235.2 - 296.4
N/A
N/A
Total
Escrowed Persons may subscribe for and hold their interests in Shares as described above directly, or indirectly
through holdings by companies or trusts.
The Escrowed Persons are entitled to apply for Shares under the Offer. Other than in respect of Novatrust
Limited as trustee for the Casey Trust, the above table does not take into account any Shares the Escrowed
Persons may acquire under the Offer.
3. This period is not covered by a formal Escrow Agreement. Hollard Investments B.V. has given the Company a statement of intent and has consented to
the inclusion of statements in this Prospectus based on that letter (as described above in Section 7.9).
152 Section 07 – The Offer
7.10 ASX Listing details
7.10.1Overview
Application for admission of the Company to the
Official List and quotation of the Shares on the ASX
will be made to the ASX no later than seven days after
the Prospectus Date.
If the Company does not make such an application
within seven days after the Prospectus Date or the
Company is not admitted to the Official List within
three months after the date of this Prospectus (or any
longer period permitted by law), the Offer will be
cancelled and all Application Monies will be refunded
(without interest) as soon as practicable in accordance
with the requirements of the Corporations Act.
The ASX takes no responsibility for this Prospectus or
the investment to which it relates. Admission to the
Official List and quotation of the Shares on the ASX
are not to be taken as an endorsement by the ASX
of Greenstone.
7.10.2 Conditional and deferred settlement
trading
It is expected that the Shares will be quoted
and commence trading on the ASX on or about
16 June 2015 initially on a conditional and deferred
settlement basis.
The contracts formed on acceptance of Applications
and bids in the Institutional Offer will be conditional
on the ASX agreeing to quote the Shares on the
ASX, and on Settlement occurring. Trades occurring
on the ASX before Settlement will be conditional
on Settlement occurring.
Conditional trading will continue until the Company
has advised the ASX that Settlement has occurred,
which is expected to be on or about 18 June 2015.
Trading will then be on an unconditional and deferred
settlement basis until the Company has advised the
ASX that holding statements have been despatched
to Shareholders.
Normal settlement trading on the ASX is expected
to commence on or about 23 June 2015.
If Settlement has not occurred within 14 days (or
such longer period as the ASX allows) after the
commencement of conditional trading, all conditional
Greenstone Limited Prospectus
trades that have occurred (and the Offer and all
contracts arising on acceptance of Applications
under the Retail Offer and bids in the Institutional
Offer) will be cancelled and of no further effect and
all Application Monies will be refunded (without
interest). In these circumstances, all purchases
and sales made through the ASX participating
organisations during the conditional trading period
will be cancelled and of no effect.
It is the responsibility of an Applicant under the Offer
to verify their holding of Shares before trading in
Shares. The Company expects to despatch holding
statements in respect of the allocation of Shares on or
about 22 June 2015. Applicants who trade in Shares
before receiving an initial holding statement do so at
their own risk. Greenstone, SaleCo, the Share Registry
and the Joint Lead Managers disclaim all liability,
whether in negligence or otherwise, if you sell Shares
before receiving your holding statement, even if you
obtained details of your holding from the Greenstone
Offer Information Line or confirmed your firm
allocation through a Broker.
7.11 Brokerage, commission and stamp
duty costs
No brokerage, commission or stamp duty is payable
by Applicants on acquisition of Shares under the
Offer. Refer to Section 8.5.1 for details of various fees
payable by the Company to the Joint Lead Managers.
7.12 Discretion regarding the Offer
The Company and SaleCo may withdraw the Offer
at any time before the issue or transfer of Shares to
successful Applicants. If the Offer, or any part of it,
does not proceed, all relevant Application Monies will
be refunded (without interest).
The Joint Lead Managers, in consultation with the
Company and SaleCo, also reserve the right to close
the Offer or any part of it early, extend the Offer or
any part of it, accept late Applications or bids, either
generally or in particular cases, reject any Application
or bid, or allocate to any Applicant or bidder fewer
Shares than applied or bid for.
Greenstone Limited Prospectus
7.13 CHESS and issuer sponsored
holdings
The Company will apply to participate in CHESS, in
accordance with the ASX Listing Rules and the ASX
Settlement Operating Rules. Applicants to whom
Shares are issued or transferred under the Offer will
receive shareholding statements, in lieu of share
certificates, that set out the number of Shares issued
or transferred to each successful Applicant.
The statements will also provide details of the
Shareholder’s HIN (in the case of a holding on the
CHESS subregister) or SRN (in the case of a holding
on the issuer sponsored subregister). Shareholders
will be required to quote a HIN or SRN, as applicable,
in all dealings with a broker or the Share Registry.
Further statements will be provided to Shareholders
which will reflect any changes in their shareholding in
the Company during a particular month. Additional
statements may be requested at any time, although
the Company reserves the right to charge a fee.
The Company expects to despatch holding statements
in respect of the allocation of Shares on or about
22 June 2015. Applicants who sell Shares before
receiving an initial holding statement do so at
their own risk.
Section 07 – The Offer 153
7.14Enquiries
All enquiries in relation to this Prospectus, how
to complete the Application Form or to request
additional copies of this Prospectus should be
directed to the Greenstone Offer Information Line
on 1800 285 677 (toll free within Australia) or
+61 1800 285 677 (outside Australia) from 8.30am
until 5.30pm (AEST), Monday to Friday. Information
about the Offer is also available on the Offer website
at www.greenstone.com.au.
If you are unclear in relation to any matter or are
uncertain as to whether Greenstone is a suitable
investment for you, you should seek professional
guidance from a financial adviser, solicitor, accountant
or other independent professional adviser.
154 Section 08 – Additional information
ADDITIONAL
INFORMATION
08
Greenstone Limited Prospectus
Greenstone Limited Prospectus
Section 08 – Additional information 155
ADDITIONAL INFORMATION
8.1Registration
Greenstone was registered in New South Wales, Australia on 11 October 1996 as a proprietary company and was
converted to a public company on 17 March 2014.
8.2
Company tax status
Greenstone will be taxed in Australia as a public company, and will be subject to tax at the Australian corporate
tax rate and under Australian taxation laws. The financial year of Greenstone ends on 30 June annually.
8.3
Sale of Shares by SaleCo
SaleCo, a special purpose vehicle, has been established to facilitate the sale of Existing Shares by the Existing
Shareholder.
The Existing Shareholder has entered into a deed poll in favour of SaleCo under which it has agreed to sell to
SaleCo some of its Existing Shares, which will be sold by SaleCo into the Offer, free from encumbrances and third
party rights.
The Existing Shares which SaleCo acquires from the Existing Shareholder will be transferred to successful
Applicants at the Final Price. The price payable by SaleCo for these Existing Shares is the Final Price. Greenstone
will also issue New Shares to successful Applicants under the Offer.
SaleCo has no material assets, liabilities or operations other than its interests in and obligations under the Offer
Management Agreement and the deed described above. The sole director and shareholder of SaleCo is Richard
Enthoven, who is also a director of Greenstone. Greenstone has agreed to provide such resources and support
as are necessary to enable SaleCo to discharge its functions in relation to the Offer and has indemnified SaleCo
in respect of costs of the Offer. Greenstone has indemnified SaleCo and the shareholder and officers of SaleCo
for any loss which they may incur as a consequence of the Offer.
8.4
Corporate structure
Figure 24: Greenstone’s Corporate Structure
Greenstone
Limited
100%
Greenstone
Financial Services
Pty Ltd
100%
Greenstone
Enterprise Services
Pty Ltd1
100%
Choosi
Pty Ltd
100%
Choosi Australia
Pty Ltd
100%
Guardian Insurance
Pty Ltd
100%
Australian
Seniors Insurance
Agency Pty Ltd2
1. As at the Lodgement date, Greenstone Enterprise Services Pty Ltd is a wholly-owned subsidiary of Greenstone Financial Services Pty Ltd. The transfer
of its shares to Greenstone Limited is subject to the NSW Office of State Revenue granting an application for exemption from stamp duty in relation
to corporate reconstructions. If that relief is not granted, Greenstone Enterprise Services Pty Ltd will continue to be a direct subsidiary of Greenstone
Financial Services Pty Ltd.
2. On 30 June 2015, Greenstone Financial Services will acquire 100% of Australian Seniors Insurance Agency Pty Ltd (the owner of the Australian Seniors
Insurance Agency brand). Greenstone Financial Services entered into a binding, unconditional share purchase agreement with the existing shareholders
of Australian Seniors Insurance Agency Pty Ltd on 13 April 2015.
156 Section 08 – Additional information
8.5
Material contracts
Along with the Offer Management Agreement,
summarised below, the Directors consider that there
are a number of contracts which are significant or
material to Greenstone or of such a nature that an
investor may wish to have details of them when
making an assessment of whether to apply for
Shares. Summaries for material contracts set out in
this Prospectus (including the summary of the Offer
Management Agreement set out below) do not
purport to be complete and are qualified by the text
of the contracts themselves.
8.5.1
Offer Management Agreement
Greenstone, SaleCo and the Joint Lead Managers
signed the Offer Management Agreement about
or on the Prospectus Date. Under the Offer
Management Agreement, Greenstone and SaleCo
appointed Goldman Sachs and Macquarie as
Joint Lead Managers to the Offer. The following
is a summary of the principal provisions of the
Offer Management Agreement. Under the Offer
Management Agreement, the Joint Lead Managers
have agreed to arrange and manage the Offer,
including the Bookbuild, and to provide settlement
support for the settlement obligations of successful
Applicants and bidders under the Broker Firm Offer
and Institutional Offer.
Fees and expenses
Greenstone has agreed to pay certain fees to the
Joint Lead Managers. The offering, management and
settlement fees will become payable by Greenstone
on the settlement date (save for any portion of
these fees that relate to the over-allocation, which
will be payable in July 2015) and will be paid to the
Joint Lead Managers in agreed proportions. The
offering, management and settlement fees payable
are calculated as 1.75% of the funds raised under
the Offer (excluding funds raised from any overallocation described in Section 7.8). If the Stabilisation
Manager exercises the Over-allocation Option, the
Joint Lead Managers will be entitled (in their agreed
proportions) to an additional offering, management
and settlement fee calculated as 1.75% of the value of
the Shares acquired under the Over-allocation Option
(based on the Final Price).
Greenstone may also pay to one or more of
the Joint Lead Managers an incentive fee of (in
aggregate) up to 0.50% of the funds raised under
the Offer (excluding the over-allocation Shares
Greenstone Limited Prospectus
but including any Shares acquired under the Overallocation Option). Payment of the incentive fee is
at Greenstone’s absolute discretion and may be split
between the Joint Lead Managers in any proportion
that Greenstone decides in its absolute discretion,
including by allocating the full incentive fee to either
of the Joint Lead Managers. If Greenstone elects to
pay the incentive fee, it will determine the amount
of the fee no later than the date that is 30 days after
Completion of the Offer and, once determined, the
fee will be payable on or before the date that is five
business days after such determination. The actual
amount of fees payable to the Joint Lead Managers
will not be known until the determination of the Final
Price. In addition, Greenstone and SaleCo must pay
or reimburse each Joint Lead Manager for reasonable
expenses, including legal and travel costs.
The Joint Lead Managers have engaged Citi, Deutsche
Bank and J.P. Morgan to act as Co-Lead Managers
to the Offer and each of Bell Potter Securities Ltd,
JBWere Ltd, Macquarie Equities Limited, Ord Minnett
Ltd and Wilson HTM Corporate Finance Ltd to act as
Co-Manager to the Offer. The Joint Lead Managers
will pay the fees payable to the Co-Lead Manager and
each Co-Manager out of the fees payable to the Joint
Lead Managers by Greenstone, as disclosed in this
Section 8.5.1.
Termination events not limited by materiality
Each Joint Lead Manager may terminate its
obligations under the Offer Management Agreement
prior to 2.00pm (AEST) on the settlement date on the
occurrence of a number of customary termination
events, including (among others):
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(failure of a condition precedent) any of
the conditions precedent to the Joint Lead
Managers’ obligations under the Offer
Management Agreement are not satisfied. The
Offer Management Agreement contains typical
conditions precedent for an agreement of this
kind, including failure by Greenstone to enter into
the New Banking Facilities or to obtain all required
approvals from the ASX and ASIC in connection
with the Offer;
(Prospectus) this Prospectus does not comply with
the Corporations Act or New Zealand Securities
Laws (including if a statement in this Prospectus
is or becomes misleading or deceptive or likely
to mislead or deceive, or a matter required to be
included is omitted from this Prospectus);
Greenstone Limited Prospectus
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(other disclosures) disclosures in certain other
Offer documents include an untrue statement
of a material fact or omit to state a material fact
necessary in order to make the statements therein,
in light of the circumstances under which they
were made, not misleading;
(forecasts) any of the Offer documents include any
forecast, expression of opinion, belief, intention
or expectation which is not based on reasonable
grounds (including having regard to ASIC
Regulatory Guide 170), taken as a whole;
(supplementary prospectus) a supplementary
prospectus is required, or in the reasonable
opinion of the terminating Joint Lead Manager is
required, under section 719 of the Corporations
Act or a supplementary prospectus is issued in a
form that has not been approved by the Joint Lead
Managers in circumstances required by the Offer
Management Agreement;
Section 08 – Additional information 157
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(capital and business disposals) Greenstone alters
its share capital or disposes or attempts to dispose
of a substantial part of the business or property of
itself or a material member of the Group that has
not been disclosed in this Prospectus or has not
been authorised by the Joint Lead Managers;
(fraud and other offences) any director of
Greenstone or SaleCo engages in or is charged
with fraud, an indictable offence or is disqualified
from managing a corporation under Part
2D.6 of the Corporations Act, or Greenstone,
SaleCo or a member of the Group engages in
fraudulent activity;
(insolvency) the insolvency of Greenstone, SaleCo
or a member of the Group or there is an act or
omission that is likely to result in a member of the
Group becoming insolvent;
(chairman, CEO or CFO) a change in Greenstone’s
CEO, CFO or the chairman of the Board is
announced or occurs;
(timetable) an event specified in the timetable
set out in the Offer Management Agreement up
to and including the commencement of normal
trading is delayed by more than one business
day (other than any delay consented to by the
Joint Lead Managers, such consent not to be
unreasonably withheld or delayed);
(listing and quotation) approval is refused or
not granted, or approval is granted subject to
conditions other than customary conditions, for:
——
(unable to issue or transfer Shares) Greenstone or
SaleCo is prevented from transferring or allotting
and issuing (as applicable) the Shares, within the
time required by the timetable included in the
Offer Management Agreement, by applicable laws,
an order of a court of competent jurisdiction or a
Government Agency;
(Escrow Deeds) any of the Escrow Deeds are
withdrawn, varied, terminated, rescinded,
breached, altered or amended (other than with the
Joint Lead Managers’ consent);
(market fall) the S&P/ASX 200 Index falls to a
level that is 90% or less of the level as at the close
of trading on the date prior to the open of the
Bookbuild and is at or below that level at the close
of trading (i) for two consecutive business days;
or (ii) on the business day immediately before the
date of settlement or allotment of the Offer;
——
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Greenstone’s admission to the Official List on
or before the date by which the ASX is to have
confirmed quotation of the Shares; or
the quotation of all Shares, including the Shares
issued under the Offer, on the ASX or Shares to
be traded through CHESS on or before the date
on which deferred settlement and conditional
trading of the Shares commences, or if granted,
the approval is subsequently withdrawn,
qualified (other than by customary conditions)
or withheld;
(notifications) any of the following notifications
are made (other than a notification that isn’t made
public and that is withdrawn within the earlier of
(i) three business days; (ii) the business day prior
to the date of opening of the bookbuild; and (iii)
5.00pm (AEST) on the business day prior to the
settlement date:
——
——
——
——
ASIC issues an order (including an interim order)
under section 739 of the Corporations Act;
ASIC holds a hearing under section 739(2) of the
Corporations Act;
an application is made by ASIC for an order
under Part 9.5 of the Corporations Act in
relation to the Offer documents or ASIC
commences any investigation or hearing
under Part 3 of the Australian Securities and
Investments Commission Act 2001 (Cth) in
relation to the Offer documents;
any person (other than a Joint Lead Manager)
who has previously consented to the inclusion
of its name in this Prospectus withdraws
its consent; or
158 Section 08 – Additional information
——
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any person (other than a Joint Lead
Manager) gives a notice under section 730
of the Corporations Act in relation to the
Offer documents;
(withdrawal) Greenstone or SaleCo withdraws
this Prospectus, any invitations to apply for
Shares under the Offer documents or all of
any part of the Offer or indicates that it does
not intend to proceed with the Offer or any
part of it (other than as permitted by the Offer
Management Agreement);
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(new circumstances) there occurs a new
circumstance that arises after this Prospectus
is lodged that would have been required to
be included in this Prospectus if it had arisen
before lodgement;
(certificate not provided) Greenstone or SaleCo
does not provide a closing certificate as and
when required by the Offer Management
Agreement; and
(sale deed) the sale deed is withdrawn, varied,
terminated, rescinded, breached, altered, or
materially amended (other than with the consent
of the Joint Lead Managers, such consent not to be
unreasonably withheld or delayed).
Termination events limited by materiality
If any of the following events occurs prior to 2.00pm
(AEST) on the settlement date, each Joint Lead
Manager may terminate their obligations under the
Offer Management Agreement if that Joint Lead
Manager has reasonable and bona fide grounds to
believe (and does in fact believe) that the event (a)
has had or is likely to have a material adverse effect
on the ability of the Joint Lead Managers to market,
promote or settle the Offer or on the success or
Settlement of the Offer; or (b) has given or is likely
to give rise to the Joint Lead Managers materially
contravening any applicable laws or incurring a
material liability:
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Greenstone Limited Prospectus
(disclosures in the due diligence reports and any
other information) the due diligence reports or
any other information supplied by or on behalf of
Greenstone or SaleCo to the Joint Lead Managers
in relation to the Group or the Offer is (or is
likely to), or becomes (or becomes likely to be),
false, misleading or deceptive, including by way
of omission;
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(adverse change) any adverse change occurs in the
assets, liabilities, financial position or performance,
profits, losses, prospects or forecasts of Greenstone
or the Group (insofar as the position in relation to
an entity in the Group affects the overall position
of Greenstone), including any adverse change
in the assets, liabilities, financial position or
performance, profits, losses, prospects or forecasts
of Greenstone or the Group from those disclosed in
any Offer document;
(force majeure) there is an event or occurrence,
including any statute, order, rule, regulation,
directive or request of any Governmental
Agency which makes it illegal for the Joint Lead
Managers to satisfy an obligation under the Offer
Management Agreement, or to market, promote
or settle the Offer;
(breach) Greenstone or SaleCo defaults on
one or more of its obligations under the Offer
Management Agreement;
(representations and warranties) a representation,
warranty, undertaking or obligation contained in
the Offer Management Agreement on the part of
Greenstone or SaleCo is breached, becomes not
true or correct or is not performed;
(constitution) Greenstone varies any term of its
constitution other than as contemplated by this
Prospectus without the prior written consent of
the Joint Lead Managers (not to be unreasonably
withheld or delayed);
(hostilities) hostilities not presently existing
commence (whether war has been declared or
not) or an escalation in existing hostilities occurs
(whether war has been declared or not) involving
any one or more of Australia, New Zealand,
Singapore, Hong Kong, the United States, any
member state of the European Union, the United
Kingdom, Japan, or the People’s Republic of China
or a major act of terrorism is perpetrated in any of
those places;
(disruption in financial markets) any of the
following occurs:
——
a general moratorium on commercial banking
activities in Australia, Singapore, Hong Kong,
the United Kingdom, New Zealand or the
United States is declared by the relevant central
banking authority in those countries, or there is
a material disruption in commercial banking or
security settlement or clearance services in any
of those countries; or
Greenstone Limited Prospectus
——
——
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any disruption to the financial markets, political
or economic conditions or currency exchange
rates or controls of Australia, New Zealand,
Singapore, Hong Kong, the United Kingdom
or the United States, or in the international
financial markets; or
trading in all securities quoted or listed on the
ASX, the London Stock Exchange or the New
York Stock Exchange is suspended or limited in
a material respect for one day (or a substantial
part of one day) on which that exchange is
open for trading;
(change of law) there is introduced, or there is a
public announcement of a proposal to introduce,
into the Parliament of Australia or any State
of Australia a new law or the Reserve Bank of
Australia or any Commonwealth or State authority,
including ASIC, adopts or announces a proposal
to adopt a new policy (other than a law or policy
which has been announced before the date of the
Offer Management Agreement);
(change in the Board) a change in the Board (other
than in relation to the CEO or the chairman of the
Board) of Greenstone occurs;
(compliance with law) a contravention by
Greenstone or any entity in the Group of the
Corporations Act, New Zealand Securities Laws,
the Competition and Consumer Act 2010 (Cth), the
Australian Securities and Investments Commission
Act 2001 (Cth), the Greenstone constitution, any of
the ASX Listing Rules or any other applicable law;
(material contracts) if the Hannover Re Distribution
Administration Agreement as summarised in
Section 8.5.3 and the Real Insurance licence as
summarised in Section 8.5.4 are varied, terminated,
rescinded or altered or amended without the prior
consent of the Joint Lead Managers or any of those
contracts is breached or becomes void, voidable,
illegal, invalid or unenforceable (other than by
reason only of a party waiving its rights) or capable
of being terminated, rescinded or avoided or of
limited force and effect or its performance is or
becomes illegal;
(certificate incorrect) a statement in any closing
certificate provided by Greenstone or SaleCo
to the Joint Lead Managers is false, misleading,
inaccurate or untrue or incorrect (including by way
of omission); and
(legal proceedings) any of the following occurs:
Section 08 – Additional information 159
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the commencement of legal proceedings
against Greenstone or any other member of the
Group or SaleCo or any director of Greenstone
or SaleCo or of any Group member in that
capacity; or
any regulatory body or Government Agency
commences any investigation, claim, inquiry or
public action against Greenstone or SaleCo or
announces that it intends to take such action
(whether in respect of the Offer or otherwise).
Effect of termination of the Offer Management
Agreement
If a Joint Lead Manager terminates its obligations
under the Offer Management Agreement, the Joint
Lead Manager which validly terminates will no longer
be a lead manager and will not be obliged to conduct
the Bookbuild or provide Settlement support. Under
the Offer Management Agreement, if one Joint Lead
Manager terminates, the Company, SaleCo and the
other Joint Lead Manager may agree that the other
Joint Lead Manager will assume the obligations of
the terminating Joint Lead Manager or may agree
to appoint a replacement Joint Lead Manager to
assume all the obligations of the terminating Joint
Lead Manager.
Representations, warranties, undertakings and
other terms
Greenstone and SaleCo give various representations,
warranties and undertakings to the Joint Lead
Managers (in respect of themselves) which are
standard for offers of this kind, including that the
documents issued or published by or on behalf of
Greenstone and SaleCo in respect of the Offer are to
comply with all applicable laws. These representations,
warranties and undertakings relate to matters such as
the conduct of the parties, the conduct and outcome
of the due diligence process, information provided
to the Joint Lead Managers, financial information,
material contracts, licences, compliance with ASX
Listing Rules and laws, information contained in this
Prospectus and the conduct of the Offer.
With the exception of the New Shares issued under
the Offer and certain other limited exceptions,
Greenstone has also agreed that it will not, without
the Joint Lead Managers’ prior written consent, allot
or agree to allot (or indicate that it may or will do
so), any equity securities (or securities convertible
into equity) at any time after the date of the Offer
Management Agreement and before the expiration
of 120 days after the Completion of the Offer.
160 Section 08 – Additional information
Greenstone Limited Prospectus
Greenstone has also undertaken to conduct its
business in the ordinary course and not to dispose or
agree to dispose of the whole or a substantial part
of its business or property except as disclosed in this
Prospectus (other than with the Joint Lead Managers’
consent, not to be unreasonably withheld or delayed)
before the expiration of 90 days after Completion
of the Offer.
Guarantors
Indemnity
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Choosi Pty Ltd (ACN 147 630 886);
Greenstone and SaleCo agree to indemnify the Joint
Lead Managers, their affiliates and the officers,
directors, employees, agents, contractors and
representatives of the Joint Lead Managers and their
affiliates against all claims, demands, damages, losses,
costs, expenses, liabilities or damages incurred by
them in connection with the Offer, the Bookbuild and
the Offer documents (subject to limited exclusions).
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Choosi Australia Pty Ltd (ACN 147 628 288); and
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Guardian Insurance Pty Ltd (ACN 138 027 237)
8.5.2
Description of the New Banking Facilities
Macquarie Bank, Greenstone and Guardian Insurance
Pty Ltd (ACN 138 027 237) (each a Borrower), and
the Guarantors listed below, have entered into a
facility agreement dated 18 May 2015 to provide
loan facilities to the Group to, among other things,
refinance its existing corporate facilities.
The facilities comprise of:
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Tranche 1 – $40 million cash advance facility;
Tranche 2 – $80 million revolving cash advance
facility; and
Tranche 3 – $10 million overdraft facility,
(together the New Banking Facilities).
The New Banking Facilities are repayable in full five
years from the first drawdown date.
The New Banking Facilities are available to be used to:
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refinance the Group’s existing finance debt
(Tranche 1);
initially repay existing related party debt and
$4 million unrelated private party debt and
subsequently for general corporate purposes
(Tranche 2); and
The New Facilities are guaranteed by each of:
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Greenstone;
Greenstone Financial Services Pty Ltd (ACN
128 692 884);
Greenstone Enterprise Services Pty Ltd (ACN
112 196 148);
(together, the Guarantors).
Security
The New Banking Facilities are provided on a secured
basis by way of the security package over substantially
all of the assets of the Group.
Interest rates and payments
Drawings under Tranche 1 and Tranche 2 bear interest
at a variable rate per annum (being the bank bill
rate) plus a specified margin. The Borrower may also
request that Macquarie Bank quotes a fixed interest
rate under Tranche 1 and Tranche 2 where certain
conditions are satisfied.
Drawings under Tranche 3 bear interest at a variable
rate (being the Macquarie Reference Rate as
published from time to time by Macquarie Bank on its
website) plus a specified margin.
The Borrower must pay accrued interest in respect
of each drawing on the last business day of each
calendar month. Provided certain conditions are met,
interest under Tranche 3 capitalises if Macquarie Bank
provides its consent for this to occur.
Events of default
The New Banking Facilities contain certain events of
default which are customary for facilities and a business
of the nature of the Group and include where:
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fund the working capital requirements of the
Group (Tranche 3).
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a Borrower defaults in payment of principal or
interest when due and payable;
there is a failure to comply with financial
covenants or other provisions of the New
Banking Facilities;
a representation or warranty made by a Borrower
is incorrect or misleading;
there is a default under any other indebtedness
of any Borrower in excess of $500,000; and
an insolvency event occurs in relation to a
Borrower or Guarantor.
Greenstone Limited Prospectus
In a number of instances, the events of default are
subject to materiality thresholds and cure periods.
At any time after and during the continuance of an
event of default, Macquarie Bank will be entitled to,
among other things, terminate the commitments,
declare the loans then outstanding to be due and
payable in whole or part and/or enforce the security.
Review events
The New Banking Facilities contain review events,
which include where:
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any one of certain identified material documents
is terminated or is or becomes void, illegal, invalid,
unenforceable or of limited force and effect or its
term is not renewed and that material document
is not replaced with an arrangement which is on
materially the same or better terms; and
a party gives notice of termination or rescission
of any one of certain identified material
documents and that material document is not
replaced with an arrangement which is on
materially the same or better terms.
Following the occurrence of a review event,
Macquarie Bank and the Borrower will consult for
a specified period of time as to the continuation of
the New Banking Facilities. If agreement cannot be
reached by the expiry of that period, Macquarie Bank
may, by notice to the Borrower, require the Borrower
to repay the New Banking Facilities in full within a
specified period from the date of that notice.
Representations and warranties
The New Banking Facilities contain customary
representations and warranties including that:
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each Borrower is duly incorporated and has power
to enter into and perform its obligations under the
loan documents;
there is no litigation pending which is likely to
be adversely determined and which, if adversely
determined, would have or be reasonably likely to
have a material adverse effect;
there is no default; and
the necessary authorisations required for each of
the loan documents has been obtained where not
to do so would have or is likely to have a material
adverse effect.
In a number of instances, the representations and
warranties are subject to materiality thresholds.
Section 08 – Additional information 161
Financial undertakings
The following financial undertakings apply
with the first calculation date commencing on
31 December 2015:
■■
■■
■■
the value of the “agency revenue receivable asset”
on each quarter end date and each month end
date exceeds $400,000,000;
the value of the “non-pet agency revenue
receivable asset” on each quarter end date and
each month end date exceeds $350,000,000; and
the interest cover ratio (being the ratio of the
Group’s earnings to its interest expenses) on each
30 June and 31 December is not less than 2.00:1
(tested on a rolling 12 month basis).
Undertakings
The Borrowers are subject to customary negative
undertakings under the New Banking Facilities,
including restrictions in respect of:
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incurring finance debt;
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making financial accommodation;
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making distributions;
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making acquisitions;
■■
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granting security interests over their assets and
giving guarantees; and
disposing of their assets.
Prepayment
Market standard provisions exist under the New
Banking Facilities in relation to prepayments,
including the right to prepay all or any part of the
principal outstanding at any time.
Fees
Fees are market for facilities of this nature and
include an establishment fee and a line fee payable
on undrawn commitments under Tranche 2
and Tranche 3.
Conditions precedent
The availability of the New Banking Facilities
is subject to a number of customary conditions
precedent, including receipt by Macquarie Bank of
executed finance documents on terms consistent with
the term sheet.
162 Section 08 – Additional information
8.5.3 Hannover Re Distribution and
Administration Agreement
Hannover Re has entered into a Distribution and
Administration Agreement with Greenstone Financial
Services under which Hannover Re authorises
Greenstone Financial Services to market and distribute
life insurance products provided by Hannover Re,
and to provide ongoing administration services for
those products.
The contract provides that Greenstone Financial
Services is authorised as Hannover Re’s agent to
issue insurance products within agreed underwriting
procedures. Hannover Re may, in its discretion,
issue insurance products outside the agreed
underwriting procedures. Hannover Re must insure
any policies it issues in accordance with offers made
by Greenstone Financial Services and any policies
issued by Greenstone Financial Services on behalf of
Hannover Re.
During the term of the Distribution and
Administration Agreement, Greenstone Financial
Services must give Hannover Re the first opportunity
to offer terms for new life risk insurance products
which Greenstone Financial Services may develop or
wish to market (other than any ‘white-label’ products
marketed under third party brands). Greenstone
Financial Services may only enter into an agreement
with another insurer to market, distribute and/or
administer such products where Hannover Re has
either elected not to provide the proposed product or
another insurer is willing to give Greenstone Financial
Services more favourable terms than those offered
by Hannover Re. The Distribution and Administration
Agreement does not require Hannover Re to provide
underwriting for new life risk insurance products
designed by Greenstone Financial Services.
Greenstone Financial Services charges annual agency
revenue and administration fees, at commercially
agreed rates, for its design, marketing, distribution
and administration services.
Hannover Re has agreed to pay Greenstone Financial
Services the net present value of a portion of future
agency revenue at the time of issue. See Section 4.5
for more information about the agency revenue
receivable asset.
Greenstone Limited Prospectus
Under the Distribution and Administration
Agreement, Greenstone Financial Services
undertakes not to take any action directed at
existing policyholders which is likely to induce such
policyholders to cancel, discontinue or not renew the
policy. Greenstone Financial Services also undertakes
to compensate Hannover Re for loss suffered as a
result of such actions by Greenstone Financial Services.
Hannover Re has the right to vary the premiums
for insurance policies (in accordance with the terms
and conditions of such policies) under certain
circumstances and with 90 days’ notice. Premiums
for specific life insurance products may not be varied
within the two years following the introduction of
each product, other than as a consequence of changes
in tax or government charges.
The contract may be terminated by Hannover Re in
specified circumstances, including:
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where a third party acquires a relevant interest
in 50% or more of Greenstone’s shares and the
acquiring party is a financial services institution or
authorised insurer which competes directly with
Hannover Re in Australia; and
where Greenstone Financial Services commits
a material breach of the Distribution and
Administration Agreement and that breach is not
cured within 10 business days.
In addition, if Hannover Re reasonably determines
that Greenstone Financial Services is unable to
satisfactorily provide the administration services,
Hannover Re may terminate the provision of the
administration services under the Distribution and
Administration Agreement by giving 30 days’ written
notice. Termination of the administration services
would terminate the ongoing administration fee
and require Greenstone Financial Services to pay an
agreed compensation fee but would not otherwise
affect the Distribution and Administration Agreement.
Hannover Re and Greenstone Financial Services (or
related bodies corporate of Greenstone Financial
Services) have been party to the Hannover Re
Distribution and Administration Agreement
since 2009. The current contract continues until
31 December 2020 with a five year renewal option.
If not extended, the contract may then be terminated
by either party on three months’ written notice.
Greenstone Limited Prospectus
8.5.4
Section 08 – Additional information 163
Related party agreements
Following Completion of the Offer, the Existing
Shareholder may hold up to a maximum of 31.9%
of the issued share capital of Greenstone. All Shares
offered for issue under the Offer will be subject to
the disclosures in this Prospectus and will rank equally
with each other, and with those Shares held by the
Existing Shareholder.
——
in each case for a period of three years. Both
restraint deeds have customary prohibitions
on solicitation of customers, clients, suppliers,
distributors and employees of Greenstone;
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The Existing Shareholder also owns 100% of the
issued share capital of Hollard Australia Pty Ltd and its
subsidiaries, including The Hollard Insurance Company
Pty Ltd. These entities are party to a number of
transactions with Greenstone and/or its subsidiaries.
Greenstone and its subsidiaries have entered into the
following related party transactions:
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The Hollard Insurance Company Pty Ltd is the
underwriter for all of the pet insurance products
distributed by Greenstone. The administration
services in respect of pet insurance products
distributed by Greenstone are provided by
PetSure, which is 50% owned by The Hollard
Insurance Company Pty Ltd and 50% owned by an
unaffiliated third party. The insurance is provided
under a distribution agreement between The
Hollard Insurance Company Pty Ltd, PetSure and
Greenstone Financial Services Pty Ltd, which will
expire on 1 July 2017. The distribution agreement
is on arms’ length terms. Greenstone expects to
renew this distribution agreement upon expiry;
the Real Insurance brand and trademarks are
owned by The Hollard Insurance Company Pty
Ltd, which has granted an exclusive, perpetual,
irrevocable and royalty free licence to Greenstone
Financial Services to use the brand and trademarks
for life and pet insurance products. There are no
continuing payments, royalties or commissions
payable in respect of this licence. The Hollard
Insurance Company Pty Ltd retains the rights
to use the Real Insurance brand for other
insurance products;
Greenstone has entered into restraint deeds
with each of the Existing Shareholder and Gavin
Donnelly (the co-founder and former CEO of
Greenstone Financial Services) under which:
——
the Existing Shareholder undertakes that it will
not, and will procure that its Related Bodies
Corporate do not, compete with Greenstone
in Australia (subject to a carve-out for the pet
insurance business conducted by PetSure); and
Gavin Donnelly undertakes that he and any
entity he controls will not compete with
Greenstone in Australia,
■■
■■
■■
the Existing Shareholder has entered into an
agreement with Greenstone under which it
indemnifies Greenstone for any loss incurred by
the Group to the extent such loss relates to the
pre-completion ownership of the Group (including
any changes in ownership or the structure of any
entity or trust interposed between Greenstone and
its ultimate beneficial owners). The indemnity will
expire in March 2019 and is capped at $30 million
in aggregate;
in connection with the disposal of the Real Home
Loans business, Greenstone Financial Services has
entered into a services agreement with Greenstone
Home Loans Pty Ltd (ACN 166 052 740) under
which it agrees to provide limited transitional
services to the Real Home Loans business. The
quantum of fees to be payable in respect of the
transitional services is not material and the services
agreement can be terminated by either party on
one month’s notice;
the indemnity in favour of SaleCo and its director
and shareholder, Richard Enthoven, set out in
section 8.3; and
Greenstone Financial Services entered into a
non-exclusive, perpetual and royalty free licence
agreement with Neilson UK Holdings Ltd (an
entity owned by a former director of Greenstone).
The licence allows Neilson UK Holdings Ltd to
develop and use certain software developed by
Greenstone Financial Services relating to lead
and contact management, policy acquisition and
underwriting of insurance products. The licence
initially relates to use outside Australia and New
Zealand, expanding to include Australia and New
Zealand from and after 30 June 2024. There are
no continuing payments, royalties or commissions
payable in respect of this licence.
164 Section 08 – Additional information
8.6 Summary of rights and liabilities
attaching to Shares and other material
provisions of the Constitution
The rights and liabilities attaching to ownership of
Shares are:
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Greenstone Limited Prospectus
8.6.2
Direct voting
The Constitution enables the Board to declare that
members may exercise their voting rights at a meeting
of members through direct voting and to make
regulations for the casting of direct votes.
detailed in the Constitution, which may be
inspected during normal business hours at the
registered office of Greenstone; and
Direct voting involves a member voting on a
resolution without attending in person, by proxy or
by representative.
in certain circumstances, regulated by the
Corporations Act, the ASX Listing Rules, the ASX
Settlement Operating Rules and general law.
If the Board determines that members may cast votes
by direct voting, the Board may, for example, allow
members to cast their vote by completing a voting
card or voting via the internet or email.
A summary of the material rights attaching to
the Shares and the material provisions of the
Constitution follows. This summary is not intended
to be exhaustive and does not constitute a definitive
statement of the rights and liabilities of Shareholders.
The summary assumes that the Company is admitted
to the Official List.
8.6.1Voting
At a general meeting, a member present in person or
by proxy, attorney or representative has one vote on
a show of hands and on a poll has one vote for each
fully paid share held.
A person who holds a share which is not fully paid is
entitled, on a poll, to a fraction of a vote equal to the
proportion which the amount paid bears to the total
issue price of the share.
Voting at any meeting of members is by a show
of hands unless a poll is demanded in the manner
described in the Constitution.
If there are two or more joint holders of a share
and more than one of them is present at a general
meeting, in person or by proxy, attorney or
representative, and tenders a vote in respect of
the share, the Company will count only the vote
cast by, or on behalf of, the member by the joint
holder whose name appears first in the Company’s
register of members.
The quorum required for a meeting of members is
two members.
As at the Prospectus Date, the Company has on issue
one class of shares only, namely fully paid ordinary
shares and therefore the voting entitlement referred
to above applies in relation to those shares.
8.6.3
General meetings
Each Shareholder is entitled to receive notice of,
and except in certain circumstances, to attend and
vote at general meetings of the Company and to
receive all financial statements, notices and other
documents required to be sent to Shareholders under
the Constitution, the Corporations Act or the ASX
Listing Rules.
8.6.4Dividends
Subject to the Constitution, the Corporations Act
and other applicable law, the Board may resolve to
pay any dividend it thinks appropriate and fix the
amount for the dividend, the time for determining
entitlements to the dividend and the timing and
method of payment. Details of the Company’s
intended dividend policy are set out in Section 4.10.
No assurance can be given that dividends will be paid
or that dividends will be franked.
8.6.5
Issue of Shares
Subject to any restrictions in the Constitution, the
Corporations Act and the ASX Listing Rules, the Board
may issue or grant options in respect of, or otherwise
dispose of, Shares. The Board may decide the persons
to whom and the terms on which the Shares are issued
or disposed of or options are granted, and the rights
and restrictions attached to those Shares or options.
Greenstone Limited Prospectus
8.6.6
Transfer of Shares
Subject to the Constitution, the Corporations Act and
other applicable law and the ASX Listing Rules, Shares
are freely transferable.
The Shares may be transferred by any computerised
or electronic system of transferring or dealing with
Shares established or recognised by the Corporations
Act, the ASX Listing Rules or the ASX Settlement
Operating Rules and as otherwise permitted by the
Corporations Act or by a document, the usual form
of which is permitted by law.
The Board may refuse to register a transfer of Shares
only if that refusal would not contravene the ASX
Listing Rules or the ASX Settlement Operating
Rules. If the Board refuses to register a transfer, the
Company must give the lodging party written notice
of the refusal and the reasons for it within five
business days after the transfer is delivered to the
Company. The Board must not register a transfer of
Shares if the Corporations Act or another applicable
law, the ASX Listing Rules or the ASX Settlement
Operating Rules forbid registration.
8.6.7
Variation of class rights
As at the Prospectus Date, the Company has on issue
one class of shares only, namely ordinary shares.
Subject to the Corporations Act, if the Company issues
different classes of shares or divides issued shares into
different classes, the rights attached to the shares
in any class may be varied or cancelled only with
the written consent of the holders of at least three
quarters of the issued shares of the affected class, or
by special resolution passed at a separate meeting of
the holders of the issued shares of the affected class.
8.6.8
Proportional takeover provisions
The Constitution contains provisions requiring
member approval in relation to any proportional
takeover bid. The provisions must be renewed by a
special resolution of members entitled to vote, three
years from the date the provisions were adopted or
last renewed, otherwise the provisions will lapse.
8.6.9
Sale of non-marketable parcels of Shares
Subject to the Corporations Act, the ASX Listing
Rules and the ASX Settlement Operating Rules, the
Company may sell the Shares of a Shareholder who
holds less than a ‘marketable parcel’ of Shares. For
these purposes, a ‘marketable parcel’ of Shares is as
defined in the ASX Listing Rules.
Section 08 – Additional information 165
8.6.10 Winding up
Subject to the terms of issue of shares in the Company,
if the Company is wound up, shareholders will be
entitled to participate in any surplus assets of the
Company in proportion to the percentage of the
capital paid up on their shares.
8.6.11Directors
The Constitution states that the minimum number of
Directors that may comprise the Board is three and
the maximum is fixed by the Directors, but may not be
more than 12.
Directors are elected at annual general meetings of
the Company. A Director must retire from office at the
third annual general meeting after the Director was
elected or last re-elected. A retiring Director is eligible
for re-election, subject to certain restrictions.
Subject to certain matters requiring the unanimous
decision of the Board, questions arising at a meeting
of the Board will be decided by a majority of votes of
the Directors present at the meeting and entitled to
vote on a matter. In the case of an equality of votes
on a resolution, the chairperson of the meeting has
a casting vote provided that there are more than two
Directors present or qualified to vote.
The Directors, other than any executive Director, may
be paid by way of fees for services up to the maximum
aggregate sum per annum as may be approved from
time to time by the Company in general meeting.
The current maximum aggregate sum per annum
is $1.5 million.
8.6.12 Directors’ indemnity
The Company must, subject to certain exceptions
set out in the Constitution, indemnify each of its
officers on a full indemnity basis and to the full
extent permitted by law against all losses, liabilities,
costs, charges and expenses incurred by the officer
as an officer of the Company, including liabilities
for negligence and liabilities for reasonable legal
costs. The Company has obtained director and officer
liability insurance in respect of this.
8.6.13 Modification of the Constitution
The Constitution can only be modified by special
resolution. A special resolution is a resolution for
which the required notice is given in accordance
with the Constitution and the Corporations Act and
that is passed by at least 75% of the votes cast by
shareholders entitled to vote on the resolution.
166 Section 08 – Additional information
Greenstone Limited Prospectus
8.6.14 Share buy-backs
8.8.1
Subject to the provisions of the Corporations Act and
the ASX Listing Rules, the Company may buy back
shares in itself on terms and at times determined
by the Board.
8.8.1.1 Australian resident individuals and
complying superannuation entities
8.7
Dividend reinvestment plan
The Constitution authorises the Board to adopt
and implement a DRP on such terms as it thinks
appropriate. The Board will determine when it may
be appropriate to adopt and implement a DRP.
8.8
Australian tax considerations
The following comments provide a general summary
of Australian tax issues for Australian tax resident
investors who acquire Shares under this Prospectus.
The categories of investors considered in this summary
are limited to individuals, companies (other than
life insurance companies), trusts, partnerships and
complying superannuation funds that hold their
shares on capital account.
This summary does not consider the consequences
for non-Australian tax resident investors, insurance
companies, banks, investors that hold their shares
on revenue account or carry on a business of
trading in shares or investors who are exempt from
Australian tax. This summary also does not cover
the consequences for investors who are subject to
Division 230 of the Income Tax Assessment Act 1997
(Cth). Investors who are subject to Division 230 of the
Income Tax Assessment Act 1997 (Cth) should obtain
their own tax advice as to the implications under the
Act (if any).
This summary is based on the law in Australia inforce at the Prospectus Date. Australian tax laws
are complex. It also does not take into account
the tax law of countries other than Australia. This
summary is general in nature and is not intended to
be an authoritative or complete statement of the
applicable law. The taxation laws of Australia or their
interpretation may change. The precise implications
of ownership or disposal will depend upon each
investor’s specific circumstances.
Investors should seek professional advice on the
taxation implications of holding or disposing
of the Shares, taking into account their specific
circumstances.
Dividends on a Share
Where dividends on a Share are distributed, those
dividends will constitute assessable income of an
Australian tax resident investor. Australian tax
resident investors who are individuals or complying
superannuation entities should include the dividend
in their assessable income in the year they derive the
dividend, together with any franking credit attached
to that dividend. Such investors should be entitled to
a tax offset equal to the franking credit attached to
the dividend subject to being a “qualified person”
(refer further comments below). The tax offset can be
applied to reduce the tax payable on the investor’s
taxable income. Where the tax offset exceeds the
tax payable on the investor’s taxable income, such
investors should be entitled to a tax refund.
Where a dividend paid is unfranked, the investor will
generally be taxed at their prevailing tax rate on the
dividend received with no tax offset.
8.8.1.2 Corporate investors
Corporate investors are also required to include both
the dividend and associated franking credit in their
assessable income. A tax offset is then allowed up to
the amount of the franking credit on the dividend.
An Australian resident corporate investor should be
entitled to a credit in its own franking account to the
extent of the franking credit on the dividend received.
Such corporate investors can then pass on the benefit
of the franking credits to their own investor(s) on the
payment of dividends.
Excess franking credits received cannot give rise to a
refund, but may be able to be converted into carry
forward tax losses.
8.8.1.3 Trusts and partnerships
Investors who are trustees (other than trustees of
complying superannuation entities) or partnerships
should include the franking credit in determining the
net income of the trust or partnership. The relevant
beneficiary or partner may be entitled to a tax offset
equal to the beneficiary’s or partner’s share of the
franking credit received by the trust or partnership.
8.8.1.4 Shares held ‘at risk’
The benefit of franking credits can be denied where
an investor is not a ‘qualified person’ in which case
Greenstone Limited Prospectus
the investor will not be able to include an amount for
the franking credits in their assessable income and will
not be entitled to a tax offset.
Broadly, to be a qualified person, an investor must
satisfy the holding period rule including, if necessary,
the related payment rule.
The holding period rule requires an investor to hold
the Shares ‘at risk’ for more than 45 days continuously,
measured as the period commencing the day after
the investor acquires the Shares and ending on
the 45th day after the Shares become ex-dividend.
The date the Shares are acquired and disposed of
are ignored for the purposes of determining the
45 day period. Any day on which an investor has a
materially diminished risk or loss of opportunity for
gain (through transactions such as granting options or
warrants over Shares or entering into a contract to sell
the Shares) will not be counted as a day on which the
investor held the Shares ‘at risk’. This holding period
rule is subject to certain exceptions. Special rules apply
to trusts and beneficiaries.
Under the related payment rule, a different testing
period applies where the investor has made, or is
under an obligation to make, a related payment
in relation to a dividend. The related payment rule
requires the investor to have held the Shares at risk
for a period commencing on the 45th day before,
and ending on the 45th day after, the day the Shares
become ex-dividend. Practically, this should not impact
investors who do not pass the benefit of the dividend
to another person. Investors should obtain their own
tax advice to determine if these requirements have
been satisfied.
Dividend washing rules can apply such that no tax
offset is available (nor is an amount required to be
included in assessable income) for a dividend received.
Investors should consider the impact of these rules
having regard to their own personal circumstances.
8.8.2
Disposal of Shares
The disposal of a Share by an investor will be a capital
gains tax (CGT) event. A capital gain will arise where
the capital proceeds on disposal exceed the cost base
of the Share (broadly, the amount paid to acquire the
Share plus any transaction costs). In the case of an
arms’ length on-market sale, the capital proceeds will
generally be the cash proceeds from the sale.
A CGT discount may be applied against the net capital
gain where the investor is an individual, complying
superannuation entity or trustee, the Shares have
Section 08 – Additional information 167
been held for more than 12 months and certain other
requirements have been met. Where the CGT discount
applies, any capital gain arising to individuals and
entities acting as trustees (other than a trust that is
a complying superannuation entity) may be reduced
by one-half after offsetting current year or prior year
capital losses. For a complying superannuation entity,
any capital gain may be reduced by one-third, after
offsetting current year or prior year capital losses.
Where the investor is the trustee of a trust that has
held the Shares for more than 12 months before
disposal the CGT discount may flow through to the
beneficiaries of the trust if those beneficiaries are
not companies. Investors that are trustees should
seek specific advice regarding the tax consequences
of distributions to beneficiaries who may qualify for
discounted capital gains.
A capital loss will be realised where the reduced cost
base of the Share exceeds the capital proceeds from
disposal. Capital losses may only be offset against
capital gains realised by the investor in the same
income year or future income years, subject to certain
loss recoupment tests being satisfied. Capital losses
cannot be offset against other assessable income.
168 Section 08 – Additional information
8.8.3
Goods and services tax (GST)
Investors should not be liable for GST in respect of
their investment in Shares. Investors may not be
entitled to claim full input tax credits in respect of any
GST paid on costs incurred in connection with their
acquisition of the Shares. Separate GST advice should
be sought by investors in this respect.
8.8.4
Stamp duty
Investors should not be liable for stamp duty in
respect of their holding of Shares, unless they acquire,
either alone or with an associated/related person,
an interest of 90% or more in the Company. Under
current stamp duty legislation, no stamp duty would
ordinarily be payable by investors on any subsequent
transfer of Shares.
Greenstone Limited Prospectus
The following taxation summary addresses the
general tax implications to Eligible Participants
who are residents of Australia for Australian tax
purposes and who are offered the opportunity to
acquire Performance Rights through the General
Employee Retention Plan Offer. Participating in the
General Employee Retention Plan Offer will have
tax consequences that will affect each employee’s
personal tax situation. This taxation summary is
general in nature and is based on income tax laws as
at the Prospectus Date and assumes the following:
■■
Investors should seek their own advice as to the
impact of stamp duty in their own particular
circumstances.
8.8.5
Tax file numbers
Resident investors may, if they choose, notify the
Company of their TFN, ABN or a relevant exemption
from withholding tax with respect to dividends. In
the event the Company is not so notified, tax will
automatically be deducted at the highest marginal
rate, including where relevant, the Medicare Levy
and Temporary Budget Repair Levy, from unfranked
dividends and/or distributions.
Resident investors may be able to claim a tax credit/
rebate (as applicable) in respect of any tax withheld
on dividends in their income tax returns.
8.8.6 Taxation considerations specifically
applicable to the General Employee Retention
Plan Offer
The General Employee Retention Plan Offer will
involve Eligible Participants being offered the
opportunity to acquire, at no cost, a number of
Performance Rights equal to $500 divided by the Final
Price (rounded down to the nearest Performance
Right). Each Performance Right gives its holder the
right to receive one Share, subject to a service based
vesting condition listed below.
■■
■■
■■
■■
■■
immediately after the Performance Rights are
granted to an Eligible Participant, that Eligible
Participant does not hold a beneficial interest in
more than 5% of the shares in Greenstone and
is not in a position to cast or control the casting
of more than 5% of the votes that may be cast at
a general meeting of Greenstone. (If an Eligible
Participant does not meet this condition, the
Performance Rights will be taxable to that Eligible
Participant at the Grant Date and it should be
noted that this Taxation Summary will not apply
to that Eligible Participant);
the Eligible Participant is, and remains, an
Australian resident for taxation purposes and is
not a temporary resident. There are special rules
in connection with individuals who are temporary
residents of Australia or whose residency status
changes and these are not addressed in this
Taxation Summary;
the Eligible Participant holds the Performance
Rights and the resulting Greenstone shares in their
own name and not through another party (e.g. a
superannuation fund, trust, company or spouse);
no restrictions apply to any Shares acquired by
the Eligible Participant upon exercise of the
Performance Rights;
the resulting Shares are held by the Eligible
Participant on capital account; and
the Eligible Participant is an employee of
Greenstone or a subsidiary of Greenstone.
As each employee’s circumstances will be different,
it is strongly recommended that each employee
seek professional advice in relation to their specific
personal circumstances. Greenstone and its advisers
will not be held responsible to employees who
act solely on the information provided in this
Section 8.8.6.
Greenstone Limited Prospectus
Greenstone and its advisers strongly recommend that
the employee seek his/her own professional advice
from an independent person who is licensed by ASIC
to give such advice before making any decisions about
the General Employee Retention Plan Offer.
The General Employee Retention Plan Offer is
structured in such a way that it complies with specific
tax concessions under the Australian taxation rules
dealing with employee share schemes. As such,
employees are not liable to pay tax at grant. Tax
is deferred until the employee share scheme (ESS)
deferred taxing point arises.
Section 08 – Additional information 169
■■
seven years after the Performance Rights
were granted.
However, the taxing point is moved to the date of
disposal of the Shares acquired from exercise of the
Performance Rights, if such disposal occurs within 30
days of the ESS deferred taxing point noted above.
What is the taxable income at the ESS deferred
taxing point?
At the ESS deferred taxing point, the market value of
the Shares is subject to income tax at the employee’s
marginal tax rate (plus Medicare levy).
Grant of Performance Rights
Cost to employees
An employee participating in the General Employee
Retention Plan Offer may be eligible for tax deferral
if certain criteria are met. Under the current tax rules,
an employee may acquire a Performance Right and
should not pay income tax on grant if there is a real
risk that under the conditions of the scheme such
employee may forfeit or lose the right.
Performance Rights will be granted to employees for
nil consideration. Exercise of any Performance Right
will also be for nil consideration.
Service based vesting condition
The Performance Rights will be granted prior to
1 July 2015, and vest on 1 July 2016 if the employee
remains employed by a Group member on the
vesting date.
If the employee is not employed by Greenstone
or a subsidiary of Greenstone on the vesting date,
any unvested Performance Rights held by that
employee will lapse.
The service condition will represent a real risk of
forfeiture and income tax will be deferred until the
ESS deferred taxing point.
What is the ESS deferred taxing point?
In the case of the Performance Rights, the ESS
deferred taxing point in this instance is the earliest
of the following times:
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when the Performance Rights vest and there are
no longer any genuine disposal conditions (even
if the holder does not exercise their Performance
Rights, or does not sell any Shares issued as a
result of the exercise of Performance Rights) (i.e.
1 July 2016);
if the Board exercises its discretion to allow the
holder to continue to hold unvested Performance
Rights on ceasing employment, then the time that
the holder ceases to be employed by Greenstone
or one of its subsidiaries; or
Sale of Shares within 30 days of the ESS deferred
taxing point
Where the Performance Rights vest and the
underlying Shares are sold within 30 days of the ESS
deferred taxing point, the proceeds from the sale of
the Shares less any costs of sale are subject to income
tax as of the date of sale of the Shares and no CGT
should apply.
Sale of Shares after 30 days of the ESS deferred
taxing point
Where the Performance Rights vest and the
underlying Greenstone shares are sold after 30 days,
both income tax and CGT will apply.
In the income year in which the Performance Rights
vest, the market value of the Greenstone shares is
subject to income tax at the employee’s marginal tax
rate (plus Medicare levy).
CGT will apply in the income year that the underlying
Shares are sold. The capital gain/loss is calculated as
the sale proceeds less the market value of those Shares
at the ESS deferred taxing point plus costs of sale.
If the employee realises a capital gain, the gain (after
first offsetting any available capital losses) will be
subject to tax at the employee’s marginal rate of tax
(plus Medicare levy). A 50% CGT discount may be
available if the employee has held the Shares for more
than 12 months from the date of the ESS deferred
taxing point.
170 Section 08 – Additional information
Greenstone Limited Prospectus
Reporting and tax withholding
8.9
Greenstone is not required to withhold Australian
income tax or the Medicare Levy on the issue of the
Performance Rights, provided the employee has
provided Greenstone with his/her TFN or ABN.
The sale and purchase of shares in Australia are
regulated by a number of laws that restrict the level
of ownership or control by any one person (whether
alone or in combination with others). This Section 8.9
contains a general description of these laws.
By 14 July following the end of the financial year in
which the deferred taxing point arises (e.g. when
the Performance Rights vest), Greenstone will
provide each holder of Performance Rights with
an ESS statement to be used for the completion
of the employee’s tax return containing details of
the ESS deferred taxing point amount. Greenstone
will also be required to provide information on the
taxable amount of the Performance Rights issued to
employees under the General Employee Retention
Plan Offer to the Australian Taxation Office by
14 August following the end of the year in which
the ESS deferred taxing point arises.
Dividends
Performance Rights are not Shares and do not carry
any entitlement to dividends. Shares issued as a result
of the exercise of a Performance Right will carry the
same entitlement to dividends as all other Shares.
Where dividends on a Share are distributed by
Greenstone, those dividends will constitute assessable
income of an Australian tax resident Shareholder.
Australian tax resident Shareholders who are
individuals should include the dividend in their
assessable income in the year the dividend is paid,
together with any franking credit attached to that
dividend. Such Shareholders should be entitled to a
tax offset equal to the franking credit attached to the
dividend subject to being a ‘qualified person’ which
generally requires holding the shares at risk for at
least 45 days. The tax offset can be applied to reduce
the tax payable on the Shareholder’s taxable income.
Where the tax offset exceeds the tax payable on the
Shareholder’s taxable income, such Shareholders
should be entitled to a tax refund.
Where a dividend paid by Greenstone is unfranked,
the Shareholder will generally be taxed at his or her
prevailing marginal rate on the dividend received with
no tax offset.
Stamp duty
No stamp duty will be payable by employees on the
issue of Performance Rights pursuant to the General
Employee Retention Plan Offer.
Ownership restrictions
8.9.1 Foreign Acquisitions and Takeovers Act
1975 (Cth)
Generally, the Foreign Acquisitions and Takeovers Act
1975 (Cth) applies to acquisitions that result in:
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an interest being held in more than 15% of the
shares in an Australian company (either on the
basis of issued shares or on the basis of rights to be
issued shares); or
a position to control voting power (or potential
voting power) in an Australian company of
15% or more,
by a single foreign person and its associates
(substantial interest), or 40% or more by two or more
unassociated foreign persons and their associates
(aggregate substantial interest). Certain operative
provisions will not apply in respect of the acquisition
of shares in a company if the value of its total
assets, determined in accordance with the Foreign
Acquisitions and Takeovers Act 1975 (Cth), does not
exceed prescribed thresholds.
If there is a requirement to notify the Foreign
Investment Review Board of a proposed acquisition,
the person making the acquisition commits an
offence unless notice has been given and the
Australian Treasurer has either stated that there is no
objection to the acquisition in terms of the Australian
Government’s Foreign Investment Policy or a statutory
period has expired without the Australian Treasurer
objecting. An acquisition of a substantial interest
or an aggregate substantial interest meeting certain
criteria may also lead to divestment orders unless
a process of notification, and either a statement
of non-objection or expiry of a statutory period
without objection, has occurred.
In addition, Australia’s Foreign Investment Policy
states that a direct investment in an Australian
company by foreign government investors should be
notified to the Foreign Investment Review Board for
approval irrespective of the value of the acquisition.
Greenstone Limited Prospectus
Section 08 – Additional information 171
eligible employee in connection with the General
Employee Retention Plan Offer described in
Section 7.5.3; and
According to Australia’s Foreign Investment Policy:
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a foreign government investor includes:
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——
——
——
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a foreign government, its agencies or
related entities;
entities in which a foreign government,
its agencies or related entities from a
single foreign country have an interest of
15% or more;
entities in which governments, agencies or
related entities from more than one foreign
country have an interest of 40% or more; or
entities that otherwise are, or could be,
controlled by foreign governments, their
agencies, related entities and associates; and
direct investment typically includes an investment
of 10% or more of the shares (or other securities
or equivalent economic interest, or voting power)
in an Australian company, but may also include
investments of less than 10% where the investor is
building a strategic stake in the target or obtains
influence or control over the target investment.
8.9.2
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Corporations Act
The takeover provisions in Chapter 6 of the
Corporations Act restrict acquisitions of shares in
listed companies, and unlisted companies with more
than 50 members, if the acquirer’s (or another party’s)
voting power would increase to above 20% or would
increase from a starting point that is above 20% and
below 90%, unless certain exceptions apply.
The Corporations Act imposes notification
requirements on persons having voting power of 5%
or more in the Company.
8.10 ASIC relief and ASX waivers
Greenstone has also obtained from the ASX an inprinciple decision to grant waivers from:
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relief so that the takeovers provisions of the
Corporations Act will not apply to certain relevant
interests that the Company would otherwise
acquire in the Escrow Shares by reason of the
voluntary escrow arrangements in relation to those
Shares described in Section 7.9;
relief to allow the Company to make an offer of
Performance Rights equal to $500 divided by the
Final Price (rounded down to the nearest whole
Performance Right) for nil consideration to each
Condition 11 of ASX Listing Rule 1.1 in relation to
the Performance Rights issued under the General
Employee Retention Plan Offer described in
Section 7.5.3; and
ASX Listing Rule 6.12 to permit the divestiture
of Shares held by certain of the Escrowed
Shareholders in the circumstances outlined in
Sections 8.6.1, 8.6.2 and 8.6.3.
8.11Consents
Each of the parties referred to below, to the maximum
extent permitted by law, expressly disclaims all
liabilities in respect of, makes no representations
regarding and takes no responsibility for any
statements in or omissions from this Prospectus,
other than the reference to its name in the form
and context in which it is named and a statement or
report included in this Prospectus with its consent as
specified below.
Written consents to the issue of this Prospectus have
been given and, at the time of lodgement of this
Prospectus with ASIC, had not been withdrawn by the
following parties:
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ASIC has granted certain relief from, and
modifications to, the following provisions of the
Corporations Act:
■■
an exemption from compliance with section
1020B(2) of the Corporations Act relating to the
prohibition of certain short sales of securities
on behalf of all persons who sell or offer to
sell Shares during the period of conditional
trading on the ASX.
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each of Goldman Sachs and Macquarie has given,
and has not withdrawn prior to the lodgement of
this Prospectus with ASIC, its written consent to be
named in this Prospectus as a Joint Lead Manager
to the Offer in the form and context in which
it is named;
each of Citi, Deutsche Bank and J.P. Morgan has
given, and has not withdrawn prior to lodgement
of this Prospectus with ASIC, its written consent to
be named in this Prospectus as Co-Lead Manager
to the Offer in the form and context in which
it is named;
172 Section 08 – Additional information
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each of Bell Potter Securities Ltd, JBWere Ltd,
Macquarie Equities Limited, Ord Minnett Ltd and
Wilson HTM Corporate Finance Ltd has given, and
has not withdrawn prior to lodgement of this
Prospectus with ASIC, its written consent to be
named in this Prospectus as a Co-Manager to the
Offer in the form and context in which it is named;
Gilbert + Tobin has given, and has not withdrawn
prior to the lodgement of this Prospectus with ASIC,
its written consent to be named in this Prospectus
as Australian legal adviser (other than in relation to
taxation matters) to Greenstone in relation to the
Offer in the form and context in which it is named;
Deloitte Corporate Finance Pty Limited has given,
and has not withdrawn prior to the lodgement
of this Prospectus with ASIC, its written consent
to be named in this Prospectus as Investigating
Accountant to Greenstone in relation to the Pro
Forma Historical Financial Information, Pro Forma
Forecast Financial Information and Statutory
Forecast Financial Information in the form and
context in which it is named and has given and
not withdrawn its consent to the inclusion in this
Prospectus of the Investigating Accountant’s Report
on Historical Financial Information in Section 9 and
the Investigating Accountant’s Report on Forecast
Financial Information in Section 10 in the form and
context in which they are included;
Deloitte Actuaries & Consultants Limited has given,
and has not withdrawn prior to the lodgement of
this Prospectus with ASIC, its written consent to be
named in this Prospectus as Consulting Actuary to
Greenstone in the form and context in which it is
named and has given and not withdrawn its consent
to the inclusion in this Prospectus of its Consulting
Actuary’s Report in the form and context in which it
is included;
Deloitte Touche Tohmatsu has given, and has
not withdrawn prior to the lodgement of this
Prospectus with ASIC, its written consent to be
named in this Prospectus as auditor to Greenstone
in the form and context it is so named;
KPMG has given, and has not withdrawn prior to
the lodgement of this Prospectus with ASIC, its
written consent to be named in this Prospectus
as auditor to Greenstone in relation to the FY13
Historical Financial Information in the form and
context it is so named;
Greenstone Limited Prospectus
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PricewaterhouseCoopers has given, and has not
withdrawn prior to lodgement of this Prospectus
with ASIC, its written consent to be named in this
Prospectus as taxation adviser to Greenstone in the
form and context it is so named;
Hollard Investments B.V. has given, and has not
withdrawn prior to lodgement of this Prospectus
with ASIC, its written consent to the inclusion in this
Prospectus of statements based on statements by it;
RKR Research Pty Ltd (trading as DEXX&R) has given,
and has not withdrawn prior to the lodgement of
this Prospectus with ASIC, its written consent to the
inclusion in this Prospectus of references to it and
statements and charts in this Prospectus regarding
the industry Greenstone operates in;
PHD Media has given, and has not withdrawn prior
to the lodgement of this Prospectus with ASIC, its
written consent to the inclusion in this Prospectus
of references to it and statements and charts in
this Prospectus regarding the industry Greenstone
operates in;
Asset International Australia Pty Ltd (trading as Plan
for Life) has given, and has not withdrawn prior
to the lodgement of this Prospectus with ASIC, its
written consent to the inclusion in this Prospectus
of references to it and statements and charts in
this Prospectus regarding the industry Greenstone
operates in;
Link Market Services Ltd has given, and has
not withdrawn prior to the lodgement of this
Prospectus with ASIC, its written consent to be
named in this Prospectus as the Share Registry in
the form and context in which it is named. Link
Market Services Ltd has had no involvement in
the preparation of any part of this Prospectus
other than being named as Share Registry to
Greenstone; and
PetSure (Australia) Pty Ltd has given, and has
not withdrawn prior to the lodgement of this
Prospectus with ASIC, its written consent to be
named in this Prospectus and to the inclusion of the
references to it in the form and context in which
they are included and statements and charts in
this Prospectus regarding the industry Greenstone
operates in.
No entity or person referred to in this Section 8.11 has
made any statement that is included in this Prospectus
or any statement on which a statement made in this
Prospectus is based, except as stated above. Each of the
persons and entities referred to in this Section 8.11 has
not authorised or caused the issue of this Prospectus
and does not make any offer of Shares.
Greenstone Limited Prospectus
8.12 Description of the syndicate
The Joint Lead Managers of the Offer are Goldman
Sachs Australia Pty Ltd and Macquarie Capital
(Australia) Limited. The Co-Lead Managers to the
Offer are Citigroup Global Markets Pty Ltd, Deutsche
Bank AG, Sydney Branch and J.P. Morgan Australia
Ltd. The Co-Managers to the Offer are Bell Potter
Securities Ltd, JBWere Ltd, Macquarie Equities Limited,
Ord Minnett Ltd and Wilson HTM Corporate Finance
Ltd. Refer to Section 8.5.1 for information on the
fees the Joint Lead Managers, Co-Lead Managers and
Co‑Managers will receive.
8.13 Litigation and claims
Greenstone may be subject to litigation and other
claims or disputes in the ordinary course of its business,
including employment disputes and contractual
disputes with third parties and employees with respect
to its operations.
Section 08 – Additional information 173
from, or in a transaction not subject to, the registration
requirements of the US Securities Act and applicable
securities laws of states and other jurisdictions in the
United States.
This Prospectus may not be released or distributed in
the United States or elsewhere outside Australia, unless
it has attached to it the selling restrictions applicable
in the jurisdictions outside Australia, and may only be
distributed to persons to whom the Institutional Offer
may lawfully be made in accordance with the laws of
any applicable jurisdiction.
Each Applicant in the Broker Firm Offer and Priority
Offer, and each person in Australia to whom the
Institutional Offer is made under this Prospectus, and
each person on behalf of whom the Applicant is acting,
will be taken to have represented, warranted and
agreed as follows:
■■
The Directors are not aware of any current or
threatened litigation, arbitration proceeding or
administrative appeal or criminal or governmental
prosecution of a material nature in which Greenstone
is directly or indirectly concerned which is likely to have
a material adverse impact on the business or financial
position of Greenstone.
■■
8.14 Governing law
This Prospectus and the contracts that arise from the
acceptance of the Applications and bids are governed
by the law applicable in New South Wales and
each Applicant and bidder submits to the exclusive
jurisdiction of the courts of New South Wales.
8.15 Restrictions on distribution
No action has been taken to register or qualify the
Shares that are the subject of the Offer, or otherwise
to permit a public offering of the Shares, in any
jurisdiction outside Australia. This Prospectus does not
constitute an offer or invitation to subscribe for Shares
in any jurisdiction where, or to any person to whom,
such an offer or invitation would be unlawful. In
particular, this Prospectus does not constitute an offer
to sell, or solicitation of an offer to buy, securities in the
United States.
The Shares have not been, and will not be, registered
under the US Securities Act or the securities laws of
any state or other jurisdiction of the United States and
may not be offered or sold, directly or indirectly, in
the United States, except pursuant to an exemption
■■
■■
it understands that the Shares have not been, and
will not be, registered under the US Securities Act or
the securities laws of any state or other jurisdiction
of the United States and may not be offered, sold
or resold in the United States except pursuant to an
exemption from, or in a transaction not subject to,
the registration requirements of the US Securities
Act and applicable securities laws of states or other
jurisdictions in the United States;
it is not in the United States and it is not acting
on behalf of a person in the United States;
it has not and will not send this Prospectus or any
other material relating to the Offer to any person in
the United States; and
it will not offer or sell the Shares in the United
States or in any other jurisdiction outside Australia,
except pursuant to an exemption from, or in
a transaction not subject to, the registration
requirements of the US Securities Act and in
compliance with all applicable laws in the
jurisdiction in which the Shares are offered and sold.
Each successful bidder under the Institutional Offer
will be required to make certain representations,
warranties and covenants set out in the confirmation
of allocation letter distributed to it.
8.16 Statement of directors
This Prospectus is authorised by each director of
Greenstone and SaleCo, who have each given and have
not withdrawn his or her consent to the lodgement of
this Prospectus with ASIC and its issue.
174 Section 09 – Investigating Accountant’s Report on Historical Financial Information
09
Greenstone Limited Prospectus
INVESTIGATING
ACCOUNTANT’S
REPORT ON HISTORICAL
FINANCIAL INFORMATION
Greenstone Limited Prospectus
Section 09 – Investigating Accountant’s Report on Historical Financial Information 175
INVESTIGATING ACCOUNTANT’S REPORT ON
HISTORICAL FINANCIAL INFORMATION
Deloitte Corporate Finance Pty Limited
ACN 003 833 127
AFSL 241457
25 May 2015
The Directors
Greenstone Limited
Level 2-4
58 Norwest Boulevard
Bella Vista NSW 2153
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
Fax: +61 2 9322 7001
www.deloitte.com.au
The Directors
Greenstone SaleCo Pty Limited
Level 2-4
58 Norwest Boulevard
Bella Vista NSW 2153
Dear Directors
INVESTIGATING ACCOUNTANT’S REPORT ON PRO FORMA HISTORICAL FINANCIAL
INFORMATION AND FINANCIAL SERVICES GUIDE
Introduction
This report has been prepared at the request of the Directors of Greenstone Limited ACN 075 949 432 (the Company)
and Greenstone SaleCo Pty Limited ACN 605 588 010 (SaleCo) for inclusion in the prospectus (Prospectus) to be
issued by the Company and SaleCo in respect of the initial public offering of fully paid ordinary shares in the Company
(the Offer) and listing of the company on the Australian Securities Exchange.
Deloitte Corporate Finance Pty Limited is wholly owned by Deloitte Touche Tohmatsu and holds the appropriate
Australian Financial Services licence under the Corporations Act 2001for the issue of this report.
References to the Company and other terminology used in this report have the same meaning as defined in the Glossary
of the Prospectus.
Scope
Deloitte Corporate Finance Pty Limited has been engaged by the Directors of the Company to review:
Pro forma Historical Financial Information
 the Pro Forma Historical Results for the financial years ended 30 June 2013 and 30 June 2014 and the six months
ended 31 December 2014 which are included in Table 8 in Section 4 of the Prospectus;
 the Pro Forma Historical Balance Sheet as at 31 December 2014 which is included in Table 13 in Section 4 of the
Prospectus; and
 the Pro Forma Historical Cash Flows the financial years ended 30 June 2013 and 30 June 2014 and for six months
ended 31 December 2014 which are included in Table 17 in Section 4 of the Prospectus.
(together, the Pro Forma Historical Financial Information)
The Pro Forma Historical Financial Information has been derived from the Statutory Historical Financial Information of
the Company, after adjusting for the effects of pro forma adjustments described in Sections 4.3.2 and 4.4.1 of the
Prospectus.
The Statutory Historical Financial Information has been extracted from the financial reports of:
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of
which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche
Tohmatsu Limited and its member firms.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
176 Section 09 – Investigating Accountant’s Report on Historical Financial Information
Greenstone Limited Prospectus
Page 2
 the Company for the years ended 30 June 2013, 30 June 2014 and the half year ended 31 December 2014 which
were audited in accordance with the Australian Auditing Standards with unmodified audit opinions issued on the
respective reports.
The Pro Forma Historical Financial Information is presented in the Prospectus in an abbreviated form, insofar as it does
not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory
professional reporting requirements applicable to general purpose financial reports prepared in accordance with the
Corporations Act 2001.
The stated basis of preparation is the recognition and measurement principles contained in Australian Accounting
Standards applied to the Statutory Historical Financial Information and the events or transactions to which the pro
forma adjustments relate, as described in Sections 4.3.2 and 4.4.1 of the Prospectus, as if those events or transactions
had occurred as at the date of the Statutory Historical Financial Information. Due to its nature, the Pro Forma Historical
Financial Information does not represent the company’s actual or prospective financial position, financial performance
and/or cash flows.
Directors’ Responsibility
The Directors are responsible for:
 the preparation and presentation of the Statutory Historical Financial Information and the Pro Forma Historical
Financial Information, including the selection and determination of pro forma adjustments made to the Historical
Financial Information and included in the Pro Forma Historical Financial Information; and
 the information contained within the Prospectus.
This responsibility includes for the operation of such internal controls as the Directors determine are necessary to enable
the preparation of the Statutory Historical Financial Information and the Pro Forma Historical Financial Information
that are free from material misstatement, whether due to fraud or error.
Our Responsibility
Our responsibility is to express a limited assurance conclusion on the Pro Forma Historical Information based on the
procedures performed and the evidence we have obtained. We have conducted our engagement in accordance with
Australian Standard on Assurance Engagement (ASAE) 3450 Assurance Engagements involving Corporate
Fundraisings and/or Prospective Financial Information.
A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with Australian Auditing Standards and consequently does not enable us to obtain reasonable assurance that
we would become aware of all significant matters that might be identified in a reasonable assurance engagement.
Accordingly we will not express an audit opinion.
Our engagement did not involve updating or re-issuing any previously issued audit or review report on any financial
information used as a source of the financial information.
We have performed the following procedures as we, in our professional judgement, considered reasonable in the
circumstances:
 consideration of work papers, accounting records and other documents, including those dealing with the extraction
of Statutory Historical Financial Information of the Company from its audited financial statements for the years
ended 30 June 2013 and 30 June 2014 and the six months ended 31 December 2014;
 consideration of the appropriateness of Pro Forma Adjustments described in Sections 4.3.2 and 4.4.1 of the
Prospectus;
 enquiry of Directors, management, personnel and advisors;
 the performance of analytical procedures applied to the Pro Forma Historical Financial Information;
 a review of work papers, accounting records and other documents of the Company and its auditors; and
 a review of the accounting policies adopted and used by the Company over the period for consistency of application.
Greenstone Limited Prospectus
Section 09 – Investigating Accountant’s Report on Historical Financial Information 177
Page 3
Conclusion
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the Pro
Forma Historical Financial Information is not presented fairly in all material respects, in accordance with the stated
basis of preparation as described in Section 4.2 of the Prospectus.
Restrictions on Use
Without modifying our conclusions, we draw attention to Section 4.2 of the Prospectus, which describes the purpose of
the Historical Financial Information, being for inclusion in the Prospectus. As a result, this Investigating Accountant’s
Report may not be suitable for use for another purpose.
Consent
Deloitte Corporate Finance Pty Limited has consented to the inclusion of this limited assurance report in the Prospectus
in the form and context in which it is included.
Disclosure of Interest
Deloitte Corporate Finance Pty Limited does not have any interest in the outcome of this Offer other than the
preparation of this report and participation in the due diligence procedures for which normal professional fees will be
received.
Deloitte Touche Tohmatsu is the auditor of the Company.
Yours faithfully
DELOITTE CORPORATE FINANCE PTY LIMITED
Johan Duivenvoorde
Authorised Representative of
Deloitte Corporate Finance Pty Limited
(AFSL Number 241457)
Ian Turner
Authorised Representative of
Deloitte Corporate Finance Pty Limited
(AFSL Number 241457)
178 Section 09 – Investigating Accountant’s Report on Historical Financial Information
Greenstone Limited Prospectus
Financial Services Guide
The remuneration paid to our directors reflects their
individual contribution to the organisation and covers all
aspects of performance.
What is a Financial Services Guide?
We do not pay commissions or provide other benefits to
anyone who refers prospective clients to us.
This Financial Services Guide (FSG) provides
important information to assist you in deciding
whether to use our services. This FSG includes details
of how we are remunerated and deal with complaints.
Where you have engaged us, we act on your behalf when
providing financial services. Where you have not
engaged us, we act on behalf of our client when providing
these financial services, and are required to give you an
FSG because you have received a report or other financial
services from us.
What financial services are we licensed
to provide?
We are authorised to provide financial product advice and to
arrange for another person to deal in financial products in
relation to securities, interests in managed investment
schemes, government debentures, stocks or bonds and
regulated emissions units (i.e., carbon) to retail and
wholesale clients.
Our general financial product advice
Where we have issued a report, our report contains only
general advice. This advice does not take into account
your personal objectives, financial situation or needs. You
should consider whether our advice is appropriate for you,
having regard to your own personal objectives, financial
situation or needs.
If our advice is provided to you in connection with the
acquisition of a financial product you should read the
relevant offer document carefully before making any
decision about whether to acquire that product.
How are we and all employees
remunerated?
Our fees are usually determined on a fixed fee or time
cost basis and may include reimbursement of any
expenses incurred in providing the services. Our fees are
agreed with, and paid by, those who engage us. Clients
may request particulars of our remuneration within a
reasonable time after being given this FSG.
Other than our fees, we, our directors and officers, any
related bodies corporate, affiliates or associates and their
directors and officers, do not receive any commissions or
other benefits.
All employees receive a salary and while eligible for
annual salary increases and bonuses based on overall
performance they do not receive any commissions or
other benefits as a result of the services provided to you.
Associations and relationships
We are ultimately controlled by the Deloitte member firm in
Australia (Deloitte Touche Tohmatsu). Please see
www.deloitte.com/au/about for a detailed description of the
legal structure of Deloitte Touche Tohmatsu.
We and other entities related to Deloitte Touche
Tohmatsu:

do not have any formal associations or
relationships with any entities that are issuers of
financial products

may provide professional services to issuers of
financial products in the ordinary course of
business.
What should you do if you have a
complaint?
If you have any concerns regarding our report or service,
please contact us. Our complaint handling process is
designed to respond to your concerns promptly and
equitably. All complaints must be in writing to the
address below.
If you are not satisfied with how we respond to your
complaint, you may contact the Financial Ombudsman
Service (FOS). FOS provides free advice and assistance to
consumers to help them resolve complaints relating to the
financial services industry. FOS’ contact details are also
set out below.
The Complaints Officer
PO Box N250
Grosvenor Place
Sydney NSW 1220
[email protected]
Fax: +61 2 9255 8434
Financial Ombudsman Service
GPO Box 3
Melbourne VIC 3001
[email protected]
www.fos.org.au
Tel: 1300 780 808
Fax: +61 3 9613 6399
What compensation arrangements do we
have?
Deloitte Australia holds professional indemnity insurance
that covers the financial services provided by us. This
insurance satisfies the compensation requirements of the
Corporations Act 2001 (Cth).
1 February 2013
Deloitte Corporate Finance Pty Limited, ABN 19 003 883 127, AFSL 241457 of Level 1 Grosvenor Place, 225 George Street, Sydney NSW 2000
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of
Deloitte Touche Tohmatsu Limited and its member firms.
Member of Deloitte Touche Tohmatsu Limited
Greenstone Limited Prospectus
10
Section 10 – Investigating Accountant’s Report on Forecast Financial Information 179
INVESTIGATING
ACCOUNTANT’S REPORT
ON FORECAST
FINANCIAL INFORMATION
180 Section 10 – Investigating Accountant’s Report on Forecast Financial Information
Greenstone Limited Prospectus
INVESTIGATING ACCOUNTANT’S REPORT ON
FORECAST FINANCIAL INFORMATION
Deloitte Corporate Finance Pty Limited
ACN 003 833 127
AFSL 241457
25 May 2015
The Directors
Greenstone Limited
Level 2-4
58 Norwest Boulevard
Bella Vista NSW 2153
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 2 9322 7000
Fax: +61 2 9322 7001
www.deloitte.com.au
The Directors
Greenstone SaleCo Pty Limited
Level 2-4
58 Norwest Boulevard
Bella Vista NSW 2153
Dear Directors
INVESTIGATING ACCOUNTANT’S REPORT ON STATUTORY FORECAST FINANCIAL
INFORMATION AND PRO FORMA FORECAST FINANCIAL INFORMATION AND FINANCIAL
SERVICES GUIDE
Introduction
This report has been prepared at the request of the Directors of Greenstone Limited ACN 075 949 432 (the Company)
and Greenstone SaleCo Pty Limited ACN 605 588 010 (SaleCo) for inclusion in the prospectus (Prospectus) to be
issued by the Company and SaleCo in respect of the initial public offering of fully paid ordinary shares in the Company
(the Offer) and listing of the company on the Australian Securities Exchange.
Deloitte Corporate Finance Pty Limited is wholly owned by Deloitte Touche Tohmatsu and holds the appropriate
Australian Financial Services licence under the Corporations Act 2001for the issue of this report.
References to the Company and other terminology used in this report have the same meaning as defined in the Glossary
of the Prospectus.
Scope
Deloitte Corporate Finance Pty Limited has been engaged by the Directors of the Company to review the following
forecast financial information of the Company, as referred to in Section 4 of the Prospectus:
 the Statutory Forecast Results and Statutory Forecast Cash Flows for the years ending 30 June 2015 and 30 June
2016 (the Statutory Forecast Financial Information); and
 the Pro Forma Forecast Results and Pro Forma Forecast Cash Flows for the years ending 30 June 2015 and 30 June
2016 (the Pro Forma Forecast Financial Information),
as set out in Section 4 of the Prospectus in Tables 8 and 17 (together the Statutory Forecast Financial Information
and the Pro Forma Forecast Financial Information are the Forecast Financial Information).
The directors’ best-estimate assumptions underlying the Statutory Forecast Financial Information are described in
Section 4.8 of the Prospectus. The stated basis of preparation used in the preparation of the Statutory Forecast Financial
Information is the recognition and measurement principles contained in Australian Accounting Standards and the
Company’s adopted accounting policies.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of
which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche
Tohmatsu Limited and its member firms.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Greenstone Limited Prospectus
Section 10 – Investigating Accountant’s Report on Forecast Financial Information 181
Page 2
The Pro Forma Forecast Financial Information has been derived from the Statutory Forecast Financial Information,
after adjusting for the effects of the pro forma transactions and / or adjustments described in Section 4.3.2 of the
Prospectus (the Pro Forma Adjustments). The stated basis of preparation used in the preparation of the Pro Forma
Forecast Financial Information is the recognition and measurement principles contained in Australian Accounting
Standards applied to the Statutory Forecast Financial Information and the events or transactions to which the Pro Forma
Adjustments relate, as if those events or transactions had occurred prior to 1 July 2014. Due to its nature the Pro Forma
Forecast Financial Information does not represent the Company’s actual prospective financial performance and/or cash
flows for the years ending 30 June 2015 and 30 June 2016.
The Forecast Financial Information has been prepared by management of the Company and adopted by the Directors in
order to provide prospective investors with a guide to the potential financial performance of the Company for the years
ending 30 June 2015 and 30 June 2016. There is a considerable degree of subjective judgement involved in preparing
forecasts since they relate to events and transactions that have not yet occurred and may not occur. Actual results are
likely to be different from the Forecast Financial Information since anticipated events or transactions frequently do not
occur as expected and the variation may be material.
The Directors’ best estimate assumptions on which the Forecast Financial Information are based relate to future events
and /or transactions that management of the Company expect to occur and actions that management of the Company
expect to take and are also subject to uncertainties and contingencies, which are often outside the control of the
Company. Evidence may be available to support the assumptions on which the Forecast Financial Information are
based, however such evidence is generally future orientated and therefore speculative in nature. We are therefore not in
a position to express a reasonable assurance conclusion on those best estimate assumptions, and accordingly, provide a
lesser level of assurance on the reasonableness of the Directors’ best estimate assumptions. The limited assurance
conclusion expressed in this report has been formed on the above basis.
Prospective investors should be aware of the material risks and uncertainties relating to an investment in the Company,
which are detailed in Section 5 of the Prospectus, and the inherent uncertainty relating to the prospective financial
information. Accordingly prospective investors should have regard to the investment risks and sensitivities set out in
Section 4.9 of the Prospectus. The sensitivity analysis set out in Section 4.9 of the Prospectus demonstrates the impacts
on the Forecast Financial Information of changes in key assumptions. The Forecast Financial Information is therefore
only indicative of the financial performance which may be achievable. We express no opinion as to whether the
Forecast Financial Information will be achieved.
We have assumed, and relied on representations from certain members of management of the Company, that all
material information concerning the prospects and proposed operations of the Company has been disclosed to us and
that the information provided to us for the purpose of our work is true, complete and accurate in all respects. We have
no reason to believe that those representations are false.
Directors’ Responsibility
The Directors are responsible for:
 the preparation of the Forecast Financial Information, including the best estimate assumptions underlying the
Forecast Financial Information and the selection and determination of the pro forma adjustments made to the
Statutory Forecast Financial Information and included in the Pro Forma Forecast Financial Information; and
 the information contained within the Prospectus.
This responsibility includes for the operation of such internal controls as the Directors determine are necessary to enable
the preparation of the Forecast Financial Information that are free from material misstatement, whether due to fraud or
error.
Our Responsibility
Our responsibility is to express a limited assurance conclusion on the Statutory Forecast Financial Information and the
Pro Forma Forecast Financial Information based on the procedures performed and the evidence we have obtained. We
have conducted our engagement in accordance with Australian Standard on Assurance Engagement (ASAE) 3450
Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information.
182 Section 10 – Investigating Accountant’s Report on Forecast Financial Information
Greenstone Limited Prospectus
Page 3
A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with Australian Auditing Standards and consequently does not enable us to obtain reasonable assurance that
we would become aware of all significant matters that might be identified in a reasonable assurance engagement.
Accordingly we will not express an audit opinion.
Our engagement did not involve updating or re-issuing any previously issued audit or review report on any financial
information used as a source of the Forecast Financial Information.
We have performed the following procedures as we, in our professional judgement, considered reasonable in the
circumstances:
 enquiries, including discussions with management and Directors of the factors considered in determining the
assumptions;
 analytical and other review procedures we considered necessary including examination, on a test basis, of evidence
supporting the assumptions, amounts and other disclosures in the Forecast Financial Information;
 review of the accounting policies adopted and used in the preparation of the Forecast Financial Information; and
 consideration of the Pro Forma Adjustments applied to the Statutory Forecast Financial Information in preparing the
Pro Forma Forecast Financial Information.
Conclusions
The Statutory Forecast Financial Information
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that:
(i)
the Directors’ best estimate assumptions used in the preparation of the Statutory Forecast Financial
Information do not provide reasonable grounds for the Statutory Forecast Financial Information; and
(ii)
in all material respects, the Statutory Forecast Financial Information:
a.
b.
(iii)
is not prepared on the basis of the Directors’ best estimate assumptions as described in Section 4.8 of the
Prospectus; and
is not presented fairly in accordance with the stated basis of preparation, being the accounting policies
adopted and used by the Company and the recognition and measurement principles contained in
Australian Accounting Standards; or
the Statutory Forecast Financial Information itself is unreasonable.
The Pro Forma Forecast Financial Information
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that:
(i)
the Directors’ best estimate assumptions used in the preparation of the Pro Forma Forecast Financial
Information do not provide reasonable grounds for the Pro Forma Forecast Financial Information; and
(ii)
in all material respects, the Pro Forma Forecast Financial Information:
a.
b.
(iii)
is not prepared on the basis of the Directors’ best estimate assumptions as described in Section 4.8 of the
Prospectus; and
is not presented fairly in accordance with the stated basis of preparation, being the accounting policies
adopted and used by the Company and the recognition and measurement principles contained in
Australian Accounting Standards, applied to the Statutory Forecast Financial Information and the Pro
Forma Adjustments as if those adjustments had occurred as at 1 July 2014; or
the Pro Forma Forecast Financial Information itself is unreasonable.
Restrictions on Use
Greenstone Limited Prospectus
Section 10 – Investigating Accountant’s Report on Forecast Financial Information 183
Page 4
Without modifying our conclusions, we draw attention to Section 4.2.3 of the Prospectus, which describes the purpose
of the Forecast Financial Information, being for inclusion in the Prospectus. As a result, this Investigating Accountant’s
Report may not be suitable for use for another purpose.
Consent
Deloitte Corporate Finance Pty Limited has consented to the inclusion of this limited assurance report in the Prospectus
in the form and context in which it is included.
Disclosure of Interest
Deloitte Corporate Finance Pty Limited does not have any interest in the outcome of this Offer other than the
preparation of this report and participation in the due diligence procedures for which normal professional fees will be
received.
Deloitte Touche Tohmatsu is the auditor of the Company.
Yours faithfully
DELOITTE CORPORATE FINANCE PTY LIMITED
Johan Duivenvoorde
Authorised Representative of
Deloitte Corporate Finance Pty Limited
(AFSL Number 241457)
Ian Turner
Authorised Representative of
Deloitte Corporate Finance Pty Limited
(AFSL Number 241457)
184 Section 10 – Investigating Accountant’s Report on Forecast Financial Information
Greenstone Limited Prospectus
Financial Services Guide
The remuneration paid to our directors reflects their
individual contribution to the organisation and covers all
aspects of performance.
What is a Financial Services Guide?
We do not pay commissions or provide other benefits to
anyone who refers prospective clients to us.
This Financial Services Guide (FSG) provides
important information to assist you in deciding
whether to use our services. This FSG includes details
of how we are remunerated and deal with complaints.
Where you have engaged us, we act on your behalf when
providing financial services. Where you have not
engaged us, we act on behalf of our client when providing
these financial services, and are required to give you an
FSG because you have received a report or other financial
services from us.
What financial services are we licensed
to provide?
We are authorised to provide financial product advice and to
arrange for another person to deal in financial products in
relation to securities, interests in managed investment
schemes, government debentures, stocks or bonds and
regulated emissions units (i.e., carbon) to retail and
wholesale clients.
Our general financial product advice
Where we have issued a report, our report contains only
general advice. This advice does not take into account
your personal objectives, financial situation or needs. You
should consider whether our advice is appropriate for you,
having regard to your own personal objectives, financial
situation or needs.
If our advice is provided to you in connection with the
acquisition of a financial product you should read the
relevant offer document carefully before making any
decision about whether to acquire that product.
How are we and all employees
remunerated?
Our fees are usually determined on a fixed fee or time
cost basis and may include reimbursement of any
expenses incurred in providing the services. Our fees are
agreed with, and paid by, those who engage us. Clients
may request particulars of our remuneration within a
reasonable time after being given this FSG.
Other than our fees, we, our directors and officers, any
related bodies corporate, affiliates or associates and their
directors and officers, do not receive any commissions or
other benefits.
All employees receive a salary and while eligible for
annual salary increases and bonuses based on overall
performance they do not receive any commissions or
other benefits as a result of the services provided to you.
Associations and relationships
We are ultimately controlled by the Deloitte member firm in
Australia (Deloitte Touche Tohmatsu). Please see
www.deloitte.com/au/about for a detailed description of the
legal structure of Deloitte Touche Tohmatsu.
We and other entities related to Deloitte Touche
Tohmatsu:

do not have any formal associations or
relationships with any entities that are issuers of
financial products

may provide professional services to issuers of
financial products in the ordinary course of
business.
What should you do if you have a
complaint?
If you have any concerns regarding our report or service,
please contact us. Our complaint handling process is
designed to respond to your concerns promptly and
equitably. All complaints must be in writing to the
address below.
If you are not satisfied with how we respond to your
complaint, you may contact the Financial Ombudsman
Service (FOS). FOS provides free advice and assistance to
consumers to help them resolve complaints relating to the
financial services industry. FOS’ contact details are also
set out below.
The Complaints Officer
PO Box N250
Grosvenor Place
Sydney NSW 1220
[email protected]
Fax: +61 2 9255 8434
Financial Ombudsman Service
GPO Box 3
Melbourne VIC 3001
[email protected]
www.fos.org.au
Tel: 1300 780 808
Fax: +61 3 9613 6399
What compensation arrangements do we
have?
Deloitte Australia holds professional indemnity insurance
that covers the financial services provided by us. This
insurance satisfies the compensation requirements of the
Corporations Act 2001 (Cth).
1 February 2013
Deloitte Corporate Finance Pty Limited, ABN 19 003 883 127, AFSL 241457 of Level 1 Grosvenor Place, 225 George Street, Sydney NSW 2000
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of
Deloitte Touche Tohmatsu Limited and its member firms.
Member of Deloitte Touche Tohmatsu Limited
Greenstone Limited Prospectus
CONSULTING
ACTUARY’S REPORT
11
Section 11 – Consulting Actuary’s Report 185
186 Section 11 – Consulting Actuary’s Report
Greenstone Limited Prospectus
CONSULTING ACTUARY’S REPORT
Deloitte Actuaries & Consultants Limited
ACN 092 651 057
AFSL 244576
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
25 May 2015
Tel: +61 2 9322 7000
Fax: +61 2 9322 7001
www.deloitte.com.au
The Directors
Greenstone Limited
Level 2-4, 58 Norwest Boulevard
Bella Vista NSW 2153
The Directors
Greenstone SaleCo Pty Limited
Level 2-4, 58 Norwest Boulevard
Bella Vista NSW 2153
Dear Directors
CONSULTING ACTUARY’S REPORT AND FINANCIAL SERVICES GUIDE
Part 1 – Consulting Actuary’s Report on the Agency Revenue Receivable Asset (“ ARRA”)
Deloitte Actuaries & Consultants Limited (“Deloitte Actuaries”) has been engaged by Greenstone Limited
(“Greenstone” or “Company”) and Greenstone SaleCo Pty Limited (“SaleCo”) to conduct an independent
actuarial review of Greenstone’s calculation of the book value of the Agency Revenue Receivable Asset
(“ARRA”) as at 31 December 2014. This report has been prepared for inclusion in the Prospectus to be
issued by Greenstone and SaleCo for the initial public offering of shares in the Company.
Expression and terms defined in the Prospectus have the same meaning in this report.
The nature of this report is such that it can only be issued by an entity which holds an Australian Financial
Services Licence under the Corporations Act 2001. Deloitte Actuaries holds an appropriate Australian
Financial Services Licence (AFS Licence Number 244576). Paul Swinhoe and James Hickey are Authorised
Representatives of Deloitte Actuaries. We have included our Financial Services Guide as an appendix to this
report.
Scope
You have requested Deloitte Actuaries review the basis used by Greenstone in calculating the book value of
the ARRA as at 31 December 2014. This review has considered the methodology and assumptions used in
the calculation of the ARRA.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member
firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal
structure of Deloitte Touche Tohmatsu Limited and its member firms.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
See the unforeseen.
Greenstone Limited Prospectus
Section 11 – Consulting Actuary’s Report 187
Page 2
Overview of the ARRA
A detailed description of the ARRA is set out in Section 4.5.1 of the Prospectus.
Findings from our review
Methodology
The book value of the ARRA represents Greenstone’s expected future agency revenue receivables
discounted to their net present value using discounted cash flow techniques. The methodology is to project
the expected agency revenue receivable for each policy individually, based on the contractual premium
schedule and commission receivable schedule, over the term of the policy, to a maximum of 15 years (7
years for pet insurance products), allowing for age, CPI and retention rates.
Aside from the early adoption of AASB 9 Financial Instruments, the methodology used by Greenstone to
calculate the ARRA has been consistently applied as for the prior financial year end 30 June 2014 and is
consistent with methodologies adopted by other industry participants which value agency revenue receivable
for financial reporting purposes.
Assumptions
The key assumptions used in calculating the ARRA include:
- retention rate
- pricing changes
- discount rate
- projection period
A description of the assumptions used by Greenstone to calculate the ARRA is set out in Section 4.5.2 of the
Prospectus.
Conclusion
Nothing has come to our attention that would lead us to believe that the methodology and assumptions used
in calculating the book value of the ARRA at 31 December 2014, and the basis on which these assumptions
were made, are unreasonable.
Restrictions on Use
Without modifying our conclusion, this report is only suitable for inclusion in the prospectus and may not be
suitable for use for another purpose
Reliance and Limitations
In preparing this report, we have relied upon the information provided by Greenstone. In general, reliance
was placed on but not limited to the information provided. We have used the information without
independent verification, but, where possible it was reviewed for reasonableness and consistency.
Consent
Deloitte Actuaries has consented to the inclusion of this report in the Prospectus in the form and context in
which it is included.
188 Section 11 – Consulting Actuary’s Report
Greenstone Limited Prospectus
Page 3
Disclosure of Interest
Deloitte Actuaries does not have any interest in the outcome of this Offer other than the preparation of this
report and participation in the due diligence procedures for which normal professional fees will be received.
Deloitte Touche Tohmatsu is the auditor of the Company.
Yours faithfully
DELOITTE ACTUARIES & CONSULTANTS LIMITED
Paul Swinhoe
Authorised Representative of
Deloitte Actuaries & Consultants Limited
(AFSL Number 244576)
James Hickey
Authorised Representative of
Deloitte Actuaries & Consultants Limited
(AFSL Number 244576)
Greenstone Limited Prospectus
Financial Services Guide
What is a Financial Services Guide?
This Financial Services Guide (FSG) provides
important information to assist you in deciding
whether to use our services. This FSG includes details
of how we are remunerated and deal with complaints.
Where you have engaged us, we act on your behalf when
providing financial services. Where you have not engaged
us, we act on behalf of our client when providing these
financial services, and are required to give you an FSG
because you have received a report or other financial
services from us. The providing entity, the person who
provides the advice, is the Authorised Representative of
Deloitte Actuaries & Consultants Limited (DACs), which
authorises the AR to distribute this FSG. Their AR
number is in the document that accompanies this FSG .
What financial services are we licensed
to provide?
We are authorised to provide financial product advice and
to arrange for another person to deal by arranging in
financial products in relation to superannuation,
securities, interests in managed investment schemes and
life insurance to retail and wholesale clients.
Our general financial product advice
Wherever general advice is given to you, we are required
to warn you that this advice does not take into account
your personal objectives, financial situation or needs. You
should consider whether our advice is appropriate for you,
having regard to your own personal objectives, financial
situation or needs.
If our advice is provided to you in connection with the
acquisition of a financial product you should read the
relevant offer document carefully before making any
decision about whether to acquire that product.
We will also give you a Statement of Advice (SOA)
whenever we provide you with any advice that takes into
account your objectives, financial situation and needs.
The SOA will be provided to help you understand and
decide whether to rely on the advice.
How are we and all employees
remunerated?
Our fees are usually determined on a fixed fee or time
cost basis and may include reimbursement of any
expenses incurred in providing the services. Our fees are
agreed with, and paid by, those who engage us. Clients
may request particulars of our remuneration within a
reasonable time after being given this FSG .
Section 11 – Consulting Actuary’s Report 189
Other than our fees, we, our directors and officers, any
related bodies corporate, affiliates or associates and their
directors and officers, do not receive any commissions or
other benefits.
All employees receive a salary and while eligible for
annual salary increases and bonuses based on overall
performance they do not receive any commissions or
other benefits as a result of the services provided to you.
The remuneration paid to our directors reflects their
individual contribution to the organisation and covers all
aspects of performance.
We do not pay commissions or provide other benefits to
anyone who refers prospective clients to us.
Associations and relationships
We are ultimately controlled by the Deloitte member firm
in Australia (Deloitte Touche Tohmatsu). Please see
www.deloitte.com/au/about for a detailed description of
the legal structure of Deloitte Touche Tohmatsu. We and
other entities related to Deloitte Touche Tohmatsu:
· do not have any formal associations or relationships
with any entities that are issuers of financial products
· may provide professional services to issuers of
financial products in the ordinary course of business.
What should you do if you have a
complaint?
If you have any concerns regarding our report or service,
please contact us. Our complaint handling process is
designed to respond to your concerns promptly and
equitably. All complaints must be in writing to the
address below.
If you are not satisfied with how we respond to your
complaint, you may contact the Financial Ombudsman
Service (FOS). FOS provides free advice and assistance to
consumers to help them resolve complaints relating to the
financial services industry. FOS’ contact details are also
set out below.
The Complaints Officer
Financial Ombudsman Service
PO Box N250
GPO Box 3
Grosvenor Place
Melbourne VIC 3001
Sydney NSW 1220
[email protected]
[email protected]
www.fos.org.au
Fax: +61 2 9255 8434
Tel: 1300 780 808
Fax: +61 3 9613 6399
What compensation arrangements do we
have?
Deloitte Australia holds professional indemnity insurance
that covers the financial services provided by us. This
insurance satisfies the compensation requirements of the
Corporations Act 2001 (Cth).
18 May 2015: Deloitte Actuaries & Consultants Pty Limited, ABN 56 092 651 057, AFSL number 244576 of Level 1 Grosvenor Place, 225 George
Street, Sydney NSW 2000
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of
Deloitte Touche Tohmatsu Limited and its member firms.
Member of Deloitte Touche Tohmatsu Limited
190 Appendix A – Significant accounting policies
APPENDIX A –
SIGNIFICANT
ACCOUNTING POLICIES
A
Greenstone Limited Prospectus
Greenstone Limited Prospectus
Appendix A – Significant accounting policies 191
APPENDIX A –
SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies have
been adopted in the preparation of the financial
information in Section 4.
A.1
Basis of preparation
The 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.
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 entity 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 financial
statements is determined on such a basis.
In addition, for financial reporting purposes, fair
value measurements are categorised into Level 1,
2 or 3 based on the degree to which the inputs
to the fair value measurements are observable
and the significance of the inputs to the fair
value measurement in its entirety, which are
described as follows:
■■
■■
■■
factors that are believed to be reasonable under the
circumstances, the results of which form the basis
of making the judgements about carrying values of
assets and liabilities that are not readily apparent
from other sources. Actual results may differ from
these estimates. The accounting policies have been
consistently applied.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the
estimate is revised if the revision affects only that
period or in the period of the revision and future
periods if the revision affects both current and
future periods.
The principal accounting policies adopted in the
preparation of the financial report are set out below.
These policies have been applied consistently to all
periods presented.
a. Principles of consolidation
The consolidated financial statements of the economic
entity include the financial statements of the
Company, being the parent entity, and its controlled
entities (consolidated entity).
Control is achieved when the Group is exposed or has
rights to variable returns from its involvement with
the investee and has the ability to affect those returns
through its power over the investee.
The balances and effects of transactions between
controlled entities included in the consolidated
financial statements have been eliminated.
b. Business combinations and non-controlling
interests
Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities that
the entity can access at the measurement date;
Assets and liabilities acquired through a business
combination are measured at their acquisition
date fair value.
Level 2 inputs are inputs, other than quoted prices
included within Level 1, that are observable for the
asset or liability, either directly or indirectly; and
Non-controlling interests are measured at their
proportionate share of identifiable net assets.
Level 3 inputs are unobservable inputs for the
asset or liability.
c. The preparation of the financial report in conformity
with Group accounting policies requires management
to make judgements, estimates and assumptions
that affect the application of policies and reported
amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are
based on historical experience and various other
Revenue
Agency revenue
The consolidated entity receives agency revenue from
the sale of retail financial products including life,
funeral and pet insurance. Agency revenue is earned
on the sale of the insurance policy as the consolidated
entity has the contractual right to a stream of
192 Appendix A – Significant accounting policies
commissions through the life of the underlying
insurance policy and has no further servicing
commitment to generate this revenue.
On the sale of an insurance policy, agency revenue
and the related agency revenue receivable asset is
recognised at fair value being the net present value of
the expected future commissions to be received.
Subsequent to initial recognition and measurement,
the agency revenue receivable asset is measured
at amortised cost with the unwind of the discount
reflected as discount unwind revenue, within agency
revenue, in the statement of comprehensive income.
The carrying amount of the receivable is adjusted
to reflect actual and revised estimated cash flows
by recalculating the net present value of estimated
future cash flows at the original effective interest rate.
Changes in discount rates are not adjusted during the
period. Any adjustment to the carrying value due to
changes in assumptions is recognised as income or
expense in the statement of comprehensive income.
In recognising agency revenue and the corresponding
agency revenue receivable asset there are a number
of estimates inherent in the calculation of the net
present value of expected future agency revenue
to be received. These include, but are not limited
to retention rate, policy pricing, discount rate and
projection period.
The determination of the assumptions used in the
valuation is determined by Management based on
detailed assessment of the underlying insurance
portfolio including historic experience and current
and future expected economic factors. These factors
are complex and require a high degree of judgement.
The significant assumptions used in the valuation are:
Retention rate
The retention rate is taken into account to project
the expected cash flows. Retention rate is the number
of policies that remain in force at the end of the
reporting period as a percentage of the in-force
policies at the start of the period, weighted by
premium. The rates applied vary depending on type
of policy, premium and age of the policy.
Discount rate and risk premium
The discount rate assumed for new business revenue is
the aggregate of a weighted average of 5 and 10 year
government bond yields and counterparty risk.
Together, these currently total 5.0% (2013: 6.5%).
Greenstone Limited Prospectus
The risk premium rate is presently 3.0% based on a
management estimate (2013: 3.0%).
The discount rate and risk premium are reviewed
periodically and changed to reflect bond yield
trends, counterparty risk changes and lapse trends.
As the in-force book matures Greenstone can gain
better insights into the policy lapse trends and
appropriateness of the prudential margin held for
this component. Any changes to the discount rate
or risk margin require Board approval. Changes in
the assumed discount rate only impact the value of
new business revenue after the date the discount
rate is changed.
Projection period
On sale of a new policy, Greenstone estimates new
business revenue, which impacts the ARRA, based on
expected future agency payments over the projected
life of the policy. Each following month after new
business revenue is recognised, to the extent a policy
remains in-force, an additional month of agency
payments is recognised. The estimated net present
value of these additional expected future agency
payments is included in new business revenue and
therefore the ARRA.
Projection periods assumed for life business were
15 years (2013: 15 years) and for pet insurance seven
years (2013: seven years).
Administration fee revenue
Administration fee revenue is recognised as
services are delivered.
d. Income tax
Income tax on the profit or loss for the year comprises
current and deferred tax. Income tax is recognised
in the consolidated statement of comprehensive
income except to the extent that it relates to items
recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or
substantially 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
Greenstone Limited Prospectus
liabilities in a transaction that is not a business
combination and that affects neither accounting
nor taxable profit or loss, and 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. In addition, deferred tax is not recognised for
taxable temporary 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 consolidation
The Company and all of its wholly-owned Australian
domiciled subsidiaries are part of a Multiple Entry Tax
Consolidated Group (MEC Group), with Greenstone
Ltd being the head entity of the MEC Group. Prior
to 1 January 2015, the MEC Group was comprised of
Greenstone Pty Ltd and its wholly-owned subsidiaries
as well as Hollard Holdings Australia Pty Ltd and its
wholly-owned Australian subsidiaries. These HHA
entities left the MEC Group on 1 January 2015.
As a result of the IPO, the MEC Group will convert to
an Australian income tax consolidated group with
the Company as the head entity of the group and
its wholly-owned Australian resident entities being
members of the group.
The current and deferred tax amounts for the tax
consolidated group are allocated among entities in
the group using a “separate taxpayer within group”
approach whereby each entity in the tax-consolidated
group is treated as being subject to tax as part of the
Appendix A – Significant accounting policies 193
tax consolidated group. Intra-group transactions are
ignored for income tax purposes. Deferred tax assets
and deferred tax liabilities are measured by reference
to the carrying amounts of the assets and liabilities
in the head entity’s statement of financial position
and their tax base applying under tax consolidation.
The head entity assesses the expected recoverability
of unused tax losses and tax credits only in the
period in which they arise and before assumption
by the head entity, in accordance with AASB 112,
against the current and future taxable income of the
consolidated group.
Any current tax liabilities (or assets) and deferred
tax assets arising from unused tax losses assumed
by the head entity from the subsidiaries in the tax
consolidated group are recognised in conjunction with
any tax funding arrangement amounts (refer below).
Any difference between these amounts is recognised
by the Parent as an equity contribution or distribution
from the subsidiary.
The head entity recognises deferred tax assets arising
from unused tax losses of the tax-consolidated group
to the extent that it is probable that future taxable
profits of the tax-consolidated group will be available
against which the asset can be utilised.
Any subsequent period adjustments to deferred tax
assets arising from unused tax losses assumed from
subsidiaries are recognised by the head entity only.
The members of the tax consolidated group have
entered into a tax funding agreement which sets
out the funding obligations of members of the taxconsolidated group in respect of tax amounts. The
tax funding arrangements require payments equal
to the current tax liability (asset) assumed by the
head entity and any deferred tax asset assumed by
the head entity.
The head entity, in conjunction with other members
of the tax-consolidated group, has also entered into
a tax sharing agreement. The tax sharing agreement
provides for the determination of the allocation of
income tax liabilities between the entities should the
head entity default on its tax payment obligations.
No amounts have been recognised in the financial
statements in respect of this agreement as the
likelihood of payment of any amounts under the tax
sharing agreement is considered remote.
194 Appendix A – Significant accounting policies
e. Receivables
g. Trade receivables, including agency revenue
receivable assets, are recognised initially at fair value.
Subsequent to initial recognition, trade receivables
and agent revenue receivable are measured at
amortised cost less any provision for impairment.
Other receivables are measured at amortised cost less
any provision for impairment.
f. Intangible assets
The Brand Licence is assessed as having an indefinite
useful life and is not amortised. The carrying value of
this asset is assessed for impairment each period, to
determine whether events and circumstances continue
to support the indefinite life assessment.
The estimated useful life of the Brand Licence
changed with effect from 1 July 2014 following
the renegotiation of the terms of the brand
licence arrangement.
Other intangible assets that are acquired by the
consolidated entity that have finite useful lives are
measured at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is based
on the cost of an asset less its residual value.
Amortisation is recognised in profit or loss on a
straight-line basis over the estimated useful lives of
intangible assets from the date that they are available
for use. The useful lives are determined using the best
estimate of expected consumption of future economic
benefits embodied in the asset. The estimated
useful lives for the current and comparative years
are as follows:
Intangible
asset
December-14
Greenstone Limited Prospectus
Employee entitlements
Liabilities for employee benefits for wages, salaries,
annual leave and sick leave represent present
obligations resulting from employees’ services
provided to reporting date, and are calculated at
undiscounted amounts based on remuneration wage
and salary rates that the consolidated entity expects to
pay at reporting date including related on-costs, such
as workers compensation insurance and payroll tax.
Obligations for contributions to defined contribution
pension plans are recognised as an expense in the
statement of comprehensive income as incurred.
The liability for long service leave is recognised
in the provision for employee entitlements and is
the amount of future benefit that employees have
earned in return for their service in the current
and prior periods.
Equity-settled share-based payments
Equity-settled share-based payments to employees 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 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 the equity-settled employee
benefits reserve. 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 estimates, 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.
December-13
h. Financial liabilities are recognised initially on the trade
date at which the consolidated entity becomes party
to the contractual provisions of the instrument. The
consolidated entity derecognises a financial liability
when its contractual obligations are discharged,
cancelled or expire. Financial assets and liabilities
are offset and the net amount presented in the
consolidated statement of financial position when,
and only when, the consolidated entity has a legal
right to offset the amounts and intends either to
settle on a net basis or to realise the asset and settle
the liability simultaneously.
Brand name
Indefinite
15 years
Customer list
2 years
2 years
Internally
generated
software
5 years
5 years
Other financial liabilities
Greenstone Limited Prospectus
The consolidated entity has the following nonderivative financial liabilities: 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.
i. Customer loyalty rewards provision
The Customer loyalty rewards provision represents
expected future payments to holders of various life
products sold under the Real Insurance brand. It is
measured at amortised cost. A refund is dependent
upon the policyholder reaching their first policy
anniversary and is therefore subject to the sensitivity
of underlying assumptions relating to policy retention
as discussed in ‘c’ above.
j. The amount recognised as a provision is the best
estimate of the consideration required to settle the
present obligation at the end of the reporting period.
Share capital
Ordinary shares are classified as equity. Incremental
costs directly attributable to the issue of ordinary
shares and share options are recognised as a
deduction from equity, net of any tax effects.
Dividends are recognised as a liability in the period
in which they are declared.
A.2 Application of new and revised
Accounting Standards
New standards and interpretation not yet adopted
At the date of authorisation of the 31 December 2014
financial statements, the Standards and Interpretations
listed below were in issue but not yet effective:
■■
There remain a number of implementation issues
arising from AASB 15 that are subject to ongoing
discussion by the IASB and other standard setting
boards and as a consequence the consolidated entity
has not completed an assessment on the impact on
the consolidated entity’s net assets or profitability.
New standards and interpretation adopted
The Company elected to apply Accounting
Standard AASB 9 Financial Instruments effective
from 1 July 2014, even though the Standard is not
required to be applied until annual reporting periods
beginning on or after 1 January 2018. At the date of
initial application, management has assessed that the
agency revenue receivable meets the definition of a
financial asset carried at amortised cost as at that date
based on the following:
■■
Provisions
A provision is recognised in the consolidated
statement of financial position when the consolidated
entity has a present legal or constructive obligation
as a result of a past event, and it is probable that
an outflow of economic benefits will be required
to settle the obligation.
k. Appendix A – Significant accounting policies 195
AASB 15 Revenue from Contracts with Customers
outlines a single model of accounting for revenue
arising from contracts with customers and supersedes
current revenue recognition guidance. AASB 15 will
become mandatory for the consolidated entity’s
financial year ending 30 June 2018.
■■
the assets are held within the Company’s business
model whose objective is only to collect contractual
cash flows; and
the contractual terms of the financial asset give
rise to cash flows that are solely payments of
principal and interest on the principal.
The fair value of the receivables at the reclassification
date was deemed to be their new gross carrying
amount. The reclassification was applied
retrospectively irrespective of the business model
applied in prior periods.
The result of the assessment was a reclassification
of ARRA from fair value to amortised cost of the
agency revenue receivable asset. If the agency
revenue asset had remained at fair value an additional
$35.1 million would have been recognised as a fair
value gain following the adjustment to the discount
rate and risk premium applied on the recognition of
agency revenue from 9.5% to 8% from 1 July 2014.
Under the amortised cost basis, this $35.1million
adjustment is recognised as revenue over the life of
the underlying policies.
196 Appendix B – Glossary
APPENDIX B –
GLOSSARY
B
Greenstone Limited Prospectus
Greenstone Limited Prospectus
Appendix B – Glossary 197
APPENDIX B –
GLOSSARY
Term
Definition
1H09
The half financial year ended 31 December 2009
1H14
The half financial year ended 31 December 2013
1H15
The half financial year ended 31 December 2014
2H15
The half financial year ending 30 June 2015
AAS
Australian Accounting Standards and other authoritative pronouncements
issued by the AASB
AASB
Australian Accounting Standards Board, an Australian Government agency
under the Australian Securities and Investments Commission Act 2001 (Cth)
ABN
Australian Business Number
ACCC
Australian Competition and Consumer Commission
ACN
Australian Company Number
Adjusted NPAT
Adjusted Net Profit After Tax. It is a measure of reported NPAT adjusted
for non-cash basis changes and price adjustment revenue as well as certain
other non-recurring items
AEST
Australian Eastern Standard Time
AEDT
Australian Eastern Daylight Time
Affinity Brand
A brand of an Affinity Brand Partner
Affinity Brand Partner
A corporate partner of Greenstone under whose brands Greenstone
distributes insurance products
AFSL
Australian financial services licence
Applicant
A person who submits an Application under this Prospectus
Application
An application made to subscribe for Shares under the Offer
Application Form
The relevant form attached to or accompanying this Prospectus pursuant
to which Applicants apply for Shares
Application Monies
The amount accompanying an Application Form submitted by an
Applicant, calculated as the Final Price multiplied by the number of
Shares applied for
APRA
Australian Prudential Regulation Authority
ARRA
Agency revenue receivable asset
ASIC
Australian Securities and Investments Commission
ASX
Australian Securities Exchange, as operated by ASX Ltd (ACN 008 624 691)
ASX Listing Rules
The official listing rules of the ASX
ASX Recommendations
The Corporate Governance Principles and Recommendations issued by
the ASX Corporate Governance Council
ASX Settlement
ASX Settlement Pty Ltd (ACN 008 504 532)
198 Appendix B – Glossary
Greenstone Limited Prospectus
Term
Definition
ASX Settlement
Operating Rules
The operating rules of the ASX Settlement
$
Australian dollars
Australian Legal Adviser
Gilbert + Tobin
BBSY
Bank bill swap rate
Board
The board of directors of the Company
Bookbuild
The bidding process used to conduct the Institutional Offer as described
in Section 7.7
Borrower
Has the meaning given in Section 8.5.2
Broker
Any ASX participating organisation selected by the Joint Lead Managers to
act as a Broker to the Offer
Broker Firm Applicant
An Australian or New Zealand person who applies to subscribe for Shares
under the Broker Firm Offer
Broker Firm Offer
The offer of Shares under this Prospectus to Australian or New Zealand
resident retail clients of Brokers who have received a firm allocation from
their Broker and are not in the United States
CAGR
Compound annual growth rate
CGT
Capital gains tax
Chairman
In relation to the Company, Rick Lee, or otherwise as the context requires
CHESS
Clearing House Electronic Subregister System operated by ASX Settlement
Chief Executive Officer or CEO
In relation to the Company, Mark Reid, or otherwise as the context requires
Chief Financial Officer or CFO
In relation to the Company, Derrick Jones, or otherwise as the
context requires
Citi
Citigroup Global Markets Pty Ltd (ACN 003 114 832)
Clawback Provision
A provision under a contract with an Insurance Carrier where the
distributor has a liability to repay cash amounts already received in respect
of a new policy sale that subsequently lapses.
Closing Date
The date on which the Offer closes
Co-Lead Managers
Citi, Deutsche Bank and J.P. Morgan
Co-Managers
Bell Potter Securities Ltd, JBWere Ltd, Macquarie Equities Limited,
Ord Minnett Ltd and Wilson HTM Corporate Finance Ltd
Company or Greenstone
Greenstone Ltd (ACN 075 949 432)
Completion of the Offer
Completion in respect of the allotment of Shares in accordance with the
Offer Management Agreement
Constitution
The constitution of the Company
Consulting Actuary’s Report
The Consulting Actuary’s Report set out in Section 11
Greenstone Limited Prospectus
Appendix B – Glossary 199
Term
Definition
Consulting Actuary
Deloitte Actuaries & Consultants Limited
Corporations Act
Corporations Act 2001 (Cth)
CPI
Consumer Price Index
Deutsche Bank
Deutsche Bank AG, Sydney Branch
DEXX&R
RKR Research Pty Ltd (ACN 050 056 187) trading as DEXX&R
Director
Any director of the Company as at the date of this Prospectus (unless the
context otherwise requires)
DRP
Dividend reinvestment plan
EBITDA
Earnings before the cost of debt, tax, depreciation and amortisation
Eligible Participant
Each full-time or permanent part-time employee of Greenstone or its
related bodies corporate, as at 18 May 2015 who is an Australian resident,
but excluding members of the ELT and provided that in each case such
person is not in the United States and is not a Director
Eligible US Fund Manager
A dealer or other professional fiduciary organised, incorporated or (if
an individual) resident in the United States that is acting for an account
(other than an estate or trust) held for the benefit or account of persons
who are not US Persons for which it has, and is exercising, investment
discretion, within the meaning of Rule 902(k)(2)(i) of Regulation S under
the US Securities Act
ELT
Executive Leadership Team
Escrow Period
For each Escrowed Shareholder, the applicable period set out in Section 7.9
Escrow Shares
Shares that carry a restriction on dealing from the date that the Escrow
Shares are issued until the end of the relevant Escrow Period
Escrowed Shareholder
A person that has entered into a voluntary escrow over their Existing
Shares as part of the Offer, as set out in Section 7.9
ESS
Employee Share Scheme
Executive Director
A Director who has managerial responsibility in Greenstone
Existing Shareholder
Hollard Investments B.V.
Existing Shares
Ordinary Shares in the Company that were on issue prior to the Offer
Expiry Date
The date 13 months after the Prospectus Date
Exposure Period
The period specified in section 723(3) of the Corporations Act, being
a minimum of seven days from the Prospectus Date, during which an
Application must not be accepted. ASIC may extend this period to no more
than 14 days after the Prospectus Date
Final Price
The price per Share that all Successful Applicants will pay for Shares
under the Offer as determined by the Bookbuild, denominated in
Australian Dollars
Financial Information
Has the meaning given in Section 4.1
200 Appendix B – Glossary
Greenstone Limited Prospectus
Term
Definition
FOFA
Future of Financial Advice law, implemented through the Corporations
Amendment (Future of Financial Advice) Act 2012 (Cth)
Forecast Financial Information
Pro Forma Forecast Results, Pro Forma Forecast Cash Flows, Statutory
Forecast Results and Statutory Forecast Cash Flows
FSI
Financial System Inquiry, commissioned by the Australian Treasurer and
released in November 2014
FY13
Financial year ended 30 June 2013
FY14
Financial year ended 30 June 2014
FY15
Financial year ending 30 June 2015
FY16
Financial year ending 30 June 2016
FY17
Financial year ending 30 June 2017
General Employee
Retention Plan Offer
The offer of Performance Rights to Eligible Participants as described
in Section 7.5.3
Goldman Sachs
Goldman Sachs Australia Pty Ltd (ACN 006 797 897)
Government Agency
Any government or any governmental, semi-governmental, administrative,
fiscal or judicial body, department, commission, authority, tribunal, agency,
bureau, municipal, board, instrumentality or entity
Greenstone Financial Services
Greenstone Financial Services Pty Ltd (ACN 128 692 884) (formerly Hollard
Financial Services Pty Ltd)
Greenstone Persons
The Directors, Greenstone’s company secretary and senior management
and other persons nominated by the Board from time to time
Gross Written Premium or GWP
The aggregate annualised value of premiums, determined at the time of
sale, for policies across all of Greenstone’s insurance policies sold during
the reporting period, including policies sold on Greenstone’s comparison
website, Choosi
Group
Greenstone and its subsidiaries
GST
Goods and services or similar tax imposed in Australia
Guarantor
Has the meaning given in Section 8.5.2
Hannover Re
Hannover Life Re of Australasia Ltd
Historical Financial Information
Has the meaning given in Section 4.1
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
Independent Director
A Non-Executive Director of Greenstone free of any business or other
relationship that could materially interfere with (or be perceived to
materially interfere with) the independence of his or her judgement
Indicative Price Range
The indicative price range for the Institutional Offer, being $2.00 to
$2.50 per Share
Greenstone Limited Prospectus
Appendix B – Glossary 201
Term
Definition
Institutional Investor
An investor:
■■
■■
in Australia who is either a ‘professional investor’ or ‘sophisticated
investor’ under sections 708(11) and 708(8) of the Corporations Act; or
in certain other jurisdictions to whom offers or invitations of Shares
can lawfully be made without the need for a lodged or registered
prospectus or other form of disclosure document or filing with,
or approval by, any governmental agency (except one with which
Greenstone is willing in its discretion to comply),
in either case, provided that if such person is in the United States, they
are reasonably believed to be a “qualified institutional buyer” (as
defined in Rule 144A of the US Securities Act) or they are an Eligible
US Fund Manager
Institutional Offer
The invitation to bid for Shares made to Institutional Investors in
Australia under this Prospectus and Institutional Investors in certain other
eligible jurisdictions under the Institutional Offering Memorandum as
described in Section 7.7
Institutional
Offering Memorandum
The offering memorandum under which the Institutional Offer will be
made in certain overseas jurisdictions, which consists of this Prospectus,
a Prospectus ‘wrap’ and the audited statutory historical financial
statements of the Company for FY13, FY14, 1H14 and 1H15
Insurance Carrier
A third party company that underwrites insurance products
distributed by Greenstone
Investigating Accountant
Deloitte Corporate Finance Pty Limited
Investigating Accountant’s
Report on Forecast
Financial Information
The Investigating Accountant’s Report on Forecast Financial Information
set out in Section 10
Investigating Accountant’s
Report on Historical
Financial Information
The Investigating Accountant’s Report on Historical Financial Information
set out in Section 9
IPO
Initial public offering
IRM
Investment Return Model
Joint Lead Managers
Goldman Sachs and Macquarie
J.P. Morgan
J.P. Morgan Australia Ltd (ACN 002 888 011)
Listing
The admission of Greenstone to the Official List
Macquarie
Macquarie Capital (Australia) Limited (ACN 123 199 548)
Macquarie Bank
Macquarie Bank Ltd (ABN 46 008 583 542)
Maximum PIP Pool
The cap on the total size of the PIP Pool, being $5,000,000
New Banking Facilities
Has the meaning given in Section 8.5.2
New Shares
Shares issued under the Offer
202 Appendix B – Glossary
Greenstone Limited Prospectus
Term
Definition
New Zealand Securities Laws
The New Zealand Financial Markets Conduct Act 2013 and the
New Zealand Financial Markets Conduct Regulations 2014
NPAT
Net profit after tax
OECD
Organisation for Economic Co-Operation and Development
Offer
An invitation to apply for Shares under this Prospectus
Offer Date
The date on which the Retail Offer is expected to open, being 2 June 2015
Offer Management Agreement
The offer management agreement dated 25 May 2015 between the
Company, SaleCo and the Joint Lead Managers in connection with the
Offer, as described in Section 8.5.1
Offer Period
The period commencing on the Offer Date and ending on the Closing Date
Official List
The official list of entities that the ASX has admitted and not removed
Over-allocation Option
An option granted by SaleCo to the Stabilisation Manager to acquire up to
an additional 60.7 million Shares at the Final Price
Performance Period
The financial year during which the performance conditions will be tested
Performance Rights
These entitle the holder to acquire a Share for nil consideration at the
end of the Performance Period, subject to meeting specific performance
conditions and/or service conditions and/or other conditions (being, in the
case of Performance Rights issued under the General Employee Retention
Plan Offer, continued employment as at 1 July 2016)
PetSure
PetSure (Australia) Pty Ltd (ACN 075 949 923)
PIP
Performance Incentive Plan
PIP Pool
The maximum value of awards that can be made under the PIP for
all participants
Plan for Life
Asset International Australia Pty Ltd, trading as Plan for Life
PricewaterhouseCoopers
PricewaterhouseCoopers (ABN 52 780 433 757)
Priority Offer
An offer to select investors in certain eligible jurisdictions who are not in
the United States who have received a Priority Offer invitation
Pro Forma Forecast Cash Flows
Pro forma forecast consolidated cash flows before financing and tax
for FY15 and FY16
Pro Forma Forecast
Financial Information
Pro Forma Forecast Cash Flows and Pro Forma Forecast Results
Pro Forma Forecast Results
Pro forma forecast consolidated income statements for FY15 and FY16
Pro Forma
Historical Balance Sheet
Pro forma historical consolidated balance sheet as at 31 December 2014
Pro Forma Historical Cash Flows
Pro forma historical consolidated cash flows before financing and tax for
FY13, FY14, 1H14 and 1H15
Greenstone Limited Prospectus
Appendix B – Glossary 203
Term
Definition
Pro Forma Historical
Financial Information
Pro Forma Historical Results, Pro Forma Historical Cash Flows and Pro
Forma Historical Balance Sheet
Pro Forma Historical Results
Pro forma historical consolidated income statements for FY13,
FY14, 1H14 and 1H15
Proprietary Brands
Brands developed or acquired by Greenstone under which Greenstone
distributes insurance products
Prospectus
This document (including the electronic form of this Prospectus) and any
supplementary or replacement prospectus in relation to this document
Prospectus Date
The date on which a copy of this Prospectus was lodged with ASIC,
being 25 May 2015
Retail Offer
The Broker Firm Offer, the Priority Offer and the General Employee
Retention Plan Offer
RSPCA
Royal Society for the Prevention of Cruelty to Animals
SaleCo
Greenstone SaleCo Pty Ltd (ACN 605 588 010)
SEO
Search engine optimisation
Service Period
The period of three years after the grant date of the Performance Rights
during which participants must remain employed with Greenstone in order
for the Performance Rights to vest
Settlement
Settlement in respect of the Shares the subject of the Offer, occurring as
described in the Offer Management Agreement
Share
A fully paid ordinary share in Greenstone
Share Registry
Link Market Services Ltd (ABN 54 083 214 537)
Shareholder
The registered holder of a Share
Stabilisation Manager
Macquarie
Stabilisation Period
Any time within the period of up to 30 days following Listing
Statutory Forecast Cash Flows
Statutory forecast consolidated cash flow statements for FY15 and FY16
Statutory Forecast
Financial Information
Statutory Forecast Cash Flows and the Statutory Forecast Results
Statutory Forecast Results
Statutory forecast consolidated income statements for FY15 and FY16
Statutory Historical
Balance Sheet
Statutory historical consolidated balance sheet as at 31 December 2014
Statutory Historical
Cash Flows
Historical consolidated cash flows before financing and tax extracted
from the statutory consolidated cash flow statements for FY13,
FY14, 1H14 and 1H15
Statutory Historical
Financial Information
Statutory Historical Results, Statutory Historical Cash Flows and Statutory
Historical Balance Sheet
204 Appendix B – Glossary
Greenstone Limited Prospectus
Term
Definition
Statutory Historical Results
Statutory historical consolidated income statements for FY13,
FY14, 1H14 and 1H15
Statutory Historical
Financial Statements
The audited general purpose consolidated financial statements of
Greenstone for FY13, FY14, 1H14 and 1H15
Target NPAT
The NPAT at which PIP awards are provided
TFN
Tax file number
The Casey Trust
Novatrust Limited as trustee for the Casey Trust
TPD
Total and permanent disablement
United States
United States of America, its territories and positions, any state of the
United States of America and the District of Columbia
US Person
Has the meaning given to it in Rule 902(k) under Regulation S of the
US Securities Act
US Securities Act
U.S. Securities Act of 1933, as amended
Greenstone Limited Prospectus
APPLICATION
FORM
Application Form 205
206 Application Form
APPLICATION FORM
Greenstone Limited Prospectus
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Broker Code
Adviser Code
ACN 075 949 432
Broker Firm Offer Application Form
This is an Application Form for Shares in Greenstone Limited under the Broker Firm Offer on the terms set out in the Prospectus dated 25 May
2015. All defined terms in this Application Form have the meaning given in the Prospectus, unless stated otherwise. The minimum and
maximum Applications under the Broker Firm Offer are as determined by your Broker. This Application Form and your cheque or bank draft
must be received by your Broker by the deadline set out in their offer to you.
This Application Form does not constitute an offer of securities in the United States or to any person to whom it would not be lawful outside
Australia. The securities referred to herein have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the
“US Securities Act”) or under the securities laws of any state or other jurisdiction of the United States. Any securities described in, or sold
pursuant to, this Application Form may not be offered or sold in the United States absent registration under the US Securities Act or pursuant
to an applicable exemption from registration, or to any person to whom it would not be lawful outside Australia.
The Application Form must not be released or distributed in the United States, or in any jurisdiction outside of Australia where distribution may
be restricted by law.
If you are in doubt as to how to deal with this Application Form, please contact your accountant, lawyer, stockbroker or other
professional adviser. The Prospectus contains information relevant to a decision to invest in Shares and you should read the entire
Prospectus carefully before applying for Shares.
Application Monies
A
B
A$
,
,
.
PLEASE COMPLETE YOUR DETAILS BELOW (refer overleaf for correct forms of registrable names)
Applicant #1 – Surname/Company Name
Title
First Name
Middle Name
Joint Applicant #2 – Surname
Title
First Name
Middle Name
Designated account e.g. <Super Fund> (or Joint Applicant #3)
C
TFN/ABN/Exemption Code – First Applicant
Joint Applicant #2
TFN/ABN type – if NOT an individual, please mark the appropriate box
D
Joint Applicant #3
Company
Partnership
Trust
Super Fund
PLEASE COMPLETE ADDRESS DETAILS
PO Box/RMB/Locked Bag/Care of (c/-)/Property name/Building name (if applicable)
Unit Number/Level
Street Number
Street Name
Suburb/City or Town
State
Postcode
Email address (only for purpose of electronic communication of shareholder information)
CHESS HIN (if you want to add this holding to a specific CHESS holder, write the number here)
E X
Please note: that if you supply a CHESS HIN but the name and address details on your Application Form do not correspond exactly with the
registration details held at CHESS, your Application will be deemed to be made without the CHESS HIN and any Shares issued as a result of
the Offer will be held on the issuer sponsored sub-register.
Telephone Number where you can be contacted during Business Hours
F
(
Contact Name (PRINT)
)
Cheques or bank drafts should be drawn up according to the instructions given by your Broker.
G
Cheque or Bank Draft Number
BSB
Account Number
Total Amount
A$
,
LODGEMENT INSTRUCTIONS
You must return your application so it is received by your Broker by the deadline set out in their offer to you.
,
.
GRS BRO001
Your Guide to the Application Form
Please complete all relevant white sections of the Application Form in BLOCK LETTERS, using black or blue ink. These instructions are cross-referenced
to each section of the form.
The Shares to which this Application Form relates to an initial public offer of Shares in Greenstone Limited. Further details about the Shares are contained
in the Prospectus dated 25 May 2015 issued by Greenstone Limited and by Greenstone SaleCo Pty Ltd. The Prospectus will expire on the date which is 13
months after the Prospectus Date. While the Prospectus is current, Greenstone Limited will send paper copies of the Prospectus, any supplementary document
and the Application Form, free of charge on request.
The Australian Securities and Investments Commission requires that a person who provides access to an electronic application form must provide access,
by the same means and at the same time, to the relevant Prospectus. This Application Form is included in the Prospectus.
The Prospectus contains important information about investing in the Shares. You should read the Prospectus before applying for Shares.
A Insert the relevant amount of Application Monies you wish to apply for.
Amounts should be in Australian dollars. Please make sure the amount
of your cheque or bank draft equals this amount.
B Write the full name you wish to appear on the register of Shares. This
must be either your own name or the name of a company. Up to three
joint Applicants may register. You should refer to the table below for the
correct registrable title.
C Enter your Tax File Number (TFN) or exemption category. Business
enterprises may alternatively quote their Australian Business Number
(ABN). Where applicable, please enter the TFN or ABN for each joint
Applicant. Collection of TFN(s) and ABN(s) is authorised by taxation
laws. Quotation of TFN(s) and ABN(s) is not compulsory and will not
affect your Application. However, if these are not provided, Greenstone
Limited will be required to deduct tax at the highest marginal rate of tax
(including the Medicare Levy) from payments.
D Please enter your postal address for all correspondence. All communications
to you from Greenstone Limited and the Share Registry will be mailed
to the person(s) and address as shown. For joint Applicants, only one
address can be entered.
E
If you are already a CHESS participant or sponsored by a CHESS
participant, write your Holder Identification Number (HIN) here. If the
name or address recorded on CHESS for this HIN is different to the
details given on this form, your Shares will be issued to Greenstone
Limited’s issuer sponsored subregister.
F
Please enter your telephone number(s), area code and contact name in
case we need to contact you in relation to your Application.
G Please complete the details of your cheque or bank draft in this section.
The total amount of your cheque or bank draft should agree with the
amount shown in section A.
If you receive a firm allocation of Shares from your Broker make your
cheque payable to your Broker in accordance with their instructions.
ACKNOWLEDGEMENTS/DECLARATIONS
I/we declare, represent and warrant that by lodging this Application Form,
I/we have read and understood the Prospectus to which this Application
Form relates and agree to be bound by the terms and conditions of the Offer
as set out in the Prospectus and that all declarations, details and statements
made by me/us are complete and accurate. I/we acknowledge that the price
that successful Applicants in the Broker Firm Offer will pay will be the Final
Price. I/we agree to be bound by the Constitution of Greenstone Limited. By
lodging this Application Form, I/we represent, warrant and agree that I/we
am/are and each person on whose behalf I am/we are submitting this
Application Form is named on the front of this Application Form and has a
registered address in Australia or New Zealand and is not located in the
United States and is not acting for the account or benefit of any person in
the United States. I/we understand that the Shares have not been, and will
not be, registered under the US Securities Act or the securities laws of any
state or other jurisdiction of the United States, and accordingly, the Shares
may not be offered, sold or resold in the United States or in any other
jurisdiction outside Australia or New Zealand except in transactions exempt
from or not subject to registration under the US Securities Act and in
compliance with all applicable laws in the jurisdiction in which such Shares
are offered and sold. I/we have not, and I/we agree that I/we will not, send
this Application Form or any materials relating to the offer to any person in
the United States; and I/we hereby authorise Greenstone Limited to complete
and execute any documents necessary to effect transfer or allotment of any
shares.
CORRECT FORMS OF REGISTRABLE NAMES
Note that ONLY legal entities are allowed to hold Shares. Applications must be in the name(s) of natural persons or companies. At least one full given name
and the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an account
designation if completed exactly as described in the examples of correct forms below.
Type of Investor
Correct Form of Registration
Incorrect Form of Registration
Individual
Use given names in full, not initials
Mrs Katherine Clare Edwards
K C Edwards
Company
Use Company’s full title, not abbreviations
Liz Biz Pty Ltd
Liz Biz P/L or Liz Biz Co.
Joint Holdings
Use full and complete names
Mr Peter Paul Tranche &
Ms Mary Orlando Tranche
Peter Paul &
Mary Tranche
Trusts
Use the trustee(s) personal name(s)
Mrs Alessandra Herbert Smith
<Alessandra Smith A/C>
Alessandra Smith
Family Trust
Deceased Estates
Use the executor(s) personal name(s)
Ms Sophia Garnet Post &
Mr Alexander Traverse Post
<Est Harold Post A/C>
Mrs Sally Hamilton
<Henry Hamilton>
Estate of late Harold Post
or
Harold Post Deceased
Master Henry Hamilton
Fred Smith & Son
Long Names
Mr Frederick Samuel Smith &
Mr Samuel Lawrence Smith
<Fred Smith & Son A/C>
Mr Hugh Adrian John Smith-Jones
Clubs/Unincorporated Bodies/Business Names
Use office bearer(s) personal name(s)
Mr Alistair Edward Lilley
<Vintage Wine Club A/C>
Vintage Wine Club
Superannuation Funds
Use the name of the trustee of the fund
XYZ Pty Ltd
<Super Fund A/C>
XYZ Pty Ltd
Superannuation Fund
Minor (a person under the age of 18 years)
Use the name of a responsible adult with an appropriate designation
Partnerships
Use the partners’ personal names
Mr Hugh A J Smith Jones
Put the name(s) of any joint Applicant(s) and/or account description using < > as indicated above in designated spaces at section B on the Application Form.
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Broker Code
Adviser Code
ACN 075 949 432
Broker Firm Offer Application Form
This is an Application Form for Shares in Greenstone Limited under the Broker Firm Offer on the terms set out in the Prospectus dated 25 May
2015. All defined terms in this Application Form have the meaning given in the Prospectus, unless stated otherwise. The minimum and
maximum Applications under the Broker Firm Offer are as determined by your Broker. This Application Form and your cheque or bank draft
must be received by your Broker by the deadline set out in their offer to you.
This Application Form does not constitute an offer of securities in the United States or to any person to whom it would not be lawful outside
Australia. The securities referred to herein have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the
“US Securities Act”) or under the securities laws of any state or other jurisdiction of the United States. Any securities described in, or sold
pursuant to, this Application Form may not be offered or sold in the United States absent registration under the US Securities Act or pursuant
to an applicable exemption from registration, or to any person to whom it would not be lawful outside Australia.
The Application Form must not be released or distributed in the United States, or in any jurisdiction outside of Australia where distribution may
be restricted by law.
If you are in doubt as to how to deal with this Application Form, please contact your accountant, lawyer, stockbroker or other
professional adviser. The Prospectus contains information relevant to a decision to invest in Shares and you should read the entire
Prospectus carefully before applying for Shares.
Application Monies
A
B
A$
,
,
.
PLEASE COMPLETE YOUR DETAILS BELOW (refer overleaf for correct forms of registrable names)
Applicant #1 – Surname/Company Name
Title
First Name
Middle Name
Joint Applicant #2 – Surname
Title
First Name
Middle Name
Designated account e.g. <Super Fund> (or Joint Applicant #3)
C
TFN/ABN/Exemption Code – First Applicant
Joint Applicant #2
TFN/ABN type – if NOT an individual, please mark the appropriate box
D
Joint Applicant #3
Company
Partnership
Trust
Super Fund
PLEASE COMPLETE ADDRESS DETAILS
PO Box/RMB/Locked Bag/Care of (c/-)/Property name/Building name (if applicable)
Unit Number/Level
Street Number
Street Name
Suburb/City or Town
State
Postcode
Email address (only for purpose of electronic communication of shareholder information)
CHESS HIN (if you want to add this holding to a specific CHESS holder, write the number here)
E X
Please note: that if you supply a CHESS HIN but the name and address details on your Application Form do not correspond exactly with the
registration details held at CHESS, your Application will be deemed to be made without the CHESS HIN and any Shares issued as a result of
the Offer will be held on the issuer sponsored sub-register.
Telephone Number where you can be contacted during Business Hours
F
(
Contact Name (PRINT)
)
Cheques or bank drafts should be drawn up according to the instructions given by your Broker.
G
Cheque or Bank Draft Number
BSB
Account Number
Total Amount
A$
,
LODGEMENT INSTRUCTIONS
You must return your application so it is received by your Broker by the deadline set out in their offer to you.
,
.
GRS BRO001
Your Guide to the Application Form
Please complete all relevant white sections of the Application Form in BLOCK LETTERS, using black or blue ink. These instructions are cross-referenced
to each section of the form.
The Shares to which this Application Form relates to an initial public offer of Shares in Greenstone Limited. Further details about the Shares are contained
in the Prospectus dated 25 May 2015 issued by Greenstone Limited and by Greenstone SaleCo Pty Ltd. The Prospectus will expire on the date which is 13
months after the Prospectus Date. While the Prospectus is current, Greenstone Limited will send paper copies of the Prospectus, any supplementary document
and the Application Form, free of charge on request.
The Australian Securities and Investments Commission requires that a person who provides access to an electronic application form must provide access,
by the same means and at the same time, to the relevant Prospectus. This Application Form is included in the Prospectus.
The Prospectus contains important information about investing in the Shares. You should read the Prospectus before applying for Shares.
A Insert the relevant amount of Application Monies you wish to apply for.
Amounts should be in Australian dollars. Please make sure the amount
of your cheque or bank draft equals this amount.
B Write the full name you wish to appear on the register of Shares. This
must be either your own name or the name of a company. Up to three
joint Applicants may register. You should refer to the table below for the
correct registrable title.
C Enter your Tax File Number (TFN) or exemption category. Business
enterprises may alternatively quote their Australian Business Number
(ABN). Where applicable, please enter the TFN or ABN for each joint
Applicant. Collection of TFN(s) and ABN(s) is authorised by taxation
laws. Quotation of TFN(s) and ABN(s) is not compulsory and will not
affect your Application. However, if these are not provided, Greenstone
Limited will be required to deduct tax at the highest marginal rate of tax
(including the Medicare Levy) from payments.
D Please enter your postal address for all correspondence. All communications
to you from Greenstone Limited and the Share Registry will be mailed
to the person(s) and address as shown. For joint Applicants, only one
address can be entered.
E
If you are already a CHESS participant or sponsored by a CHESS
participant, write your Holder Identification Number (HIN) here. If the
name or address recorded on CHESS for this HIN is different to the
details given on this form, your Shares will be issued to Greenstone
Limited’s issuer sponsored subregister.
F
Please enter your telephone number(s), area code and contact name in
case we need to contact you in relation to your Application.
G Please complete the details of your cheque or bank draft in this section.
The total amount of your cheque or bank draft should agree with the
amount shown in section A.
If you receive a firm allocation of Shares from your Broker make your
cheque payable to your Broker in accordance with their instructions.
ACKNOWLEDGEMENTS/DECLARATIONS
I/we declare, represent and warrant that by lodging this Application Form,
I/we have read and understood the Prospectus to which this Application
Form relates and agree to be bound by the terms and conditions of the Offer
as set out in the Prospectus and that all declarations, details and statements
made by me/us are complete and accurate. I/we acknowledge that the price
that successful Applicants in the Broker Firm Offer will pay will be the Final
Price. I/we agree to be bound by the Constitution of Greenstone Limited. By
lodging this Application Form, I/we represent, warrant and agree that I/we
am/are and each person on whose behalf I am/we are submitting this
Application Form is named on the front of this Application Form and has a
registered address in Australia or New Zealand and is not located in the
United States and is not acting for the account or benefit of any person in
the United States. I/we understand that the Shares have not been, and will
not be, registered under the US Securities Act or the securities laws of any
state or other jurisdiction of the United States, and accordingly, the Shares
may not be offered, sold or resold in the United States or in any other
jurisdiction outside Australia or New Zealand except in transactions exempt
from or not subject to registration under the US Securities Act and in
compliance with all applicable laws in the jurisdiction in which such Shares
are offered and sold. I/we have not, and I/we agree that I/we will not, send
this Application Form or any materials relating to the offer to any person in
the United States; and I/we hereby authorise Greenstone Limited to complete
and execute any documents necessary to effect transfer or allotment of any
shares.
CORRECT FORMS OF REGISTRABLE NAMES
Note that ONLY legal entities are allowed to hold Shares. Applications must be in the name(s) of natural persons or companies. At least one full given name
and the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an account
designation if completed exactly as described in the examples of correct forms below.
Type of Investor
Correct Form of Registration
Incorrect Form of Registration
Individual
Use given names in full, not initials
Mrs Katherine Clare Edwards
K C Edwards
Company
Use Company’s full title, not abbreviations
Liz Biz Pty Ltd
Liz Biz P/L or Liz Biz Co.
Joint Holdings
Use full and complete names
Mr Peter Paul Tranche &
Ms Mary Orlando Tranche
Peter Paul &
Mary Tranche
Trusts
Use the trustee(s) personal name(s)
Mrs Alessandra Herbert Smith
<Alessandra Smith A/C>
Alessandra Smith
Family Trust
Deceased Estates
Use the executor(s) personal name(s)
Ms Sophia Garnet Post &
Mr Alexander Traverse Post
<Est Harold Post A/C>
Mrs Sally Hamilton
<Henry Hamilton>
Estate of late Harold Post
or
Harold Post Deceased
Master Henry Hamilton
Fred Smith & Son
Long Names
Mr Frederick Samuel Smith &
Mr Samuel Lawrence Smith
<Fred Smith & Son A/C>
Mr Hugh Adrian John Smith-Jones
Clubs/Unincorporated Bodies/Business Names
Use office bearer(s) personal name(s)
Mr Alistair Edward Lilley
<Vintage Wine Club A/C>
Vintage Wine Club
Superannuation Funds
Use the name of the trustee of the fund
XYZ Pty Ltd
<Super Fund A/C>
XYZ Pty Ltd
Superannuation Fund
Minor (a person under the age of 18 years)
Use the name of a responsible adult with an appropriate designation
Partnerships
Use the partners’ personal names
Mr Hugh A J Smith Jones
Put the name(s) of any joint Applicant(s) and/or account description using < > as indicated above in designated spaces at section B on the Application Form.
CORPORATE DIRECTORY
COMPANY’S REGISTERED OFFICE
AUSTRALIAN LEGAL ADVISER
Greenstone Limited
Gilbert + Tobin
Ground Floor, 58 Norwest Boulevard
Bella Vista NSW 2153
Australia
Level 37, 2 Park Street
Sydney NSW 2000
Australia
JOINT LEAD MANAGERS
INVESTIGATING ACCOUNTANT
Goldman Sachs Australia Pty Ltd
Deloitte Corporate Finance Pty Limited
Level 46, Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Australia
225 George Street
Sydney NSW 2000
Australia
Macquarie Capital (Australia) Limited
Level 4, 50 Martin Place
Sydney NSW 2000
Australia
CO-LEAD MANAGERS
Citigroup Global Markets Pty Ltd
Level 23, 2 Park Street
Sydney NSW 2000
Australia
Deutsche Bank AG, Sydney Branch
Level 16, Deutsche Bank Place
126 Phillip Street
Sydney NSW 2000
Australia
J.P. Morgan Australia Ltd
85 Castlereagh Street
Sydney NSW 2000
Australia
SHARE REGISTRY
Link Market Services Ltd
Level 12, 680 George Street
Sydney NSW 2000
Australia
INDEPENDENT AUDITOR
Deloitte Touche Tohmatsu
225 George Street
Sydney NSW 2000
Australia
CONSULTING ACTUARY
Deloitte Actuaries & Consultants Limited
225 George Street
Sydney NSW 2000
Australia
AUSTRALIAN TAX ADVISER
PricewaterhouseCoopers
Darling Park Tower 2
201 Sussex Street
Sydney NSW 2000
Australia
GREENSTONE OFFER INFORMATION LINE
Toll free within Australia 1800 285 677
Outside Australia +61 1800 285 677
Between 8.30am and 5.30pm (AEST),
Monday to Friday
OFFER WEBSITE
www.greenstone.com.au