Alamo Group Inc.
Annual Report 2015

Plain-text annual report

CONTACT DETAILS REGISTRY Level 16, 61 Lavender Street Milsons Point NSW 2061 AUSTRALIA Telephone +61 2 9409 3670 Investor Services 1800 ARDENT Fax +61 2 9409 3670 www.ardentleisure.com.au c/- Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235 Telephone 1300 720 560 registrars@linkmarketservices.com.au Ardent Leisure Trust ARSN 093 193 438 Ardent Leisure Limited ABN 22 104 529 106 Ardent Leisure Management Limited ABN 36 079 630 676 (AFS Licence No. 247010) ASX RELEASE  17 September 2015  The Manager  Company Notices Section  ASX Limited  20 Bridge Street  SYDNEY     NSW 2000  Dear Sir/Madam  2015 Annual Report, Corporate Governance Statement and Appendix 4G  In accordance with Listing Rule 4.7, please find attached, for release to the market, the Ardent Leisure  Group Annual Report 2015, the Corporate Governance Statement and Appendix 4G.   Yours faithfully  Alan Shedden  Company Secretary  Ardent Leisure Group is a specialist operator of leisure and entertainment assets across Australia, New Zealand and the United  States.  The Group owns and operates Dreamworld, WhiteWater World, SkyPoint, SkyPoint Climb, d’Albora Marinas, Hypoxi Body  Contouring, Goodlife health clubs, AMF and Kingpin bowling centres across Australia and New Zealand.  The Group also operates  Main Event Entertainment, the fastest growing family entertainment chain in the United States. For further information on the  Group’s activities please visit our website at www.ardentleisure.com.au   AMF Bowling | d’Albora Marinas | Dreamworld | Goodlife Health Clubs | Hypoxi   Kingpin Bowling | Main Event Entertainment | SkyPoint | SkyPoint Climb | WhiteWater World  For personal use only                                           Annual Financial Report for the year ended 30 June 2015 The financial report was authorised for issue by the Directors of Ardent Leisure Management Limited and Ardent Leisure Limited on 18 August 2015. The Directors have the power to amend and reissue the financial report. For personal use only For personal use only Financial Report Summary of significant accounting policies Ardent Leisure Trust and Ardent Leisure Limited formation Revenue from operating activities Borrowing costs Property expenses Net gain/(loss) from derivative financial instruments Receivables   Other assets   Derivative financial instruments Inventories Property held for sale   Distributions and dividends paid and payable Investment properties Property, plant and equipment Livestock Intangible assets   Management fees Other expenses Remuneration of auditor Income tax expense Earnings per security/share Directors’ report to stapled security holders Income Statements Statements of Comprehensive Income Balance Sheets Statements of Changes in Equity Statements of Cash Flows Notes to the financial statements 1.  2. 3. 4. 5.  6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.  Deferred tax assets 23.  Payables 24.  Interest bearing liabilities 25.  Provisions 26.  Other liabilities 27.  Deferred tax liabilities 28.  Contributed equity 29.  30. 31. 32. 33. 34. 35. 36. 37. 38.  Capital and financial risk management 39.  40.  Contingent liabilities 41.  Capital and lease commitments 42.  Deed of Cross Guarantee 43.  Parent entity financial information 44.  Events occurring after reporting date Directors’ declaration to stapled security holders Independent auditor’s report to stapled security holders Investor Analysis Investor Relations Corporate Directory   Business combinations   Cash and cash equivalents   Cash flow information   Net tangible assets Security-based payments Reserves Retained profits/(accumulated losses) Related party disclosures Segment information Fair value measurement 2  36  37  38  39  40  41  41  56  56  56  56  57  57  58  58  59  60  62  62  63  64  64  65  65  66  68  68  72  73  73  76  77  77  78  79  86  87  88  91  91  92  92  94  99  107  110  110  112  114  115  116  117  119  120  121  Ardent Leisure Group | Annual Report 2015 1 For personal use only                                       Directors’ report to stapled security holders Directors’ report to stapled security holders The Directors of Ardent Leisure Management Limited (Manager), (as responsible entity of Ardent Leisure Trust) and the Directors of Ardent Leisure Limited present their report together with the consolidated financial report of Ardent Leisure Group (Group or Consolidated Group) and the consolidated financial report of Ardent Leisure Limited Group (ALL Group) for the year ended 30 June 2015. The financial report of the Group comprises of Ardent Leisure Trust (Trust) and its controlled entities including Ardent Leisure Limited (ALL or Company) and its controlled entities. The financial report of the ALL Group comprises of Ardent Leisure Limited and its controlled entities. Ardent Leisure Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are Level 16, 61 Lavender Street, Milsons Point, NSW 2061. The units of the Trust and the shares of ALL are combined and issued as stapled securities in the Group. The units of the Trust and shares of ALL cannot be traded separately and can only be traded as stapled securities. Although there is no ownership interest between the Trust and ALL, the Trust is deemed to be the parent entity of the Group under Australian Accounting Standards. 1. Directors The following persons have held office as Directors of the Manager and ALL during the period and up to the date of this report: Neil Balnaves AO (Chair); Roger Davis; David Haslingden (appointed 6 July 2015); Anne Keating (retired 29 October 2014); Don Morris AO; Greg Shaw (retired 10 March 2015); Deborah Thomas; George Venardos; and Melanie Willis (appointed 17 July 2015). 2. Principal activities The Group’s principal activity is to invest in and operate leisure and entertainment businesses in Australia, New Zealand and the United States. There were no significant changes in the nature of the activities of the Group during the year. 3. Distributions The total distribution of income for the year ended 30 June 2015 will be 12.5 cents (2014: 13.0 cents) per stapled security which will be paid by the Group. An interim distribution of 7.0 cents (2014: 6.8 cents) per stapled security was paid in February 2015. This comprised a distribution paid by the Trust of 4.0 cents (31 December 2013: 6.8 cents) and a dividend paid by the Company of 3.0 cents (31 December 2013: nil) per stapled security. A final distribution for the year ended 30 June 2015 of 5.5 cents (2014: 6.2 cents) per stapled security will be paid by the Trust in August 2015. A provision has not been recognised in the financial statements at 30 June 2015 as this distribution had not been declared at the reporting date. During the year, a subsidiary of ALL paid to the Trust $1.6 million (2014: $3.9 million) relating to convertible notes which are classified as equity under Australian Accounting Standards. 4. Operating and financial review Overview The Group’s strategy is to focus primarily on domestic leisure segments with mass market appeal. The Group‘s operations are diversified through its five core operating divisions, being family entertainment centres in the US, bowling centres, marinas, theme parks and health clubs. The Group’s theme parks and marinas divisions occupy strategic positions within their respective markets while the other three divisions provide well established operating platforms with organic growth opportunities to roll out new sites or make “bolt-on” acquisitions as conditions permit. During the year, the Group acquired eight health clubs in Western Australia for $32.0 million. The Group also acquired Playtime Highpoint, an amusement arcade at Highpoint, Victoria for $2.5 million and the exclusive US and Canadian distribution and master franchise rights for the Hypoxi targeted weight loss business for $0.8 million. In addition, the Group acquired two Hypoxi studios in Randwick, NSW and Ballantyne, North Carolina for a total of $0.4 million. Refer to Note 32 to the financial statements. 2 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Overview (continued) During the year, the Group also closed two bowling centres at Randwick, NSW and Chadstone, Victoria and disposed of a further bowling centre at Launceston, Tasmania for $0.3 million. In June 2015, the Group completed the sale and leaseback of three family entertainment centres at Tulsa and Oklahoma City, Oklahoma and San Antonio West, Texas, realising proceeds of US$32.0 million and a gain on disposal of US$5.3 million. Group results The performance of the Consolidated Group, as represented by the aggregated results of its operations for the year, was as follows: Family entertainment centres Bowling centres Marinas Theme parks Health clubs Other Total Depreciation and amortisation* Divisional EBIT Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, intangible asset amortisation and impairment of property, plant and equipment and intangible assets not included in divisional EBIT Valuation loss - investment properties Valuation gains - property, plant and equipment Loss on closure of bowling centres Loss on disposal of assets Gain on sale and leaseback of family entertainment centres Net gain/(loss) from derivative financial instruments Interest income Corporate costs Business acquisition costs Borrowing costs Net tax expense Profit Segment revenues 2015 $’000 177,123 116,510 22,952 99,571 178,388 59 594,603 Segment revenues 2014 $’000 98,121 113,889 23,466 100,139 164,070 18 499,703 Segment EBITDA* 2015 $’000 45,657 13,989 10,150 32,015 28,152 49 130,012 (36,998) 93,014 (32,122) (501) - (104) (523) 6,959 552 121 (15,056) (1,938) (11,333) (6,947) 32,122 Segment EBITDA* 2014 $’000 24,714 13,765 10,396 32,799 33,990 (1) 115,663 (27,148) 88,515 (19,020) - 8,590 (1,579) (453) 379 (613) 211 (12,545) (277) (11,330) (2,876) 49,002 Core earnings (Note 11 to the financial statements) 56,234 58,153 * Segment earnings before interest, tax, depreciation and amortisation (EBITDA) excludes pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, amortisation of intangible assets and impairment of property, plant and equipment and intangible assets. IFRS depreciation represents depreciation recorded under Australian Accounting Standards effective 1 July 2005 on property, plant and equipment which were previously classified as investment properties. Management believes that adjusting the segment result for these items allows the Group to more effectively compare underlying performance against prior periods and between divisions. Segment EBRITDA, which represents segment EBITDA before property costs, is another measure used by management to assess the trading performance of divisions excluding the impact of property costs. Profit for the year decreased by $16.9 million, or 34.4%, to $32.1 million, mainly due to the following factors:  Depreciation (including IFRS depreciation) and amortisation of property, plant and equipment and software increased by $12.4 million in the current year to $48.1 million;  Impairment of property, plant and equipment and intangible assets of $2.8 million, and onerous lease costs of $2.6 million were incurred in the current year;  Pre-opening costs increased by $3.9 million to $6.5 million;  There was a revaluation loss of $0.5 million on investment properties compared to a gain of $8.6 million on property, plant and equipment in the prior year;  Corporate costs increased by $2.5 million to $15.1 million; and  There was a $4.1 million increase in tax expense for the year largely due to growth in profit from US operations. Ardent Leisure Group | Annual Report 2015 3 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Group results (continued) However, this was partially offset by the following factors:  Revenue from operating activities increased by $94.9 million, or 19.0%, to $594.6 million and divisional EBITDA increased by $14.3 million, or 12.4%, to $130.0 million. Further commentary on divisional results is set out separately below;  There was a $7.0 million gain on the sale and leaseback on three Main Event family entertainment centres; and  There was a net gain of $0.6 million from derivative financial instruments in the current year compared to a net loss $0.6 million in the prior year. The above factors also delivered a decrease in core earnings of $1.9 million, or 3.3%, to $56.2 million. Core earnings (as defined in Note 11 to the financial statements) represents the earnings of the Group after adding back unrealised items (such as unrealised gains or losses on derivatives and unrealised valuation gains and losses on investment property and property, plant and equipment), straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, impairment of property, plant and equipment and intangible assets, amortisation of intangible assets and one off realised items. Family entertainment centres The performance of Main Event’s family entertainment centres is summarised as follows: Total revenue EBRITDA (excluding pre-opening expenses) Operating margin Property costs EBITDA 2015 US$'000 143,612 52,043 36.2% (15,352) 36,691 2014 US$'000 89,254 33,513 37.5% (11,112) 22,401 Change % 60.9 55.3 38.2 63.8 During the year, total US dollar revenue grew by 60.9%, driving EBITDA growth of 63.8% as a result of strong constant centre performance and the success of new centres opened over the last 12 months as set out below: Constant centres New centres Corporate and regional office expenses/sales and marketing Total Revenue 2015 US$'000 83,783 59,829 - 143,612 Revenue 2014 US$'000 77,354 11,900 - 89,254 Change % 8.3 402.8 - 60.9 EBRITDA 2015 US$'000 38,394 25,567 (11,918) 52,043 EBRITDA 2014 US$'000 35,019 5,276 (6,782) 33,513 Change % 9.6 384.6 75.7 55.3 Constant centre revenue growth of 8.3% was assisted by a new core food menu, bar remodels and increased amusement game contribution. Value-based promotions, growth in corporate, group and social league events and ongoing focus on customer satisfaction has driven guest spend. Six new centres were opened during the year, in which the average revenue of new centres has substantially exceeded the average of the constant centres. Main Event now has six out of 20 centres operating successfully outside of Texas. Construction has started on five new sites with design and construction documents completed on a further two new sites due to open in FY16. Negotiations are underway for a further eight sites to open in FY17. An institutional real estate investor has agreed to fund up to US$100 million of new centre developments. The family entertainment centres division will continue to actively pursue opportunities for additional new sites in FY16 and FY17. 4 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Bowling centres The division recorded total revenues of $116.5 million, being an increase of 2.3% compared to the prior year. EBITDA grew by 1.6% through a combination of modest constant centre growth and growth from acquisitions. Excluding one-off make good costs for the closures of Randwick and Richmond bowling centres, EBITDA grew by 5%. Operating margin has increased from 34.2% to 34.6% in FY15. The performance of bowling centres is summarised as follows: Total revenue EBRITDA (excluding pre-opening expenses) Operating margin Property costs (excluding straight-line rent and onerous lease costs) EBITDA A further analysis of bowling centres performance is summarised as follows: Constant centres Centres closed New centres /acquisitions Corporate and regional office expenses/sales and marketing Total Revenue 2015 $'000 110,206 1,377 4,874 Revenue 2014 $'000 109,755 3,816 288 53 116,510 30 113,889 Change % 0.4 (63.9) 1,592.4 76.7 2.3 2015 $'000 116,510 40,279 34.6% (26,290) 13,989 EBRITDA 2015 $'000 52,772 527 2,613 (15,633) 40,279 2014 $'000 113,889 38,907 34.2% (25,142) 13,765 EBRITDA 2014 $'000 51,381 1,568 157 (14,199) 38,907 Change % 2.3 3.5 4.6 1.6 Change % 2.7 (66.4) 1,564.3 10.1 3.5 Revenue and EBITDA growth were driven by initiatives launched during the year which include an online booking engine for social bowling and birthday parties, customer call centre for AMF, and a new food menu in the top 20 locations. Digital initiatives will continue to be executed, including a new website launched in July 2015 and mobile app planned for later in FY16. The acquisitions of City Amusements late in FY14 and Playtime Highpoint and a new Revesby bowling centre in the current year have contributed positively to the division’s results. In addition, a new Kingpin centre which opened on 1 August 2015 in Darwin has also recorded exceptional early trading results. The division is reviewing opportunities to convert key locations to multi attraction family entertainment centres and continuing to pursue further opportunities to acquire “stand alone” amusement arcades. During the year, the division exited three centres being Randwick, Chadstone and Launceston and will continue to evaluate divestment opportunities for any underperforming non-core centres. Marinas The performance of marinas is summarised as follows: Total revenue EBRITDA Operating margin Property costs EBITDA 2015 $'000 22,952 12,765 55.6% (2,615) 10,150 2014 $'000 23,466 12,944 55.2% (2,548) 10,396 Change % (2.2) (1.4) 2.6 (2.4) Revenue from marinas fell marginally by 2.2%, to $23.0 million, and EBITDA fell slightly by 2.4% to $10.2 million. Marina revenue principally comprises the following: Berthing Land Fuel and other Total 2015 $'000 12,865 5,220 4,867 22,952 2014 $'000 12,812 5,375 5,279 23,466 Change % 0.4 (2.9) (7.8) (2.2) Ardent Leisure Group | Annual Report 2015 5 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Marinas (continued) FY15 berthing revenue was impacted by lower occupancy at the Spit in fourth quarter of FY15 as a result of a $5 million redevelopment which is expected to complete in first quarter of FY16. Despite this, berthing occupancies increased from 84.2% in FY14 to 85.5% in FY15. Costs were well controlled with an operating margin of 55.6% compared to 55.2% in the prior year. Revenue was also impacted by vacancies at Nelson Bay and Pier 35 and weaker fuel sales during second half of FY15. Revenue uplift at The Spit from 24 new large berths is expected to be realised in second quarter of FY16. The marinas division will continue to focus on digital initiatives to improve customer engagement and retention as well as pursue opportunities to create value through selective redevelopment and refurbishment. Theme parks The performance of the theme parks is summarised as follows: Total revenue EBRITDA Operating margin Property costs EBITDA Attendance Per capita spend ($) 2015 $'000 99,571 33,163 33.3% (1,148) 32,015 2014 $'000 100,139 33,867 33.8% (1,068) 32,799 2,281,606 43.64 2,042,164 49.04 Change % (0.6) (2.1) 7.5 (2.4) 11.7 (11.0) Total revenue has slightly decreased by $0.6 million, or 0.6% to $99.6 million. Full year EBITDA earnings marginally decreased by 2.4% to $32.0 million. Theme parks have delivered a solid result despite unprecedented rainfall and the impact of Cyclone Marcia. This was assisted by a successful June 2016 pass marketing campaign and competitive pricing which has delivered incremented pass holder growth and strong continued growth from the two largest international markets being New Zealand and China. During the year, Dreamworld launched four new food and beverage outlets to further improve guest experience. Dreamworld was voted Queenslands Best Major Tourist attraction and Australia’s third most popular tourist attraction at the annual Australia Tourism awards. The strategy of the theme parks division is to grow revenue and earnings by continuing to invest in products which provide value and a unique experience to its customers, such as ABC Kids World which opened in June 2015 and Corroboree which has strong appeal to group, education and international markets. In addition further investment will continue to be made into digital technology, food and beverage and retail outlets to continue to improve the customer experience and drive increased spend. The SkyPoint business continues to perform well, with strong attendance growth lead by pass holders and international markets. Health clubs The performance of health clubs is summarised as follows: Total revenue EBRITDA (excluding pre-opening expenses) Operating margin Property costs (excluding straight-line rent and onerous lease costs) EBITDA 6 Ardent Leisure Group | Annual Report 2015 2015 $'000 178,388 72,543 40.7% (44,391) 28,152 2014 $'000 164,070 70,249 42.8% (36,259) 33,990 Change % 8.7 3.3 22.4 (17.2) For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Health clubs (continued) Revenue from our health clubs division increased by 8.7% to $178.4 million for the year, underpinned by the acquisition of the Fitness First WA portfolio in September 2014. Constant clubs Clubs closed New clubs/acquisitions Corporate and regional office expenses/sales and marketing Total Revenue 2015 $'000 148,541 173 26,839 Revenue 2014 $'000 158,370 569 4,193 2,835 178,388 938 164,070 Change % (6.2) (69.6) 540.1 202.2 8.7 EBRITDA 2015 $'000 73,702 34 13,319 EBRITDA 2014 $'000 81,044 161 1,793 (14,512) 72,543 (12,749) 70,249 Change % (9.1) (78.9) 642.8 13.8 3.3 During the year, the acquisition of eight fitness first clubs in Western Australia, together with the acquisition of the exclusive US and Canadian distribution and master franchise rights in the Hypoxi targeted weight loss business have contributed towards continued revenue growth in the current year. The Camberwell and Port Melbourne clubs, along with the initial acquisition of the Hypoxi business, have also contributed a full year of earnings in the current year, being acquired in the third quarter of the prior financial year. However, Health clubs EBITDA was down 17.2% for the year due to competition from 24/7 operators. On a constant club basis, earnings before property costs of $73.7 million were 9.1% lower than earnings of $81.0 million in the prior corresponding period. EBITDA trends have improved during the second half of FY15 underpinned by strong improvement in member attrition across the portfolio and improved sales results, particularly from the implementation of large format full service 24/7 club conversions. A change of product strategy has driven a stronger mix of higher value membership sales in the second half the year, including higher percentages of 12 and 18 month programs. 24/7 club conversions are on schedule with 15 clubs converted by end of June 2015. Sales in these clubs were up 34.3% and leavers down 18.1% on prior corresponding periods. A further 30 clubs are scheduled to be converted during FY16. The business will continue to further enhance its member service offering including providing unique in-club and online offerings and access to a new Goodlife digital 24/7 nutrition, fitness and health website. Six new Hypoxi studios are planned to open in Australia in FY16. In addition, the first of two new prototype Hypoxi US studios is expected to open in Scottsdale, Arizona in September 2015 to act as a flagship studio for the Hypoxi US business. Strategic focus Overall, the Group benefits from the diversity of its five core operating divisions. Each of the divisions has a growth strategy for FY16 with a common theme that offers customers quality affordable leisure experiences, innovative products and a consistently high level of customer service, customer engagement and importantly, value for money. Future earnings growth will be driven by four key operational strategies: Customer People Volume Efficiency We aim to be truly customer centric by using research, feedback and customer analytics to deliver more innovative and relevant customer experiences that meet the ever-changing needs of our customers. To create awesome, highly valued leisure experiences that encourage more people, to visit more often and spend more with us. To deliver enhanced customer service and satisfaction through “noticeably better people and culture” by providing all staff with superior training, development, reward and recognition. To drive increased volume with competitive value propositions, effective marketing, better customer service and loyalty rewards. Our aim is to maximise capacity without impacting margin. To produce greater operational efficiencies by leveraging Group buying capacity and volume. To create better outcomes and solutions for our customers and staff with investment in technology and effective IT systems. 5. Significant changes in the state of affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the Consolidated Group or ALL Group that occurred during the year not otherwise disclosed in this report or the financial statements. Ardent Leisure Group | Annual Report 2015 7 For personal use only Directors’ report to stapled security holders 6. Value of assets Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Value of total assets Value of net assets 996,507 579,482 853,007 505,502 499,065 151,007 366,403 84,476 The value of the Group’s and the ALL Group’s assets is derived using the basis set out in Note 1 to the financial statements. 7. Interests in the Group The movement in stapled securities of the Group during the year is set out below: Consolidated Group Consolidated Group 2015 2014 405,055,708 6,358,756 20,746,888 8,298,754 1,862,000 442,322,106 397,803,987 5,295,345 - - 1,956,376 405,055,708 Stapled securities on issue at the beginning of the year Stapled securities issued under Distribution Reinvestment Plan Stapled securities issued for Fitness First WA placement Stapled securities issued for Security Purchase Plan Stapled securities issued as part of ALL's employee security-based payments plans Stapled securities on issue at the end of the year 8. Information on current Directors Neil Balnaves AO Chair Appointed: Ardent Leisure Management Limited – 26 October 2001. Ardent Leisure Limited – 28 April 2003. Age: 71. Neil Balnaves was appointed as Chair of the Group in 2001. Neil has worked in the entertainment and media industries for over 50 years, previously holding the position of Executive Chairman of Southern Star Group Limited which he founded. Neil is a Trustee Member of Bond University and has an Honorary Degree of Doctor of the University. Neil is a Director of the Sydney Orthopaedic Research Institute and a member of the Advisory Council and Dean’s Circle of The University of New South Wales (Faculty of Medicine) and in 2010 received an Honorary Doctorate of the University. Neil is a Board member of the Art Gallery of South Australia, is a Director of Technicolor Australia Limited and serves on the boards of numerous advisory and community organisations and is a Foundation Fellow of the Australian Institute of Company Directors. Neil’s former directorships include Hanna-Barbera Australia, Reed Consolidated Industries, Hamlyn Group, Taft Hardie and Southern Cross Broadcasting. In 2006, Neil established The Balnaves Foundation, a philanthropic fund that focuses on education, medicine and the arts. In 2010, Neil was appointed an Officer of the Order of Australia for his services to business and philanthropy. Neil is non-executive Chair of the Group and a member of both the Remuneration and Nomination Committee and the Audit and Risk Committee. Former listed directorships in last three years: None. Interest in stapled securities: 2,801,510. 8 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 8. Information on current Directors (continued) Roger Davis Director Appointed: Ardent Leisure Management Limited – 1 September 2009. Ardent Leisure Limited – 28 May 2008. Age: 63. Roger Davis was appointed a Director of the Company in 2008. Roger brings to the Board over 35 years of experience in banking and investment banking in Australia, the US and Japan. Roger is presently Chairman of the Bank of Queensland and a Consulting Director at Rothschild (Australia) Limited and holds non-executive directorships at Argo Investments Limited, Aristocrat Leisure Limited and AIG Australia Limited. Previously, he was Managing Director at Citigroup where he worked for over 20 years and more recently was a Group Managing Director at ANZ Banking Group. Roger’s former directorships include the chairmanship of Esanda, along with directorships of ANZ (New Zealand) Limited, Charter Hall Office Management Limited (the manager for Charter Hall Office REIT), The Trust Company Limited, TIO Limited and Citicorp Securities Inc. in the United States. Roger holds a BEc (Hons) from The University of Sydney and a Master of Philosophy from Oxford. Roger is Chair of the Safety, Sustainability and Environment Committee and is a member of both the Remuneration and Nomination Committee and the Audit and Risk Committee. Former listed directorships in last three years: The Trust Company Limited (resigned 30 November 2013). Interest in stapled securities: 200,658. David Haslingden Director Appointed: Ardent Leisure Management Limited – 6 July 2015. Ardent Leisure Limited – 6 July 2015. Age: 54. David Haslingden was appointed a Director of the Company and the Manager in July 2015. David is presently the Chairman and a non-executive director of Nine Entertainment Limited. David owns and operates a network of television production companies in Australia and overseas including Natural History New Zealand and Keshet Australia. He is also a director of US charity WildAid, having been Chairman for the eight years prior to 2015. Previously, David was President and Chief Operating Officer of Fox Networks Group and Chief Executive of Fox International Channels. David has also served as Chief Executive Officer of the National Geographic Channels business. David has sat on a number of industry boards in the United States including the National Cable and Telecommunications Association. David holds a BA and LLB from Sydney University and a LLM from the University of Cambridge. Former listed directorships in the last three years: None. Interest in stapled securities: Nil. Ardent Leisure Group | Annual Report 2015 9 For personal use only Directors’ report to stapled security holders 8. Information on current Directors (continued) Don Morris AO Director Appointed: Ardent Leisure Management Limited – 1 January 2012. Ardent Leisure Limited – 1 January 2012. Age: 70. Don Morris was appointed a Director of both the Company and the Manager in January 2012 and brings to the Board significant experience of advertising, marketing and promotion, particularly for tourism entities. Don was a founding principal of Mojo Australia Advertising, creators of several iconic Australian advertising campaigns, including ‘I Still Call Australia Home’ for Qantas, the Paul Hogan ‘Shrimp on the Barbie’ for Australian tourism and ‘C’mon Aussie C’mon’ for World Series Cricket. Don was the former Chair of the Sydney Olympics Community Support Commission and both the Australian Tourist Commission and Tourism Queensland. He is a former director of Mojo MDA Group Limited, RM Williams Limited, Harvey World Travel Limited, PMP Limited, the Tourism & Transport Forum, Tourism Asset Holdings Limited, Hamilton Island Enterprises Limited and Port Douglas Reef Resorts Limited. Don was appointed an Officer of the Order of Australia in 2002 for services to tourism and holds a Bachelor of Economics from Monash University. Don’s current directorships include Ausflag Limited and The Sport and Tourism Youth Foundation. He was appointed an Adjunct Professor in Tourism, Sport, and Hotel Management at Griffith University in 2012. In 2013, he received an Honorary Degree of Doctor of the University, and was appointed Chair of the Advisory Board of the Griffith Institute for Tourism (GIFT). Don is a member of the Remuneration and Nomination Committee and the Safety, Sustainability and Environment Committee. Former listed directorships in the last three years: None. Interest in stapled securities: 13,950. 10 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 8. Information on current Directors (continued) Deborah Thomas Managing Director and Chief Executive Officer Appointed: Ardent Leisure Management Limited – 1 December 2013. Ardent Leisure Limited – 1 December 2013. Age: 59. Deborah Thomas was appointed a Director of both the Company and the Manager in December 2013. On 10 March 2015, Deborah was appointed as the Managing Director and Chief Executive Officer of the Group and commenced in this role on 7 April 2015. One of Australia’s most successful publishing executives, Deborah brings over 28 years of experience in media to the role of Chief Executive Officer. A former Editor-in-Chief of The Australian Women’s Weekly, a position she held for almost a decade, Deborah has a deep understanding of product innovation, marketing, retail sales, advertising and digital development communications. As Editorial Director across Bauer Media's portfolio of Women’s Lifestyle magazines and Custom Publishing, Deborah was responsible for editorial direction, customer relationships, corporate marketing, public affairs, events and new revenue streams. These initiatives included licensed products for major brands in partnership with retail stores across Australia and New Zealand. Deborah was a director on the board of Post ACP, the company's joint venture between Bauer Media and the Bangkok Post (Thailand). She is currently Deputy Chair of the National Library of Australia. Former listed directorships in the last three years: None. Interest in stapled securities: 20,331. George Venardos Director Appointed: Ardent Leisure Management Limited – 22 September 2009. Ardent Leisure Limited – 22 September 2009. Age: 57. George Venardos was appointed a Director of both the Company and the Manager in September 2009. George is a Chartered Accountant with more than 35 years’ experience in finance, accounting, insurance and funds management. His former positions include Group Chief Financial Officer of Insurance Australia Group and, for 10 years, Chairman of the Finance and Accounting Committee of the Insurance Council of Australia. George also held the position of Finance Director of Legal & General Group in Australia and was named Insto Magazine’s CFO of the Year for 2003. George holds a Bachelor of Commerce in Accounting, Finance and Systems from The University of New South Wales. He is also a Fellow of The Institute of Chartered Accountants in Australia, the Australian Institute of Company Directors and the Taxation Institute of Australia. He holds a Diploma in Corporate Management and is a Fellow of the Governance Institute of Australia. George’s other ASX listed non-executive director positions include IOOF Holdings Limited and BluGlass Limited. George is Chair of both the Audit and Risk Committee and the Remuneration and Nomination Committee and is also a member of the Safety, Sustainability and Environment Committee. Former listed directorships in the last three years: Miclyn Express Offshore Limited (resigned 21 June 2013). Interest in stapled securities: 198,053. Ardent Leisure Group | Annual Report 2015 11 For personal use only Directors’ report to stapled security holders 8. Information on current Directors (continued) Melanie Willis Director Appointed: Ardent Leisure Management Limited – 17 July 2015. Ardent Leisure Limited – 17 July 2015. Age: 51. Melanie Willis was appointed a Director of both the Company and the Manager in July 2015 and brings to the Group significant experience in the global financial, investment banking and professional services sectors. Melanie has had extensive exposure to domestic and international leisure related businesses and is currently a non-executive director of Mantra Group and Pepper Group. Melanie recently held the position of Chief Executive Officer of NRMA Investments where she was responsible for the commercial businesses and overall group strategy. Previously, Melanie held non-executive directorships at Crowe Horwath Australasia Limited, Aevum Limited, Hydro Tasmania and Rhodium Asset Solutions Limited, as well as senior executive positions within Deutsche Bank and Bankers Trust Australia. Melanie holds a Bachelor of Economics from the University of Western Australia, a Masters of Law (Tax) from The University of Melbourne and a Company Director Diploma from the Australian Institute of Company Directors. In addition, Melanie has completed a leadership course at Harvard Business School, and is a member of both Chief Executive Women and the Big Issue Women’s Advisory Board. Former listed directorships in the last three years: Crowe Horwath Limited (resigned 30 October 2014). Interest in stapled securities: Nil. 9. Meetings of Directors The attendance at meetings of Directors of the Manager and ALL during the year is set out in the following table: Full meetings of Directors Audit and Risk Meetings of Committees Remuneration and Nomination Safety, Sustainability and Environment Eligible to attend 9 9 3 9 5 9 9 Attended 9 8 3 9 5 9 9 Eligible to attend 4 4 2 N/A N/A N/A 4 Attended 3 3 2 N/A N/A N/A 4 Eligible to attend 5 5 1 5 N/A 3 5 Attended 5 4 1 5 N/A 3 5 Eligible to attend N/A 4 N/A 3 3 N/A 4 Attended N/A 4 N/A 3 3 N/A 4 Neil Balnaves AO Roger Davis Anne Keating Don Morris AO Greg Shaw Deborah Thomas George Venardos 10. Company Secretary The Group’s Company Secretary is Alan Shedden. Alan was appointed to the position of Secretary of the Manager and ALL on 9 September 2009. Alan has over 17 years of experience as a Company Secretary and, prior to joining the Group, held positions at Brookfield Multiplex Limited and Orange S.A., the mobile telecommunications subsidiary of France Telecom S.A. Alan also acts as Group General Manager Corporate Services and provides guidance to the human resources, health and safety, insurance, Australian Financial Services (AFS) licence compliance and energy efficiency functions. Alan holds a degree in business studies and is a Fellow of the Institute of Chartered Secretaries and Administrators. 12 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. Remuneration report The Manager and the Directors of ALL present the remuneration report for the Group for the year ended 30 June 2015. The remuneration report is set out under the following main headings: (a) Key remuneration objectives; (b) Remuneration framework and strategy; (c) Details of remuneration – key management personnel; (d) Service agreements of key management personnel; (e) Deferred Short Term Incentive Plan (DSTI); Long Term Incentive Plan (LTIP); and (f) (g) Additional information. The information provided in the remuneration report has been audited as required by section 308 (3C) of the Corporations Act 2001. (a) Key remuneration objectives The objective of the Group’s executive framework is to attract and retain high quality executives by ensuring that executive remuneration is competitive with prevailing employment market conditions and also providing sufficient motivation by ensuring that remuneration is aligned to the Group’s results. In August 2014, the Board commissioned an independent remuneration review by Aon Hewitt which benchmarked the remuneration packages for certain key executives including the Chief Executive Officer. Following the presentation of this review, the Board resolved to increase the remuneration packages for key executives and implemented an increase in the LTIP target component for the Chief Executive Officer to ensure that the remuneration mix was consistent with market practice. The Board has adopted a process of annual benchmarking of key management personnel (KMP) and accordingly the Remuneration and Nomination Committee also commissioned independent benchmarking from Ernst & Young of the Chief Executive Officer roles in both family entertainment centres and health clubs. These reports resulted in the Board adopting revised package structures for these positions including the increase of the LTIP component and the adoption of a stretch target short term incentive (STI) mechanism. The stretch target STI operates purely in relation to the over-achievement of financial key performance indicators (KPIs) and allows participating executives the opportunity to receive 160% of their target STI if they exceed their financial KPIs by 120%. Delivery of the stretch payment is made through the issue of performance rights under the terms of the DSTI which vest into fully paid stapled securities over the following 1 and 2 years after grant. The transition of the Chief Executive Officer role from Greg Shaw to Deborah Thomas announced to the market on 10 March 2015 resulted in a review of roles and responsibilities for key executives in the Group. Following amendments made to the position description of the Chief Financial Officer, a benchmark exercise was undertaken of the new role and this resulted in the Board increasing the fixed remuneration of the Chief Financial Officer. Although none of the independent benchmarking reports constituted “remuneration recommendations” under the Corporations Act 2001, as a matter of good governance they were prepared independently and presented directly to the Remuneration and Nomination Committee. As a result, the Directors are satisfied that the reports were prepared in a manner free from undue influence by the Group’s KMP. Throughout this process, the Remuneration and Nomination Committee has sought to maintain the alignment of key executives with investors through the adoption of a total shareholder return (TSR) performance measure and a second performance measure for the LTIP based upon an internal compound earnings per security (EPS) growth target. This dual performance measure is designed to drive sustainable growth and provide meaningful security holdings for executive KMP and thus extend the Group’s long term approach to executive remuneration. Ardent Leisure Group | Annual Report 2015 13 For personal use only Directors’ report to stapled security holders 11. (a) Remuneration report (continued) Key remuneration objectives (continued) The components of the remuneration package of the Chief Executive Officer and other executive KMP for the financial year are set out in the table below: Position Name Annual base salary STI1 LTIP1 Cash Deferred equity Total annual target remuneration Deborah Thomas2 Richard Johnson3 Nicole Noye4 Greg Oliver Charlie Keegan5 Craig Davidson Greg Shaw6 Chief Executive Officer Chief Financial Officer CEO – Bowling centres CEO – Health clubs CEO – Main Event CEO – Theme parks Chief Executive Officer (1) Target STI and LTIP remuneration components are expressed as percentages of the annual base salary. (2) Deborah Thomas was appointed Chief Executive Officer effective 7 April 2015. (3) Annual base salary increased from $401,305 to $516,305 from 1 April 2015. (4) Appointed 16 June 2014. (5) Total target annual remuneration does not include stretch potential for over-achievement of financial KPIs. (6) The retirement of Greg Shaw as Chief Executive Officer was announced to the ASX on 10 March 2015 and he ceased to be considered KMP on 7 April 2015. $670,000 $516,305 $360,000 $460,000 US$400,000 $350,000 $800,000 50.00% 37.50% 15.00% 15.00% 30.00% 15.00% 40.00% $1,340,000 $1,097,148 $666,000 $851,000 US$800,000 $647,500 $1,720,000 25% 25% 35% 35% 35% 35% 25% 25% 50% 35% 35% 35% 35% 50% It should be noted that the base salary is considered secure and the STI and LTIP figures set out above are considered “at risk” and will only be paid if performance targets have been achieved. (b) Remuneration framework and strategy The Group’s remuneration framework seeks to align executive reward with the achievement of strategic objectives and in particular, the creation of sustainable value and earnings growth for investors. In addition, the Board seeks to have reference to market best practice to ensure that executive remuneration remains competitive, fair and reasonable. (i) Non-Executive Directors Fees paid to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non-Executive Directors’ fees are reviewed annually by the Board and the Remuneration and Nomination Committee. Non-Executive Directors are paid solely by the way of directors’ fees and do not participate in any equity or short term cash-based incentives schemes. Non-Executive Directors bring a depth of experience and knowledge to their roles and are a key component in the effective operation of the Board. The maximum aggregate of directors’ fees payable to Directors of the Group is set out in clause 16.1 of the Constitution of Ardent Leisure Limited. The maximum total aggregate level of directors’ fees payable by the Group is $1,200,000 per annum and was set by investors at the 30 October 2014 general meeting. The Board last reviewed the fee structure in December 2013 and this structure, which remains within the constitutional cap of $1,200,000 per annum (inclusive of superannuation), is as follows: Position Board Chair Other Non-Executive Director Audit and Risk Committee Other Committee - Chair - Member - Chair - Member Current annual fee $205,000 $120,000 $20,000 $15,000 $12,500 $7,500 14 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. (b) (ii) Remuneration report (continued) Remuneration framework and strategy (continued) Executive pay The executive pay and reward framework has three components:  base pay and benefits;  performance incentives; and  other remuneration such as superannuation. The combination of these comprises the executive’s total remuneration. Base pay Performance incentives STI LTIP Cash Deferred equity A total employment cost which can be made up of a mix of cash salary, employer superannuation contributions and non-financial benefits such as provision of a motor vehicle. The STI is a performance bonus set against pre- determined financial and personal key performance indicators. The STI paid is split into a cash bonus payment and a deferred equity component. The equity- based deferral of a component of the STI awarded is deferred over a period of one and two years. Equity incentives that vest in three tranches over a four year testing period and aligned to both targeted internal compound earnings per share growth and total shareholder return. SECURE AT RISK AT RISK Base pay Base pay includes salary, employer superannuation contributions and non-cash benefits such as provision of a motor vehicle. Base pay is reviewed annually to ensure that executive pay is competitive with the market. There are no guaranteed base pay increases in the contracts. Base pay is also reviewed on promotion. Performance incentives Performance incentives may be granted under the terms of both the STI and LTIP plans. The relative proportions of fixed remuneration and performance incentives for executives KMP are set out below: Position Chief Executive Officer Chief Financial Officer CEO – Bowling centres CEO – Health clubs CEO – Main Event CEO – Theme parks Chief Executive Officer Name Deborah Thomas1 Richard Johnson Nicole Noye Greg Oliver Charlie Keegan2 Craig Davidson Greg Shaw3 STI LTIP Base salary 50.00% 47.06% 54.05% 54.05% 50.00% 54.05% 46.51% Cash 12.50% 23.53% 18.92% 18.92% 17.50% 18.92% 23.26% Deferred equity 12.50% 11.76% 18.92% 18.92% 17.50% 18.92% 11.63% 25.00% 17.65% 8.11% 8.11% 15.00% 8.11% 18.60% (1) Deborah Thomas was appointed Chief Executive Officer effective 7 April 2015. (2) Cash STI excludes stretch potential for over-achievement of financial KPIs. (3) The retirement of Greg Shaw as Chief Executive Officer was announced to the ASX on 10 March 2015 and he ceased to be considered KMP on 7 April 2015. It should be noted that none of the Non-Executive Directors participates in the Group’s performance incentive plans. STI Cash The STI or bonus program is designed to reward executives for achievement of a number of key performance indicators (KPIs). These KPIs are split into financial and personal categories, with the financial measures based around earnings and revenue targets representing between 50% - 60% of an executive’s STI entitlement and personal measures representing the remainder. The percentage split between financial and personal measures varies between executives depending upon the outcomes and behaviours being driven. For executives who act in Group-wide roles, the financial KPIs are based on Group earnings and revenue related measures. In contrast, divisional earnings and revenue measures are used for those executives who occupy divisional roles. Ardent Leisure Group | Annual Report 2015 15 For personal use only Directors’ report to stapled security holders 11. (b) (ii) Remuneration report (continued) Remuneration framework and strategy (continued) Executive pay (continued) STI (continued) Cash (continued) Personal KPIs for executives are not financial in nature and are set around execution of improvements and initiatives in such functions as health and safety, risk management, compliance, relationship management, customer engagement, employee satisfaction, employee engagement and other strategic initiatives. Hypothetical examples of personal KPIs which may be used are set out in the table below: Strategy Sales and marketing People Innovation Health and safety Customer Refine and implement the Group’s strategic vision and target opportunities to take advantage of macro- environmental shifts in consumer interests and expectations of leisure experiences. Implement a divisional loyalty program to drive repeat visitation and develop cross promotional opportunities. Implement an end-to-end process for the collation of suitable consumer data to allow targeted customer segmentation, analysis and direct messaging to drive revenue. Provide leadership and create a culture of innovation, productivity and respect, with a strong focus on customer service. Demonstrate significant improvement in the top three areas for improvement identified in the annual staff engagement survey. Improve the level and timeliness of the Group’s internal and external communications. Identify and implement measures to increase the competency and level of talent across the Group. Incubate multiple new product development initiatives aimed at increasing visitation, customer spend and dwell time. Identify opportunities for the digital enhancement of the Group’s operational efficiency. Standardise the adoption and reporting of safety lead indicators to ensure that safety remains a priority across all divisions. Drive continued improvements in safety systems and culture to achieve meaningful improvements in safety outcomes. Establish customer feedback mechanisms to record and report customer service metrics to line management. The extent to which an executive achieves their personal and financial KPIs is assessed by the Remuneration and Nomination Committee based upon recommendations from the Chief Executive Officer. The resulting cash bonuses are traditionally payable in cash by 30 September each year. Using a combination of revenue and earnings targets ensures that STI payments are only available when sustainable value has been created for investors and profit is consistent with the Group’s business plan. Maximum achievable awards to KMP under the STI range between 50% - 75% of an executive’s base salary (including superannuation) dependent upon the executive’s position. Deferred equity A percentage of the actual STI paid to an executive may be deferred and settled in performance rights to acquire fully paid Group stapled securities for nil exercise price. These performance rights are issued under the terms of the Group’s Deferred Short Term Incentive plan rules and vest in two equal tranches in one year and two years. LTIP The LTIP awards performance rights ranging between 15.0% and 40.0% of an executive’s base salary (including superannuation) dependent upon the executive’s role. Further details of the LTIP are set out in section (f) below. (iii) Alignment with investor interests The Directors are committed to the alignment of executives’ remuneration with investors’ interests and seek to achieve this through the most appropriate mix of base pay and short and long term incentives. In the 2015 financial year, KMP KPIs were set to drive divisional and Group earnings, with targets set within the Group’s budgetary framework. In this way, the KPIs used to determine performance under the STI are used to align KMP remuneration with sustainable earnings growth and other operational long term goals. The deferral of a component of the STI into equity acts as a two year retention tool to ensure that earnings targets are not achieved at the expense of long term profitability and growth. 16 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. (b) (iii) Remuneration report (continued) Remuneration framework and strategy (continued) Alignment with investor interests (continued) The LTIP further aligns executives’ remuneration with long term investor returns through the total shareholder return performance hurdle. The LTIP is subject to the dual measures of total shareholder return and an internal compound EPS measure. In this way, the LTIP provides a direct link between executive reward and investor return and offers no benefit to individual executives unless the Group’s performance exceeds the 50th percentile of the benchmark Australian Securities Exchange (ASX) Small Industrials Index and a minimum compound EPS growth in the performance period. (c) Details of remuneration – key management personnel KMP are defined in AASB 124 Related Party Disclosures as those having authority and responsibility for planning, directing and controlling the activities of the Group. For the year ended 30 June 2015, the KMP for the Group comprise the Independent Directors and the following: Position Chief Executive Officer1 Chief Financial Officer CEO – Bowling centres CEO – Theme parks CEO – Main Event CEO – Health clubs Chief Executive Officer2 Name Deborah Thomas Richard Johnson Nicole Noye Craig Davidson Charlie Keegan Greg Oliver Greg Shaw (1) Deborah Thomas was appointed Chief Executive Officer effective 7 April 2015. (2) The retirement of Greg Shaw as Chief Executive Officer was announced to the ASX on 10 March 2015 and he ceased to be considered KMP on 7 April 2015. Details of the remuneration of KMP of the Group for 2015 and 2014 are set out in the tables on the following pages. The tables set out the total cash benefits paid to the KMP in the relevant period and, under the heading “Security-based payments”, show a component of the fair value of the performance rights. The fair value of the performance rights is recognised over the vesting period as an employee benefit expense. Further details of the fair value calculations are set out in sections (e) and (f) below. Short term benefits Post-employment benefits Other long term benefits Salary Cash bonus Annual leave Super- annuation Retirement Other Termination Total cash payment Security- based payments Total $ $ $ $ $ $ $ $ $ $ Security- based payment % of total Independent Directors Current Neil Balnaves AO Chair Roger Davis Don Morris AO George Venardos Past Anne Keating (Note 1) 2015 207,762 2014 195,459 2015 141,553 2014 135,158 2015 121,005 2014 119,132 2015 142,838 2014 137,452 2015 43,916 2014 128,287 Executive Directors Current Deborah Thomas (Note 2) 2015 244,002 67,353 2014 - - - - - - - - - - - - - - - - - - - - - - - - Past Greg Shaw (Note 3) 2015 738,984 336,509 42,065 2014 677,105 334,500 56,425 18,783 17,268 13,447 12,502 11,495 11,020 13,570 12,714 4,172 11,867 13,173 6,230 18,783 17,775 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 226,545 212,727 155,000 147,660 132,500 130,152 156,408 150,166 48,088 140,154 257,175 73,583 - - - - - - - - - - - - 226,545 212,727 155,000 147,660 132,500 130,152 156,408 150,166 48,088 140,154 257,175 73,583 - - - - - - - - - - - - - 1,136,341 - 1,085,805 534,100 1,670,441 452,810 1,538,615 31.97% 29.43% Ardent Leisure Group | Annual Report 2015 17 For personal use only Directors’ report to stapled security holders 11. (c) Remuneration report (continued) Details of remuneration – key management personnel (continued) Short term benefits Post-employment benefits Other long term benefits Salary Cash bonus Annual leave Super- annuation Retirement Other Termination Total cash payment Security- based payments Total $ $ $ $ $ $ $ $ $ $ Security- based payment % of total Other key management personnel Current Craig Davidson (Note 4) 2015 2014 CEO – Theme parks 309,837 74,720 21,379 236,327 - 19,694 Richard Johnson 2015 414,937 190,018 7,414 Chief Financial Officer 2014 354,028 184,000 29,502 Charlie Keegan 2015 454,967 148,986 27,658 CEO – Main Event 2014 364,669 122,331 30,389 18,783 15,699 18,783 17,775 - - Nicole Noye (Note 5) 2015 325,469 CEO – Bowling centres 2014 13,788 - - 15,748 18,783 1,149 1,382 Greg Oliver 2015 425,944 136,945 15,273 2014 CEO – Health clubs Past Lee Chadwick (Note 6) 2015 Ex CEO – Bowling centres 2014 2015 Todd Coates (Note 7) Ex CEO – Theme parks 2014 371,285 119,310 30,940 N/A 316,532 N/A 31,820 N/A 49,333 N/A - N/A 26,378 N/A 2,652 18,783 17,775 N/A 17,775 N/A 2,452 2015 3,571,214 887,178 129,537 168,555 2014 3,148,395 809,474 197,129 162,234 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 424,719 64,024 488,743 13.1% 271,720 - 271,720 - 631,152 248,250 879,402 28.23% 585,305 244,915 830,220 29.50% 631,611 251,404 883,015 28.47% 517,389 373,768 891,157 41.94% 360,000 16,319 - - 360,000 16,319 - - 596,945 187,110 784,055 23.86% 539,310 161,725 701,035 23.07% N/A - N/A - - - N/A - N/A - - - N/A - N/A - N/A 410,018 N/A 36,924 N/A - N/A (38,285) N/A 410,018 N/A (1,361) N/A - N/A - - 4,756,484 1,284,888 6,041,372 21.3% - 4,317,232 1,194,933 5,512,165 21.7% (1) Anne Keating retired on 29 October 2014. (2) Deborah Thomas was appointed a Non-Executive Director of the Group effective 1 December 2013 and is considered KMP from this date. Deborah Thomas was appointed Chief Executive Officer effective 7 April 2015. (3) The retirement of Greg Shaw as Chief Executive Officer was announced to the ASX on 10 March 2015 and he ceased to be considered KMP on 7 April 2015. (4) Craig Davidson was appointed CEO of Theme parks on 2 September 2013 and is considered KMP from this date. (5) Nicole Noye was appointed CEO of Bowling centres on 16 June 2014 and is considered KMP from this date. (6) Lee Chadwick resigned from the Group effective 16 June 2014. (7) Todd Coates resigned from the Group effective 31 July 2013. No termination benefits were paid to KMP during the current financial year. There are no cash bonuses or options forfeited with respect to specified executives not previously disclosed. No payments were made to KMP by the Group before they became employees. Security-based payments included in the tables above reflect the amounts in the Income Statements of the Group. For performance rights issued to all Australian and US KMP post 1 July 2014, this amount is based on the fair value of the equity instruments at the date of the grant rather than at vesting or reporting date for those instruments not yet vested. For performance rights issued to US KMP prior to 1 July 2014, this amount is based on the fair value of the equity instruments at the reporting date. During the year, 716,574 plan securities were issued to Australian employees under the deferred equity component of the STI (2014: 722,192). If the fair value recorded in the Income Statement was based on the movement in the fair value of the instruments between reporting dates, the amount included in KMP compensation would be increased by $380,464 to $1,665,352 (2014: increased by $3,110,201 to $4,305,134). 18 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. (d) Remuneration report (continued) Service agreements of key management personnel Remuneration and other terms of employment for KMP are formalised in service agreements. Each of these agreements provides for the payment of performance related cash bonuses and participation in the Group’s long term incentive plans. Other major provisions of the agreements relating to remuneration as at 30 June 2015 are set out below: Executive Deborah Thomas Richard Johnson Craig Davidson Charlie Keegan Nicole Noye Greg Oliver Position Term Chief Executive Officer Chief Financial Officer CEO – Theme parks CEO – Main Event CEO – Bowling centres CEO – Health clubs No fixed term. No fixed term. No fixed term. Contract subject to automatic annual renewal. No fixed term. No fixed term; however, may not be terminated earlier than September 2015 unless certain early termination conditions are triggered. Base annual salary $670,000 as at 30 June 2015. $516,305 as at 30 June 2015. $350,000 as at 30 June 2015. US$400,000 as at 30 June 2015. $360,000 as at 30 June 2015. $460,000 as at 30 June 2015. Termination Employment shall continue with the Group unless either party gives three months’ notice in writing. Employment shall continue with the Group unless the executive gives the Group six months’ notice in writing, or the Group gives the executive 12 months’ notice in writing. Employment shall continue with the Group unless the executive gives the Group six months’ notice in writing, or the Group gives the executive 12 months’ notice in writing. Employment shall continue with the Group unless either party gives three months’ notice in writing. Employment shall continue with the Group unless either party gives six months’ notice in writing. During the contract term, employment shall continue with the Group unless the executive gives three months’ notice in writing. An early termination payment equal to one year's salary is payable to the executive if the Group terminates the executive during the contract, other than for gross misconduct. All base salary amounts are inclusive of any superannuation payment and will be reviewed annually. With the exception of the terms noted above, there are no contracted termination benefits payable to any KMP. Ardent Leisure Group | Annual Report 2015 19 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (e) Deferred Short Term Incentive Plan (DSTI) Plan name Who can participate? Types of securities issued Treatment of non-Australian residents DSTI All employees are eligible for participation at the discretion of the Board; however, Non-Executive Directors do not participate in the DSTI. Performance rights that can be converted into fully paid securities once vested. The performance rights differ from options in that they do not carry an exercise price. Performance rights do not represent physical securities and do not carry any voting or distribution entitlements. For employees who are not Australian residents, the DSTI historically granted cash awards to those executives. Administrative arrangements have now been made to issue equity awards and not cash awards to non-resident executives. All awards, whether equity or cash, are subject to the same tenure hurdles. What restrictions are there on the securities? Performance rights are non-transferable. When can the securities vest? What are the vesting conditions? The plan contemplates that the performance rights will vest equally one year and two years following the grant date. Plan performance rights will normally vest only if the participant remains employed by the Group (and is not under notice terminating the contract of employment from either party) as at the relevant vesting date. Did any of the securities vest? During the financial year, a total of 777,419 performance rights vested. Australian employees Since 1 July 2010, incentives have been provided to certain executives under the DSTI. Under the terms of the DSTI, employees may be granted performance rights, of which one half will vest one year after grant date and one half will vest two years after grant date. The first set of performance rights were granted under the DSTI on 16 December 2010, with the first vesting date being the day after the full year results announcement for the year ended 30 June 2011. A total of 659,745 performance rights vested on 19 August 2014 and 12 March 2015 and a corresponding number of stapled securities were issued to Australian employees under the terms of the DSTI (2014: 722,192). The characteristics of the DSTI indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Share-based Payment as the holders are entitled to the securities as long as they meet the DSTI’s service criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the DSTI is accounted for as a cash settled share-based payment. Fair value – Australian employees The fair value of the performance rights granted under the DSTI is recognised in the Group financial statements as an employee benefit expense with a corresponding increase in equity. The fair value of each grant of performance rights is determined at grant date using a binomial tree valuation model and then is recognised over the vesting period during which employees become unconditionally entitled to the underlying securities. The fair value of the performance rights granted under the DSTI is recognised in the ALL Group financial statements as an employee benefit expense with a corresponding increase in liabilities. The fair value of each grant of performance rights is determined at each reporting date using a binomial tree valuation model with the movement in fair value of the liability being recognised in the Income Statement. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each financial period takes into account the most recent estimate. 20 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. (e) Remuneration report (continued) Deferred Short Term Incentive Plan (DSTI) (continued) US employees Due to previous restrictions on the issue of securities to US residents, those US executives eligible for the DSTI were subject to a shadow performance rights scheme whereby a cash payment was made instead of performance rights being granted. At the end of each vesting period, the number of performance rights which would have vested is multiplied by the Group stapled security volume weighted average price (VWAP) for the five trading days immediately following the vesting date and an equivalent cash payment is made. Due to the nature of the scheme, this is considered to be a cash settled share-based payment under AASB 2. A total of 60,845 cash settled performance rights vested on 19 August 2014 to US employees under the terms of the DSTI (2014: 135,090). Following steps taken to issue equity to US resident employees, all new performance rights issued after1 July 2014 will be settled in equity upon vesting in future periods. As such, these performance rights are considered to be equity settled share-based payments under AASB 2. A total of 56,829 equity settled performance rights vested on 19 August 2014 (2014: nil). In the ALL financial statements, all performance rights issued to US employees are considered to be cash settled. Fair value – US employees The fair value of cash settled performance rights is determined at grant date and each reporting date using a binomial tree valuation model. This is recorded as a liability with the movement in the fair value of the financial liability being recognised in the Income Statement. The fair value of equity settled performance rights is determined at grant date using a binomial tree valuation model. This is recorded as an employee benefit expense with a corresponding increase in equity. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. Valuation inputs For the performance rights outstanding at 30 June 2015, the table below shows the fair value of the performance rights on each grant date as well as the factors used to value the performance rights at the date of grant. This valuation is used to value the equity settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 1 Vesting date – year 2 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at grant date Valuation per performance right on issue 2013 23 August 2013 19 August 2014 31 August 2015 2.60% per annum 30.9% per annum 6.6% per annum $1.82 $1.66 2014 19 August 2014 31 August 2015 31 August 2016 2.50% per annum 27.0% per annum 4.3% per annum $3.00 $2.81 The table below shows the fair value of the performance rights in each grant as at 30 June 2015 as well as the factors used to value the performance rights as at 30 June 2015. This valuation is used to value the cash settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 1 Vesting date – year 2 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at year end Valuation per performance right at year end 2013 23 August 2013 19 August 2014 31 August 2015 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $2.17 2014 19 August 2014 31 August 2015 31 August 2016 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $2.10 Grants of performance rights are made annually with the grant date being the date of the issue of the offer letters to employees. Although the grant date may vary from year to year, the testing period (subject to any hurdles) remains constant with the vesting date being 24 hours immediately following the announcement of the Group’s full year financial results. Ardent Leisure Group | Annual Report 2015 21 For personal use only Directors’ report to stapled security holders 11. (e) Remuneration report (continued) Deferred Short Term Incentive Plan (DSTI) (continued) Tenure hurdle The vesting of the performance rights is subject to a tenure hurdle and participants must remain employed by the Group (and not be under notice terminating the contract of employment from either party) as at the relevant vesting date. Performance rights The number of performance rights on issue and granted to the Group’s KMP is set out below: 30 June 2015 Current executives Craig Davidson Richard Johnson Charlie Keegan Nicole Noye  Greg Oliver  Deborah Thomas Past executives Greg Shaw Equity settled Current executives  Charlie Keegan Cash settled Opening balance Granted as compensation Exercised Lapsed Closing balance Vested and exercisable Unvested - 90,288 72,993 -  115,177  - 26,613 33,839 47,306 -  48,755  - - (62,577) (36,497) - (79,241)  - 162,041 440,499 59,926 216,439 (221,967)  (400,282) 41,654 41,654 - - (41,654) (41,654) 482,153 216,439 (441,936) - - - - - - - - - - - 26,613 61,550 83,802 - 84,691 - - 256,656 - - 256,656 - - - -  -  - - - - - - 26,613 61,550 83,802 - 84,691 - - 256,656 - - 256,656 22 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Long Term Incentive Plan (LTIP) Plan name Who can participate? Types of securities issued Treatment of non-Australian residents LTIP All employees are eligible for participation at the discretion of the Board; however, Non-Executive Directors do not participate in the LTIP. Performance rights that can be converted into fully paid securities once vested. The performance rights differ from options in that they do not carry an exercise price. Performance rights do not represent physical securities and do not carry any voting or distribution entitlements. For employees who are not Australian residents, the LTIP historically granted cash awards to those executives. Administrative arrangements have now been made to issue equity awards and not cash awards to non-resident executives. All awards, whether equity or cash, are subject to the same performance and tenure hurdles. What restrictions are there on the securities? Performance rights are non-transferable. When can the securities vest? What are the vesting conditions? What does total shareholder return include? What is the earnings per security hurdle? The plan contemplates that the performance rights will vest equally two, three and four years following the grant date, subject to meeting the total shareholder return (TSR) and internal compound earnings per security (EPS) performance hurdles. The weighting between the two hurdles will be split as follows:  TSR – 50%; and  EPS – 50%. For grants made after 1 July 2014, in order for any or all of the performance rights to vest one or both of the following hurdles must be met:  TSR performance hurdle - the Group's TSR for the performance period must exceed the 50th percentile of the TSRs of the benchmark group for the same period. A sliding scale of vesting applies above the 50th percentile threshold; and  EPS performance hurdle - the Group's compound EPS growth for the performance period must exceed 5%. A sliding scale of vesting applies above the 5% threshold. TSR is the total return an investor would receive over a set period of time assuming that all distributions were reinvested in the Group’s securities. The TSR definition takes account of both capital growth and distributions. The EPS hurdle refers to the annual growth of earnings per security over the total vesting periods of two, three and four years from the grant date. What is the benchmark group? The benchmark group comprises the ASX Small Industrials Index. Did any of the securities vest? During the financial year, a total of 1,202,878 performance rights reached vesting following an independent third party assessment of the Group’s TSR performance compared to the benchmark. Ardent Leisure Group | Annual Report 2015 23 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Long Term Incentive Plan (LTIP) (continued) Australian employees Since 1 July 2009, long term incentives have been provided to certain executives under the LTIP. Under the terms of the LTIP and the initial grant, employees may be granted performance rights, of which one third will vest two years after grant date, one third will vest three years after grant date and one third will vest four years after grant date. The percentage of performance rights which may vest is subject to the TSR performance of the Group relative to its peer group, which is the ASX Small Industrials Index. During the year, the relative TSR performance of the Group was tested in accordance with the LTIP for tranches issued in 2010, 2011 and 2012 with the following results: Tranche T3-2010 T2-2011 T1-2012 TSR percentile 96.70 93.62 91.75 Vesting percentage 100.0% 100.0% 100.0% A total of 1,145,426 performance rights vested on 19 August 2014 and a corresponding number of stapled securities were issued to Australian employees under the terms of the LTIP (2014: 1,234,184). The characteristics of the LTIP indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Share-based Payment as the holders are entitled to the securities as long as they meet the LTIP’s service and performance criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the LTIP is accounted for as a cash settled share-based payment. Fair value – Australian employees The fair value of the performance rights granted under the LTIP is recognised in the Group financial statements as an employee benefit expense with a corresponding increase in equity. The fair value of the performance rights is determined at grant date using a Monte Carlo simulation valuation model and then is recognised over the vesting period during which employees become unconditionally entitled to the underlying securities. The fair value of the performance rights granted under the LTIP is recognised in the ALL Group financial statements as an employee benefit expense with a corresponding increase in liabilities. The fair value of each grant of performance rights is determined at each reporting date using a Monte Carlo simulation valuation model with the movement in fair value of the liability being recognised in the Income Statement. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each financial period takes into account the most recent estimate. US employees Due to previous restrictions on the issue of securities to US residents, those US executives eligible for the DSTI were subject to a shadow performance rights scheme whereby a cash payment was made instead of performance rights being granted. At the end of each vesting period, the number of performance rights which would have vested is multiplied by the Group stapled security VWAP for the five trading days immediately following the vesting date and an equivalent cash payment is made. Due to the nature of the scheme, this is considered to be a cash settled share-based payment under AASB 2. A total of 57,452 cash settled performance rights vested on 19 August 2014 to US employees under the terms of the LTIP (2014: 69,060). Following steps taken to issue equity to US resident employees, all new performance rights issued after 1 July 2014 will be settled in equity upon vesting in future periods. As such, these performance rights are considered to be equity settled share-based payments under AASB 2. Fair value – US employees The fair value of cash settled performance rights is determined at grant date and each reporting date using a Monte Carlo simulation valuation model. This is recorded as a liability with the difference in the movement in the fair value of the financial liability recognised in the Income Statement. The fair value of equity settled performance rights is determined at grant date using a Monte Carlo simulation valuation model. This is recorded as an employee benefit expense with a corresponding increase in equity. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. 24 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Long Term Incentive Plan (LTIP) (continued) Valuation inputs For performance rights outstanding at 30 June 2015, the table below shows the fair value of the performance rights on each grant date as well as the factors used to value the performance rights at the grant date. This valuation is used to value the equity settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 2 Vesting date – year 3 Vesting date – year 4 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at grant date Valuation per performance right on issue 2011 12 September 2011 23 August 2013 19 August 2014 31 August 2015 3.49% per annum 40.0% per annum 11.0% per annum $1.055 $0.44 2012 24 August 2012 19 August 2014 31 August 2015 31 August 2016 2.73% per annum 35.0% per annum 9.1% per annum $1.290 $0.61 2013 23 August 2013 31 August 2015 31 August 2016 31 August 2017 2.60% per annum 32.0% per annum 6.6% per annum $1.815 $0.76 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 2.57% per annum 27.0% per annum 4.3% per annum $3.00 $1.54 The table below shows the fair value of the performance rights for each grant as at 30 June 2015 as well as the factors used to value the performance rights at 30 June 2015. This valuation is used to value the cash settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 2 Vesting date – year 3 Vesting date – year 4 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at year end Valuation per performance right on issue 2011 12 September 2011 23 August 2013 19 August 2014 31 August 2015 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $2.17 2012 24 August 2012 19 August 2014 31 August 2015 31 August 2016 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $1.94 2013 23 August 2013 31 August 2015 31 August 2016 31 August 2017 2.00% per annum 39.3% per annum 5.8% per annum $2.17 $1.43 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 2.00% per annum 36.2% per annum 5.8% per annum $2.17 $0.58 Grants of performance rights are made annually with the grant date being the date of the issue of the offer letters to employees. Although the grant date may vary from year to year, the testing period (subject to any hurdles) remains constant with the vesting date being 24 hours immediately following the announcement of the Group’s full year financial results. Performance hurdles In order for any or all of the performance rights to vest under the LTIP, the Group's TSR and/or (for grants made after 1 July 2014) the EPS performance hurdle must be met. TSR The Group’s TSR for the performance period must exceed the 50th percentile of the TSRs of the benchmark for the same period. A sliding scale of vesting applies above the 50th percentile threshold. TSR of the Group relative to TSRs of comparators Below 51st percentile 51st percentile Between 51st percentile and 75th percentile 75th percentile or higher Proportion of performance rights vesting 0% 50% Straight-line vesting between 50% and 100% 100% TSR over a performance period is measured against the benchmark group securities calculated at the average closing price of securities on the ASX for the calendar month period up to and including each of the first and last dates of the performance period. Distributions are assumed to be reinvested at the distribution date and any franking credits (or similar) are ignored. Ardent Leisure Group | Annual Report 2015 25 For personal use only Directors’ report to stapled security holders 11. (f) Remuneration report (continued) Long Term Incentive Plan (LTIP) (continued) Performance hurdles (continued) EPS The Group’s compound EPS growth for the performance period must exceed 5%. A sliding scale of vesting applies above 5% threshold. Compound EPS growth in the period Below 5% 5% Between 5% and 10% 10% or higher The weighting between the two performance measures is split as follows: Proportion of performance rights vesting 0% 50% Straight-line vesting between 50% and 100% 100%  TSR – 50%; and  EPS – 50%. Performance rights The number of performance rights on issue and granted to the Group’s KMP is set out below: Opening balance Granted as compensation Exercised Lapsed Closing balance Vested and exercisable Unvested 30 June 2015 Current executives Craig Davidson Richard Johnson Charlie Keegan Nicole Noye Greg Oliver Deborah Thomas  Past executives Greg Shaw Equity settled Current executives  Charlie Keegan Cash settled - 781,332 51,487 - 251,539 -  34,104 101,412 83,883 - 44,823 - - (305,292) - - (92,018) - 1,464,997 2,549,355 207,873 472,095 (572,422) (969,732) 113,489 113,489 - - (57,452) (57,452) - - - - - - - - - - - 34,104 577,452 135,370 - 204,344 -  1,100,448 2,051,718 56,037 56,037 2,107,755 - - - - - -  - - - - 34,104 577,452 135,370 - 204,344 - 1,100,448 2,051,718 56,037 56,037 2,107,755 Total performance rights 2,662,844 472,095 (1,027,184) 26 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. (g) Remuneration report (continued) Additional information Performance of the Group Over the past five years, core earnings per security of the Group have increased by 14.0% and the market capitalisation of the Group has increased by 213.7%. In 2010, following the internalisation of the Manager, the definition of KMP extended to include executives of both the Manager and ALL. The table below compares the Group’s core earnings per security with total KMP remuneration over the past five years: Security price as at 30 June First half year distribution per security Distribution reinvestment price Second half year distribution per security Distribution reinvestment price Number of securities on issue as at 30 June Market capitalisation as at 30 June ($ million) Core earnings per security (cents) Total KMP remuneration Investor value of a $5,000 investment as at 30 June 2010 (based upon an initial security price of $0.99) Details of remuneration: cash bonuses and options 2015 $2.170 $0.070 $2.6389 $0.055 $2.1553 442,322,106 $959.8 12.92 $6,041,372 2014 $2.710 $0.068 N/A $0.062 $2.6378 405,055,708 $1,097.7 14.40 $5,512,165 2013 $1.715 $0.066 N/A $0.054 $1.6841 2012 $1.275 $0.065 $1.0073 $0.052 $1.2373 397,803,987 334,209,401 $426.1 12.91 $6,052,116 $682.2 13.14 $5,102,854 2011 $1.275 $0.065 $0.9872 $0.050 $1.2496 318,147,978 $405.6 12.54 $4,988,292 $15,556 $13,749 $8,608 $5,978 $5,391 All service and performance criteria were met by executives eligible for a bonus with respect to their performance in the 30 June 2014 financial year. These bonuses were paid during the year and the percentages forfeited are set out below. No part of the bonuses is payable in future years. Bonuses with respect to performance within the 30 June 2015 financial year have been accrued but are subject to approval by the Board’s Remuneration and Nomination Committee before payment. Plan securities and performance rights granted to executives vest over varying periods of one, two, three and four years, provided the vesting conditions are met. No plan securities or performance rights will vest if the conditions are not satisfied; hence, the minimum value of the plan securities and performance rights yet to vest is nil. DSTI Under the terms of the 2012 grant, performance rights were allocated on the basis of a valuation dated 24 August 2012 and there was no valuation difference. Under the terms of the 2013 grant, performance rights were allocated on the basis of a valuation dated 23 August 2013 and there was no valuation difference. Under the terms of the 2014 grant, performance rights were allocated on the basis of a valuation dated 19 August 2014 and there was no valuation difference. LTIP Under the terms of the 2011 grant, performance rights were allocated on the basis of a valuation dated 12 September 2011 and there was no valuation difference. Under the terms of the 2012 grant, performance rights were allocated on the basis of a valuation dated 24 August 2012 and there was no valuation difference. Under the terms of the 2013 grant, performance rights were allocated on the basis of a valuation dated 23 August 2013 and there was no valuation difference. Under the terms of the 2014 grant, performance rights were allocated on the basis of a valuation dated 19 August 2014 and there was no valuation difference. Ardent Leisure Group | Annual Report 2015 27 For personal use only Directors’ report to stapled security holders 11. (g) Remuneration report (continued) Additional information (continued) The table below sets out the number of performance rights that were granted, lapsed and vested during the financial year and that are yet to vest. The percentage of cash STI (as listed in the table in section (c) above) that was awarded to the Group’s KMP and the percentage that was forfeited because the executive did not meet the performance criteria is also set out below. No part of any cash STI is payable in future years. Year granted Tranche Financial years in which performance rights may vest Value of performance rights at grant Number lapsed Value of performance rights at lapse Value of performance rights at vesting Maximum value yet to vest Number vested Cash STI (%) Current executives Equity settled Craig Davidson LTI 2014 DSTI 2014 Total Richard Johnson LTI 2010 2011 2012 2013 2014 DSTI 2012 2013 2014 Year Number $ 2017 2018 2019 2016 2017 11,368 11,368 11,368 13,306 13,307 19,789 17,740 14,973 38,171 36,550 60,717 127,223 2015 108,696 2015 114,521 2016 114,522 2015 2016 2017 2016 2017 2018 2017 2018 2019 2015 2015 2016 2016 2017 82,075 82,075 82,075 65,790 65,789 65,789 33,804 33,804 33,804 34,866 27,711 27,711 16,919 16,920 56,522 50,389 49,244 50,328 50,181 49,491 51,678 51,388 47,579 58,846 52,751 44,523 38,182 47,541 44,498 48,536 46,474 T1 T2 T3 T1 T2 T3 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 Nicole Noye Total Total 1,006,871 838,151 - - - - - - - - - - - - - - - - - - - - - - - - - - - $ - - - - - - $ $ Awarded Forfeited 92.0 8.0 - - - - - - - - - - - 19,789 17,740 14,973 38,171 36,550 - 127,223 - 108,696 - 114,521 326,088 343,563 - - 94.7 5.3 - - - - - - - - - - - - - - - - - 49,244 82,075 246,225 - - - - - - - - - - - - - - - - - 34,866 27,711 104,598 83,133 50,181 49,491 51,678 51,388 47,579 58,846 52,751 44,523 - - - - - - - - 44,498 48,536 46,474 - 367,869 1,103,607 595,189 - - - - - - 28 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. (g) Remuneration report (continued) Additional information (continued) Year granted Tranche Financial years in which performance rights may vest Value of performance rights at grant Number lapsed Value of performance rights at lapse Number vested Value of performance rights at vesting Maximum value yet to vest Cash STI (%) Year Number $ $ $ $ Awarded Forfeited Greg Oliver LTI 2010 2011 2012 2013 2014 DSTI 2012 2013 2014 Total Total Deborah Thomas Charlie Keegan LTI 2013 2014 DSTI 2013 2014 Cash settled Charlie Keegan LTI 2010 2011 2012 DSTI 2012 Total T3 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 T1 T2 T3 T1 T2 T3 T1 T2 T1 T2 T3 T2 T3 T1 T2 T3 T2 2015 2015 2016 2015 2016 2017 2016 2017 2018 2017 2018 2019 2015 2015 2016 2016 2017 2016 2017 2018 2017 2018 2019 2015 2016 2016 2017 2015 2015 2016 2015 2016 2017 2015 29,620 34,356 34,357 28,042 28,042 28,043 23,027 23,026 23,026 14,941 14,941 14,941 43,304 35,937 35,936 24,377 24,378 15,402 15,117 14,774 17,195 17,145 16,910 18,088 17,986 16,652 26,009 23,315 19,679 47,422 61,654 57,706 69,930 66,959 460,294 521,943 - 17,163 17,162 17,162 27,961 27,961 27,961 36,497 36,496 23,653 23,653 18,454 21,960 21,960 17,038 17,038 17,039 41,654 - 13,482 13,405 12,412 48,675 43,633 36,827 62,614 58,605 67,853 64,968 9,596 9,662 9,443 10,448 10,417 10,275 45,615 410,812 527,930 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 29,620 34,356 - 88,860 103,068 - - - 14,774 28,042 84,126 - 93.2 6.8 - - - - - - - - - - - - - - - - 43,304 35,937 129,912 107,811 17,145 16,910 18,088 17,986 16,652 26,009 23,315 19,679 - - - - - - - - 57,706 69,930 66,959 - 98.0 - 2.0 - 171,259 513,777 365,153 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,482 13,405 12,412 48,675 43,633 36,827 36,497 109,491 - - - - - - - 58,605 67,853 64,968 18,454 21,960 - 55,362 65,880 - - - 9,443 17,038 51,114 - - - - - 10,417 10,275 41,654 124,962 - - 135,603 406,809 389,995 Ardent Leisure Group | Annual Report 2015 29 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (g) Additional information (continued) Year granted Tranche Financial years in which performance rights may vest Value of performance rights at grant Number lapsed Value of performance rights at lapse Number vested Value of performance rights at vesting Maximum value yet to vest Cash STI (%) Year Number $ $ $ $ Awarded Forfeited Past executives Greg Shaw LTI 2010 2011 2012 2013 2014 DSTI 2012 2013 2014 T3 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 2015 2015 2016 2015 2016 2017 2016 2017 2018 2017 2018 2019 2015 2015 2016 2016 2017 203,804 214,727 214,728 153,890 153,890 153,891 123,356 123,355 123,355 69,291 69,291 69,291 61,288 50,377 50,376 29,963 29,963 105,978 94,480 92,333 94,365 94,088 92,796 96,896 96,353 89,210 120,622 108,129 91,263 67,116 86,427 80,894 85,955 82,299 Total 1,894,836 1,579,204 - - - - - - - - - - - - - - - - - - - 203,804 - 214,727 - - 611,412 644,181 - - - 92,333 - 153,890 461,670 - 89.6 10.4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 94,088 92,796 96,896 96,353 89,210 120,622 108,129 91,263 61,288 50,377 50,376 29,963 29,963 183,864 151,131 104,278 62,023 62,023 - - - - - - 794,388 2,280,582 881,690 Directors’ interests in securities Changes to Directors’ interests in stapled securities during the period are set out below: Neil Balnaves AO Roger Davis Don Morris AO Deborah Thomas George Venardos Opening balance 2,439,062 150,275 - 6,000 112,636 2,707,973 Acquired 362,448 50,383 13,950 14,331 85,417 526,529 Acquired under the Group's equity plans - - - - - - Disposed Closing balance - - - - - - 2,801,510 200,658 13,950 20,331 198,053 3,234,502 KMP interests in securities Changes to the interests of other KMP in stapled securities during the period are set out below: Craig Davidson Richard Johnson Charlie Keegan Nicole Noye Greg Oliver Opening balance - 516,622 - - 294,709 811,331 Acquired under the Group's equity plans - 367,869 36,497 - 171,259 575,625 Acquired - 6,224 - 2,500 17,154 25,878 Disposed Closing balance - (790,715) - - - (790,715) - 100,000 36,497 2,500 483,122 622,119 30 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (g) Additional information (continued) Loans and other transactions with KMP There were no loans made to KMP during the financial year, as disclosed in Note 36(e) to the financial statements. Refer to Note 36(f) to the financial statements for details of other transactions with KMP during the financial year. Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 On 1 July 2011, the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 came into force. The new legislative requirements under the Corporations Act 2001 in relation to remuneration votes and the “two strikes” rule operate such that a company receiving a 25% or more “NO” vote against its remuneration report resolution at the Annual General Meeting (AGM) in two consecutive years will be required to put a spill resolution to the meeting whereby investors can vote to hold a further meeting where all board directors will be subject to re-election. In addition, KMP and their closely related parties are prohibited from voting on the adoption of the remuneration report and any other remuneration related resolutions at the AGM. In order to ensure that KMP and their closely related parties do not exercise their votes, the Group issued an instruction to them prior to the AGM and instructed the security registrars to apply appropriate voting exclusions. At the AGM held on 31 October 2014, the following votes were cast on the adoption of the 2014 Remuneration Report: Adoption of the Remuneration Report 12. Non-audit services Votes for 97.53% Votes against 1.78% Votes abstain 0.69% The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. Details of the amounts paid to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are disclosed in Note 9 to the financial statements. The Directors have considered the position and, in accordance with the recommendation received from the Audit and Risk Committee, are satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out in Note 9 to the financial statements, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:  All non-audit services have been reviewed by the Audit and Risk Committee to ensure that they do not impact the integrity and objectivity of the auditor; and  None of the services undermines the general principles relating to auditor independence as set out in Accounting Professional and Ethical Standards Board APES 110 Code of Ethics for Professional Accountants. 13. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under sect-ion 307C of the Corporations Act 2001 is set out on page 35. 14. Events occurring after reporting date Subsequent to 30 June 2015, a distribution of 5.5 cents per stapled security has been declared by the Board of Directors. The total distribution amount of $24.3 million will be paid on or before 31 August 2015 in respect of the half year ended 30 June 2015. Effective 11 August 2015, the Group completed refinancing of its syndicated loan facilities. This has resulted in an increase in the available USD facilities to US$280.0 million (30 June 2015: US$160.0 million) and an extended tenure maturing in equal tranches of three, four and five years respectively. Australian dollar facilities remain at $200.0 million (30 June 2015: $200.0 million) however have been similarly extended to mature in equal tranches of three, four and five years respectively. Since the end of the financial year, the Directors of the Manager and ALL are not aware of any other matters or circumstances not otherwise dealt with in this report or the financial report that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in financial years subsequent to the year ended 30 June 2015. Ardent Leisure Group | Annual Report 2015 31 For personal use only Directors’ report to stapled security holders 15. Likely developments and expected results of operations The financial statements have been prepared on the basis of the current known market conditions. The extent to which any potential deterioration in either the capital or physical property markets may have on the future results of the Group is unknown. Such results could include the potential to influence property market valuations, the ability of borrowers, including the Group, to raise or refinance debt, and the cost of such debt and the ability to raise equity. At the date of this report, and to the best of the Directors’ knowledge and belief, there are no other anticipated changes in the operations of the Group which would have a material impact on the future results of the Group. 16. Indemnification and insurance of officers and auditor Manager No insurance premiums are paid for out of the assets of the Trust for insurance provided to either the officers of the Manager or the auditor of the Trust. So long as the officers of the Manager act in accordance with the Trust Constitution and the Corporations Act 2001, the officers remain indemnified out of the assets of the Trust against losses incurred while acting on behalf of the Trust. The auditor of the Trust is in no way indemnified out of the assets of the Trust. ALL Under ALL’s Constitution, ALL indemnifies:  All past and present officers of ALL, and persons concerned in or taking part in the management of ALL, against all liabilities incurred by them in their respective capacities in successfully defending proceedings against them; and  All past and present officers of ALL against liabilities incurred by them, in their respective capacities as an officer of ALL, to other persons (other than ALL or its related parties), unless the liability arises out of conduct involving a lack of good faith. During the reporting period, ALL had in place a policy of insurance covering the Directors and officers against liabilities arising as a result of work performed in their capacity as Directors and officers of ALL. Disclosure of the premiums paid for the insurance policy is prohibited under the terms of the insurance policy. 17. Fees paid to and interests held in the Trust by the Manager or its associates The interests in the Trust held by the Manager or its related entities as at 30 June 2015 and fees paid to its related entities during the financial year are disclosed in Notes 7 and 36 to the financial statements. 18. Environmental regulations The Group is subject to significant environmental regulation in respect of its operating activities. During the financial year, the Group’s major businesses were subject to environmental legislation in respect of its operating activities as set out below: (a) Dreamworld Dreamworld and WhiteWater World theme parks are subject to various legislative requirements in respect of environmental impacts of their operating activities. The Queensland Environmental Protection Act 1994 regulates all activities where a contaminant may be released into the environment and/or there is a potential for environmental harm or nuisance. In accordance with Schedule 1 of the Environmental Protection Regulation 1998, Dreamworld holds licences or approvals for the operation of a helipad, motor vehicle workshop and train-shed and storage and use of flammable/combustible goods. During the year, Dreamworld and WhiteWater World complied with all requirements of the Act. The environment committee meets on a bi-monthly basis to pursue environmental projects and improve environmental performance. An energy conservation program was rolled out throughout the organisation. A mobile phone recycling program continued throughout the park as well as other local organisations. Proceeds from the program have also been raised to improve wildlife protection in parts of Africa where mobile phone components are sourced from. A range of existing recycling programs continue to operate effectively, including glass, plastic, waste metals, paper, waste oils and cardboard. A water efficiency management plan continues to operate effectively, with a net reduction of consumption over the past nine years. Staff also carried out voluntary programs aimed at the humane treatment of pests, removal of noxious weeds and other sustainability initiatives. These initiatives were additionally integrated into existing staff training programs to further strengthen environmental culture within the organisation. 32 Ardent Leisure Group | Annual Report 2015 For personal use only Directors’ report to stapled security holders 18. (a) Environmental regulations (continued) Dreamworld (continued) Dreamworld’s noise conservation program ensures that noise emissions emanating from park activities do not contravene State regulations or adversely impact surrounding neighbours. Local government regulations for the staging of night time events and functions were complied with at all times. Dreamworld’s Life Sciences department is subject to the Quarantine Act 1908. In accordance with the Australian Quarantine Regulations, Dreamworld holds an approved post-arrival facilities licence and an approved zoo permit. In accordance with the Nature Conservation Act 1992 and the Nature Conservation Regulation 1994, Dreamworld holds a “Wildlife Exhibitors Licence” and in accordance with Land Protection (Pest and Stock Route Management) Regulation 2003, Dreamworld holds a "Declared Pest Permit". All licences and permits remain current and Dreamworld has complied fully with the requirements of each. There are two water licences for the Dreamworld/WhiteWater World property. These relate to water conservation and irrigation. There have been no issues or events of non-compliance recorded by management or the regulatory authorities regarding water use. (b) d’Albora Marinas Schedule 1 Environment Protection Licences are held for all five NSW marinas in the portfolio in accordance with the Protection of the Environment Operations Act 1997 (NSW). There are no specific environmental licence requirements in Victoria relating to the Pier 35 or Victoria Harbour marinas. In July 2002, the NSW Environmental Protection Authority (EPA) was notified of long term historic groundwater contamination at the Rushcutters Bay marina, and the plan to manage the contamination. d’Albora Marinas has been working in consultation with the EPA to rectify the site contamination. The costs to rectify the site are not considered material to the Group. (c) Bowling centres - Australia Bowling centres are subject to environmental regulations concerning their food facilities. This is primarily trade waste and grease traps. The Group has adequate management systems and the correct licence requirements in place concerning the disposal of such waste in accordance with each State or Territory’s legislation. Cooking oil is replaced and disposed of by external organisations at all locations. All hazardous substances are disposed of according to manufacturers’ and EPA regulations. A register of all hazardous substances and dangerous goods is located at centre level. Lane cleaning and maintenance products are largely water-based products, excluding approach cleaner, which is a solvent-based product. This product is disposed of in accordance with each State and Territory’s EPA requirements. Noise is adequately monitored for both internal and external environmental breaches. Noise emissions fall within acceptable levels for both residential and industrial areas and all EPA requirements. No complaints have been received since acquisition of the business. (d) Bowling centres – New Zealand There are no specific requirements relating to the New Zealand centres that are not reflected in the above statement. (e) Family entertainment centres – United States of America Main Event is subject to various Federal, State and local environmental requirements with respect to development of new centres in the United States of America. At a Federal level, the Environmental Protection Agency is responsible for setting national standards for a variety of environmental programs, and delegates to states the responsibility for issuing permits and for monitoring and enforcing compliance. A prerequisite for any building permit for new centre construction is full compliance with all city and State planning and zoning ordinances. A building permit, depending on locality, may require soils reports, site line studies, storm water and irrigation regulation compliance, asbestos free reports, refuse and grease storage permits, health and food safety permits, and complete Occupational Safety and Health Administration (OSHA) Material Safety Data Sheets (MSDS) documentation. With respect to operating activities at Main Event, the OSHA requires that MSDS be available to all Main Event employees for explaining potentially harmful chemical substances handled in the workplace under the hazard communication regulation. The MSDS is also required to be made available to local fire departments and local and State emergency planning officials under section 311 of the Emergency Planning and Community Right-to-Know Act. At this time, there are no known issues of non-compliance with any environmental regulation at Main Event. Ardent Leisure Group | Annual Report 2015 33 For personal use only Directors’ report to stapled security holders 18. (f) Environmental regulations (continued) Goodlife Health Clubs Goodlife is subject to environmental regulations across the business and has initiatives in place to meet all areas of environmental compliance. Water conservation is a high priority and management has implemented a range of strategies to meet current water regulations as per each State’s regulations. A recycling program has been implemented across the business, assisting with reduction of waste products and meeting environmental standards. Hazardous substances and dangerous goods are strictly monitored in the business and, where possible, non-hazardous chemicals are used. All hazardous chemicals and dangerous goods are disposed as per current regulations. All clubs hold site specific chemical registers with safe work methods. Noise emissions do not contravene State regulations or impact on surrounding business or neighbourhoods. (g) Greenhouse gas and energy data reporting requirements The Group is subject to the reporting requirements of both the Energy Efficiency Opportunities Act 2006 and the National Greenhouse and Energy Reporting Act 2007. The Energy Efficiency Opportunities Act 2006 requires the Group to assess its energy usage, including the identification, investigation and evaluation of energy saving opportunities, and to report publicly on the assessments undertaken, including what action the Group intends to take as a result. The Group continues to meet its obligations under this Act. The National Greenhouse and Energy Reporting Act 2007 requires the Group to report its annual greenhouse gas emissions and energy use. The Group has implemented systems and processes for the collection and calculation of the data required. The Group submitted its 2013/2014 emissions report under the Act in October 2014. The Group is not subject to any other significant environmental regulations and there are adequate systems in place to manage its environmental responsibilities. 19. Rounding of amounts to the nearest thousand dollars The Group is a registered scheme of a kind referred to in Class Order 98/100 (as amended) issued by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the Directors’ report and financial report. Amounts in the Directors’ report and financial report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. This report is made in accordance with a resolution of the Boards of Directors of Ardent Leisure Management Limited and Ardent Leisure Limited. Neil Balnaves AO Chairman Sydney 18 August 2015 Deborah Thomas Managing Director 34 Ardent Leisure Group | Annual Report 2015 For personal use only Auditor’s Independence Declaration As lead auditor for the audit of Ardent Leisure Group for the year ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Ardent Leisure Group, which includes Ardent Leisure Trust and Ardent Leisure Limited and the entities they controlled during the period. Timothy J Allman Partner PricewaterhouseCoopers Brisbane 18 August 2015 PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. For personal use onlyIncome Statements for the year ended 30 June 2015 Income Statements Income Revenue from operating activities Management fee income Valuation gains - property, plant and equipment Net gain from derivative financial instruments Interest income Gain on sale and leaseback of family entertainment centres Total income Expenses Purchases of finished goods Salary and employee benefits Borrowing costs Property expenses Depreciation and amortisation Loss on closure of bowling centres Loss on disposal of assets Advertising and promotions Repairs and maintenance Pre-opening expenses Business acquisition costs Impairment of property, plant and equipment Impairment of goodwill Net loss from derivative financial instruments Valuation loss - investment properties Other expenses Total expenses Profit before tax expense Withholding tax (income)/expense US State tax expense Income tax expense Profit for the year Attributable to: Stapled security holders Profit for the year Note 3 7(b) 6 4 5 6 8 10 Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 594,603 - - 552 121 6,959 499,703 - 8,590 - 211 379 594,603 1,200 - - 77 6,959 499,703 1,200 - - 99 379 602,235 508,883 602,839 501,381 58,756 224,843 11,333 99,029 54,878 104 523 20,771 26,823 6,521 1,938 2,646 141 - 501 54,359 46,550 185,191 11,330 79,539 42,043 1,579 453 18,997 22,222 2,579 277 - - 613 - 45,632 58,756 225,678 11,731 149,865 31,775 - 376 20,771 26,823 6,521 1,938 1,009 141 - - 53,436 46,550 189,397 8,766 138,302 21,007 - 460 18,997 22,222 2,579 277 - - - - 45,141 563,166 457,005 588,820 493,698 39,069 51,878 14,019 (182) 1,463 5,666 32,122 159 724 1,993 49,002 32,122 32,122 49,002 49,002 - 1,463 5,694 6,862 6,862 6,862 7,683 - 724 1,903 5,056 5,056 5,056 1.25 1.24 - - The above Income Statements should be read in conjunction with the accompanying notes. Basic earnings per security/share (cents) Diluted earnings per security/share (cents) Dividend/distribution in respect of the year ended 30 June Dividend/distribution per security in respect of the year ended 30 June (cents) 11 11 12 12 7.38 7.35 12.13 12.05 1.58 1.57 55,035 52,657 13,160 12.50 13.00 3.00 36 Ardent Leisure Group | Annual Report 2015 For personal use only Statements of Comprehensive Income for the year ended 30 June 2015 Statements of Comprehensive Income Profit for the year Other comprehensive income Items that may be reclassified to profit and loss Cash flow hedges Foreign exchange translation difference Income tax relating to these items Items that will not be reclassified to profit and loss Gain on revaluation of property, plant and equipment Other comprehensive income for the year, net of tax Total comprehensive income for the year, net of tax Attributable to: Stapled security holders Total comprehensive income for the year, net of tax Note 30 30 30 30 ALL Group 2015 ALL Group 2014 Consolidated Group 2015 Consolidated Group 2014 $’000 $’000 32,122 49,002 (958) 3,623 24 434 391 11 $’000 6,862 (75) 6,916 24 7,541 10,230 42,352 6,866 7,702 56,704 - 6,865 13,727 $’000 5,056 (30) (942) 11 - (961) 4,095 42,352 42,352 56,704 56,704 13,727 13,727 4,095 4,095 The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes. Ardent Leisure Group | Annual Report 2015 37 For personal use only Balance Sheets as at 30 June 2015 Balance Sheets Current assets Cash and cash equivalents Receivables Derivative financial instruments Inventories Current tax receivables Property held for sale Other Total current assets Non-current assets Investment properties Property, plant and equipment Derivative financial instruments Livestock Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Payables Derivative financial instruments Interest bearing liabilities Current tax liabilities Provisions Other Total current liabilities Non-current liabilities Derivative financial instruments Interest bearing liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits/(accumulated losses) Total equity attributable to stapled security holders Non-controlling interests Total equity Note Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 33 13 14 15 16 17 18 19 14 20 21 22 23 14 24 25 26 14 24 25 27 28 30 31 4,986 10,856 263 11,372 1,740 - 10,736 39,953 99,326 609,682 114 245 242,944 4,243 956,554 996,507 91,323 98 - 1,291 3,236 2,694 98,642 2,133 278,618 15,769 21,863 318,383 417,025 579,482 605,181 (30,691) 4,992 579,482 - 579,482 7,079 7,416 - 9,378 - 10,650 8,937 43,460 95,870 510,162 - 300 201,237 1,978 809,547 853,007 69,065 459 61 376 3,272 2,155 75,388 1,004 260,211 1,625 9,277 272,117 347,505 505,502 513,912 (45,918) 37,508 505,502 - 505,502 4,685 13,210 - 11,372 1,740 - 7,026 38,033 - 213,600 - 245 242,944 4,243 461,032 499,065 76,287 - - 1,291 3,236 2,694 83,508 129 237,006 5,552 21,863 264,550 348,058 151,007 155,262 7,638 (11,893) 151,007 - 151,007 6,197 7,762 - 9,378 - 10,650 5,438 39,425 - 123,463 - 300 201,237 1,978 326,978 366,403 60,287 - 61 376 3,272 2,155 66,151 48 204,826 1,625 9,277 215,776 281,927 84,476 16,309 (1,537) (1,655) 13,117 71,359 84,476 The above Balance Sheets should be read in conjunction with the accompanying notes. 38 Ardent Leisure Group | Annual Report 2015 For personal use only Statements of Changes in Equity for the year ended 30 June 2015 Statements of Changes in Equity Note Contributed equity Reserves Retained profits/ (accumulated losses) Non- controlling interests $’000 $’000 $’000 $’000 Consolidated Group Total equity at 1 July 2013 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Security-based payments Contributions of equity, net of issue costs Security-based payments - securities/shares issued Distributions paid and payable Reserve transfers Total equity at 30 June 2014 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Security-based payments Contributions of equity, net of issue costs Security-based payments - securities/shares issued Distributions paid and payable Reserve transfers 501,416 (45,817) - - - - 7,702 7,702 - 8,915 3,581 - - 513,912 - - - - 85,786 5,483 - - (1,963) - - - (5,840) (45,918) - 10,230 10,230 (3,821) - - - 8,818 30 28 28 31 30, 31 30 28 28 31 30, 31 Total equity at 30 June 2015 605,181 (30,691) 31,691 49,002 - 49,002 - - - (49,025) 5,840 37,508 32,122 - 32,122 - - - (55,820) (8,818) 4,992 - - - - - - - - - - - - - - - - - - - Total $’000 487,290 49,002 7,702 56,704 (1,963) 8,915 3,581 (49,025) - 505,502 32,122 10,230 42,352 (3,821) 85,786 5,483 (55,820) - 579,482 ALL Group Total equity at 1 July 2013 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of issue costs Security-based payments - securities/shares issued Dividends paid and payable Total equity at 30 June 2014 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of issue costs Security-based payments - securities/shares issued Capital reallocation Reserve transfers Repayment of non-controlling interests Dividends paid and payable Total equity at 30 June 2015 14,202 - - - 1,503 604 - 16,309 - - - 15,189 937 122,827 - - - 155,262 (576) - (961) (961) - - - (1,537) - 6,865 6,865 - - - 2,310 - - 7,638 (2,837) 71,359 82,148 5,056 - 5,056 - - (3,874) (1,655) 6,862 - 6,862 - - - (2,310) - (14,790) (11,893) - - - - - - 71,359 - - - - - - - (71,359) - - 5,056 (961) 4,095 1,503 604 (3,874) 84,476 6,862 6,865 13,727 15,189 937 122,827 - (71,359) (14,790) 151,007 28 28 31 28 28 28 30, 31 31 The above Statements of Changes in Equity should be read in conjunction with the accompanying notes. Ardent Leisure Group | Annual Report 2015 39 For personal use only Statements of Cash Flows for the year ended 30 June 2015 Statements of Cash Flows Cash flows from operating activities Receipts from customers Payments to suppliers and employees Property expenses paid Interest received Rent payments to the Trust Receipts of funds for property costs from the Trust US withholding tax paid Income tax paid Net cash flows from operating activities 34(a) Cash flows from investing activities Payments for property, plant and equipment and other intangibles Purchase of assets for the Trust Receipt of funds for assets purchased on behalf of the Trust Proceeds from sale of plant and equipment Proceeds from sale of land and buildings Payments for purchase of businesses, net of cash acquired Net cash flows from investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Borrowing costs Proceeds from issue of stapled securities Costs of issue of stapled securities Dividends paid to the Trust Proceeds from loans from the Trust Repayments of borrowings to the Trust Repayments of principal on finance leases Distributions paid to stapled security holders Net cash flows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of exchange rate changes on cash and cash equivalents Cash at the end of the year 33 Note Consolidated Group Consolidated Group 2015 $’000 2014 $’000 ALL Group ALL Group 2015 $’000 2014 $’000 650,383 (436,132) (96,189) 121 - - (140) (2,691) 115,352 (133,965) - - 628 41,719 (33,322) (124,940) 2,084,223 (2,095,274) (10,937) 70,000 (993) - - - (61) (39,041) 7,917 (1,671) 7,079 (422) 4,986 549,659 (367,238) (79,704) 211 - - (143) (5,317) 97,468 651,136 (433,864) (92,330) 77 (115,766) 58,922 - (2,691) 65,484 (86,337) - - 226 10,278 (11,736) (87,569) (115,862) (19,108) 18,387 270 41,719 (31,195) (105,789) 1,925,688 (1,890,351) (10,870) - (3) - - - (249) (40,107) (15,892) (5,993) 12,953 119 7,079 984,102 (978,076) (11,797) 11,698 (167) (1,630) 125,104 (76,839) (61) (13,160) 39,174 (1,131) 6,197 (381) 4,685 550,257 (369,765) (76,501) 99 (111,296) 50,464 - (5,317) 37,941 (72,317) (14,516) 16,100 102 10,278 (10,145) (70,498) 726,852 (699,738) (8,600) - (1) (3,874) 94,288 (82,520) (249) - 26,158 (6,399) 12,481 115 6,197 The above Statements of Cash Flows should be read in conjunction with the accompanying notes. 40 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Notes to the financial statements 1. Summary of significant accounting policies Ardent Leisure Group (Group or Consolidated Group) is a ‘stapled’ entity comprising of Ardent Leisure Trust (Trust) and its controlled entities, and Ardent Leisure Limited (ALL or Company) and its controlled entities. The units in the Trust are stapled to shares in the Company. The stapled securities cannot be traded or dealt with separately. The stapled securities of the Group are listed on the Australian Securities Exchange (ASX). The significant policies which have been adopted in the preparation of these consolidated financial statements for the year ended 30 June 2015 are set out below. These policies have been consistently applied to the years presented, unless otherwise stated. (a) Basis of preparation As permitted by Class Order 05/642, issued by the Australian Securities and Investments Commission (ASIC), this financial report is a combined report that presents the consolidated financial statements and accompanying notes of both the Ardent Leisure Group and the Ardent Leisure Limited Group (ALL Group). The financial report of Ardent Leisure Group comprises the consolidated financial report of Ardent Leisure Trust and its controlled entities, including Ardent Leisure Limited and its controlled entities. The financial report of Ardent Leisure Limited Group comprises the consolidated financial report of Ardent Leisure Limited and its controlled entities. These general purpose financial statements have been prepared in accordance with the requirements of the Trust Constitution, Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board, and the Corporations Act 2001. Ardent Leisure Group is a for-profit entity for the purposes of preparing financial statements. These consolidated financial statements have been presented in accordance with ASIC Class Order 13/1050 as amended by ASIC Class Order 13/1644. These Class Orders allow the presentation of consolidated financial statements covering all the entities in a stapled group. There are no non-controlling interests that are attributable to the stapled security holders. Compliance with IFRS as issued by the IASB Compliance with Australian Accounting Standards ensures that the financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Consequently, these financial statements have also been prepared in accordance with and comply with IFRS as issued by the IASB. New and amended standards adopted by the Group The Group has applied the following new and amended standards for first time for the annual reporting period commencing 1 July 2014:     AASB 2014-1 Part A – Amendments to Australian Accounting Standards – Annual Improvements 2010-2012 and 2011-2013 Cycles (containing amendments to AASB 2, AASB 3, AASB 8, AASB 13, AASB 116, AASB 124, AASB 138 and AASB 140); AASB 2014-1 Part B – Amendments to Australian Accounting Standards – Defined Benefit Plans: Employee Contributions; AASB 2014-2 Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements; and AASB 2013-4 Amendments to Australian Accounting Standards - Novation of Derivatives and Continuation of Hedge Accounting. The adoption of AASB 2014 amendments has had an impact on disclosures only and there has been no further impact to the financial statements as a result of the new or amended accounting standards. Ardent Leisure Group | Annual Report 2015 41 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (a) Summary of significant accounting policies (continued) Basis of preparation (continued) Historical cost convention The financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties, property, plant and equipment and derivative financial instruments held at fair value. Critical accounting estimates The preparation of financial statements in conformity with Australian Accounting Standards may require the use of certain critical accounting estimates and management to exercise its judgement in the process of applying the Group’s accounting policies. Other than the estimation of fair values described in Notes 1(f), 1(g), 1(j), 1(m), 1(p), 1(s)(v), 1(s)(vi), 1(ab) and 1(ac) and assumptions related to deferred tax assets and liabilities, impairment testing of goodwill and Director valuations for some property, plant and equipment and investment properties, no key assumptions concerning the future, or other estimation of uncertainty at the reporting date, have a significant risk of causing material adjustments to the financial statements in the next annual reporting period. Deficiency of current assets As at 30 June 2015, the Group and ALL Group had deficiencies of current assets of $58.7 million (2014: $31.9 million) and $45.5 million (2014: $26.7 million) respectively. Due to the nature of the business, the majority of sales are for cash whereas purchases are on credit resulting in a negative working capital position. Surplus cash is used to repay external loans, resulting in a deficiency of current assets at 30 June 2015. The Group has $128.6 million (2014: $65.7 million) of unused loan capacity at 30 June 2015 which can be drawn on as required. The ALL Group has $171.0 million (2014: $256.8 million) of unused capacity in its bank loans and its loans with the Trust which can be utilised to fund any deficiency in its net current assets. Refer to Note 24. (b) Principles of consolidation As the Trust is deemed to be the parent entity under Australian Accounting Standards, a consolidated financial report has been prepared for the Group as well as a consolidated financial report for the ALL Group. The consolidated financial report of the Group combines the financial report for the Trust and ALL Group for the year. Transactions between the entities have been eliminated in the consolidated financial reports of the Group and ALL Group. Accounting for the Group is carried out in accordance with Australian Accounting Standards. Controlled entities are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying an equity holding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of controlled entities by the Group (refer to Note 1(ac)). The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non- controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non- controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Ardent Leisure Group. When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate or a jointly controlled entity is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. 42 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (b) Summary of significant accounting policies (continued) Principles of consolidation (continued) The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. Disposals to non-controlling interests result in gains and losses for the Group that are recorded in the Income Statement. Purchases from non-controlling interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary. Inter-entity transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. (c) Cash and cash equivalents For Statement of Cash Flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. (d) Receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method less provision for doubtful debts. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. The collectability of debts is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off in the period in which they are identified. A provision for doubtful debts is raised where there is objective evidence that the Group will not collect all amounts due. The amount of the provision is the difference between the carrying amount and estimated future cash flows. Cash flows relating to current receivables are not discounted. The amount of any impairment loss is recognised in the Income Statement within other expenses. When a trade receivable for which a provision has been recognised becomes uncollectible in a subsequent period, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited against other expenses in the Income Statement. (e) Inventories Inventories are valued at the lower of cost and net realisable value. Cost of goods held for resale is determined by weighted average cost. Cost of catering stores (which by nature are perishable) and other inventories is determined by purchase price. (f) Investment properties Investment properties comprise investment interests in land and buildings (including integral plant and equipment) held for the purposes of letting to produce rental income. Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition, the investment properties are then stated at fair value. Gains and losses arising from changes in the fair values of investment properties are included in the Income Statement in the period in which they arise. At each reporting date, the fair values of the investment properties are assessed by the Manager by reference to independent valuation reports or through appropriate valuation techniques adopted by the Manager. Fair value is determined assuming a long term property investment. Specific circumstances of the owner are not taken into account. The use of independent valuers is on a progressive basis over a three year period, or earlier, where the Manager believes there may be a material change in the carrying value of the property. Where an independent valuation is obtained, the valuer considers the valuation under both the discounted cash flow (DCF) method and the income capitalisation method, with the adopted value generally being a mid-point of the valuations determined under these methods. Under the DCF method, a property’s fair value is estimated using the explicit assumptions regarding the benefits and liabilities of ownership over the asset’s life. The DCF method involves the projection of a series of cash flows on the property. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the income stream associated with the property. Under the income capitalisation method, the total income receivable from the property is assessed and this is capitalised in perpetuity to derive a capital value, with allowances for capital expenditure required. Ardent Leisure Group | Annual Report 2015 43 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (f) Summary of significant accounting policies (continued) Investment properties (continued) Where an independent valuation is not obtained, factors taken into account where appropriate, by the Directors in determining fair value may include:         assuming a willing buyer and a willing seller, without duress and an appropriate time to market the property to maximise price; information obtained from valuers, sales and leasing agents, market research reports, vendors and potential purchasers; capitalisation rates used to value the asset, market rental levels and lease expiries; changes in interest rates; asset replacement values; discounted cash flow models; available sales evidence; and comparisons to valuation professionals performing valuation assignments across the market. As the fair value method has been adopted for investment properties, the buildings and any component thereof are not depreciated. Taxation allowances for the depreciation of buildings and plant and equipment are claimed by the Trust and contribute to the tax deferred component of distributions. (g) Property, plant and equipment Revaluation model The revaluation model of accounting is used for land and buildings, and major rides and attractions. All other classes of property, plant and equipment (PPE) are carried at historic cost. Initially, PPE are measured at cost. For assets carried under the revaluation model, PPE is carried at a revalued amount, being its fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date. Increases in the carrying amounts arising on revaluation of PPE are credited, net of tax, to other reserves in equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first charged against the asset revaluation reserve directly in equity to the extent of the remaining reserve attributable to the asset; all other decreases are charged to the Income Statement. Each year, the difference between depreciation based on the revalued carrying amount of the asset is charged to the Income Statement and depreciation based on the asset’s original cost, net of tax, is transferred from the asset revaluation reserve to retained profits. At each reporting date, the fair values of PPE are assessed by the Manager by reference to independent valuation reports or through appropriate valuation techniques adopted by the Manager. Fair value is determined assuming a long term property investment. Specific circumstances of the owner are not taken into account. The use of independent valuers is on a progressive basis over a three year period, or earlier, where the Manager believes there may be a material change in the carrying value of the property. Where an independent valuation is not obtained, factors taken into account where appropriate, by the Directors in determining fair value may include:         assuming a willing buyer and a willing seller, without duress and an appropriate time to market the property to maximise price; information obtained from valuers, sales and leasing agents, market research reports, vendors and potential purchasers; capitalisation rates used to value the asset, market rental levels and lease expiries; changes in interest rates; asset replacement values; discounted cash flow models; available sales evidence; and comparisons to valuation professionals performing valuation assignments across the market. 44 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (g) Summary of significant accounting policies (continued) Property, plant and equipment (continued) Depreciation Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives as follows: Buildings Leasehold improvements Major rides and attractions Plant and equipment Furniture, fittings and equipment Motor vehicles 2015 2014 40 years Over life of lease 20 - 40 years 4 - 25 years 3 - 13 years 8 years 40 years Over life of lease 20 - 40 years 4 - 25 years 4 - 13 years 8 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (refer to Note 1(m)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Income Statement. When revalued assets are sold, it is Group policy to transfer the amounts included in reserves in respect of those assets to retained profits. (h) Leases Where the Group has substantially all the risks and rewards of ownership, leases of property, plant and equipment are classified as finance leases. Finance leases are capitalised at inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in interest bearing liabilities. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The PPE acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight-line basis over the period of the lease. Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term. (i) Investments and other financial assets Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are carried at amortised cost using the effective interest rate method. The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. (j) Assets held for sale Assets are classified as held for sale and stated at the lower of their carrying amount, and fair value less costs to sell, if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the asset is recognised at the date of derecognition. Assets are not depreciated or amortised while they are classified as held for sale. Assets classified as held for sale are presented separately from the other assets in the Balance Sheet. Ardent Leisure Group | Annual Report 2015 45 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (k) Summary of significant accounting policies (continued) Livestock Livestock is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the animals. The fair value of the livestock is not materially different to its carrying value. Depreciation on livestock is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over the useful lives of the assets which range from 5 - 50 years (2014: 5 - 50 years). (l) (i) Intangible assets Customer relationships Customer relationships acquired are amortised over the period during which the benefits are expected to be received, which is four years (2014: four years). The amortisation charge is weighted towards the first year of ownership where the majority of economic benefits arise. (ii) Brands Brands acquired are amortised on a straight-line basis over the period during which benefits are expected to be received, which is between 10 - 13 years (2014: 10 - 13 years). (iii) Other intangible assets Liquor licences are amortised over the length of the licences which are between 10 - 16 years (2014: 10 - 16 years), depending on the length of the licence. Software is amortised on a straight-line basis over the period during which the benefits are expected to be received, which is between 5 - 8 years (2014: 5 – 7 years). (iv) Goodwill Goodwill is measured as described in Note 1(ac). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purposes of impairment testing (refer to Note 1(m)). The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments (refer to Note 37). (m) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (n) Payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether or not billed to the Group. The amounts are unsecured and are usually paid within 30 - 60 days of recognition. Trade payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. 46 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (o) Summary of significant accounting policies (continued) Interest bearing liabilities Borrowings are initially recognised at fair value, net of transaction costs incurred and are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Income Statement over the period of the borrowing using the effective interest rate method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual drawdown of the facility, are recognised as prepayments and amortised on a straight- line basis over the term of the facility. Finance leases are recognised as interest bearing liabilities to the extent that the Group retains substantially all the risks and rewards of ownership. Interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. (p) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument if hedging criteria are met, and if so, the nature of the item being hedged. The Group may designate certain derivatives as either hedges of exposures to variability in cash flows associated with future interest payments on variable rate debt (cash flow hedges) or hedges of net investments in foreign operations (net investment hedges). The Group documents at the inception of the hedging transaction the relationship between the hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative financial instruments used for hedging purposes are disclosed in Note 14. Movements in the cash flow hedge reserve in equity are shown in Note 30. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity is more than 12 months. They are classified as current assets or liabilities when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities. (i) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the Income Statement. (ii) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement. Amounts accumulated in equity are recycled in the Income Statement in the period when the hedged item impacts the Income Statement. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income Statement. (iii) Net investment hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as net investment hedges is recognised in other comprehensive income and accumulated in reserves in equity. This amount will be reclassified to the Income Statement on disposal of the foreign operation. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement. Gains and losses accumulated in equity are included in the Income Statement when the foreign operation is partially disposed of or sold. Ardent Leisure Group | Annual Report 2015 47 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (q) Summary of significant accounting policies (continued) Borrowing costs Borrowing costs are recognised as expenses using the effective interest rate method, except where they are included in the costs of qualifying assets. Borrowing costs include interest on short term and long term borrowings, amortisation of ancillary costs incurred in connection with the arrangement of borrowings and finance lease charges. Borrowing costs associated with the acquisition or construction of a qualifying asset are capitalised as part of the cost of that asset. Borrowing costs not associated with qualifying assets, are expensed in the Income Statement. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the Group’s outstanding borrowings during the year. The average capitalisation rate used was 4.16% per annum (2014: 4.37% per annum) for Australian dollar debt and 1.54% per annum (2014: 1.51% per annum) for US dollar debt. (r) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (s) (i) Employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Where amounts are not expected to be settled within 12 months, expected future payments are discounted to their net present value using market yields at the reporting date on high quality corporate bonds, except when there is no deep market in which case market yields on national government bonds are used, with terms to maturity and currency that match, as closely as possible, to the estimated future cash outflows. The obligations are presented as current liabilities in the Balance Sheet if the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. (iii) Profit sharing and bonus plans The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (iv) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. 48 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (s) (v) Summary of significant accounting policies (continued) Employee benefits (continued) Long Term Incentive Plan (LTIP) Australian employees Since 1 July 2009, long term incentives have been provided to certain executives under the LTIP. Under the terms of the LTIP and the initial grant, employees may be granted performance rights, of which one third will vest two years after grant date, one third will vest three years after grant date and one third will vest four years after grant date. The percentage of performance rights which will vest is subject to the performance of the Group relative to its peer group, which is the ASX Small Industrials Index. The first set of performance rights were granted under the scheme on 4 December 2009, with the first vesting date being the day after the full year results announcement for the year ended 30 June 2011. The characteristics of the LTIP indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Share-based Payment as the holders are entitled to the securities as long as they meet the LTIP’s service and performance criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the LTIP is accounted for as a cash settled share-based payment. The fair value of the performance rights granted under the LTIP is recognised in the Group financial statements as an employee benefit expense with a corresponding increase in equity. The fair value of the performance rights at grant date is determined using a Monte Carlo simulation valuation model and then recognised over the vesting period during which employees become unconditionally entitled to the underlying securities. The fair value of the performance rights granted under the LTIP is recognised in the ALL Group financial statements as an employee benefit expense with a corresponding increase in liabilities. The fair value of each grant of the performance rights is determined at each reporting date using a Monte Carlo simulation valuation model, with the movement in fair value of the liability being recognised in the Income Statement. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. US employees Due to previous restrictions on the issue of securities to US residents, those US executives eligible for the LTIP were subject to a shadow performance rights scheme whereby a cash payment was made instead of performance rights being granted. At the end of the vesting period for each grant of performance rights, a calculation is made of the number of performance rights which would have been granted and payment is made based on the Group stapled security volume weighted average price (VWAP) for the five trading days immediately following the vesting date. Due to the nature of the scheme, this scheme is considered to be a cash settled share- based payment under AASB 2. Following steps taken to issue equity to US resident employees, all new performance rights issued after 1 July 2014 will be settled in equity upon vesting in future periods. As such, these performance rights are considered to be equity settled shared-based payments under AASB 2. The fair value of cash settled performance rights is determined at grant date and each reporting date using a Monte Carlo simulation valuation model. This is recorded as a liability, with the difference in the movement in the fair value of the financial liability being recognised in the Income Statement. The fair value of equity settled performance rights is determined at grant date using a Monte Carlo simulation valuation model. This is recorded as an employee benefit expense with a corresponding increase in equity. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. (vi) Deferred Short Term Incentive Plan (DSTI) Australian employees Since 1 July 2010, long term incentives have been provided to executives under the DSTI. Under the terms of the DSTI, employees may be granted DSTI performance rights, of which one half will vest one year after grant date and one half will vest two years after grant date. The first set of performance rights were granted under the DSTI on 16 December 2010, with the first vesting date being the day after the full year results announcement for the year ended 30 June 2011. The characteristics of the DSTI indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Shared-based Payment as the holders are entitled to the securities as long as they meet the DSTI’s service criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the DSTI is accounted for as a cash settled share-based payment. Ardent Leisure Group | Annual Report 2015 49 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (s) Summary of significant accounting policies (continued) Employee benefits (continued) (vi) Deferred Short Term Incentive Plan (DSTI) (continued) Australian employees (continued) The fair value of the performance rights granted under the DSTI is recognised in the Group financial statements as an employee benefit expense with a corresponding increase in equity. The fair value of each grant of performance rights is determined at grant date using a binomial tree valuation model and then recognised over the vesting period during which employees become unconditionally entitled to the underlying securities. The fair value of the performance rights granted under the DSTI is recognised in the ALL Group financial statements as an employee benefit expense with a corresponding increase in liabilities. The fair value of each grant of performance rights is determined at each reporting date using a binomial tree valuation model with the movement in fair value of the liability being recognised in the Income Statement. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. US employees Due to previous restrictions on the issue of securities to US residents, those US executives eligible for the DSTI were subject to a shadow performance rights scheme whereby a cash payment was made instead of performance rights being granted. At the end of the vesting period, the number of performance rights which would have vested is multiplied by the Group VWAP for the five trading days immediately following the vesting date and an equivalent cash payment is made. Due to the nature of the scheme, this is considered to be a cash settled share-based payment under AASB 2. All new performance rights issued after 1 July 2014 will be settled in equity upon vesting in future periods. As such, the performance rights are considered to be equity settled share-based payments under AASB 2. In the ALL financial statements, all performance rights issued to US employees are considered to be cash settled. The fair value of each cash settled performance rights is determined at grant date and each reporting date using a binomial tree valuation model. This is recorded as a liability with the difference in the movement in the fair value of the financial liability being recognised in the Income Statement. The fair value of equity settled performance rights is determined at grant date using a binomial tree valuation model. This is recorded as an employee benefit expense with a corresponding increase in equity. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. (t) Tax The Trust is not subject to income tax. However, both of its controlled entities, Ardent Leisure (NZ) Trust and ALL Group, are subject to income tax. Under current Australian income tax legislation, the Trust is not liable to pay income tax provided its income, as determined under the Trust Constitution, is fully distributed to unit holders, by way of cash or reinvestment. The liability for capital gains tax that may otherwise arise if the Australian properties were sold is not accounted for in these financial statements, as the Trust expects to distribute such amounts to its unit holders. The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company's subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 50 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (t) Summary of significant accounting policies (continued) Tax (continued) Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Ardent Leisure Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 8 February 2005. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively. Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances). The Group accounts for such allowances as tax credits. This means that the allowance reduces income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits that are carried forward as deferred tax assets. (u) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case, it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Balance Sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from or payable to the taxation authority, are presented as operating cash flow. (v) Equity Incremental costs directly attributable to the issue of new stapled securities or options are recognised directly in equity as a reduction in the proceeds of stapled securities to which the costs relate. Incremental costs directly attributable to the issue of new stapled securities or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. (w) Reserves In accordance with the Trust Constitution, amounts may be transferred from reserves or contributed equity to fund distributions. (x) Revenue Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that further economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. Revenue is recognised for the major business activities as follows: (i) Rendering of services Revenue from rendering of services including health club memberships, theme park and SkyPoint entry and bowling games is recognised when the outcome can be reliably measured and the service has taken place. Where health club membership is for a fixed period and paid in advance, the revenue is recognised on a straight-line basis over the membership period. Revenue relating to theme park annual passes is recognised as the passes are used. Ardent Leisure Group | Annual Report 2015 51 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (x) (ii) Summary of significant accounting policies (continued) Revenue (continued) Sale of goods Revenue from sale of goods including merchandise and food and beverage items is recognised when the risks and rewards of ownership have passed to the buyer. (iii) Rental revenue Rental income represents income earned from the sub-lease of investment properties leased by the Group, and is brought to account on a straight-line basis over the lease term. (iv) Interest income Interest income is recognised on a time proportion basis using the effective interest rate method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (y) (i) Foreign currency translation Functional and presentation currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or they are attributable to part of the net investment in a foreign operation. (iii) Foreign operations Assets and liabilities of foreign controlled entities are translated at exchange rates ruling at reporting date while income and expenses are translated at average exchange rates for the period. Exchange differences arising on translation of the interests in foreign controlled entities are taken directly to the foreign currency translation reserve. On consolidation, exchange differences on loans denominated in foreign currencies, where the loan is considered part of the net investment in that foreign operation, are taken directly to the foreign currency translation reserve. At 30 June 2015, the spot rate used was A$1.00 = NZ$1.1294 (2014: A$1.00 = NZ$1.0762) and A$1.00 = US$0.7680 (2014: A$1.00 = US$0.9430). The average spot rate during the year ended 30 June 2015 was A$1.00 = NZ$1.0801 (2014: A$1.00 = NZ$1.1021) and A$1.00 = US$0.8288 (2014: A$1.00 = US$0.9113). (z) Segment information Segment income, expenditure, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of cash, receivables (net of any related provisions) and investments. Any assets used jointly by segments are allocated based on reasonable estimates of usage. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. The main income statement items used by management to assess each of the divisions are divisional revenue and divisional EBITDA before property costs and after property costs. In addition, depreciation and amortisation are analysed by division. Each of these income statement items is looked at after adjusting for pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, amortisation of intangible assets and impairment of property, plant and equipment and intangible assets and other non-recurring realised items. As shown in Note 11, these items are excluded from management’s definition of core earnings. 52 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. Summary of significant accounting policies (continued) (aa) Earnings per stapled security Basic earnings per stapled security are determined by dividing profit by the weighted average number of ordinary stapled securities on issue during the period. Diluted earnings per stapled security are determined by dividing the profit by the weighted average number of ordinary stapled securities and dilutive potential ordinary stapled securities on issue during the period. (ab) Fair value estimation The Group measures financial instruments, such as derivatives, and non-financial assets such as investment properties, at fair value at each balance date. 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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:   In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The nominal value less estimated credit adjustments of trade receivables and payables approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (ac) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a business comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. Ardent Leisure Group | Annual Report 2015 53 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (ac) Summary of significant accounting policies (continued) Business combinations (continued) The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a gain on acquisition. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Goodwill acquired is not deductible for tax. (ad) Dividends/distributions Provision is made for the amount of any dividend/distribution declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at the reporting date. (ae) Convertible notes A subsidiary of ALL, Ardent Leisure Note Issuer Pty Limited, previously issued convertible notes to the Trust. Due to the terms associated with these notes, the notes were classified as equity in the financial statements of the ALL Group. Given that this equity was not payable to the shareholders of ALL, the notes were included in equity attributable to non-controlling interests. The convertible notes have been repaid as a result of the capital reallocation between the Trust and the Company during the year. Refer to Note 28 for more information. (af) Parent entity financial information The financial information for the parent entity of the Group (Ardent Leisure Trust) and ALL Group (Ardent Leisure Limited) has been prepared on the same basis as the consolidated financial statements, except as set out below: (i) Investments in subsidiaries, associates and jointly controlled entities Investments in subsidiaries, associates and jointly controlled entities are accounted for at cost in the financial statements of the parent entities. Dividends received from associates and jointly controlled entities are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. (ii) Tax consolidation legislation Ardent Leisure Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Ardent Leisure Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, Ardent Leisure Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Ardent Leisure Limited for any current tax payable assumed and are compensated by Ardent Leisure Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Ardent Leisure Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities' financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. 54 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 1. (af) (iii) Summary of significant accounting policies (continued) Parent entity financial information (continued) Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. (iv) Share-based payments The grant by the parent entity of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution to that subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. (ag) New accounting standards, amendments and interpretations Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group for accounting periods beginning on or after 1 July 2015 but which the Group has not yet adopted. Based on a review of these standards, the majority of the standards yet to be adopted are not expected to have a significant impact on the financial statements of the Group. The Group’s and the parent entity’s assessment of the impact of those new standards, amendments and interpretations which may have an impact is set out below: AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2018) AASB 9 Financial Instruments addresses the classification and measurement of financial assets and may affect the Group’s and the ALL Group’s accounting for its financial assets. The standard is not applicable until 1 January 2018 but is available for early adoption. The Group is yet to assess its full impact. However, initial indications are that there should be no material impact on the Group’s or the ALL Group’s financial statements. The Group and the ALL Group do not intend to adopt AASB 9 before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2019. AASB 15 Revenue from Contracts with Customers (effective from 1 January 2017) The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 Revenue which covers contracts for goods and services and IAS 11 Construction Contracts which covers construction contracts. The group has not yet considered the impact of the new rules on its revenue recognition policies. It will undertake a detailed assessment in the near future. The group will assess whether to adopt AASB 15 before its operative date; if not it would be first applied in the annual reporting period ending 30 June 2018. Early adoption of standards The Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2015. (ah) Rounding The Group is a registered scheme of a kind referred to in Class Order 98/100 (as amended) issued by the Australian Securities and Investments Commission relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. Ardent Leisure Group | Annual Report 2015 55 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Ardent Leisure Trust and Ardent Leisure Limited formation The Trust was established on 6 February 1998. On 23 December 2005, the Manager executed a supplemental deed poll to amend the Trust Constitution. The amendments removed the 80 year life of the Trust, to enable the units on issue to be classified as equity under Australian Accounting Standards. ALL was incorporated on 28 April 2003. The Manager and ALL entered into the stapling deed effective 1 July 2003. Revenue from operating activities Revenue from services Revenue from sale of goods Revenue from rentals Other revenue Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 426,872 131,380 35,956 395 2014 $’000 365,085 102,070 32,108 440 2015 $’000 426,872 131,380 35,956 395 2014 $’000 365,085 102,070 32,108 440 Revenue from operating activities 594,603 499,703 594,603 499,703 Borrowing costs Borrowing costs paid or payable Less: capitalised borrowing costs Provisions: unwinding of discount Borrowing costs expensed For details of the fair value of borrowings, refer to Note 39 (c). 5. Property expenses Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 11,580 (573) 326 11,333 2014 $’000 11,674 (344) - 2015 $’000 12,049 (357) 39 11,330 11,731 2014 $’000 8,985 (219) - 8,766 Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Landlord rent and outgoings 90,467 74,870 149,865 138,302 Insurance Rates Land tax Onerous lease expense Other 685 3,665 807 2,598 807 607 2,541 899 - 622 - - - - - - - - - - 99,029 79,539 149,865 138,302 56 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Net gain/(loss) from derivative financial instruments Net gain/(loss) on derivatives - unrealised Consolidated Group 2015 Consolidated Group 2014 $’000 $’000 552 552 (613) (613) ALL Group ALL Group 2015 $’000 - - 2014 $’000 - - Management fees The Manager of the Trust is Ardent Leisure Management Limited. The Manager’s registered office and principal place of business are Level 16, 61 Lavender Street, Milsons Point, NSW 2061. (a) Base management fee The management fee is based on an allocation of costs incurred by ALL and its controlled entities to manage the Trust but is eliminated in the aggregated results of the Group. (b) Management fee calculation The management fee earned by the Manager during the year is detailed as follows: Base management fee Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 - - 2014 $’000 - - 2015 $’000 1,200 1,200 2014 $’000 1,200 1,200 Ardent Leisure Group | Annual Report 2015 57 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Other expenses Audit fees Consulting fees Consumables Custodian fees Electricity Fuel and oil Insurance Legal fees Merchant fees Motor vehicles Permits and fees Printing, stationery and postage Registry fees Stapled security holder communication costs Stock exchange costs Taxation fees Telephone Training Travel costs Valuation fees Other Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 653 1,789 3,075 101 15,882 1,187 3,609 725 10,214 1,088 4,921 2,765 184 171 165 239 2,226 1,434 2,729 70 1,132 54,359 2014 $’000 585 878 2,612 109 14,325 1,076 2,424 382 8,210 1,048 4,528 2,643 163 167 114 210 1,872 1,395 1,808 114 969 45,632 2015 $’000 437 1,789 3,075 - 15,882 1,187 3,609 724 10,214 1,088 4,899 2,765 184 171 165 212 2,226 1,434 2,729 - 646 53,436 2014 $’000 397 878 2,612 - 14,325 1,076 2,424 368 8,210 1,048 4,492 2,643 163 167 114 187 1,872 1,395 1,808 - 962 45,141 Remuneration of auditor During the financial year, the auditor of the Group, PricewaterhouseCoopers (PwC), earned the following remuneration: Audit and other assurance services - PwC Australia Audit and other assurance services - related practices of PwC Australia Taxation services - PwC Australia Taxation services - related practices of PwC Australia Other services - PwC Australia Consolidated Group 2015 $ Consolidated Group 2014 $ ALL Group 2015 $ ALL Group 2014 $ 533,268 120,198 27,105 212,088 1,530 894,189 506,360 78,477 23,192 186,923 1,500 796,452 316,339 120,198 - 212,088 1,530 650,155 317,777 78,477 - 186,923 1,500 584,677 58 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Income tax expense (a) Income tax expense Current tax Deferred tax Over provided in prior year Note Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2014 $’000 2015 $’000 2014 $’000 (2,581) 8,354 (107) 5,666 4,290 (1,532) (765) 1,993 (2,593) 8,354 (67) 5,694 4,200 (1,532) (765) 1,903 Income tax expense is attributable to: Profit from continuing operations 5,666 1,993 5,694 1,903 Deferred income tax (benefit)/expense included in income tax expense comprises: (Increase)/decrease in deferred tax assets Increase/(decrease) in deferred tax liabilities 22 27 (6,732) 15,086 8,354 328 (1,860) (1,532) (6,732) 15,086 8,354 328 (1,860) (1,532) (b) Numerical reconciliation of income tax expense to prima facie tax expense Profit from continuing operations before income tax expense Less: Profit from the trusts1 Prima facie profit 39,069 (35,279) 3,790 51,878 (48,330) 3,548 14,019 - 14,019 Tax at the Australian tax rate of 30% (2014: 30%) 1,137 1,064 4,206 Tax effects of amounts which are not deductible/(taxable) in calculating taxable income: Entertainment Non-deductible depreciation and amortisation Sundry items Employee security plans Business acquisition costs Foreign exchange conversion differences US State taxes Withholding tax and research and development credit Difference in overseas tax rates Over provided in prior year Income tax expense 92 3,331 (114) 281 581 42 (348) (275) 1,046 (107) 5,666 54 2,569 (1,311) 181 78 (53) (246) (63) 485 (765) 1,993 92 - 136 281 581 42 (348) (275) 1,046 (67) 5,694 7,683 - 7,683 2,305 54 - (77) 181 78 (53) (246) (63) 489 (765) 1,903 1 Profits relating to the trusts are largely distributed to unit holders via distributions and are subject to tax upon receipt of this distribution income by the unit holders. (c) Income tax benefit relating to items of other comprehensive income Unrealised loss on derivative financial instruments recognised in the cash flow hedge reserve 22, 30 (24) (24) (11) (11) (24) (24) (11) (11) Ardent Leisure Group | Annual Report 2015 59 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 10. (d) Income tax expense (continued) Unrecognised temporary differences There are no unrecognised temporary differences as at 30 June 2015 (2014: nil). (e) Tax consolidation legislation ALL and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 8 February 2005. The accounting policy in relation to this legislation is set out in Note 1(t). On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, ALL. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate ALL for any current tax payable assumed and are compensated by ALL for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to ALL under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are payable upon demand by the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are netted off in the non-current intercompany payables. Earnings per security/share Basic earnings per security/share (cents) Diluted earnings per security/share (cents) Core earnings per security (cents) Diluted core earnings per security (cents) Earnings used in the calculation of basic and diluted earnings per security/share ($'000) Earnings used in the calculation of core earnings per security (refer to calculation in table below) ($'000) Weighted average number of stapled securities on issue used in the calculation of basic and core earnings per security/share ('000) Weighted average number of stapled securities held by ALL employees under employee share plans (refer to Note 29) ('000) Weighted average number of stapled securities on issue used in the calculation of diluted earnings per security/share ('000) Consolidated Group Consolidated Group ALL Group ALL Group 2015 7.38 7.35 12.92 12.86 2014 12.13 12.05 14.40 14.30 2015 1.58 1.57 N/A N/A 2014 1.25 1.24 N/A N/A 32,122 49,002 6,862 5,056 56,234 58,153 N/A N/A 435,208 403,868 435,208 403,868 2,069 2,848 2,069 2,848 437,277 406,716 437,277 406,716 60 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 11. Earnings per security/share (continued) Calculation of core earnings The table below outlines the Manager’s adjustments to profit under Australian Accounting Standards to determine the amount the Manager believes should be available for distribution for the current year. The Manager uses this amount as guidance for distribution determination. Core earnings is a financial measure which is not prescribed by Australian Accounting Standards and represents the profit under Australian Accounting Standards (statutory profit) adjusted for certain unrealised and non-cash items, reserve transfers and one off realised items. Under the Trust Constitution, the amount distributed to stapled security holders by the Trust is at the discretion of the Manager. Management will use the core earnings calculated for assessing the performance of the Group and as a guide to assessing an appropriate distribution to declare. This measure is considered more relevant than statutory profit as it represents an estimate of the underlying recurring cash earnings of the Group and provides more meaningful comparison between financial years. The adjustments between profit under Australian Accounting Standards and core earnings may change from time to time depending on changes to accounting standards and the Manager’s assessment as to whether non-recurring or infrequent items (such as realised gains on the sale of properties) will be distributed to stapled security holders. Profit used in calculating earnings per stapled security Unrealised items - Unrealised net (gain)/loss on derivative financial instruments - Valuation loss - investment properties - Valuation gains - property, plant and equipment - Impairment - property, plant and equipment - Impairment - goodwill Non-cash items - Straight lining of fixed rent increases - IFRS depreciation(1) - Amortisation of health club brands and customer relationship intangible assets One off realised items - Pre-opening expenses - Business acquisition costs - Onerous lease costs - Gain on sale and leaseback of family entertainment centres - Loss on closure of bowling centres Tax impact of above adjustments Core earnings Consolidated Group Consolidated Group 2015 $’000 2014 $’000 32,122 49,002 (552) 501 - 2,646 141 2,336 11,102 6,778 6,521 1,938 2,598 (6,959) 104 (3,042) 56,234 613 - (8,590) - - 1,546 8,562 6,333 2,579 277 - (379) 1,579 (3,369) 58,153 (1) IFRS depreciation represents depreciation recorded under Australian Accounting Standards effective 1 July 2005 on property, plant and equipment which were previously classified as investment properties. Ardent Leisure Group | Annual Report 2015 61 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Distributions and dividends paid and payable (a) Consolidated Group The following dividends and distributions were paid and payable by the Group to stapled security holders: 2015 dividends and distributions for the half year ended: 31 December 2014 30 June 2015* 2014 distributions for the half year ended: 31 December 2013 30 June 2014** Dividend cents per stapled security Distribution cents per stapled security Total amount $’000 Distribution tax deferred % Distribution CGT concession Distribution Taxable % amount % 3.00 - 3.00 - - - 4.00 5.50 9.50 6.80 6.20 30,707 24,328 55,035 27,544 25,113 30.87 13.00 52,657 35.17 - - 69.13 64.83 * The distribution of 5.50 cents per stapled security for the half year ended 30 June 2015 was not declared prior to 30 June 2015. Refer to Note 44. ** The distribution of 6.20 cents per stapled security for the half year ended 30 June 2014 was not declared prior to 30 June 2014. (b) ALL Group During the year, a subsidiary of ALL paid to the Trust $1.6 million (2014: $3.9 million) relating to convertible notes which were classified as equity under Australian Accounting Standards. A fully franked dividend of 3.0 cents (2014: nil) per stapled security was paid from the ALL Group totalling $13.2 million (2014: nil) during the current financial year. (c) Franking credits The tax consolidated group has franking credits of $3,414,276 (2014: $6,709,050). It is the tax consolidated group’s intention to distribute these franking credits to security holders where possible. Receivables Trade receivables Receivable from the Trust Provision for doubtful debts Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 11,315 - (459) 10,856 7,938 - (522) 7,416 11,315 2,354 (459) 13,210 7,938 346 (522) 7,762 The Group has recognised an expense of $199,959 in respect of bad and doubtful trade receivables during the year ended 30 June 2015 (2014: $121,948). The expense has been included in other expenses in the Income Statement. 62 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Derivative financial instruments Current assets Forward foreign exchange contracts Non-current assets Forward foreign exchange contracts Current liabilities Forward foreign exchange contracts Interest rate swaps Non-current liabilities Forward foreign exchange contracts Interest rate swaps Forward foreign exchange contracts Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 263 263 114 114 - 98 98 - 2,133 2,133 - - - - 11 448 459 9 995 1,004 - - - - - - - - 129 129 - - - - - - - - 48 48 The Group has entered into forward foreign exchange contracts to buy US dollars and sell Australian dollars. These contracts total A$2.1 million (2014: A$4.6 million). The forward contracts do not qualify for hedge accounting and accordingly, changes in fair value of these contracts are recorded in the Income Statement. Notwithstanding the accounting outcome, the Manager considers that these derivative contracts are appropriate and effective in offsetting the economic foreign exchange exposures of the Group. Interest rate swaps The Group has entered into interest rate swap agreements totalling $70.0 million (2014: $100.0 million) and US$47.0 million (2014: US$30.0 million) that entitle it to receive interest, at quarterly intervals, at a floating rate on a notional principal and obliges it to pay interest at a fixed rate. The interest rate swap agreements allow the Group to raise long term borrowings at a floating rate and effectively swap them into a fixed rate. The Group also has forward starting interest rate swaps totalling $90.0 million (2014: $40.0 million) with start dates from June 2017 and end dates to June 2018. With the exception of one $40.0 million swap, all interest rate swap contracts qualify as cash flow hedges. Accordingly, the change in fair value of these swaps is recorded in the cash flow hedge reserve. Amounts accumulated in equity are recycled in the Income Statement in the period when the hedged item impacts the Income Statement. For the one swap which does not qualify as a cash flow hedge, the changes in fair value are recorded directly in the Income Statement. Notwithstanding the accounting outcome, the Manager considers that these derivative contracts are appropriate and effective in offsetting the economic foreign exchange exposures of the Group and the ALL Group. Ardent Leisure Group | Annual Report 2015 63 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 14. Derivative financial instruments (continued) Interest rate swaps (continued) The table below shows the maturity profile of the interest rate swaps: Less than 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years More than 5 years Inventories Goods held for resale Provision for diminution Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 40,000 111,198 70,000 - - - 60,000 40,000 71,813 - - - - 39,063 - - - - - - 31,813 - - - 221,198 171,813 39,063 31,813 Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 11,392 (20) 11,372 2014 $’000 9,398 (20) 9,378 2015 $’000 11,392 (20) 11,372 2014 $’000 9,398 (20) 9,378 There was no reversal of write-downs of inventories recognised as a benefit during the year ended 30 June 2015 (2014: nil). Property held for sale Family entertainment centres Opening balance Transfer from property, plant and equipment Additions Foreign exchange movements Disposals Closing balance Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 - - 2014 $’000 10,650 10,650 2015 $’000 - - 2014 $’000 10,650 10,650 Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 10,650 - 19,551 4,163 (34,364) - 2014 $’000 4,210 9,741 6,725 (168) (9,858) 10,650 2015 $’000 10,650 - 19,551 4,163 (34,364) - 2014 $’000 4,210 9,741 6,725 (168) (9,858) 10,650 During the year, the Group disposed of three family entertainment centres at Tulsa and Oklahoma City, Oklahoma and San Antonio West, Texas, being previously held for sale. The three centres were disposed of through sale and leaseback transactions. 64 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Other assets Prepayments Accrued revenue Investment properties Consolidated Group Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 6,779 3,957 10,736 2014 $’000 6,685 2,252 8,937 2015 $’000 3,069 3,957 7,026 2014 $’000 3,186 2,252 5,438 Property Note Valuer Excess land at Dreamworld Marinas Total (a) (b) (1) (2) Cumulative revaluation (decrements)/ increments 2015 $’000 (975) 19,832 18,857 Consolidated book value 2015 $’000 1,900 97,426 99,326 Cost 2015 $’000 2,875 77,594 80,469 Cumulative revaluation (decrements)/ increments 2014 $’000 (462) 19,820 19,358 Consolidated book value 2014 $’000 2,412 93,458 95,870 Cost 2014 $’000 2,874 73,638 76,512 (a) The remaining excess land has been valued by Directors at $1.9 million (2014: $2.4 million). (b) The total carrying value of d’Albora Marinas (including plant and equipment of $7.8 million (2014: $7.8 million)) is $105.2 million (2014: $101.3 million). The fair value was assessed to be $105.2 million (2014: $101.3 million). (1) Robert Tye, CBRE Valuations Pty Limited, independently valued the excess land on Foxwell Road, Coomera at 31 December 2014 at $1.1 million. The remaining excess land has been valued by the Directors at 31 December 2014 at $0.8 million. (2) Adam Ellis, LandMark White (Sydney) Pty Limited, independently valued two of the seven properties at 30 June 2015. The remaining five properties were last independently valued at 30 June 2014. Refer to Note 39(b) for information on the valuation techniques used to derive the fair value of the investment properties. A reconciliation of the carrying amount of investment properties at the beginning and end of the current year is set out below: Carrying amount at the beginning of the year Additions Revaluation decrements Carrying amount at the end of the year Consolidated Group Consolidated Group 2015 $’000 95,870 3,957 (501) 99,326 2014 $’000 95,232 638 - 95,870 Amounts recognised in the Income Statement for investment properties: Revenue from investment properties Property expenses incurred on investment properties 18,085 (2,615) 18,186 (2,548) ALL Group ALL Group 2015 $’000 2014 $’000 - - - - - - - - - - - - At 30 June 2015, the Group had receivables from third parties totalling $332,646 (2014: $648,709) relating to leases on its investment properties. Ardent Leisure Group | Annual Report 2015 65 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Property, plant and equipment Consolidated Group Property Theme parks Marinas Bowling centres Family entertainment centres Health clubs Other Total Note (1) (2) (3) (4) (5) (6) (7) Cost less accumulated depreciation 2015 $’000 Cumulative revaluation increments/ (decrements) 2015 $’000 Consolidated book value 2015 $’000 Cost less accumulated depreciation 2014 $’000 Cumulative revaluation increments/ (decrements) 2014 $’000 Consolidated book value 2014 $’000 213,490 7,777 104,350 157,322 83,092 2,823 568,854 39,015 - 1,900 (86) - - 40,829 252,505 7,777 106,250 157,236 83,092 2,822 609,682 212,603 7,806 97,335 78,446 74,605 2,742 473,537 34,811 - 1,900 (86) - - 36,625 247,414 7,806 99,235 78,360 74,605 2,742 510,162 (1) The book value of Dreamworld and WhiteWater World land and buildings and major rides and attractions (including intangible assets of $0.8 million (2014: $0.8 million)) is $227.5 million (2014: $227.0 million). In an independent valuation performed at 30 June 2015 by Jones Lang LaSalle, the fair value for these assets was assessed to be $227.0 million (2014: $227.0 million). The Directors have valued other property, plant and equipment of Dreamworld and WhiteWater World at 30 June 2015 at $2.9 million (2014: $2.3 million). (2) The book value of SkyPoint (including intangible assets of $3.6 million (2014: $3.6 million)) is $26.5 million (2014: $22.5 million). In an independent valuation performed at 30 June 2015, the fair value for SkyPoint was assessed to be $26.5 million (2014: $22.5 million). (3) The Directors have valued the property, plant and equipment of d’Albora Marinas at $7.8 million (2014: $7.8 million). (4) The one remaining freehold building was independently valued at 30 June 2013 at $1.9 million. At 30 June 2015, the Directors assessed the fair value of the freehold building to be $1.9 million (2014: $1.9 million) and the remaining property, plant and equipment to be $104.4 million (2014: $97.3 million). (5) At 30 June 2015, the Directors assessed the fair value of the property, plant and equipment in its family entertainment centres to be $157.2 million (2014: $78.4 million). (6) The Directors have valued the property, plant and equipment of Goodlife at 30 June 2015 at $83.1 million (2014: $74.6 million). (7) The fair value of other property, plant and equipment was assessed by the Directors to be $2.8 million (2014: $2.7 million) at 30 June 2015. Refer to Note 39(b) for information on the valuation techniques used to derive the fair value of the land and buildings and major rides and attractions. A reconciliation of the carrying amount of property, plant and equipment at the beginning and end of the current and previous years is set out below: Land and buildings $’000 Major rides and attractions $’000 Plant and equipment $’000 Plant and equipment under finance lease $’000 Furniture, fittings and equipment $’000 Motor vehicles $’000 283,047 42,834 4,080 - (415) (13,657) 9,793 7,541 (2,646) 63,579 3,389 - - - (1,766) - - - 144,908 66,474 971 492 (1,159) (27,294) 12,226 - - 492 - - (492) - - - - - 17,862 3,228 469 - (50) (4,466) (6) - - 274 50 - - (3) (73) - - - Total $’000 510,162 115,975 5,520 - (1,627) (47,256) 22,013 7,541 (2,646) 330,577 65,202 196,618 - 17,037 248 609,682 Consolidated Group - 2015 Carrying amount at the beginning of the year Additions Acquired through business combinations Transfer to plant and equipment Disposals Depreciation Foreign exchange movements Revaluation increments Impairment Carrying amount at the end of the year 66 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 19. Property, plant and equipment (continued) Land and buildings $’000 Major rides and attractions $’000 Plant and equipment $’000 Plant and equipment under finance lease $’000 Furniture, fittings and equipment $’000 Motor vehicles $’000 248,679 39,629 1,591 (9,741) (815) (10,473) (1,279) 15,456 64,994 1,524 - - (829) (2,110) - - 133,646 31,399 1,368 - (470) (20,236) (799) - 582 - - - - (90) - - 13,630 6,660 208 - (68) (2,574) 6 - 384 25 - - (30) (105) - - Total $’000 461,915 79,237 3,167 (9,741) (2,212) (35,588) (2,072) 15,456 283,047 63,579 144,908 492 17,862 274 510,162 Consolidated Group - 2014 Carrying amount at the beginning of the year Additions Acquired through business combinations Transfer to property held for sale Disposals Depreciation Foreign exchange movements Revaluation increments Carrying amount at the end of the year ALL Group - 2015 Carrying amount at the beginning of the year Additions Acquired through business combinations Transfer to plant and equipment Disposals Depreciation Foreign exchange movements Impairment Carrying amount at the end of the year ALL Group - 2014 Carrying amount at the beginning of the year Additions Acquired through business combinations Transfer to property held for sale Disposals Depreciation Foreign exchange movements Carrying amount at the end of the year Plant and equipment under finance lease Plant and equipment $’000 $’000 72,534 62,477 1,441 492 (619) (21,848) 12,290 - 126,767 492 - - (492) - - - - - Land and buildings $’000 50,437 30,289 - - (399) (2,305) 9,820 (1,009) 86,833 Land and buildings $’000 Plant and equipment $’000 Plant and equipment under finance lease $’000 28,056 35,079 - (9,741) (2) (1,641) (1,314) 50,437 54,812 30,433 1,576 - (514) (12,821) (952) 72,534 582 - - - - (90) - 492 Total $’000 123,463 92,766 1,441 - (1,018) (24,153) 22,110 (1,009) 213,600 Total $’000 83,450 65,512 1,576 (9,741) (516) (14,552) (2,266) 123,463 Ardent Leisure Group | Annual Report 2015 67 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Livestock Livestock comprises wildlife animals housed at the Dreamworld site. At 1 July Cost Accumulated depreciation Net book amount Year ended 30 June Opening net book amount Additions Disposals Depreciation Closing net book amount At 30 June Cost Accumulated depreciation Net book amount Intangible assets Customer relationships at cost Accumulated amortisation Brands at cost Accumulated amortisation Other intangible assets at cost Accumulated amortisation Goodwill at cost Accumulated impairment charge Total intangible assets 68 Ardent Leisure Group | Annual Report 2015 Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 863 (563) 300 300 - (25) (30) 245 838 (593) 245 2014 $’000 828 (523) 305 305 81 (46) (40) 300 863 (563) 300 2015 $’000 863 (563) 300 300 - (25) (30) 245 838 (593) 245 2014 $’000 828 (523) 305 305 81 (46) (40) 300 863 (563) 300 Consolidated Group 2015 Consolidated Group 2014 ALL Group 2015 $’000 $’000 $’000 ALL Group 2014 $’000 35,935 (30,386) 5,549 12,312 (5,546) 6,766 8,251 (2,774) 5,477 29,812 (24,697) 5,115 10,850 (4,454) 6,396 3,448 (1,960) 1,488 35,935 (30,386) 5,549 12,312 (5,546) 6,766 6,823 (1,346) 5,477 29,812 (24,697) 5,115 10,850 (4,454) 6,396 2,020 (532) 1,488 236,850 (11,698) 225,152 242,944 199,795 (11,557) 188,238 236,850 (11,698) 225,152 199,795 (11,557) 188,238 201,237 242,944 201,237 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 21. Intangible assets (continued) Customer relationships Opening net book amount Additions Amortisation Closing net book amount Brands Opening net book amount Additions Amortisation Foreign exchange movements Closing net book amount Other intangible assets Opening net book amount Additions Amortisation Closing net book amount Goodwill Opening net book amount Additions Foreign exchange movements Impairment Closing net book amount Total intangible assets Customer relationships Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 5,115 6,123 (5,689) 5,549 6,396 1,210 (1,089) 249 6,766 1,488 4,803 (814) 5,477 9,594 1,160 (5,639) 5,115 2,779 4,311 (694) - 6,396 202 1,368 (82) 1,488 5,115 6,123 (5,689) 5,549 6,396 1,210 (1,089) 249 6,766 1,488 4,803 (814) 5,477 9,594 1,160 (5,639) 5,115 2,779 4,311 (694) - 6,396 202 1,368 (82) 1,488 188,238 27,664 9,391 (141) 225,152 242,944 184,213 5,087 (1,062) - 188,238 201,237 188,238 27,664 9,391 (141) 225,152 242,944 184,213 5,087 (1,062) - 188,238 201,237 Customer relationships relate to the relationships with health club members which were acquired as part of the various acquisitions of health clubs. Brands The brands relate to the Goodlife brand acquired in September 2007 along with the distribution agreement for the use of the Hypoxi brand in March 2014. Other intangible assets Other intangible assets represent registered trademarks associated with Dreamworld operations, intellectual property associated with Australian Tour Desk, liquor licences held by the bowling centres and software built across all the business units in the Group. Goodwill Goodwill represents goodwill acquired by the Group as part of various acquisitions. The movement in goodwill at cost in the period is due to the acquisition of eight health clubs and an amusement arcade (refer to Note 32) and the movement in the USD:AUD foreign exchange rate. Goodwill is monitored by management at the operating segment level. Management reviews the business performance based on geography and type of business. The Group has six reportable segments as disclosed in Note 37. Ardent Leisure Group | Annual Report 2015 69 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 21. Intangible assets (continued) Goodwill (continued) A segment level summary of the goodwill allocation is presented below: Consolidated Group and ALL Group 2015 Australia United States New Zealand $’000 $’000 $’000 Theme parks Bowling centres Family entertainment centres Health clubs 2014 Theme parks Bowling centres Family entertainment centres Health clubs Impairment tests for goodwill 4,366 20,270 - 142,432 167,068 - - 54,608 - 54,608 4,366 18,080 - 117,080 139,526 - - 45,066 - 45,066 Australia United States New Zealand $’000 $’000 $’000 3,476 225,152 Total $’000 4,366 23,746 54,608 142,432 Total $’000 4,366 21,726 45,066 117,080 - 3,476 - - - 3,646 - - 3,646 188,238 Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to business segment and country of operation. Key assumptions used for value in use calculations The table below shows the key assumptions used in the value in use calculations used to test for impairment in the business segments to which a significant amount of goodwill was allocated: Budget/forecast period growth rate Long term growth rate1 Post tax discount rate2 2015 2014 2015 2014 2015 2014 % per annum % per annum % per annum % per annum % per annum % per annum Theme parks(3) Bowling centres Family entertainment centres Health clubs N/A 2.00 3.00 0.00 - 2.00 N/A 2.00 3.00 2.00 N/A 2.00 3.00 2.00 N/A 2.00 3.00 2.00 N/A 8.26 7.16 8.26 N/A 8.50 7.50 8.50 (1) Average growth rate used to extrapolate cash flows beyond the budget/forecast period. (2) In performing the value in use calculations for each CGU, the Group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows. Pre-tax discount rates are 9.51% for bowling centres, 9.747% for health clubs and 8.42% for family entertainment centres. (3) All non-current assets in the theme parks division are already held at fair value at 30 June 2015 and were independently valued by Jones Lang LaSalle (refer to Note 19). As a result, no impairment testing is required at 30 June 2015. The period over which management has projected the CGU cash flows is based upon the individual CGU’s lease term available. These assumptions have been used for the analysis of each CGU within the business segment. The weighted average growth rates used are consistent with forecasts included in industry reports. The discount rates used are post-tax and reflect specific risks relating to the relevant segments and the countries in which they operate. The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash flow projections based on the 2016-2019 financial year budgets/forecasts. Cash flows beyond the budget period are extrapolated using the growth rates stated above. The growth rate does not exceed the long term average growth rate for the business in which the CGU operates. 70 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 21. Intangible assets (continued) Impairment tests for goodwill (continued) Sensitivity to changes in assumptions Management recognises that the calculation of recoverable amount can vary based on the assumptions used to project or discount cash flows and those changes to key assumptions can result in recoverable amounts falling below carrying amounts. In relation to the CGUs above, the recoverable amount of family entertainment centres and bowling centres is well in excess of their carrying amounts. The recoverable amounts of the health clubs CGUs is both sensitive to changes in the key assumptions. The table below shows the impact of reasonably possible changes in these assumptions on the surplus of the CGU’s recoverable amount over its carrying amount: Discount rate Long term growth rate First year EBITDA Base case $’000 +1.0% $’000 +2.0% $’000 -0.5% $’000 -1.0% $’000 -2.0% $’000 -5.0% $’000 Health clubs surplus/(deficit) 9,119 (24,182) (49,477) (6,098) (19,229) 1,237 (10,585) The recoverable amount of these CGUs would equal their carrying amount if the key assumptions were to change as follows: Health clubs surplus/(deficit) Discount rate Long term growth rate First year EBITDA from 8.26% to from to from to 8.51% 2.00% 1.71% 0.00% (2.31%) The Directors consider that the growth rates are reasonable, and do not consider a change in any of the other key assumptions that would cause the CGUs’ carrying amount to exceed their recoverable amount to be reasonably possible. Ardent Leisure Group | Annual Report 2015 71 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 22. Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss: Doubtful debts Employee benefits Provisions and accruals Depreciation of property, plant and equipment Inventory diminution Deferred income Unrealised foreign exchange losses Lease incentives Other Deferred tax assets Set-off of deferred tax balances pursuant to set-off provisions Australia United States Net deferred tax assets Movements Balance at the beginning of the year Credited/(charged) to the Income Statement (refer to Note 10) Credited to cash flow hedge reserve (refer to Note 30) Acquired through business combinations (refer to Note 32) Balance at the end of the year Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months Consolidated Group Consolidated Group 2015 $’000 2014 $’000 ALL Group ALL Group 2015 $’000 2014 $’000 142 5,471 4,287 831 24 96 - 4,117 98 216 4,757 1,167 153 6 76 4 1,563 179 142 5,471 4,287 831 24 96 - 4,117 98 216 4,757 1,167 153 6 76 4 1,563 179 15,066 8,121 15,066 8,121 (4,663) (6,160) 4,243 8,121 6,732 24 189 15,066 8,736 6,330 15,066 (3,986) (2,157) 1,978 8,158 (328) 11 280 8,121 5,849 2,272 8,121 (4,663) (6,160) 4,243 8,121 6,732 24 189 15,066 8,736 6,330 15,066 (3,986) (2,157) 1,978 8,158 (328) 11 280 8,121 5,849 2,272 8,121 72 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 23. Payables Current Custodian fee Interest payable GST payable Trade creditors Property expenses payable Employee share plan Employee benefits Deferred income Deferred settlement for acquisition of business Stamp duty payable for acquisition of business Straight-line rent liability Lease incentive liabilities Property tax payable Other creditors and accruals Total payables 24. Interest bearing liabilities Current Finance lease Total current Non-current Bank loan - term debt Less: amortised costs - bank loan Loans from the Trust* Total non-current Total interest bearing liabilities Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 48 412 1,661 8,770 761 170 17,238 12,864 2,377 1,823 17,056 11,245 1,826 15,072 91,323 52 442 1,570 9,142 1,048 361 13,361 9,131 - - 14,327 4,596 945 14,090 69,065 - 85 1,666 8,770 - 3,497 17,238 12,864 - 1,823 3,760 11,245 1,826 13,513 76,287 - 35 847 9,142 - 6,675 13,361 9,131 - - 2,060 4,596 945 13,495 60,287 Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 - - 61 61 - - 61 61 279,761 (1,143) - 278,618 278,618 261,551 (1,340) - 260,211 260,272 110,547 (442) 126,901 237,006 237,006 79,851 (390) 125,365 204,826 204,887 * Further information relating to these loans is included in Note 36(g). The term debt is secured by mortgages over all freehold property, leasehold mortgages over key bowling centre, health club and marina leases, registered security interests over all present and after acquired property of key Group companies, and pledged interests over all US property. On 30 September 2014, the Group increased the loan facilities to include an additional US$40.0 million. The terms of the debt also impose certain covenants on the Group as follows:  Debt serviceability ratio, being the ratio of debt to EBITDA adjusted for unrealised and one off items (adjusted EBITDA), must not exceed 3.75 (2014: 3.25); and  Fixed charge cover ratio, being the ratio of adjusted EBITDA to fixed charges, must be no less than 1.75 (2014: 1.75). With effect from 30 September 2014, the Group is no longer subject to a gearing ratio covenant (2014: 40% maximum gearing covenant). Ardent Leisure Group | Annual Report 2015 73 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 24. Interest bearing liabilities (continued) Total secured liabilities and assets pledged as security The carrying amounts of assets pledged as security for current and non-current borrowings are: Current Floating charge Cash and cash equivalents Receivables Derivative financial instruments Inventories Current tax receivables Property held for sale Other Total current assets Non-current Mortgage Investment properties Land and buildings Floating charge Property, plant and equipment Livestock Derivative financial instruments Intangible assets Finance lease Plant and equipment Total non-current assets Total assets Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 4,986 10,856 263 11,372 1,740 - 10,736 7,079 7,416 - 9,378 - 10,650 8,937 4,685 13,210 - 11,372 1,740 - 7,026 6,197 7,762 - 9,378 - 10,650 5,438 39,953 43,460 38,033 39,425 99,326 330,577 429,903 279,105 245 114 17,792 297,256 - 727,159 767,112 95,870 275,405 371,275 226,623 300 - 12,999 239,922 492 611,689 655,149 - 86,833 86,833 126,767 245 - 17,792 144,804 - 231,637 269,670 - 42,795 42,795 72,534 300 - 12,999 85,833 492 129,120 168,545 Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements and revert to the lessor in the event of default. 74 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 24. Interest bearing liabilities (continued) Credit facilities As at 30 June 2015, the Group had unrestricted access to the following credit facilities: A$ syndicated facilities Amount used Amount unused US$ syndicated facilities Amount used Amount unused Trust facilities Amount used Amount unused Total facilities Total amount used Total amount unused Consolidated Group Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 200,000 (144,400) 55,600 208,334 (135,361) 72,973 - - - 200,000 (163,400) 36,600 127,253 (98,151) 29,102 - - - 408,334 (279,761) 128,573 327,253 (261,551) 65,702 - - - 182,292 (110,547) 71,745 226,042 (126,901) 99,141 408,334 (237,448) 170,886 - - - 106,045 (79,851) 26,194 355,975 (125,365) 230,610 462,020 (205,216) 256,804 The Group has access to A$200.0 million (2014: A$200.0 million) syndicated facilities and a US$160.0 million (2014: US$120.0 million) syndicated facilities. A$100.0 million of the AUD facilities will mature on 1 July 2016 and A$100.0 million will mature on 1 July 2017. US$90.0 million of the USD facilities will mature on 1 July 2016 and US$70.0 million will mature on 1 July 2017. As noted in note 44, effective 11 August 2015, the Group completed refinancing of its syndicated loan facilities. This has resulted in an increase in the available USD facilities to US$280.0 million (30 June 2015: US$160.0 million) and an extended tenure maturing in equal tranches of three, four and five years respectively. Australian dollar facilities remain at $200.0 million (30 June 2015: $200.0 million) however have been similarly extended to mature in equal tranches of three, four and five years respectively. All of the facilities have a variable interest rate. As detailed in Note 14, the interest rates on the loans are partially fixed using interest rate swaps. The weighted average interest rates payable on the loans at 30 June 2015, including the impact of the interest rate swaps, is 4.28% per annum for AUD denominated debt (2014: 5.15% per annum) and 1.92% per annum for USD denominated debt (2014: 1.81% per annum). ALL Group Subject to the Trust loan facilities conditions being met, the facilities may be drawn down with two business days’ notice. Australian Trust loan facilities totalling $200.0 million (2014: $249.9 million) have a maturity date of 1 July 2017. In addition, the ALL Group has US$20.0 million (2014: US$100.0 million) facilities with the Trust maturing on 1 July 2017. The ALL Group has access to US$140.0 million (2014: US$100.0 million) syndicated facilities. US$70.0 million of the facilities will mature on 1 July 2016 and US$70.0 million will mature on 1 July 2017. Effective 11 August 2015, the ALL Group completed refinancing of its syndicated loan facilities. This has resulted in an increase in the available USD facilities to US$260.0 million (30 June 2015: US$140.0 million) and an extended tenure with $73.3 million maturing in three years, $93.3 million maturing in four years and $93.3 million maturing in five years. Information about the Group’s exposure to foreign exchange risk and interest rates is provided in Note 38. Ardent Leisure Group | Annual Report 2015 75 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 25. Provisions (a) Distributions to stapled security holders Opening balance Distributions/dividends declared Distributions/dividends paid Distributions reinvested Closing balance Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 - 55,820 (39,041) (16,779) - 2014 $’000 - 49,025 (40,107) (8,918) - 2015 $’000 - 14,790 (11,132) (3,658) - 2014 $’000 - 3,874 (3,874) - - A provision for the distribution relating to the half year to 30 June 2015 was not recognised as the distribution had not been declared at the reporting date. Refer to Note 44. (b) Other provisions Current Employee benefits Sundry* Total current Non-current Employee benefits Property onerous lease contracts Property make good obligations Total non-current Total provisions Movements in sundry provisions Carrying amount at the beginning of the year Additional provisions recognised Amounts utilised Carrying amount at the end of the year Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 3,047 189 3,236 1,803 4,221 9,745 15,769 19,005 572 411 (794) 189 2014 $’000 2015 $’000 2014 $’000 2,700 572 3,272 1,625 - - 1,625 4,897 542 718 (688) 572 3,047 189 3,236 1,803 1,569 2,180 5,552 8,788 572 411 (794) 189 2,700 572 3,272 1,625 - - 1,625 4,897 542 718 (688) 572 * Sundry provisions include insurance excess/deductible amounts for public liability insurance, fringe benefits tax provisions and other royalty provisions. The current provision for employee benefits includes accrued long service leave which covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. This is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 76 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 26. Other liabilities Security deposits 27. Deferred tax liabilities The balance comprises temporary differences attributable to: Amounts recognised in profit or loss: Intangible assets Prepayments Accrued revenue Depreciation of property, plant and equipment Deferred tax liabilities Set-off deferred tax balances pursuant to set-off provisions Australia United States Net deferred tax liabilities Movements Balance at the beginning of the year Charged/(credited) to the Income Statement (refer to Note 10) Acquired through business combinations (refer to Note 32) Balance at the end of the year Deferred tax liabilities to be settled within 12 months Deferred tax liabilities to be settled after more than 12 months Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2,694 2,694 2014 $’000 2,155 2,155 2015 $’000 2,694 2,694 2014 $’000 2,155 2,155 Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 3,682 837 122 28,045 32,686 3,392 481 123 11,424 15,420 3,682 837 122 28,045 32,686 (4,663) (6,160) 21,863 (3,986) (2,157) 9,277 (4,663) (6,160) 21,863 15,420 15,086 2,180 32,686 845 31,841 32,686 15,624 (1,860) 1,656 15,420 604 14,816 15,420 15,420 15,086 2,180 32,686 845 31,841 32,686 3,392 481 123 11,424 15,420 (3,986) (2,157) 9,277 15,624 (1,860) 1,656 15,420 604 14,816 15,420 Ardent Leisure Group | Annual Report 2015 77 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 28. Contributed equity No. of securities/shares Details Date of income entitlement 30 Jun 2013 1 Jul 2013 397,803,987 5,295,345 1,895,088 61,288 - 405,055,708 6,358,756 1,751,698 110,302 20,746,888 8,298,754 - - 442,322,106 Securities/shares on issue DRP issue 30 Jun 2014 1 Jul 2014 1 Jul 2013 1 Jul 2013 Security-based payments - securities/shares issued Security-based payments - securities/shares issued Issue costs paid Securities/shares on issue DRP issue Security-based payments - securities/shares issued Security-based payments - securities/shares issued 1 Jan 2015 Fitness First WA placement 1 Jul 2014 Security Purchase Plan 1 Jul 2014 Issue costs paid Capital reallocation 1 Jul 2014 Securities/shares on issue 30 Jun 2015 Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 Note ALL Group 2015 $’000 ALL Group 2014 $’000 (i) (ii) (ii) (i) (ii) (ii) (iii) (iii) (iv) 501,416 8,918 3,469 112 (3) 513,912 513,912 16,309 3,658 878 59 8,356 3,342 (167) 122,827 155,262 14,202 1,504 585 19 (1) 16,309 16,309 513,912 16,779 5,255 228 50,000 20,000 (993) - 605,181 (i) Distribution Reinvestment Plan (DRP) issues The Group has established a DRP under which stapled security holders may elect to have all or part of their distribution entitlements satisfied by the issue of new stapled securities rather than being paid in cash. The discount available on stapled securities issued under the DRP is 2.0% on the market price. The DRP will be in operation for the distribution for the half year ended 30 June 2015 and was in operation for the half year ended 31 December 2014. (ii) Security-based payments The Group has Deferred Short Term Incentive Plan and Long Term Incentive Plan remuneration arrangements under which performance rights are issued to certain management and other personnel within the Group as part of their remuneration arrangements. These performance rights are subject to vesting conditions as set out in Note 29. Upon vesting, the Group issues stapled securities to these personnel. (iii) Fitness First WA placement and Security Purchase Plan On 7 August 2014 and 15 September 2014, the Group issued stapled securities under a placement and a Security Purchase Plan respectively to fund the acquisition of eight Fitness First health clubs in Western Australia, as set out in Note 32, and future investment in Main Event. (iv) Capital reallocation The Group and ALL Group implemented a capital reallocation during the period of 0.28 cents per stapled security. This resulted in $122.8 million of capital being transferred from the Trust to the Company. There was no impact on the number of units and the number of shares on issue as a result of the capital reallocation. 78 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (a) Security-based payments Deferred Short Term Incentive Plan (DSTI) Plan name Who can participate? Types of securities issued Treatment of non-Australian residents DSTI All employees are eligible for participation at the discretion of the Board; however, Non-Executive Directors do not participate in the DSTI. Performance rights that can be converted into fully paid securities once vested. The performance rights differ from options in that they do not carry an exercise price. Performance rights do not represent physical securities and do not carry any voting or distribution entitlements. For employees who are not Australian residents, the DSTI historically granted cash awards to those executives. Administrative arrangements have now been made to issue equity awards and not cash awards to non-resident executives. All awards, whether equity or cash, are subject to the same tenure hurdles. What restrictions are there on the securities? Performance rights are non-transferable. When can the securities vest? What are the vesting conditions? The plan contemplates that the performance rights will vest equally one year and two years following the grant date. Plan performance rights will normally vest only if the participant remains employed by the Group (and is not under notice terminating the contract of employment from either party) as at the relevant vesting date. Did any of the securities vest? During the financial year, a total of 777,419 performance rights vested. Australian employees Since 1 July 2010, long term incentives have been provided to certain executives under the DSTI. Under the terms of the DSTI, employees may be granted performance rights, of which one half will vest one year after grant date and one half will vest two years after grant date. The first set of performance rights were granted under the DSTI on 16 December 2010, with the first vesting date being the day after the full year results announcement for the year ended 30 June 2011. A total of 659,745 performance rights vested on 19 August 2014 and 12 March 2015 and a corresponding number of stapled securities were issued to employees under the terms of the DSTI (2014: 722,192). The characteristics of the DSTI indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Share-based Payment as the holders are entitled to the securities as long as they meet the DSTI’s service criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the DSTI is accounted for as a cash settled share-based payment. Fair value – Australian employees The fair value of the performance rights granted under the DSTI is recognised in the Group financial statements as an employee benefit expense with a corresponding increase in equity. The fair value of each grant of performance rights is determined at grant date using a binomial tree valuation model and then is recognised over the vesting period during which employees become unconditionally entitled to the underlying securities. The fair value of the performance rights granted under the DSTI is recognised in the ALL Group financial statements as an employee benefit expense with a corresponding increase in liabilities. The fair value of each grant of performance rights is determined at each reporting date using a binomial tree valuation model with the movement in fair value of the liability being recognised in the Income Statement. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each financial period takes into account the most recent estimate. Ardent Leisure Group | Annual Report 2015 79 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (a) Security-based payments (continued) Deferred Short Term Incentive Plan (DSTI) (continued) US employees Due to previous restrictions on the issue of securities to US residents, those US executives eligible for the DSTI were subject to a shadow performance rights scheme whereby a cash payment was made instead of performance rights being granted. At the end of each vesting period, the number of performance rights which would have vested is multiplied by the Group stapled security volume weighted average price (VWAP) for the five trading days immediately following the vesting date and an equivalent cash payment is made. Due to the nature of the scheme, this is considered to be a cash settled share-based payment under AASB 2. A total of 60,845 cash settled performance rights vested on 19 August 2014 to US employees under the terms of the DSTI (2014: 135,090). Following steps taken to issue equity to US resident employees, all new performance rights issued after 1 July 2014 will be settled in equity upon vesting in future periods. As such, the performance rights are considered to be equity settled shared-based payments under AASB 2. A total of 56,829 equity settled performance rights vested on 19 August 2014 (2014: nil). In the ALL financial statements, all performance rights issued to US employees are considered to be cash settled. Fair value – US employees The fair value of cash settled performance rights is determined at grant date and each reporting date using a binomial tree valuation model. This is recorded as a liability with the movement in the fair value of the financial liability being recognised in the Income Statement. The fair value of equity settled performance rights is determined at grant date using a binomial tree valuation model. This is recorded as an employee benefit expense with a corresponding increase in equity. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. Valuation inputs For the performance rights outstanding at 30 June 2015, the table below shows the fair value of the performance rights on each grant date as well as the factors used to value the performance rights at the date of grant. This valuation is used to value the equity settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 1 Vesting date – year 2 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at grant date Valuation per performance right on issue 2013 23 August 2013 19 August 2014 31 August 2015 2.60% per annum 30.9% per annum 6.6% per annum $1.82 $1.66 2014 19 August 2014 31 August 2015 31 August 2016 2.50% per annum 27.0% per annum 4.3% per annum $3.00 $2.81 The table below shows the fair value of the performance rights in each grant as at 30 June 2015 as well as the factors used to value the performance rights as at 30 June 2015. This valuation is used to value the cash settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 1 Vesting date – year 2 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at year end Valuation per performance right at year end 2013 23 August 2013 19 August 2014 31 August 2015 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $2.17 2014 19 August 2014 31 August 2015 31 August 2016 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $2.10 Grants of performance rights are made annually with the grant date being the date of the issue of the offer letters to employees. Although the grant date may vary from year to year, the testing period (subject to any hurdles) remains constant with the vesting date being 24 hours immediately following the announcement of the Group’s full year financial results. 80 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (a) Security-based payments (continued) Deferred Short Term Incentive Plan (DSTI) (continued) Tenure hurdle The vesting of the performance rights is subject to a tenure hurdle and participants must remain employed by the Group (and not be under notice terminating the contract of employment from either party) as at the relevant vesting date. The number of rights outstanding and the grant dates of the rights are shown in the tables below: Consolidated Group 2015 Rights Consolidated Group 2014 Rights ALL Group 2015 Rights ALL Group 2014 Rights Performance rights issued to participating executives: Performance rights 543,698 950,807 543,698 950,807 Grant date Expiry date Exercise price Valuation per right Balance at beginning of the year Granted Exercised Failed to vest 24 Aug 2012 19 Aug 2014 nil 114.7 cents 383,419 23 Aug 2013 31 Aug 2015 nil 166.1 cents 567,388 - - (383,419) (334,074) 19 Aug 2014 31 Aug 2016 nil 280.8 cents - 408,823 950,807 408,823 (59,926) (777,419) - - - - Balance at the end of the year - 213,931 329,767 543,698 Cancelled - (19,383) (19,130) (38,513) The rights have an average maturity of six months. (b) Long Term Incentive Plan (LTIP) Plan name Who can participate? Types of securities issued Treatment of non-Australian residents LTIP All employees are eligible for participation at the discretion of the Board; however, Non-Executive Directors do not participate in the LTIP. Performance rights that can be converted into fully paid securities once vested. The performance rights differ from options in that they do not carry an exercise price. Performance rights do not represent physical securities and do not carry any voting or distribution entitlements. For employees who are not Australian residents, the LTIP historically granted cash awards to those executives. Administrative arrangements have now been made to issue equity awards and not cash awards to non-resident executives. All awards, whether equity or cash, are subject to the same performance and tenure hurdles. What restrictions are there on the securities? Performance rights are non-transferable. When can the securities vest? The plan contemplates that the performance rights will vest equally two, three and four years following the grant date, subject to meeting the total shareholder return (TSR) and internal compound earnings per security (EPS) performance hurdles. The weighting between the two hurdles will be split as follows:  TSR – 50%; and  EPS – 50%. Ardent Leisure Group | Annual Report 2015 81 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (b) Security-based payments (continued) Long Term Incentive Plan (LTIP) (continued) Plan name What are the vesting conditions? What does total shareholder return include? What is the earnings per security hurdle? LTIP For grants made after 1 July 2014, in order for any or all of the performance rights to vest one or both of the following hurdles must be met:  TSR performance hurdle - the Group's TSR for the performance period must exceed the 50th percentile of the TSRs of the benchmark group for the same period. A sliding scale of vesting applies above the 50th percentile threshold; and  EPS performance hurdle - the Group's compound EPS growth for the performance period must exceed 5%. A sliding scale of vesting applies above the 5% threshold. TSR is the total return an investor would receive over a set period of time assuming that all distributions were reinvested in the Group’s securities. The TSR definition takes account of both capital growth and distributions. The EPS hurdle refers to the annual growth of earnings per security over the total vesting periods of two, three and four years from the grant date. What is the benchmark group? The benchmark group comprises the ASX Small Industrials Index. Did any of the securities vest? Australian employees During the financial year, a total of 1,202,878 performance rights reached vesting following an independent third party assessment of the Group’s TSR performance compared to the benchmark. Since 1 July 2009, long term incentives have been provided to certain executives under the LTIP. Under the terms of the LTIP and the initial grant, employees may be granted performance rights, of which one third will vest two years after grant date, one third will vest three years after grant date and one third will vest four years after grant date. The percentage of performance rights which may vest is subject to the TSR performance of the Group relative to its peer group, which is the ASX Small Industrials Index. During the year, the relative TSR performance of the Group was tested in accordance with the LTIP for tranches issued in 2010, 2011 and 2012 with the following results: Tranche T3-2010 T2-2011 T1-2012 TSR percentile 96.70 93.62 91.75 Vesting percentage 100.0% 100.0% 100.0% A total of 1,145,426 performance rights vested on 19 August 2014 and a corresponding number of stapled securities were issued to Australian employees under the terms of the LTIP (2014: 1,234,184). The characteristics of the LTIP indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Share-based Payment as the holders are entitled to the securities as long as they meet the LTIP’s service and performance criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the LTIP is accounted for as a cash settled share-based payment. 82 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (b) Security-based payments (continued) Long Term Incentive Plan (LTIP) (continued) Fair value – Australian employees The fair value of the performance rights granted under the LTIP is recognised in the Group financial statements as an employee benefit expense with a corresponding increase in equity. The fair value of the performance rights is determined at grant date using a Monte Carlo simulation valuation model and then is recognised over the vesting period during which employees become unconditionally entitled to the underlying securities. The fair value of the performance rights granted under the LTIP is recognised in the ALL Group financial statements as an employee benefit expense with a corresponding increase in liabilities. The fair value of each grant of performance rights is determined at each reporting date using a Monte Carlo simulation valuation model with the movement in fair value of the liability being recognised in the Income Statement. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each financial period takes into account the most recent estimate. US employees Due to previous restrictions on the issue of securities to US residents, those US executives eligible for the DSTI were subject to a shadow performance rights scheme whereby a cash payment was made instead of performance rights being granted. At the end of each vesting period, the number of performance rights which would have vested is multiplied by the Group stapled security VWAP for the five trading days immediately following the vesting date and an equivalent cash payment is made. Due to the nature of the scheme, this is considered to be a cash settled share-based payment under AASB 2. A total of 57,452 cash settled performance rights vested on 19 August 2014 to US employees under the terms of the LTIP (2014: 69,060). Following steps taken to issue equity to US resident employees, all new performance rights issued after 1 July 2014 will be settled in equity upon vesting in future periods. As such, these performance rights are considered to be equity settled shared-based payments under AASB 2. Fair value – US employees The fair value of cash settled performance rights is determined at grant date and each reporting date using a Monte Carlo simulation valuation model. This is recorded as a liability with the difference in the movement in the fair value of the financial liability being recognised through the Income Statement. The fair value of equity settled performance rights is determined at grant date using a Monte Carlo simulation valuation model. This is recorded as an employee benefit expense with a corresponding increase in equity. At each reporting date, the estimate of the number of performance rights that are expected to vest is revised. The employee benefit expense recognised each period takes into account the most recent estimate. Valuation inputs For performance rights outstanding at 30 June 2015, the table below shows the fair value of the performance rights on each grant date as well as the factors used to value the performance rights at the grant date. This valuation is used to value the equity settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 2 Vesting date – year 3 Vesting date – year 4 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at grant date Valuation per performance right on issue 2011 12 September 2011 23 August 2013 19 August 2014 31 August 2015 3.49% per annum 40.0% per annum 11.0% per annum $1.055 $0.44 2012 24 August 2012 19 August 2014 31 August 2015 31 August 2016 2.73% per annum 35.0% per annum 9.1% per annum $1.290 $0.61 2013 23 August 2013 31 August 2015 31 August 2016 31 August 2017 2.60% per annum 32.0% per annum 6.6% per annum $1.815 $0.76 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 2.57% per annum 27.0% per annum 4.3% per annum $3.00 $1.54 Ardent Leisure Group | Annual Report 2015 83 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (b) Security-based payments (continued) Long Term Incentive Plan (LTIP) (continued) Valuation inputs (continued) The table below shows the fair value of the performance rights for each grant as at 30 June 2015 as well as the factors used to value the performance rights at 30 June 2015. This valuation is used to value the cash settled performance rights granted to employees at 30 June 2015: Grant Grant date Vesting date – year 2 Vesting date – year 3 Vesting date – year 4 Average risk free rate Expected price volatility Expected distribution yield Stapled security price at year end Valuation per performance right on issue 2011 12 September 2011 23 August 2013 19 August 2014 31 August 2015 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $2.17 2012 24 August 2012 19 August 2014 31 August 2015 31 August 2016 2.00% per annum 41.9% per annum 5.8% per annum $2.17 $1.94 2013 23 August 2013 31 August 2015 31 August 2016 31 August 2017 2.00% per annum 39.3% per annum 5.8% per annum $2.17 $1.43 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 2.00% per annum 36.2% per annum 5.8% per annum $2.17 $0.58 Grants of performance rights are made annually with the grant date being the date of the issue of the offer letters to employees. Although the grant date may vary from year to year, the testing period (subject to any hurdles) remains constant with the vesting date being 24 hours immediately following the announcement of the Group’s full year financial results. Performance hurdles In order for any or all of the performance rights to vest under the LTIP, the Group's TSR and/or (for grants made after 1 July 2014) the EPS hurdle must be met. TSR The Group’s TSR for the performance period must exceed the 50th percentile of the TSRs of the benchmark for the same period. A sliding scale of vesting applies above the 50th percentile threshold. TSR of the Group relative to TSRs of comparators Below 51st percentile 51st percentile Between 51st percentile and 75th percentile 75th percentile or higher Proportion of performance rights vesting 0% 50% Straight-line vesting between 50% and 100% 100% TSR over a performance period is measured against the benchmark group securities calculated at the average closing price of securities on the ASX for the calendar month period up to and including each of the first and last dates of the performance period. Distributions are assumed to be reinvested at the distribution date and any franking credits (or similar) are ignored. EPS The Group’s compound EPS growth for the performance period must exceed 5%. A sliding scale of vesting applies above 5% threshold. Compound EPS growth in the period Below 5% 5% Between 5% and 10% 10% or higher The weighting between the two performance measures is split as follows:  TSR – 50%; and  EPS – 50%. Proportion of performance rights vesting 0% 50% Straight-line vesting between 50% and 100% 100% 84 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 29. (b) Security-based payments (continued) Long Term Incentive Plan (LTIP) (continued) The number of rights outstanding and the grant dates of the rights are shown in the tables below: Consolidated Group 2015 Rights Consolidated Group 2014 ALL Group 2015 Rights Rights ALL Group 2014 Rights Performance rights issued to participating executives: Performance rights 2,348,012 3,147,473 2,348,012 3,147,473 Grant date Expiry date Exercise price Valuation per right Balance at beginning of the year Granted Exercised Failed to vest Cancelled Balance at the end of the year 16 Dec 2010 19 Aug 2014 nil 12 Sep 2011 31 Aug 2015 nil 24 Aug 2012 31 Aug 2016 nil 23 Aug 2013 31 Aug 2017 nil 19 Aug 2014 31 Aug 2018 nil 52.3 cents 43.7 cents 60.9 cents 76.3 cents 153.9 cents 411,014 912,756 1,006,467 817,236 - (411,014) - (456,377) - (335,488) - - - - 472,095 3,147,473 472,095 (1,202,879) - - - - - - - (15,270) (23,802) (29,605) - (68,677) - 441,109 647,177 787,631 472,095 2,348,012 The rights have an average maturity of one year and three months. The expense recorded in the Group financial statements in the year in relation to the performance rights was $1,761,441 (2014: $1,996,226). The expense recorded in the ALL Group financial statements in the year in relation to the performance rights was $2,595,805 (2014: $6,202,877). Ardent Leisure Group | Annual Report 2015 85 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Reserves Asset revaluation reserve Opening balance Revaluation - Theme parks Transfer to retained profits - realised items Closing balance Capital reserve Opening balance Transfer from retained profits - pre-opening expenses Transfer to retained profits Closing balance Cash flow hedge reserve Opening balance Movement in effective cash flow hedges Tax on movement on US cash flow hedges Closing balance Foreign currency translation reserve Opening balance Translation of foreign operations Closing balance Stapled security-based payment reserve Opening balance Option expense Closing balance Performance fee reserve Opening balance Transfer to retained profits Closing balance Goodlife put and call option reserve Opening balance Transfer to retained profits Closing balance Total reserves 86 Ardent Leisure Group | Annual Report 2015 Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2014 $’000 2015 $’000 6,225 7,541 (3,337) 10,429 (11,018) (4,677) 15,695 2,620 6,866 (3,261) 6,225 (8,439) (2,579) - - (11,018) (1,124) (958) 24 (2,058) (1,569) 434 11 (1,124) 3,416 - - 3,416 - - - - (19) (75) 24 (70) 2014 $’000 3,416 - - 3,416 - - - - - (30) 11 (19) (38,768) 3,623 (39,159) 391 (35,145) (38,768) (2,624) 6,916 4,292 (1,682) (942) (2,624) (96) (3,821) (3,917) 1,132 (1,132) - (2,269) 2,269 - 1,867 (1,963) (96) 1,132 - 1,132 (2,269) - (2,269) (30,691) (45,918) - - - - - - - - - - - - (2,310) 2,310 - 7,638 (2,310) - (2,310) (1,537) For personal use only Notes to the Financial Statements for the year ended 30 June 2015 30. Reserves (continued) The asset revaluation reserve is used to record increments and decrements on the revaluation of property, plant and equipment. The capital reserve is used to record one off costs incurred in the identification of new acquisitions or development of new sites which are not able to be capitalised by the Group as well as the difference between the amount paid and the net assets acquired in the acquisition of non-controlling interests. The cash flow hedge reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity as described in Notes 1(p)(ii) and 14. Exchange differences arising on the translation of foreign controlled entities are taken to the foreign currency translation reserve. In addition, on consolidation, exchange differences on loans denominated in foreign currencies are taken directly to the foreign currency translation reserve where the loan is considered part of the net investment in that foreign operation. The stapled security-based payment reserve is used to recognise the fair value of performance rights issued to employees but not yet exercised under the Group’s DSTI and LTIP. The performance fee reserve was used to recognise the fair value of stapled securities not yet issued to the Manager in settlement for the performance fee earned in the relevant period. The performance fee of $1.1 million was earned in the period to 30 June 2009. On the internalisation of the Manager, the performance fee payment was waived by Macquarie Group Limited but under the accounting standards, the reserve is not reversed. The Group had the option to acquire the non-controlling interests in Ardent Leisure Health Clubs 1 Pty Limited. In accordance with AASB 132 Financial Instruments: Presentation, on first recognition the Group recorded the potential obligation under the put option on the Balance Sheet as a financial liability calculated as the present value of the redemption amount on the first exercise date. Under the Group’s economic equity approach, the initial recognition of the redemption amount was recorded in the Goodlife put and call option reserve. Movements in the financial liability due to changes in the expected redemption amount and unwinding of the present value discount were taken to the Income Statement as finance costs in subsequent periods. In a prior period, the Group acquired the remaining interest in Ardent Leisure Health Clubs 1 Pty Limited but due to the accounting standards, the reserve remained. Retained profits/(accumulated losses) Opening balance Profit for the year Available for distribution Transfer from asset revaluation reserve Transfer (from)/to capital reserve Transfer from performance fee reserve Transfer from Goodlife put and call option reserve Distributions and dividends paid and payable Closing balance Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2014 $’000 2015 $’000 2014 $’000 37,508 32,122 69,630 3,337 (11,018) 1,132 (2,269) (55,820) 4,992 31,691 49,002 80,693 3,261 2,579 - - (49,025) 37,508 (1,655) 6,862 5,207 - - - (2,310) (14,790) (2,837) 5,056 2,219 - - - - (3,874) (11,893) (1,655) The distribution of 5.5 cents per stapled security for the year ended 30 June 2015 totalling $24.3 million had not been declared at year end. This will be paid on or before 31 August 2015, as described in Note 44. Ardent Leisure Group | Annual Report 2015 87 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Business combinations Current period Fitness First Western Australia On 4 September 2014, the Group acquired eight health clubs, for $32.0 million of which $2.3 million is payable in September 2015. Transaction costs totalling $1,856,774 were incurred on this project, expensed in the Income Statement and recognised within operating cash flows in the Statement of Cash Flows. The acquired business contributed revenues of $17.4 million and a profit before allocation of Group costs and tax of $3.6 million to the Group for the period from 4 September 2014 to 30 June 2015. If the acquisition had occurred on 1 July 2014, it would have contributed revenues of $21.3 million and a profit before allocation of Group costs and tax of $4.5 million for the year ended 30 June 2015. Details of the fair value of the assets and liabilities acquired and goodwill are as follows: Purchase consideration: Cash paid Total purchase consideration Fair value of net identifiable assets acquired Goodwill Consolidated Group ALL Group $’000 $’000 31,958 31,958 6,839 25,119 29,768 29,768 4,649 25,119 The goodwill is attributable to the health clubs’ strong market position and profitable trading history and synergies expected to arise after the Group’s acquisition. None of the goodwill is expected to be deductible for tax purposes. Consolidated Group Acquiree's carrying amount $’000 Consolidated Group Fair value $’000 ALL Group Acquiree's carrying amount $’000 ALL Group Fair value $’000 6 465 - 5,426 92 (53) (541) - - (308) 5,087 6 465 6,100 4,744 (1,738) (53) (541) (1,084) (752) (308) 6,839 6 465 - 1,367 92 (53) (541) - - (308) 1,028 6 465 6,100 718 (1,738) (53) (541) - - (308) 4,649 Consolidated Group ALL Group $’000 $’000 31,958 (6) (2,297) 29,655 29,768 (6) (2,297) 27,465 Cash and cash equivalents Other current assets Customer relationship intangible assets Property, plant and equipment Net deferred tax assets/(liabilities) Deferred income Payables Property onerous lease contracts provision Provision for property make good obligations Employee benefits provision Net identifiable assets acquired Outflow of cash to acquire business: Cash consideration Less: cash balances acquired Less: deferred settlement Outflow of cash 88 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 32. Business combinations (continued) Current period (continued) Hypoxi US and Canada On 6 August 2014, the Group completed the acquisition of the exclusive US and Canadian distribution and master franchise rights for the Hypoxi targeted weight loss business for $0.8 million. Transaction costs totalling $39,509 were incurred on this project, expensed in the Income Statement and recognised within operating cash flows in the Statement of Cash Flows. During the year ended 30 June 2015, the Group has identified a location in Arizona for its first new studio with trading expected to commence in August 2015. As a result, it has not contributed materially to the Group result for the year ended 30 June 2015. Final details of the fair value of the assets and liabilities acquired and goodwill are as follows: Purchase consideration: Cash paid Total purchase consideration Fair value of net identifiable assets acquired Goodwill Distribution agreement intangible assets Net deferred tax liabilities Net identifiable assets acquired Outflow of cash to acquire business: Cash consideration Outflow of cash Playtime Highpoint Victoria Consolidated Group $’000 ALL Group $’000 815 815 815 - 815 815 815 - Consolidated Group Acquiree's carrying amount $’000 - - - Consolidated Group Fair value $’000 1,165 (350) 815 ALL Group Acquiree's carrying amount $’000 - - - ALL Group Fair value $’000 1,165 (350) 815 Consolidated Group ALL Group $’000 $’000 815 815 815 815 On 5 November 2014, the Group acquired Playtime Highpoint, an amusement game arcade in Victoria, for $2.5 million. Transaction costs totalling $1,090 were incurred on this project, expensed in the Income Statement and recognised within operating cash flows in the Statement of Cash Flows. The acquired business contributed revenues of $1.4 million and a profit before allocation of Group costs and tax of $0.4 million to the Group for the period from 5 November 2014 to 30 June 2015. If the acquisition had occurred on 1 July 2014, it would have contributed revenues of $2.3 million and a profit before allocation of Group costs and tax of $0.7 million for the year ended 30 June 2015. Ardent Leisure Group | Annual Report 2015 89 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 32. Business combinations (continued) Current period (continued) Playtime Highpoint Victoria (continued) Final details of the fair value of the assets and liabilities acquired and goodwill are as follows: Purchase consideration: Cash paid Total purchase consideration Fair value of net identifiable assets acquired Goodwill Cash and cash equivalents Other current assets Property, plant and equipment Net deferred tax assets Provision for property make good obligations Employee benefits provision Net identifiable assets acquired Outflow of cash to acquire business: Cash consideration Less: cash balances acquired Outflow of cash Other business combinations Consolidated Group $’000 ALL Group $’000 2,463 2,463 465 1,998 2,538 2,538 540 1,998 Consolidated Group Acquiree's carrying amount $’000 Consolidated Group Fair value $’000 ALL Group Acquiree's carrying amount $’000 ALL Group Fair value $’000 42 102 422 2 - (5) 563 42 102 422 2 (98) (5) 465 42 102 399 2 - (5) 540 42 102 399 2 - (5) 540 Consolidated Group $’000 ALL Group $’000 2,463 (42) 2,421 2,538 (42) 2,496 On 30 September 2014, the Group acquired a Hypoxi studio at Ballantyne, North Carolina for $233,000. Goodwill of $137,000 was recognised on acquisition, however has now been fully impaired due to the club closing. On 31 October 2014, the Group acquired a Hypoxi studio at Randwick, Sydney for $198,000. Goodwill of $43,000 was recognised on acquisition. Prior period During the period, the Group finalised its prior year acquisitions of Camberwell and Port Melbourne health clubs, Hypoxi Australia Pty Limited, Hypoxi New Zealand and the City Amusements amusement game arcade. Purchase price and goodwill adjustments on finalisation were immaterial in nature. 90 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 Cash and cash equivalents For the purposes of the Statements of Cash Flows, cash includes only cash at banks and on deposit. Cash as at 30 June 2015 as shown in the Statements of Cash Flows is reconciled to the related items in the Balance Sheets as follows: Cash at bank Cash on deposit Total cash and cash equivalents Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 4,923 63 4,986 2014 $’000 7,016 63 7,079 2015 $’000 4,622 63 4,685 2014 $’000 6,134 63 6,197 Cash on deposit at call in the Group bears an average floating interest rate of 1.89% per annum (2014: 2.44% per annum). Cash on deposit at call in the ALL Group bears an average floating interest rate of 2.00% per annum (2014: 2.50% per annum). Cash flow information (a) Reconciliation of profit to net cash flows from operating activities Profit Non-cash items Depreciation of property, plant and equipment Amortisation Depreciation of livestock Impairment of goodwill Security-based payments Provision for doubtful debts Onerous lease costs Loss on sale of property, plant and equipment and livestock Loss on closure of bowling centre Impairment of property, plant and equipment Valuation loss on investment properties and property, plant and equipment Classified as financing activities Borrowing costs Classified as investing activities Unrealised (gain)/loss on derivatives Gain on sale of family entertainment centres Changes in asset and liabilities: Decrease/(increase) in assets: Receivables Inventories Deferred tax assets Other assets Increase/(decrease) in liabilities: Payables and other liabilities Provisions Payable to the Trust Current tax liabilities Deferred tax liabilities Net cash flows from operating activities Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 32,122 49,002 6,862 5,056 47,256 7,592 30 141 1,396 200 2,598 919 104 2,646 35,588 6,415 40 - 1,996 122 - 74 1,579 - 24,153 7,592 30 141 2,231 200 1,465 772 - 1,009 14,552 6,415 40 - 6,203 122 - 81 - - 501 (8,590) - - 11,333 11,330 11,731 8,766 (552) (7,355) (3,345) (1,993) (2,265) (3,333) 19,040 (136) - 363 8,090 115,352 613 - - (7,355) - - (13) 404 (1,818) (775) 3,440 (386) - (2,120) 567 97,468 (4,633) (1,993) (2,265) (3,123) 17,422 764 2,033 358 8,090 65,484 298 404 (1,818) (722) 2,343 (386) (1,860) (2,120) 567 37,941 Ardent Leisure Group | Annual Report 2015 91 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 34. (b) Cash flow information (continued) Non-cash financing and investing activities The following items are not reflected in the Statements of Cash Flows: Distributions by the Group satisfied during the year by the issue of stapled securities under the DRP Net tangible assets Net tangible assets are calculated as follows: Total assets Less: intangible assets Less: total liabilities Net tangible assets Total number of stapled securities on issue Net tangible asset backing per stapled security Related party disclosures (a) Directors Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 16,779 8,918 3,658 1,504 Consolidated Group Consolidated Group 2015 $’000 2014 $’000 996,507 (242,944) (417,025) 853,007 (201,237) (347,505) 336,538 304,265 442,322,106 405,055,708 $0.75 $0.76 The following persons have held office as Directors of the Manager and ALL during the period and up to the date of this report: Neil Balnaves AO (Chair); Roger Davis; David Haslingden (appointed 6 July 2015); Anne Keating (retired 29 October 2014); Don Morris AO; Greg Shaw (retired 10 March 2015); Deborah Thomas; George Venardos; and Melanie Willis (appointed 17 July 2015). (b) Parent entity The immediate and ultimate parent entity of the Group is Ardent Leisure Trust. The immediate and ultimate parent entity of the ALL Group is Ardent Leisure Limited. 92 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 36. (c) Related party disclosures (continued) Key controlled entities These financial statements incorporate the assets, liabilities and results of the following wholly-owned key subsidiaries in accordance with the accounting policy disclosure as described in Note 1(b): Entity Activity Country of establishment Class of equity securities Controlled entities of Ardent Leisure Trust: Ardent Leisure Trust Ardent Leisure (NZ) Trust Goodlife Subtrust Controlled entities of Ardent Leisure Limited: Ardent Leisure Limited Bowling Centres Australia Pty Limited Ardent Leisure Operations (NZ) Limited Main Event Holdings, Inc Goodlife Operations Pty Limited Hypoxi Australia Pty Limited Hypoxi (US) LLC (d) Transactions with related parties Key management personnel Short term employee benefits Post employment benefits Share-based payments Principal lessee: Marinas, bowling centres Freehold owner: Theme parks Principal lessee: Bowling centres Principal lessee: Health clubs Australia New Zealand Australia Ordinary Ordinary Ordinary Theme Parks, Marinas Bowling centres Bowling centres Family entertainment centres Health clubs Targeted weight loss solutions Targeted weight loss solutions Australia Australia New Zealand USA Australia Australia USA Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Consolidated Group 2015 $ 4,587,929 168,555 1,284,888 6,041,372 Consolidated Group 2014 $ 4,154,999 162,233 1,194,933 5,512,165 ALL Group 2015 $ 4,587,929 168,555 1,665,352 6,421,836 ALL Group 2014 $ 4,154,999 162,233 4,305,134 8,622,366 Remuneration of key management personnel (KMP) is shown in the Directors’ report from page 13 to page 31. (e) Loans to KMP There were no loans to KMP during the financial year or prior corresponding period. (f) Other transactions with KMP No Director has entered into a material contract with the Group and there were no material contracts involving Directors’ interests existing at year end not previously disclosed. Ardent Leisure Group | Annual Report 2015 93 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 36. (g) Related party disclosures (continued) Transactions with controlled entities All transactions with controlled entities were made on normal commercial terms and conditions and at market rates, except that there are no fixed terms for the repayment of loans between the parties. Outstanding balances are unsecured and are repayable in cash. The terms and conditions of the tax funding agreement are set out in Note 10(e). The transactions incurred in the year with controlled entities were: Consolidated Group 2015 $ Consolidated Group 2014 $ ALL Group 2015 $ ALL Group 2014 $ (15,312) (7,438) (15,312) (7,438) - - - - - - - - - - - - - - (4,828,281) (7,287,779) (125,365,392) (129,802,645) 134,550,710 (39,692) (6,243,481) (113,598,779) (94,287,532) 88,095,545 594 (5,575,220) (126,900,500) (125,365,392) Purchases of goods Reimbursable expenses to related parties Tax consolidation legislation Current tax payable assumed from wholly-owned tax consolidated entities Loans from Ardent Leisure Trust Balance at the beginning of the year Loans advanced Loan repayments made Foreign exchange movements Interest charged Balance at the end of the year Segment information Business segments The Group is organised on a global basis into the following divisions by product and service type: Family entertainment centres This segment comprises of 20 Main Event sites in Texas, Arizona, Georgia, Illinois and Oklahoma, United States of America. Bowling centres This segment comprises 49 bowling centres and four amusement arcades located in Australia and New Zealand. Marinas This segment comprises seven d’Albora Marina properties, located in New South Wales and Victoria. Theme parks This segment comprises Dreamworld and WhiteWater World in Coomera, Queensland and the SkyPoint observation deck and climb in Surfers Paradise, Queensland. Health clubs This comprises 76 centres in Queensland, New South Wales, Victoria, South Australia and Western Australia, two independent Hypoxi studios in New South Wales, and one independent Hypoxi studio in Ballantyne, North Carolina. The main income statement items used by management to assess each of the divisions are divisional revenue and divisional EBITDA before property costs and after property costs. In addition, depreciation and amortisation are analysed by division. Each of these income statement items is looked at after adjusting for pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, onerous leases costs, amortisation of intangible assets and impairment of property, plant and equipment and intangible assets. As shown in Note 11, these items are excluded from management’s definition of core earnings. The Group’s principal activity is to invest in and operate leisure and entertainment businesses in Australia, New Zealand and the United States of America. 94 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 37. Segment information (continued) Business segment 2015 Consolidated Group Family entertainment centres $’000 Bowling centres $’000 Marinas $’000 Theme parks $’000 Health clubs Other $’000 $’000 Total $’000 Revenue from operating activities 177,123 116,510 22,952 99,571 178,388 59 594,603 Divisional EBITDA before property costs(1) Divisional EBITDA(2) Depreciation and amortisation(3) 64,439 45,657 (11,982) 40,279 13,989 (7,859) 12,765 10,150 (929) 33,163 32,015 (5,394) 72,543 28,152 (10,018) 49 49 (816) 223,238 130,012 (36,998) Divisional EBIT(4) 33,675 6,130 9,221 26,621 18,134 (767) 93,014 Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, intangible asset amortisation and impairment of property, plant and equipment and intangible assets not included in divisional EBIT Valuation loss - investment properties Loss on closure of bowling centre Loss on disposal of assets Gain on sale and leaseback of family entertainment centres Net gain from derivative financial instruments Interest income Corporate costs Business acquisition costs Borrowing costs Net tax expense Profit for the year (32,122) (501) (104) (523) 6,959 552 121 (15,056) (1,938) (11,333) (6,947) 32,122 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 217,949 140,870 109,862 264,552 250,427 12,847 996,507 88,767 21,530 4,860 7,793 59,695 2,158 184,803 (1) Excludes pre-opening expenses of $6,521,000. (2) Excludes straight lining of fixed rent increases of $2,336,000, pre-opening expenses of $6,521,000 and onerous lease costs of $2,598,000. (3) Excludes IFRS depreciation of $11,102,000, amortisation of intangible assets totalling $6,778,000 and impairment of property, plant and equipment and intangible assets of $2,787,000. (4) Excludes of pre-opening expenses of $6,521,000, straight lining of fixed rent increases of $2,336,000, onerous leases costs of $2,598,000, IFRS depreciation of $11,102,000, amortisation of intangible assets of $6,778,000 and impairment of property, plant and equipment and intangible assets of $2,787,000. Ardent Leisure Group | Annual Report 2015 95 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 37. Segment information (continued) Business segment 2014 Consolidated Group Family entertainment centres $’000 Bowling centres $’000 Marinas $’000 Theme parks $’000 Health clubs $’000 Other $’000 Total $’000 Revenue from operating activities 98,121 113,889 23,466 100,139 164,070 18 499,703 Divisional EBITDA before property costs(1) Divisional EBITDA(2) Depreciation and amortisation(3) 36,896 24,714 (6,626) 38,907 13,765 (7,274) 12,944 10,396 (858) 33,867 32,799 (4,982) 70,249 33,990 (6,902) (1) (1) (506) 192,862 115,663 (27,148) Divisional EBIT(4) 18,088 6,491 9,538 27,817 27,088 (507) 88,515 Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation and intangible asset amortisation not included in divisional EBIT Valuation gains - property, plant and equipment Loss on closure of bowling centre Loss on disposal of assets Gain on sale and leaseback of family entertainment centre Net loss from derivative financial instruments Interest income Corporate costs Business acquisition costs Borrowing costs Net tax expense Profit for the year (19,020) 8,590 (1,579) (453) 379 (613) 211 (12,545) (277) (11,330) (2,876) 49,002 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 138,167 131,157 103,734 262,225 211,691 6,033 853,007 56,871 7,598 2,725 8,516 24,174 1,809 101,693 (1) Excludes pre-opening expenses of $2,579,000. (2) Excludes straight lining of fixed rent increases of $1,546,000 and pre-opening expenses of $2,579,000. (3) Excludes IFRS depreciation of $8,562,000 and amortisation of intangible assets totalling $6,333,000. (4) Excludes of pre-opening expenses of $2,579,000, straight lining of fixed rent increases of $1,546,000, IFRS depreciation of $8,562,000 and amortisation of intangible assets of $6,333,000. 96 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 37. Segment information (continued) Business segment 2015 ALL Group Family entertainment centres $’000 Bowling centres $’000 Marinas $’000 Theme parks $’000 Health clubs $’000 Other $’000 Total $’000 Revenue from operating activities 177,123 116,510 22,952 99,571 178,388 59 594,603 Divisional EBITDA before rent to Trust(1) Divisional EBITDA after rent to Trust(1) Depreciation and amortisation(2) 45,657 45,657 (11,982) 40,279 6,261 (1,054) 12,765 1,107 (75) 33,163 2,621 (1,113) 60,186 21,317 (9,959) 49 49 (814) 192,099 77,012 (24,997) Divisional EBIT(3) 33,675 5,207 1,032 1,508 11,358 (765) 52,015 Pre-opening expenses, straight lining of fixed rent increases, onerous lease costs, intangible asset amortisation and impairment of property, plant and equipment and intangible assets not included in divisional EBIT Loss on disposal of assets Gain on sale and leaseback of family entertainment centres Interest income Foreign exchange gain Corporate costs Business acquisition costs Borrowing costs Net tax expense Profit for the year (17,220) (376) 6,959 77 312 (14,079) (1,938) (11,731) (7,157) 6,862 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 217,842 39,383 3,429 16,963 207,054 14,394 499,065 88,767 6,898 883 5,195 49,657 2,158 153,558 (1) Excludes pre-opening expenses of $6,521,000, straight lining of fixed rent of $1,306,000 and onerous lease costs of $1,465,000. (2) Excludes amortisation of intangible assets of $6,778,000 and impairment of property, plant and equipment and intangible assets of $1,150,000. (3) Excludes pre-opening expenses of $6,521,000, straight lining of fixed rent of $1,306,000, onerous lease costs of $1,465,000, amortisation of intangible assets of $6,778,000 and impairment of property, plant and equipment and intangible assets of $1,150,000. Ardent Leisure Group | Annual Report 2015 97 For personal use only Notes to the Financial Statements For the year ended 30 June 2015 37. Segment information (continued) Business segment 2014 ALL Group Family entertainment centres $’000 Bowling centres Marinas $’000 $’000 Theme parks $’000 Health clubs $’000 Other $’000 Total $’000 Revenue from operating activities 98,121 113,889 23,466 100,139 164,070 18 499,703 Divisional EBITDA before rent to Trust(1) Divisional EBITDA after rent to Trust(1) Depreciation and amortisation(2) 24,714 24,714 (6,626) 38,712 5,192 (456) 12,944 956 (5) 33,867 2,854 (250) 58,545 22,520 (6,830) (1) 168,781 56,236 - (14,674) (507) Divisional EBIT(3) 18,088 4,736 951 2,604 15,690 (507) 41,562 Pre-opening expenses, straight lining of fixed rent increases and intangible asset amortisation not included in divisional EBIT Loss on disposal of assets Gain on sale and leaseback of family entertainment centre Interest income Corporate costs Foreign exchange loss Business acquisition costs Borrowing costs Net tax expense Profit for the year (9,791) (460) 379 99 (15,038) (25) (277) (8,766) (2,627) 5,056 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 138,365 33,183 1,753 14,834 172,903 5,365 366,403 56,870 3,524 129 2,464 20,943 1,809 85,739 (1) Excludes pre-opening expenses of $2,579,000 and straight lining of fixed rent of $879,000. (2) Excludes amortisation of intangible assets of $6,333,000. (3) Excludes pre-opening expenses of $2,579,000, straight lining of fixed rent of $879,000 and amortisation of intangible assets of $6,333,000. 98 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (a) Capital and financial risk management Capital risk management The Group’s objectives when managing capital is to optimise stapled security holder value through the mix of available capital sources while complying with statutory and constitutional capital and distribution requirements, maintaining gearing, interest cover and debt serviceability ratios within approved limits and continuing to operate as a going concern. The Group assesses its capital management approach as a key part of the Group’s overall strategy and it is continuously reviewed by management and the Board. The Group is able to alter its capital mix by issuing new stapled securities, activating the DRP, electing to have the DRP underwritten, adjusting the amount of distributions paid, activating a stapled security buy-back program or selling assets to reduce borrowings. The Group has a target gearing ratio of 30% - 35% of debt to debt plus equity. At 30 June 2015, gearing was 32.6% (2014: 34.1%) and the Group has complied with the financial covenants of its borrowing facilities in the current and previous financial years. Protection of the Group’s equity in foreign denominated assets was achieved through borrowing in the local functional currency to provide a natural hedge supplemented by the use of foreign exchange forward contracts to provide additional hedge protection. The Group has a target equity hedge of 50% - 100% of the asset value by foreign currency. The Trust also protects its equity in assets by taking out insurance with creditworthy insurers. (b) Financial risk management The Group’s principal financial instruments comprise cash, receivables, payables, interest bearing liabilities and derivative financial instruments. The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), liquidity risk and credit risk. The Group manages its exposure to these financial risks in accordance with the Group’s Financial Risk Management (FRM) policy as approved by the Board. The FRM policy sets out the Group’s approach to managing financial risks, the policies and controls utilised to minimise the potential impact of these risks on its performance and the roles and responsibilities of those involved in the management of these financial risks. The Group uses various measures to manage exposures to these types of risks. The main methods include foreign exchange and interest rate sensitivity analysis, ageing analysis and counterparty credit assessment and the use of future rolling cash flow forecasts. The Group uses derivative financial instruments such as forward foreign exchange contracts, interest rate swaps and cross currency swaps to manage its financial risk as permitted under the FRM policy. Such instruments are used exclusively for hedging purposes i.e. not for trading or speculative purposes. (c) Market risk Foreign exchange risk Foreign exchange risk is the risk that changes in foreign exchange rates will change the Australian dollar value of the Group’s net assets or its Australian dollar earnings. Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group’s functional currency. The Group is exposed to foreign exchange risk through investing in overseas businesses and deriving operating income from those businesses. The Group manages this exposure on a consolidated basis. The majority of derivatives utilised to manage this consolidated exposure are held by the Trust. Therefore, the information provided below is only meaningful for the Group. Ardent Leisure Group | Annual Report 2015 99 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (c) Capital and financial risk management (continued) Market risk (continued) Foreign exchange risk (continued) Foreign investment The Group aims to minimise the impact of fluctuations in foreign currency exchange rates on its net investments overseas by funding such investments by borrowing in the local overseas currency or by taking out forward foreign exchange contracts. The Group’s policy is to hedge 50% - 100% of overseas investments in this way. The table below sets out the Group’s overseas investments, by currency, and how, through the use of forward foreign exchange contracts, this exposure is reduced. All figures in the table below are shown in Australian dollars with foreign currency balances translated at the year-end spot rate: Australian dollars New Zealand dollars US dollars Consolidated Group Assets Cash and cash equivalents Receivables and other current assets Derivative financial instruments Property held for sale Investment properties Property, plant and equipment Intangible assets Other non-current assets Total assets Liabilities Payables and other current liabilities Derivative financial instruments Interest bearing liabilities Other non-current liabilities Total liabilities 2015 $’000 2014 $’000 3,010 29,676 377 - 99,326 449,199 186,732 4,862 773,182 73,108 2,038 143,746 14,731 233,623 4,231 15,506 - - 95,870 437,235 155,710 103 708,655 48,948 1,463 162,569 10,902 223,882 2015 $’000 324 353 - - - 2,003 3,426 16 6,122 793 - - - 793 2014 $’000 998 46 - - - 2,122 3,596 18 6,780 407 - - - 407 2015 $’000 2014 $’000 1,652 4,675 - - - 158,480 52,786 (390) 217,203 24,643 193 134,872 22,901 182,609 1,850 10,179 - 10,650 - 70,805 41,931 2,157 137,572 25,513 - 97,703 - 123,216 Net assets 539,559 484,773 5,329 6,373 34,594 14,356 Notional value of derivatives - - - - 2,441 4,477 Net exposure to foreign exchange movements 539,559 484,773 5,329 6,373 37,035 18,833 100 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (c) Capital and financial risk management (continued) Market risk (continued) Foreign exchange risk (continued) Foreign investment (continued) ALL Group Assets Cash and cash equivalents Receivables and other current assets Property held for sale Property, plant and equipment Intangible assets Other non-current assets 2015 $’000 2014 $’000 2,866 28,834 - 55,120 186,732 4,862 4,146 12,255 - 52,658 155,710 103 Total assets 278,414 224,872 Liabilities Payables and other current liabilities Derivative financial instruments Interest bearing liabilities Other non-current liabilities 58,464 - 125,613 4,514 40,247 - 125,272 10,950 Total liabilities 188,591 176,469 Australian dollars New Zealand dollars US dollars 2015 $’000 275 152 - - 3,426 16 3,869 426 - - - 426 2014 $’000 373 144 - - 3,596 18 2015 $’000 1,544 4,362 - 158,480 52,786 (390) 2014 $’000 1,678 10,179 10,650 70,805 41,931 2,157 4,131 216,782 137,400 347 - - - 347 24,618 129 111,393 22,901 25,496 - 79,615 - 159,041 105,111 Net assets 89,823 48,403 3,443 3,784 57,741 32,289 Net exposure to foreign exchange movements 89,823 48,403 3,443 3,784 57,741 32,289 The table below demonstrates the sensitivity of the above net exposures to reasonably possible changes in foreign exchange rates, with all other variables held constant. A negative amount in the table reflects a potential net reduction in the profit, core earnings or equity, while a positive amount reflects a potential net increase. Consolidated Group Profit movement 2015 $’000 (3,367) 4,115 (484) 593 2014 $’000 (1,712) 2,093 (579) 708 AUD:USD - increase 10% AUD:USD - decrease 10% AUD:NZD - increase 10% AUD:NZD - decrease 10% ALL Group AUD:USD - increase 10% AUD:USD - decrease 10% AUD:NZD - increase 10% AUD:NZD - decrease 10% Core earnings movement 2015 $’000 2014 $’000 - - - - - - - - Total equity movement 2015 $’000 (3,367) 4,115 (484) 593 2014 $’000 (1,712) 2,093 (579) 708 Profit movement Total equity movement 2015 $’000 (5,249) 6,416 (312) 384 2014 $’000 (2,935) 3,588 (344) 420 2015 $’000 (5,249) 6,416 (312) 384 2014 $’000 (2,935) 3,588 (344) 420 Ardent Leisure Group | Annual Report 2015 101 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (c) Capital and financial risk management (continued) Market risk (continued) Foreign exchange risk (continued) Foreign income Through investing in overseas assets, the Group earns foreign denominated income. Net operating income derived is naturally offset by local currency denominated expenses including interest and tax. From time to time, the Group uses forward foreign exchange contracts to convert this net foreign denominated currency exposure back to Australian dollars at pre-determined rates out into the future. At reporting date, the Group has no hedging in place over USD or NZD income. Interest rate risk Interest rate risk is the risk that changes in market interest rates will impact the earnings of the Group. The Group is exposed to interest rate risk predominantly through borrowings. The Group manages this exposure on a consolidated basis. The Group applies benchmark hedging bands across its differing interest rate exposures and utilises interest rate swaps, to exchange floating interest rates to fixed interest rates, to manage its exposure between these bands. Compliance with the policy is reviewed regularly by management and is reported to the Board each meeting. The Group has exposures to interest rate risk on its net monetary liabilities, mitigated by the use of interest rate swaps, as shown in the table below. The table also demonstrates the sensitivity to reasonably possible changes in interest rates, with all other variables held constant. A negative amount in the table reflects a potential net reduction in the profit, core earnings or equity, while a positive amount reflects a potential net increase. Consolidated Group Fixed rates Interest bearing liabilities Floating rates Cash and cash equivalents Interest bearing liabilities Australian interest US interest 2015 $’000 - - 2014 $’000 (61) (61) 2015 $’000 2014 $’000 - - - - 3,334 (144,400) (141,066) 5,229 (163,400) (158,171) 1,652 (135,361) (133,709) 1,850 (98,151) (96,301) Interest rate swaps 70,000 100,000 61,198 31,813 Net interest rate exposure (71,066) (58,171) (72,511) (64,488) Refer to Note 14 for further details on the interest rate swaps. 102 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (c) Capital and financial risk management (continued) Market risk (continued) Interest rate risk (continued) ALL Group Fixed rates Interest bearing liabilities Floating rates Cash and cash equivalents Interest bearing liabilities Interest rate swaps Net interest rate exposure Interest rate sensitivity Australian interest US interest 2015 $’000 - - 2014 $’000 (61) (61) 2015 $’000 - - 2014 $’000 - - 3,141 (125,613) (122,472) 4,519 (125,211) (120,692) 1,544 (111,835) (110,291) 1,678 (80,005) (78,327) - - 39,063 31,813 (122,472) (120,692) (71,228) (46,514) Consolidated Group Profit movement Core earnings movement Total equity movement 1% increase in AUD rate 1% decrease in AUD rate 1% increase in USD rate 1% decrease in USD rate ALL Group 1% increase in AUD rate 1% decrease in AUD rate 1% increase in USD rate 1% decrease in USD rate 2015 $’000 (698) 698 (745) 745 2014 $’000 (537) 537 (689) 689 2015 $’000 (711) 711 (725) 725 2014 $’000 (582) 582 (645) 645 Profit movement 2015 $’000 (1,225) 1,225 (712) 712 2014 $’000 (1,207) 1,207 (509) 509 2015 $’000 1,296 (1,296) 429 (429) 2015 $’000 (1,225) 1,225 36 (36) 2014 $’000 593 (593) (66) 66 Total equity movement 2014 $’000 (1,207) 1,207 113 (113) At reporting date, the Group has fixed 46.9% (2014: 50.4%) of its floating interest exposure. Ardent Leisure Group | Annual Report 2015 103 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (d) Capital and financial risk management (continued) Liquidity risk Liquidity risk arises if the Group has insufficient liquid assets to meet its short term obligations. Liquidity risk is managed by maintaining sufficient cash balances and adequate committed credit facilities. Prudent liquidity management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The instruments entered into by the Group were selected to ensure sufficient funds would be available to meet the ongoing cash requirements of the Group. The following tables provide the contractual maturity of the Group’s and ALL Group’s fixed and floating rate financial liabilities and derivatives as at 30 June 2015. The amounts presented represent the future contractual undiscounted principal and interest cash flows and therefore do not equate to the values shown in the Balance Sheets. Repayments which are subject to notice are treated as if notice were given immediately. Consolidated Group 2015 Payables Term debt Interest rate swaps designated as hedges of the term debt Forward foreign exchange contracts Total undiscounted financial liabilities Consolidated Group 2014 Book value $’000 Less than 1 year $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 91,323 279,761 91,323 7,826 - 196,279 - 85,936 2,231 (377) 1,472 644 372,938 102,022 198,395 1,440 1,433 769 - 86,705 - - - - - - - - - - - - - - - Book value $’000 Less than 1 year $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 Payables Finance leases Term debt Interest rate swaps designated as hedges of the term debt Forward foreign exchange contracts Total undiscounted financial liabilities 69,065 61 261,551 69,065 61 8,880 - - 8,880 - - 195,616 - - 69,020 1,443 20 332,140 881 4,597 83,484 796 - 817 - 9,676 196,433 - - 69,020 - - - - - - - - - - - - ALL Group 2015 Book value $’000 Less than 1 year $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 Payables Term debt Loan from the Trust Interest rate swaps designated as hedges of the term debt Total undiscounted financial liabilities 76,287 110,547 126,901 76,287 1,762 5,824 - 69,650 132,725 - 41,536 - 129 313,864 318 298 84,191 202,673 - 41,536 - - - - - - - - - - - - - - - ALL Group 2014 Payables Finance leases Term debt Loan from the Trust Interest rate swaps designated as hedges of the term debt Total undiscounted financial liabilities Book value $’000 Less than 1 year $’000 60,287 61 79,851 125,365 60,287 61 1,225 6,547 1 to 2 years $’000 - - 1,225 6,547 2 to 3 years $’000 - - 74,329 6,547 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 - - - - 5,620 - 6,547 126,477 48 265,612 270 68,390 270 8,042 254 81,130 - - 12,167 126,477 - - - - - - Total $’000 91,323 290,041 3,681 2,077 387,122 Total $’000 69,065 61 282,396 2,494 4,597 358,613 Total $’000 76,287 112,948 138,549 616 328,400 Total $’000 60,287 61 82,399 152,665 794 296,206 104 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. Capital and financial risk management (continued) (e) Credit risk Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause the Group to make a financial loss. The Group has exposure to credit risk on all of its financial assets included in the Group’s Balance Sheet. The Group manages credit risk on receivables by performing credit reviews of prospective debtors, obtaining collateral where appropriate and performing detailed reviews on any debtor arrears. The Group has policies to review the aggregate exposures of receivables and tenancies across its portfolio. The Group has no significant concentrations of credit risk on its trade receivables. The Group holds collateral in the form of security deposits or bank guarantees, over some receivables. For derivative financial instruments, there is only a credit risk where the contracting entity is liable to pay the Group in the event of a close out. The Group has policies that limit the amount of credit exposure to any financial institution. Derivative counterparties and cash transactions are limited to investment grade counterparties in accordance with the Group’s FRM policy. The Group monitors the public credit rating of its counterparties. No credit risk has been allocated to cash and cash equivalents. Credit risk adjustments relating to receivables have been applied in line with the policy set out in Note 1(d). No fair value adjustment has been made to derivative financial assets, with the impact of credit risk being minimal. The Group’s maximum exposure to credit risk is noted in the table below. Details the concentration of credit exposure of the Group’s assets is as follows: Cash and cash equivalents Receivables - Australasia Receivables - US Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 4,986 9,539 1,317 15,842 2014 $’000 7,079 7,157 259 14,495 2015 $’000 4,685 11,893 1,317 17,895 2014 $’000 6,197 7,503 259 13,959 Ardent Leisure Group | Annual Report 2015 105 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 38. (e) Capital and financial risk management (continued) Credit risk (continued) All cash, derivative financial instruments and interest bearing receivables are neither past due nor impaired. The table below shows the ageing analysis of those receivables which are past due or impaired: Past due but not impaired Impaired Total Less than 30 days $’000 31 to 60 days $’000 61 to 90 days More than 90 days $’000 $’000 $’000 $’000 Consolidated Group 2015 Receivables - Australasia Receivables - US Consolidated Group 2014 Receivables - Australasia Receivables - US ALL Group 2015 Receivables - Australasia Receivables - US ALL Group 2014 Receivables - Australasia Receivables - US 555 115 670 1,771 1 1,772 555 115 670 1,771 1 1,772 262 31 293 407 - 407 262 31 293 407 - 407 97 7 104 124 - 124 97 7 104 124 - 124 222 23 245 52 37 89 222 23 245 52 37 89 679 - 679 804 - 804 679 - 679 804 - 804 1,815 176 1,991 3,158 38 3,196 1,815 176 1,991 3,158 38 3,196 Based on a review of receivables by management, a provision of $459,000 (2014: $522,000) has been made against receivables with a gross balance of $679,000 (2014: $804,000). The Group holds collateral against the impaired receivables in the form of bank guarantees and security deposits; however, these are not material. There are no significant financial assets that have had renegotiated terms that would otherwise have been past due or impaired. 106 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 39. (a) Fair value measurement Fair value hierarchy The Group measures and recognises the following assets and liabilities at fair value on a recurring basis:  Derivative financial instruments;  Land and buildings; and  Investment properties. AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) (b) (c) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities: Consolidated Group 2015 Assets measured at fair value: Investment properties Property, plant and equipment(1) Derivative financial instruments Liabilities measured at fair value: Derivative financial instruments Liabilities for which fair values are disclosed: Interest bearing liabilities (refer to Note 39(c)) 2014 Assets measured at fair value: Investment properties Property, plant and equipment(1) Property held for sale Liabilities measured at fair value: Derivative financial instruments Liabilities for which fair values are disclosed: Interest bearing liabilities (refer to Note 39(c)) (1) Land and buildings and major rides and attractions. Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 377 2,231 279,761 99,326 395,779 - 99,326 395,779 377 - - 2,231 279,761 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - - 95,870 346,626 10,650 95,870 346,626 10,650 1,463 261,612 - - 1,463 261,612 There has been no transfer between level 1 and level 2 during the year. For changes in level 3 items for the periods ended 30 June 2015 and 30 June 2014, refer to Notes 16, 18 and 19. Ardent Leisure Group | Annual Report 2015 107 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 39. (a) Fair value measurement (continued) Fair value hierarchy (continued) The following table provides the fair value measurement hierarchy of the ALL Group’s assets and liabilities: ALL Group 2015 Assets measured at fair value: Property, plant and equipment(1) Liabilities measured at fair value: Derivative financial instruments Liabilities for which fair values are disclosed: Interest bearing liabilities (refer to Note 39(c)) 2014 Assets measured at fair value: Property, plant and equipment(1) Liabilities measured at fair value: Derivative financial instruments Liabilities for which fair values are disclosed: Interest bearing liabilities (refer to Note 39(c)) (1) Land and buildings and major rides and attractions. Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - Level 1 $’000 - - - - 86,833 86,833 129 237,448 Level 2 $’000 - - Level 3 $’000 129 237,448 Total $’000 - 50,437 50,437 48 205,277 - - 48 205,277 There has been no transfer between level 1 and level 2 during the year. For changes in level 3 items for the periods ended 30 June 2015 and 30 June 2014, refer to Note 19. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the year. The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30 June 2015. (b) Valuation techniques used to derive level 2 and level 3 fair values The fair value of financial instruments that are not traded in an active market (eg, over–the–counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. Specific valuation techniques used to value financial instruments include:    The use of quoted market prices or dealer quotes for similar instruments; The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves; and The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance date. All of the resulting fair value estimates are included in level 2. There are no level 3 financial instruments in either the Group or the ALL Group. 108 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 39. (b) Fair value measurement (continued) Valuation techniques used to derive level 2 and level 3 fair values (continued) The fair value of investment properties is determined in line with the policy set out in Note 1(f), with all resulting fair value estimates included in level 3. The current use is considered to be the highest and best use for all investment properties in the Group. Fair value measurements using significant unobservable inputs For changes in level 3 items for the periods ended 30 June 2015 and 2014 refer to the investment properties and property, plant and equipment Notes 18 and 19. Valuation inputs and relationships to fair value The significant unobservable inputs associated with the valuation of the Group’s investment properties are as follows: Marinas Capitalisation rate (%) 8.6 – 13.7 Discount rate (%) 10.8 - 11.7 Annual net property income ($’000) 330 – 2,311 The fair value of land and buildings and major rides and attractions is determined in line with the policy set out in Note 1(g), with all resulting fair value estimates included in level 3. Dreamworld and WhiteWater World SkyPoint Capitalisation rate (%) 9.4 14.7 Discount rate (%) 15.0 16.3 Annual net property income ($’000) 29,388 4,190 The sensitivity of the fair values of the investment properties and land and buildings in relation to the significant unobservable inputs are set out in the table below: Fair value measurement sensitivity to significant increase in input Fair value measurement sensitivity to significant decrease in input Decrease Increase Decrease Increase Increase Decrease Capitalisation rate (%) Discount rate (%) Annual net property income ($’000) When calculating the income capitalisation approach, the net market rent has a strong inter-relationship with the adopted capitalisation rate given the methodology involves assessing the total income receivable from the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the income and an increase (softening) in the adopted capitalisation rate could potentially offset the impact to the fair value. The same can be said for a decrease in the income and a decrease (tightening) in the adopted capitalisation rate. A directionally opposite change in the income and the adopted capitalisation rate could potentially magnify the impact to the fair value. There are no other significant inter-relationships between unobservable inputs that materially affect the fair value. Ardent Leisure Group | Annual Report 2015 109 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 39. (c) Fair value measurement (continued) Fair values of other financial instruments The Group also has a number of financial instruments which are not measured at fair value in the Balance Sheet. For the majority of these instruments, the fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to the current market rates or the instruments are short term in nature. Significant differences were identified for the following instruments at 30 June 2015: Consolidated Group Interest bearing liabilities ALL Group Interest bearing liabilities Carrying amount 2015 $’000 Fair value Discount rate 2015 $’000 2015 % Carrying amount 2014 $’000 Fair value Discount rate 2014 $’000 2014 % 279,761 279,796 2.80 261,612 254,831 4.75 237,448 240,010 2.80 205,277 198,610 4.75 In determining the fair value of the interest bearing liabilities, the Group’s principal payable of $279.8 million (2014: $261.6 million) has been discounted at a rate of 2.80% (2014: 4.75%) to best reflect the price that market participants would use when transferring the non-current borrowings, assuming that market participants act in their economic best interest. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk. Own credit risk has been included for the first time in the current financial year following the adoption of AASB 13 Fair Value Measurement. 40. Contingent liabilities Unless otherwise disclosed in the financial statements, there are no material contingent liabilities. 41. (a) Capital and lease commitments Capital commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Property, plant and equipment Payable: Within one year Consolidated Group 2015 Consolidated Group 2014 ALL Group 2015 ALL Group 2014 $’000 $’000 $’000 $’000 3,331 3,331 1,204 1,204 3,331 3,331 1,204 1,204 110 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 41. (b) Capital and lease commitments (continued) Lease commitments Within one year Later than one year but not later than five years Later than five years Representing: Cancellable operating leases Non-cancellable operating leases Finance leases Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 83,368 272,461 259,110 614,939 415 614,524 - 614,939 67,885 228,243 197,222 493,350 451 492,837 62 493,350 ALL Group 2015 $’000 33,798 124,577 188,130 346,505 415 346,090 - 346,505 ALL Group 2014 $’000 25,418 94,226 128,633 248,277 451 247,764 62 248,277 Operating leases The majority of non-cancellable operating leases in the Group relate to property leases. Non-cancellable operating leases in the ALL Group include base rentals payable to the Trust in accordance with the leases for Dreamworld, marina, bowling centre and health club properties. Further amounts are payable in respect of these properties; however, the additional rental calculations are unable to be determined at reporting date as a result of the calculations being based upon future profits of the businesses. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Finance leases Commitments in relation to finance leases are payable as follows: Within one year Later than one year but not later than five years Minimum lease payments Less: future finance charges Total lease liabilities Representing lease liabilities: Current Non-current Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 82,956 272,457 259,111 614,524 67,601 228,014 197,222 492,837 33,386 124,573 188,131 346,090 25,134 93,996 128,634 247,764 - - - - - - - - 62 - 62 (1) 61 61 - 61 - - - - - - - - 62 - 62 (1) 61 61 - 61 In the prior financial year, the Group had an asset under a finance lease with a carrying value of $492,000. The finance lease now expired and the Group now owns this asset. Refer to Note 19. Ardent Leisure Group | Annual Report 2015 111 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 42. Deed of Cross Guarantee In 2006, ALL, Bowling Centres Australia Pty Limited, Bowl Australia Holdings Pty Limited, Tidebelt Pty Limited and Bowling Centres Australia Catering Services Pty Limited entered into a Deed of Cross Guarantee under which each company guarantees the debts of the others. In 2010, Ardent Leisure Health Clubs 1 Pty Limited, Ardent Leisure Health Clubs 2 Pty Limited, Goodlife Health Clubs Holdings Pty Limited, Goodlife Operations Pty Limited, Ardent Boat Share Pty Limited and Ardent Boat Share Finance Limited executed an Assumption Deed and became parties to the Deed of Cross Guarantee. On 9 October 2012, Fenix Holdings Pty Limited and its controlled entities executed an Assumption Deed and became parties to the Deed of Cross Guarantee. On 28 April 2014, Hypoxi Australia Pty Ltd executed an Assumption Deed and became a party to the Deed of Cross Guarantee. On 25 November 2014, Hypoxi North America Pty Limited executed an Assumption Deed and became a party to the Deed of Cross Guarantee. On 1 July 2012, a Revocation Deed was executed whereby Ardent Boat Share Pty Limited, Ardent Boat Share Finance Limited, Bowl Australia Holdings Pty Limited, Bowling Centres Australia Catering Services Pty Limited and Tidebelt Pty Limited were released from the Deed of Cross Guarantee. By entering into the deeds, Bowling Centres Australia Pty Limited, Goodlife Operations Pty Limited, Ardent Leisure Health Clubs 1 Pty Limited, Fenix Holdings Pty Limited and Hypoxi Australia Pty Ltd have been relieved from the requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. (a) Consolidated Income Statement ALL, Bowling Centres Australia Pty Limited, Ardent Leisure Health Clubs 1 Pty Limited, Ardent Leisure Health Clubs 2 Pty Limited, Goodlife Health Clubs Holdings Pty Limited, Goodlife Operations Pty Limited, Hypoxi Australia Pty Ltd and Hypoxi North America Pty Limited represent a ‘Closed Group’ for the purposes of the Class Order. Set out below is a consolidated Income Statement for the year ended 30 June 2015 of the Closed Group: Revenue from operating activities Purchases of finished goods Salary and employee benefits Borrowing costs Property expenses Depreciation and amortisation Advertising and promotions Repairs and maintenance Impairment of property, plant and equipment Business acquisition costs Pre-opening expenses Other expenses Loss before tax benefit Income tax benefit Loss for the year 2015 $’000 2014 $’000 415,742 404,224 (32,578) (165,036) (8,356) (129,430) (18,956) (15,499) (19,249) (1,822) (1,938) (916) (38,133) (16,171) 4,005 (12,166) (32,140) (156,564) (11,015) (124,956) (14,400) (15,734) (17,737) - (277) (407) (36,776) (5,782) 3,008 (2,774) (b) Consolidated Statement of Comprehensive Income Set out below is a consolidated Statement of Comprehensive Income for the year ended 30 June 2015 of the Closed Group: Loss for the year Other comprehensive income for the year Total comprehensive income for the year 112 Ardent Leisure Group | Annual Report 2015 2015 $’000 (12,166) - (12,166) 2014 $’000 (2,774) - (2,774) For personal use only Notes to the Financial Statements for the year ended 30 June 2015 42. (c) Deed of Cross Guarantee (continued) Consolidated Balance Sheet Set out below is a consolidated Balance Sheet as at 30 June 2015 of the Closed Group: Current assets Cash and cash equivalents Receivables Inventories Current tax receivables Other Total current assets Non-current assets Property, plant and equipment Livestock Intangible assets Deferred tax assets Investment in controlled entities Total non-current assets Total assets Current liabilities Payables Interest bearing liabilities Provisions Other Total current liabilities Non-current liabilities Payables Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity 2015 $’000 2,844 11,219 8,766 8,279 2,084 33,192 55,168 245 169,149 4,298 49,804 278,664 311,856 52,651 - 3,237 1,222 57,110 127,231 4,514 131,745 188,855 123,001 155,262 - (32,261) 123,001 2014 $’000 4,128 7,035 7,566 1,549 4,963 25,241 46,245 300 135,520 2,105 49,730 233,900 259,141 47,432 61 3,272 1,296 52,061 196,081 1,625 197,706 249,767 9,374 16,309 (2,310) (4,625) 9,374 Ardent Leisure Group | Annual Report 2015 113 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 42. (d) Deed of Cross Guarantee (continued) Consolidated Statement of Changes in Equity Set out below is a consolidated Statement of Changes in Equity for the year ended 30 June 2015 of the Closed Group: Contributed equity $’000 Reserves $’000 Accumulated losses $’000 Total equity at 30 June 2013 Total comprehensive income Contributions of equity, net of issue costs Total equity at 30 June 2014 Total comprehensive income Reserve transfers Dividends paid and payable Contributions of equity, net of issue costs Total equity at 30 June 2015 43. (a) Parent entity financial information Summary financial information Balance sheet Current assets Total assets Current liabilities Total liabilities Equity Contributed equity Reserves (Accumulated losses)/retained profits 14,202 - 2,107 16,309 - - - 138,953 155,262 (2,310) - - (2,310) - 2,310 - - (1,851) (2,774) - (4,625) (12,166) (2,310) (13,160) - - (32,261) 123,001 Total $’000 10,041 (2,774) 2,107 9,374 (12,166) - (13,160) 138,953 Consolidated Group 2015 $’000 Consolidated Group 2014 $’000 ALL Group 2015 $’000 ALL Group 2014 $’000 10,447 606,122 21,117 195,965 11,129 666,435 17,854 199,559 15,152 223,167 27,360 67,538 7,616 181,702 18,862 164,353 449,919 (4,921) (34,841) 497,603 (2,907) (27,820) 155,262 - 367 410,157 466,876 155,629 16,309 (2,310) 3,350 17,349 Profit for the year 34,507 45,710 12,487 23,528 Total comprehensive income for the year 33,624 46,174 12,487 23,528 (b) Guarantees In June 2013, Ardent Leisure Trust and Ardent Leisure Limited entered into an agreement to guarantee the obligations of Ardent Leisure US Holding Inc. (a wholly-owned subsidiary of Ardent Leisure Limited) under the terms of the Group’s extended syndicated facility arrangements as disclosed in Note 24. Excluding the above and the deed of cross guarantee (refer to Note 42), there are no other material guarantees entered into by Ardent Leisure Limited and Ardent Leisure Trust in relation to the debts of their subsidiaries. 114 Ardent Leisure Group | Annual Report 2015 For personal use only Notes to the Financial Statements for the year ended 30 June 2015 43. (c) Parent entity financial information (continued) Contingent liabilities Ardent Leisure Trust and Ardent Leisure Limited did not have any contingent liabilities at 30 June 2015 or 30 June 2014. (d) Contractual commitments for the acquisition of property, plant and equipment Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Property, plant and equipment Payable: Within one year Consolidated Group Consolidated Group ALL Group ALL Group 2015 $’000 2014 $’000 2015 $’000 2014 $’000 - - - - 2,943 2,943 1,167 1,167 Commitments with respect to the above property, plant and equipment have been incurred by ALL on behalf of the Trust for the Australian and New Zealand geographic segments totalling $2,943,000 (2014: $1,167,000). Any commitments relating to the Australian and New Zealand geographic segments will therefore be subsequently reimbursed by the Trust the month following payment. 44. Events occurring after reporting date Subsequent to year end, a distribution of 5.5 cents per stapled security has been declared by the Board of Directors. The total distribution amount of $24.3 million will be paid on or before 31 August 2015 in respect of the half year ended 30 June 2015. Effective 11 August 2015, the Group completed refinancing of its syndicated loan facilities. This has resulted in an increase in the available USD facilities to US$280.0 million (30 June 2015: US$160.0 million) and an extended tenure maturing in equal tranches of three, four and five years respectively. Australian dollar facilities remain at $200.0 million (30 June 2015: $200.0 million) however have been similarly extended to mature in equal tranches of three, four and five years respectively. Since the end of the financial year, the Directors of the Manager and ALL are not aware of any other matters or circumstances not otherwise dealt with in financial report or the Directors’ report that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in financial years subsequent to the year ended 30 June 2015. Ardent Leisure Group | Annual Report 2015 115 For personal use only Directors’ declaration to stapled security holders Directors’ declaration to stapled security holders In the opinion of the Directors of Ardent Leisure Management Limited and Ardent Leisure Limited: (a) The financial statements and notes of Ardent Leisure Trust and its controlled entities, including Ardent Leisure Limited and its controlled entities (Ardent Leisure Group) and Ardent Leisure Limited and its controlled entities (ALL Group) set out on pages 36 to 115 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the Ardent Leisure Group’s and ALL Group’s financial position as at 30 June 2015 and of their performance, as represented by the results of their operations, their changes in equity and their cash flows, for the financial year ended on that date; (b) There are reasonable grounds to believe that both the Ardent Leisure Group and ALL Group will be able to pay their debts as and when they become due and payable; (c) Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by International Accounting Standards Board; and (d) At the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 42 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee as described in Note 42. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Boards of Directors. Neil Balnaves AO Chairman Sydney 18 August 2015 Deborah Thomas Managing Director 116 Ardent Leisure Group | Annual Report 2015 For personal use only Independent auditor’s report to the stapled security holders of Ardent Leisure Group and Ardent Leisure Limited Group Report on the financial report We have audited the accompanying financial report which comprises:   The balance sheet as at 30 June 2015, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Ardent Leisure Group (the consolidated stapled entity). The consolidated stapled entity, as described in Note 1 to the financial report, comprises Ardent Leisure Trust (the trust) and the entities it controlled at year’s end or from time to time during the financial year. The balance sheet as at 30 June 2015, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Ardent Leisure Limited Group (the ALL Group). The ALL Group, comprises Ardent Leisure Limited (the company or ALL) and the entities it controlled at year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the Ardent Leisure Limited and the Ardent Leisure Management Limited, the responsible entity of the Ardent Leisure Trust, (collectively referred to as the “directors”) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. For personal use onlyWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Ardent Leisure Group and Ardent Leisure Limited Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated stapled entity's and consolidated ALL Group entity’s financial position as at 30 June 2015 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 13 to 31 of the directors’ report for the year ended 30 June 2015. The directors are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Ardent Leisure Group and Ardent Leisure Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Timothy J Allman Partner Brisbane 18 August 2015 For personal use onlyNo. of Securities 85,147,349 72,164,546 54,674,441 29,642,317 24,789,390 6,673,434 4,853,420 4,692,067 4,227,006 3,715,118 2,673,210 2,066,243 1,933,002 1,318,776 1,061,823 901,603 820,332 751,848 735,267 622,000 303,463,192 138,858,914 % 19.25 16.31 12.36 6.70 5.60 1.51 1.10 1.06 0.96 0.84 0.60 0.47 0.44 0.30 0.24 0.20 0.19 0.17 0.17 0.14 68.61 31.39 Investor Analysis Investor Analysis Top 20 Investors as at 18 August 2015 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 National Nominees Limited JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited National Nominees Limited AMP Life Limited Ragusa Pty Ltd Citicorp Nominees Pty Limited Ragusa Pty Ltd RBC Investor Services Australia Nominees Pty Limited Balnaves Foundation Pty Ltd BNP Paribas Noms (NZ) Ltd Ragusa Pty Ltd Ragusa Pty Limited The Australian National University UBS Wealth Management Australia Nominees Pty Ltd Invia Custodian Pty Limited Sevanlab Super Pty Ltd Mr Alan Geoffrey Blackburn Total Balance of Register Grand Total Range Report as at 18 August 2015 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total No. of Securities 328,294,025 83,406,574 16,933,175 12,585,237 1,103,095 442,322,106 % 74.22 18.86 3.83 2.85 0.25 100.00 442,322,106 100.00 No of Holders 147 3,292 2,223 4,350 2,435 12,447 % 1.18 26.45 17.86 34.95 19.56 100.00 The total number of investors with an unmarketable parcel of 51,958 securities as at 18 August 2015 was 852. Voting Rights On a poll, each investor has, in relation to resolutions of the Trust, one vote for each dollar value of their total units held in the Trust and in relation to resolutions of the Company, one vote for each share held in the Company. On-Market Buy-back There is no current on-market buy-back program in place. Substantial Shareholder Notices Received as at 18 August 2015 National Australia Bank Limited FIL Ltd Ausbil Investment Management Limited JCP Investment Partners Ltd Bennelong Funds Management Group Pty Ltd BT Investment Management Limited Stapling Disclosure No. of Securities 42,526,796 40,478,296 30,939,841 27,951,149 23,405,643 22,815,453 % 9.61 9.15 7.05 6.32 5.29 5.63 The ASX reserves the right (but without limiting its absolute discretion) to remove the Company or the Trust or both from the official list if any of the shares and the units cease to be “stapled” together or any equity securities issued by the Company or Trust which are not stapled to equivalent securities in the other entity. Ardent Leisure Group | Annual Report 2015 119 For personal use only Investor Relations Investor Relations Information relating to Ardent Leisure can be found at www ardentleisure.com.au. The website is a useful source of information about the Group and its business and property portfolio. The site contains a variety of investor information, including presentations, webcasts, newsletters, half year updates, annual reports, distribution history and timetable, security price information and announcements to the ASX. Corporate Governance Statement In accordance with the ASX Listing Rules, the Group’s Corporate Governance Statement dated 30 June 2015 is published and located in the Corporate Governance page of the Group’s website (http://www.ardentleisure.com.au/Company/Corporate- Governance.aspx). A copy has also been provided to the ASX. Investor benefits program The investor benefits program aims to provide investors with an opportunity to experience and enjoy Ardent Leisure assets. Investors with a minimum of 2,000 stapled securities are entitled to discounts and incentives to allow investors and their families to engage with and enjoy the various leisure activities offered by the Group. For more details on the current benefits offered under the program and how to participate, please visit the Investor Centre page at www.ardentleisure.com.au. Note that the investor benefits offerings are subject to change and the program terms and conditions. The investor benefits program does not have a material impact on the income of the Group. Distribution payments and annual taxation statement Distributions are currently payable twice a year and received by investors approximately seven to eight weeks after each half year end. To view your 2014/15 annual taxation statement online, please visit the Link Investor Service Centre at www.linkmarketservices.com.au. Distribution Reinvestment Plan (DRP) The DRP price for the half year ended 30 June 2015 was $2.1553 per stapled security. Please note that the terms and conditions of the DRP may vary from time to time. Details of any changes (and whether the DRP continues to operate or is suspended) will be announced to the ASX. Contact details Security registry To access information on your holding or to update/change your details, contact: Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Telephone 1300 720 560 (within Australia) +61 1300 720 560 (outside Australia) Facsimile +61 2 9287 0303 120 Ardent Leisure Group | Annual Report 2015 Website www.linkmarketservices.com.au Email registrars@linkmarketservices.com.au Manager All other enquiries relating to your Ardent Leisure Group investment can be directed to: Telephone 1800 ARDENT (within Australia) +61 2 9409 3670 (outside Australia) Email investor.relations@ardentleisure.com Investor complaints If you have a complaint, please contact us so that we can assist: Ardent Leisure Group Level 16, 61 Lavender Street Milsons Point NSW 2061 Email investor.relations@ardentleisure.com Telephone 1800 ARDENT (within Australia) Facsimile +61 2 9409 3679 External dispute resolution In the event that a complaint cannot be resolved within a reasonable period of time (usually 45 days) or you are not satisfied with our response, you can seek assistance from Financial Ombudsman Service Limited (FOS). FOS provides a free and independent dispute resolution service to our investors. FOS’s contact details are below: Financial Ombudsman Service Limited GPO Box 3 Melbourne VIC 3001 Email info@fos.org.au Telephone 1300 780 808 (within Australia) Facsimile +61 3 9613 6399 For personal use only Corporate Directory Corporate Directory Manager Ardent Leisure Management Limited ABN 36 079 630 676 AFSL No. 247010 Company Ardent Leisure Limited ABN 22 104 529 106 Registered office Level 16, 61 Lavender Street Milsons Point NSW 2061 Directors Neil Balnaves AO (Chairman) Roger Davis David Haslingden Don Morris AO Deborah Thomas George Venardos Melanie Willis Managing Director and Chief Executive Officer Deborah Thomas Chief Financial Officer Richard Johnson Company Secretary Alan Shedden Telephone 1800 ARDENT (within Australia) +61 2 9409 3670 (outside Australia) Facsimile (02) 9409 3679 (within Australia) +61 2 9409 3679 (outside Australia) Email investor.relations@ardentleisure.com Website www.ardentleisure.com.au ASX code AAD Custodian Perpetual Level 15, 20 Bond Street Sydney NSW 2000 Auditor of the Group PricewaterhouseCoopers Riverside Centre 123 Eagle Street Brisbane QLD 4000 Security registry Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Level 12 680 George Street Sydney NSW 2000 Telephone 1300 720 560 (within Australia) +61 1300 720 560 (outside Australia) Email registrars@linkmarketservices.com.au Website www.linkmarketservices.com.au To arrange changes of address, or changes in registration of stapled securities, please contact the registry at the address or number listed above. Ardent Leisure Group | Annual Report 2015 121 For personal use only For personal use onlyCorporate Governance Statement  This statement has been approved by the Boards of Directors of Ardent Leisure Management Limited and  Ardent Leisure Limited and prepared as at 30 June 2015.   Principle 1 – Lay solid foundations for management and oversight  Board Charter   The  Directors  of  the  Group  have  adopted  a  Board  Charter  that  sets  out  the  respective  roles  and  responsibilities of the Board and senior management.  The primary role of the Board is to promote the long  term health and prosperity of the Group and to build sustainable value for investors.    Specifically, the Board is responsible for:  Setting objectives, goals and strategic direction;    Approving  and  monitoring  progress  of  major  capital  expenditure,  capital  management,  acquisitions and divestments;   Monitoring financial performance and reporting;   Oversight and approval of accounting, risk management and compliance control systems;   Monitoring the performance of management;   Appointing and removing the Chief Executive Officer (and other Key Management Personnel as  decided from time to time);   Approving  the  remuneration  framework  for  Directors  and  the  Group’s  Key  Management  Personnel;   Monitoring compliance with legal obligations and ethical and responsible behaviour; and   Ensuring effective communications with investors and other stakeholders.  The Board Charter also sets out the responsibilities of the Chair and a comprehensive list of matters that  are reserved for the Board of Directors of both the Company and the Manager.  In accordance with the list  of matters reserved for the Board, the Board is responsible for:   The strategic plan and annual operating and capital expenditure budgets;    Treasury policies and risk management strategy;    Establishment, acquisition, cessation or disposal of any division or business unit;    Approval of financial statements and any significant changes to accounting policies;    Approval of Dividend / distributions payments;    Appointment and removal of auditors;    Appointment and removal of any of the Chief Executive Officer, the Key Management Personnel  or the Company Secretary;   Committee charters and composition;    Amendments to discretions delegated by the Board;    Key policies including Workplace Health and Safety, Environmental and Sustainability policies;     Changes to the Group’s capital structure including the issue of shares, options, equity instruments  or other securities;    Key  public  statements  which  relate  to  significant  issues  concerning  changes  to  key  strategy  or  Group policy; and  Page 1 of 18  For personal use only                          Corporate Governance Statement  30 June 2015   Terms  and  conditions  of  the  appointment  of  Directors  and  the  Chief  Executive  Officer,  and  employee equity plans and their allocation.  The  Board  Charter  also  sets  out  key  delegations  of  authority  in  relation  to  equity  investments,  assets  acquisition and disposal, external credit limits, bonds, guarantees and other contingent liabilities.  Directors’ Information   Investors  are  provided  with  all  material  information  which  the  Company  has  about  the  Director,  in  an  explanatory memorandum to the Notice of Meeting, at which the Director will stand for election or re‐ election, to enable them to make an informed decision on whether or not to elect or re‐elect the candidate.   Such information includes their relevant qualifications and experience, details of any offices they currently  hold and any other material former directorships they held, when the Director was first appointed and, if  any, details of the roles they hold in any of the Board’s standing committees.  Agreements with Directors and Key Management Personnel   Each  Director  enters  into  a  number  of  agreements  with  the  Company  to  provide  them  with  a  clear  understanding of their roles and responsibilities and of the entity’s expectations of them. These comprise:     the Terms and Conditions of their appointment, the time commitment and any involvement with  committee  work  and  any  other  special  duties  expected  of  their  position,  their  remuneration  entitlements,  the  various  corporate  policies  with  which  they  are  expected  to  comply,  and  the  conditions of termination;  a disclosure agreement which obligates them to disclose any relevant and material interests and  any matters which may affect their independence; and  a Deed of Access and Indemnity which sets out the indemnity and insurance arrangements, and  ongoing rights of access to corporate information.  Each  of  the  Key  Management  Personnel  enters  into  a  Service  Agreement  which  sets  out  their  position  remuneration  entitlements,  ongoing  description,  duties  and  confidentiality, obligation to comply with all corporate policies, the circumstances in which their service  may be terminated (with or without notice) and any entitlements on termination.    responsibilities,  reporting  lines,  Details  on  the  remuneration  of  Directors  and  Key  Management  Personnel  are  set  out  in  the  Directors’  Report contained within the Annual Financial Report for the year ended 30 June 2015.  Company Secretary   In accordance with the Board Charter, the Company Secretary is appointed and if necessary removed by  the  Board  and  is  therefore  accountable  directly  to  the  board  on  all  matters  to  do  with  the  proper  functioning of the Board.   Each Director also has direct access to the Company Secretary.   The Company Secretary’s role includes:  advising the Board and its committees on governance matters;    monitoring that board and committee policy and procedures are followed;    ensuring that the business at Board and committee meetings is accurately captured in the minutes;  coordinating the timely completion and despatch of Board and committee papers;  and   helping to organise and facilitate the induction and professional development of Directors.  Diversity Policy   On  16  December  2010,  the  Board  adopted  a  Diversity  Policy  that  aims  to  promote  diversity  across  the  Group through a number of initiatives.  For personal use only                      Corporate Governance Statement  30 June 2015  Any attempt to change the current status quo is unlikely to drive short term results or change and it was  proposed that the Group adopt a long term approach that focuses on increasing diversity at junior levels  and  addressing  the  various reasons  that hinder  female  promotion  and  involvement  at  executive  levels.   Accordingly the Directors agreed to target an increase in female participation at a managerial level across  the Group from 36% in 2010 to 50% in 2015.   Following the release of new reporting guidelines under the Workplace Gender Equity Act 2012, the Group  has adopted revised analytics and has segmented our leadership diversity reporting in line with reporting  standards and industry best practice.  The definition of Managers used in the table below includes Senior  Executives, Senior Managers and Managers as recommended under the reporting guidelines.   Board of Directors  Senior Management  All Employees  2014 Female 28.6% 47.0% 62.1% Male 71.4% 53.0% 37.9% 2015 Female 20% 43% 68% Male  80%  57%  32%  The  table  above  shows  the  female  participation  rates  across  the  Group  since  the  Board  adopted  the  Diversity Policy in December 2010.   The Group supports a number of initiatives aimed at achieving the target increase and has adopted policies  on flexible working arrangements and paid maternity leave.   Director, Board and Committee Evaluation   The Board Charter requires that each Director will participate in an annual performance evaluation which  will be reviewed by the Chair.  The process for conducting Board and Director evaluations is similar to that  adopted for the review of the Chief Executive Officer and is conducted in a confidential manner by the  Chair of the Board.  The evaluations include areas such as role of the Board, composition, meeting conduct,  behaviours and competencies, governance and risk, ethics and stakeholder relations.  Each committee charter adopted by the Board includes a requirement for an annual self‐assessment by  the  committee  of  its  performance  and  charter.    These  evaluations  are  conducted  against  the  existing  charter and prevailing developments in the corporate governance arena.  Key Management Personnel Performance Evaluation   In accordance with the Board Charter the Directors have undertaken to formally evaluate the performance  of the Chief Executive Officer and other Key Management Personnel on an annual basis.  The purpose of  the  evaluation  of  the  Chief  Executive  Officer  and  other  Key  Management  Personnel  is  to  provide  the  following key benefits:   Assist the Board in meeting its duty to stakeholders in effectively leading the Group;   Ensure  the  continued  development  of  the  Chief  Executive  Officer  and  other  Key  Management  Personnel to more effectively conduct their role;   Ensures a formal and documented evaluation process; and  Leaves a record of the Board's impression of the performance of the Chief Executive Officer and  other Key Management Personnel.    For personal use only                              Corporate Governance Statement  30 June 2015  The process adopted by the Board to assess the performance of the Chief Executive Officer and other Key  Management Personnel is as follows:    Each Board member is requested to complete an evaluation table and provide numerical ranking  against  the  criteria  for  the  Chief  Executive  Officer’s  and  other  Key  Management  Personnel’s  performance during the evaluation period;    Participants are encouraged to provide commentary;    The evaluation tables are then provided directly to the Chair of the Board and upon review the  Chair may decide to provide an average ranking for each category; and     Once final rankings are collated the Chair of the Board sits to discuss the findings with the Chief  Executive Officer and agrees any specific action points to be addressed.  Principle 2 – Structure the board to add value   Nomination Committee  The Directors have established a combined Remuneration and Nomination Committee due to the relatively  infrequent need to call upon the services of the previous Nomination Committee.   The charter for the  combined  Remuneration  &  Nomination  Committee  remains  broadly  similar  and  includes  the  review  process for the Board and its committees and also the time commitment for non‐executive directors.    The combined Remuneration and Nomination Committee consists of a minimum of three members with  the  majority  of  members  required  to  be  independent  directors.    The  Remuneration  and  Nomination  Committee  is  specifically  responsible  for  making  recommendations  to  the  Board  in  relation  to  the  identification,  assessment  and  enhancement  of  the  competencies  of  Board  members,  Board  and  management succession plans including the appointment of suitably qualified candidates to the Board and  the  appointment  of  the  Chief  Executive  Officer,  the  development  of  a  process  for  the  review  of  the  performance  of  the  Board,  Board  Committees  and  individual  directors  and  the  assessment  of  the  time  required to fulfil the obligations of a non‐executive director and whether directors are able to meet these  expectations.  Selection Process  In  order  to  provide  a  formal  and  transparent  procedure  whereby  new  appointments  to  the  Board  are  selected  the  Remuneration  and  Nomination  Committee  has  adopted  a  director  selection  process  to  be  used once the Board has decided to appoint or replace a Director.  Process  Identify the vacant position.  Identify the core competencies of the position.  Identify a preferred candidate background (taking into account the diversity of the Board).      Appoint a search firm if necessary to ensure an appropriate selection of candidates.   If a search firm is appointed, draft and deliver a brief to the search firm explaining the following:  o Vacant Position;  o Competencies Required;  o Preferred Background;  o Essential Qualifications (if any); and  o Countries in which to extend the search.   Candidates are to be interviewed and a shortlist prepared.   Select  preferred  candidates  from  the  shortlist  provided  management.  in  consultation  with  executive   Agree a preferred candidate for recommendation to the Board of Directors.  For personal use only                    Corporate Governance Statement  30 June 2015  Board Skills and Competencies   In conjunction with an independent advisor the Board has undertaken a review of core competencies that  should be present across the Board of Directors.  Board members should have a working knowledge of  finance and accounting, corporate regulation and business strategic theory.  The Board aims to gather a  breadth of different experience on the Board.   The Directors believe that diversity is critical to the effective functioning of the Board.  To this end the  Board strives to ensure that Directors should not all be from one occupational group or even from the same  industrial sector the Group operates in.   The Board has undertaken a review of the key skills and competencies of the Board to ensure appropriate  oversight of the Group’s current operations and strategy for future growth.    The Board comprises a broad and diverse range of skills and understanding gained by Directors from their  decades  of  experience  in  the  general  commercial,  leisure  and  entertainment  sectors.    This  expertise  is  supported by appropriate accounting, banking & finance, property and advertising skills.   Director Independence   The  Board  recognises  that  independent  directors  are  important  in  assuring  investors  that  the  Board  is  properly fulfilling its role and is diligent in holding management accountable for its performance.    A majority of the Board are independent Directors with the only executive Director appointed currently  the Chief Executive Officer.  The independence of the Directors is assessed annually taking into account  such matters as tenure, contractual interests, significant security holdings, relationships with key advisers,  suppliers and customers and any prior executive employment within the Group.   The Board has assessed the independence of each Director and concluded that none of the Directors has  any material interest in securities, contracts or has relevant relationships with material advisers or suppliers  / customers.  The Board acknowledges that materiality thresholds will differ for each Director and for the  Group as a whole.  Accordingly, for the purposes of the independence assessment the Board has adopted  a materiality threshold of 1% of the Group’s last reported net assets.    Notwithstanding, that Neil Balnaves has served on the Board for periods in excess of 10 years, the Board  considers that this period of long tenure has not impacted on Mr Balnaves’ ability to remain objective in  his judgment and independent of management.  As at 30 June 2015, Directors deemed to be independent were: Neil Balnaves AO, Roger Davis, Don Morris  AO, and George Venardos.   Details of the tenure, current position and previous offices held by each Director which are relevant to the  assessment of their independence are disclosed in their respective profiles, along with their interests in  securities, and set out in the Annual Financial Report for the year ended 30 June 2015.  Board Composition   The Directors of the Group have set out in the Board Charter the required composition of the Board subject  to any requirements under the constitutions of the Company and the Manager:  Independent directors should comprise a majority of the Board;    Directors  appointed  to  the  Board  should  provide  an  appropriate  range  of  qualifications  and  expertise; and  For personal use only                                Corporate Governance Statement  30 June 2015   In the event that the Chair ceases to be deemed independent then a lead independent Director  should be appointed by the Board.  The Chair of the Board is an independent director and does not occupy a joint position as Chief Executive  Officer.    Induction   Upon appointment each new Director participates in an induction programme.  This includes presentations  from senior management and site visits to gain an understanding of the Group’s operations.  In addition to  annual asset tours undertaken by the Board site visits are also arranged on an ad‐hoc basis and as part of  the programme of committee meetings.   Training   Directors  are  required  to  keep  themselves  adequately  informed  in  respect  of  relevant  industry  and  regulatory issues and changes.  In  order  to  assist  Directors,  each  Director  may  participate  in  internal  training  sessions  and  conferences  organised from time to time in respect of relevant industry and regulatory issues and may attend asset  tours that are arranged from time to time.  Additional training requirements may be arranged by the Company Secretary with the Chair’s approval.  Principle 3 – Promote ethical and responsible decision‐making   Ethical Conduct  The Board has adopted a suite of policies designed to govern employee’s behaviour whilst employed by  the  Group  and  ensure  that  ethical  business  practises  are  adopted  in  the  procurement  process.    All  employees are required to acknowledge that they understand and will comply with the Employee Ethical  & Confidentiality Policy.   Media Relations  Employees are prohibited from communicating with or disclosing to any representative of the media any  information of any nature whatsoever relating to the Group, its clients or customers.  Only the Chair, Board  of Directors, Chief Executive Officer and Chief Financial Officer are authorised to speak to the media on  Group  issues.    Exceptions  to  this  rule  must  have  the  prior  approval  of  the  Chief  Executive  Officer.   Notwithstanding the general prohibition, the respective Chief Executives of each of the business divisions  are authorised to speak to the media on issues specific to their area of business.  Intellectual Property   All  intellectual  property  created  during  an  employee’s  employment  with  the  Group  is  and  remains  the  property of the Group.  Confidentiality  All Group related information acquired by Directors during their appointment is confidential to the Group  and  should  not  be  released,  either  during  the  term  of  the  Directors’  appointment  or  following  their  termination without prior approval of the Board.  For personal use only                                    Corporate Governance Statement  30 June 2015  Employees are required to keep secret during and after their employment all information obtained about  the business and affairs of the Group, its clients or customers, except as required by law.  All documents or  written material provided to the employee or used in connection with the Group’s business is the property  of the Group and must not be removed, passed on, copied or disclosed to third parties except with the  Group's authority.  Conflicts of Interest  Directors should not have any business or other relationship that could materially influence or interfere  with  the  exercise  of  their  independent  judgement  apart  from  those  declared  to  the  Board  under  the  Corporations Act 2001, ASX Listing Rules and other general law requirements.  Directors with a material personal interest in a matter must not be present at a Board meeting during the  consideration of the matter and subsequent vote unless the Board (excluding the relevant Board member)  resolves otherwise.  Directors with a conflict not involving a material personal interest may be required to  absent themselves from the relevant deliberations of the Board.  Personal Gain  Employees must not misuse their position with the Group or any information received in the course of their  employment to produce a personal benefit for themselves, their family, friends or any other person, or to  cause a detriment to the Group.  In the event of any conflict of interest this must be disclosed to the Group.  Employees are prohibited from soliciting or accepting any gift or benefit which induces or influences the  Group  to  enter  a  transaction,  business  opportunity  or  business  dealing,  or  which  might  reasonably  be  perceived as such an inducement or influence.   Ethical Business Practices  All employees and Group suppliers must adopt the following standards:  Suppliers should adhere to applicable laws and regulations that govern them.    Employment should be freely chosen; there should be no forced, bonded or involuntary prison  labour,  employees  should  not  be  required  to  lodge  'deposits'  or  identity  papers  with  their  employer and should be free to leave their employer after reasonable notice.   Employees should have freedom of association and the right to collective bargaining within the  framework of applicable laws.    Working conditions should be safe and healthy; applicable Occupational, Health & Safety laws &  regulations must be complied with.   Child  labour  should  be  eliminated  and  suppliers  should  conform  to  provisions  of  International  Labour Organization Convention 138 and be consistent with United Nations Convention on Rights  of the Child.  Living wages should be paid and they must meet or exceed national standards.  Wages must not  be paid in kind and employees should be provided with written and understandable information  about their employment conditions.    Working  hours  should  not  be  excessive  and  should  comply  with  national  laws  and  national  benchmark industry standards.    Discrimination based on race, caste, national origin, religion, age, disability, gender, marital status,  sexual orientation, union membership or political affiliation is prohibited.   Regular employment should be provided and work performed must be on the basis of recognised  employment relationship established through national law and practice.   Harsh or inhumane treatment of employees is prohibited.  For personal use only                      Corporate Governance Statement  30 June 2015  The  Group  seeks  to  collaborate  with  suppliers  in  pursuit  of  these  standards  and  attempts  to  guide  relationships  by  the  principle  of  continuous  improvement.    Similar  ethical  trading  standards  will  be  considered  acceptable  as  a  reasonable  alternative  where  suppliers  are  already  working  towards  this  initiative.  The Group promotes a risk based approach to implement these standards by focusing attention on those  parts of the supply chain where risk of not meeting these standards is highest.  This is supported by the  provision of appropriate training and guidelines to implement these standards.  Suppliers are advised that  implementation of these standards may be assessed by the Group or through independent verification.  Suppliers are required to use reasonable endeavours to provide workers covered by these standards with  a confidential means to report to the suppliers' failure to observe these standards. It is expected that all  suppliers will comply with the standards and the Group reserves the right not to do business with suppliers  where it can be demonstrated that significant violations exists.   In particular, the Group and/or its separate  businesses will not bring suppliers onto its supplier list if there is evidence of under‐age workers; forced,  bonded or involuntary prison labour, or where the supplier's workers are found to be subjected to potential  life threatening working conditions or harsh or inhumane treatment.  Whistle‐Blowing  The purpose of the Whistle‐Blowing Policy is to establish an internal reporting system for the reporting of  disclosures  of  corrupt  conduct,  illegality  or  substantial  waste  of  company  assets  by  the  Group  or  its  employees.    Protected Disclosures  The  Whistle‐Blowing  Policy  clearly  defines  what  disclosures  are  protected  and  these  included  such  disclosures that are made in accordance with the process outlined in the policy, that Identify or attempt to  identify corrupt conduct, illegality, or serious and substantial waste of company assets by the Group or its  employees and that are made voluntarily by an employee of the Group.  Frivolous disclosures or those made solely with the motive of avoiding dismissal or other disciplinary action  are not covered by the Whistle‐Blowing Policy.  The making of a false or misleading statement when making  a disclosure under the Whistle‐Blowing Policy constitutes gross misconduct.  Making a Disclosure  Under the Whistle‐Blowing Policy, disclosures are made to a nominated officer.  This can be done in person,  by email or via the Group’s third party independent ethics hotline.  Disclosures can be made either inside  or outside normal working hours and locations.  Group employees are encouraged to report known or suspected incidences of corrupt conduct, illegality  or substantial waste in accordance with the Whistle‐Blowing Policy.  All Group employees must abstain  from any activity that is or could be perceived to be victimisation or harassment of persons who make  disclosures.    The  confidentiality  of  persons  they  know  or  suspect  to  have  made  disclosures  should  be  maintained.  The nominated officer is responsible for receiving, forwarding and acting upon disclosures and must take  all necessary and reasonable steps to ensure that the identities of persons who make disclosures, and the  subjects  of  disclosures,  are  kept  confidential.    The  nominated  officer  is  also  responsible  for  supporting  persons who make disclosures and protecting them from victimisation, harassment or any other form of  reprisal.   External Disclosures  For personal use only                          Corporate Governance Statement  30 June 2015  Disclosures to persons or bodies external to the Group will only be protected under the Whistle‐Blowing  Policy  if  the  person  making  the  external  disclosure  has  already  made  the  same  disclosure  through  the  internal  reporting  system,  the  employee  has  reasonable  grounds  for  believing  that  the  disclosure  is  substantially true, the disclosure itself must be substantially true and the nominated officer has decided  not  to  investigate  the  matter,  has  not  completed  the  investigation  within  six  months  of  the  original  disclosure or has not recommended any action in respect of the matter.  Liability on Disclosure  The Whistle‐Blowing Policy  provides that a person is not subject to any liability for making a protected  disclosure and no action, claim or demand may be taken or made of or against the person for making the  disclosure.  A person who has made a protected disclosure under the Whistle‐Blowing Policy is taken not  to have committed any offence against any legislation which imposes a duty to maintain confidentiality  with respect to any information disclosed.  Action Taken  A person who makes a disclosure under the Whistle‐Blowing Policy must be notified, within six months of  the disclosure being made, of the action taken or proposed to be taken in respect of the disclosure.    Fraud  The Group operates a Fraud Policy designed to prevent, deter, detect and investigate all forms of fraud.  For  the purposes of the Fraud Policy, “fraud” is defined as the intentional distortion of financial statements or  other  records  by  persons  internal  or  external  to  the  organisation  which  is  carried  out  to  conceal  the  misappropriation of assets or otherwise for gain.  The Group has adopted a "zero tolerance" towards fraud and requires that all reported incidents, including  internal fraud, will be thoroughly investigated with utmost confidentiality.  Necessary action will be taken  against any individual or group who have committed fraud and may involve disciplinary action resulting in  dismissal from employment, and civil and/or criminal legal proceedings.  Critical business procedures and  controls are directed to maintain an effective fraud control environment to assist in fraud prevention and  detection.  Any employee who suspects a fraudulent activity must notify the business Chief Executive or alternatively  email details to a private email address set up exclusively for this purpose.  Securities Trading Policy  The purpose of the Securities Trading Policy is to regulate trading by all Directors and employees of the  Group in any securities issued or nominated by the Group.  This also applies to financial products issued or  created over such securities (including but not limited to warrants, options and derivatives), entering into  financing  arrangements  over  financial  products  including  establishment  of  a  margin  loan  over  such  securities.   This Securities Trading Policy also applies to trading by Directors’ and employees’:  Spouses;    Children under the age of 18 years;   Dependent children living in the family home;    Companies which they or their family control.  Trusts under which they or a member of their family are a trustee or beneficiary; and  For personal use only                            Corporate Governance Statement  30 June 2015  General Prohibition (Insider Trading)  At  all  times  Directors  and  employees  are  prohibited  from  trading  in  securities  while  in  possession  of  unpublished price sensitive information.  Price sensitive information is information which is not generally  available and which a reasonable person would expect that if the information were disclosed it would have  a material effect on the price of Group securities and it would therefore influence investors in deciding  whether or not to buy, hold or sell securities issued by the Group.  This prohibition applies even during periods when trading windows are permitted under this policy if a  person is in possession of price sensitive information. In addition to not being able to deal, the person in  possession of the price sensitive information has an obligation to keep that information confidential and  must not communicate it to another person unless it is information, which is required to be brought to the  attention of the Company Secretary.  Specific Prohibition  All Directors and Nominated Employees are bound as a condition of their employment to comply with and  observe the Securities Trading Policy.  Trading Windows  Provided  Directors  and  Nominated  Employees  are  not  in  possession  of  unpublished  price  sensitive  information  and  have  received  written  consent  from  the  Company  Secretary,  or  in  the  case  of  Group  Directors  and  the  Group’s  Key  Management  Personnel,  the  Chair.    The  times  during  which  they  are  permitted to trade in securities issued by the Group are:   Commencing 24 hours after the announcement of quarterly results until 30 days thereafter;   Commencing 24 hours after the announcement of half yearly results until 30 days thereafter;   Commencing 24 hours after the announcement of yearly results until 30 days thereafter; and   Commencing 24 hours after the Annual General Meeting (“AGM") until 30 days thereafter.  Due  to  reporting  timetables  some  of  the  trading  windows  listed  above  overlap.    In  order  to  ensure  all  Nominated Employees are aware of their obligations the Company Secretary issues an open reminder and  a close reminder to all Nominated Employees.  In addition, the Group publishes key reporting dates on the  Group’s website.  The Group may in its discretion vary trading windows by general announcement.  Black Out Periods  All periods outside of the trading windows are blackout periods in relation to security trading by Directors  and Nominated Employees.  The Group may in its discretion nominate additional blackout periods by general announcement.  These  may be required where additional disclosure documents are released offering securities or as a result of  certain disclosures being lodged with a stock exchange, e.g. the Australian Stock Exchange.  Discretion is vested in the Company Secretary to allow exemptions to trading during blackout periods in  special circumstances only, where no price sensitive information is on hand and application of the Policy  would cause undue financial hardship.  No Short Term Trading  For personal use only                                  Corporate Governance Statement  30 June 2015  The Board encourages employees to invest in the Group and discourages short term trading.  Under the  terms of the Securities Trading Policy Nominated Employees must not deal in securities for short term gain.   Speculating in short term fluctuations in such securities does not promote investor and market confidence  in the integrity of the Group.  Accordingly, trading in securities issued by Group entities within 6 months of  an acquisition is prohibited.  The Group may in its discretion vary this rule in relation to a particular period  by general announcement.  The  Securities  Trading  Policy  does  not  prevent  Directors  and  employees  from  passive  trading  such  as  participating in a share plan or public offer made by the Group, provided that at the time the individual  elects to participate, he or she is not in possession of any price sensitive information. Further, the individual  may  not  subsequently  vary  that  election  until  such  time  as  they  are  again  not  in  possession  of  such  information.  The Securities Trading Policy also prohibits any hedging of unvested security based incentives by Directors  and Nominated Employees.  Directors  or  Nominated  Employees  wishing  to  trade  in  securities  must  request  prior  approval  to  trade.   Directors and the Group’s Key Management Personnel must seek prior approval from the Chair while all  other employees must contact the Company Secretary.   Principle 4 – Safeguard integrity in financial reporting  Audit & Risk Committee   The Board has established an Audit & Risk Committee (the “Committee”) consisting of a minimum of three  members with the majority of members required to be independent directors.  All members must be able  to read and understand financial statements, and at least one member must have financial expertise, that  is  the  person  must  be  either  a  qualified  accountant  or  other  financial  professional  with  experience  of  financial accounting matters.  The  Chief  Executive  Officer  and  the  Chief  Financial  Officer  are  not  members  of  the  Audit  and  Risk  Committee.    They  may  be  invited  to  attend  meetings  of  the  Audit  and  Risk  Committee  for  reasons  of  efficiency but are not entitled to vote.  The Chair of the Committee will be a non‐executive independent director appointed by the Board who is  not the Chair of the Board.  Any Director may attend a meeting of the Committee at any time.  The Committee will meet at least twice  per annum and more often if deemed necessary.  Meetings may be held by electronic means as allowed  under the provisions of the Corporations Act 2001.  The Committee is established by the Board of Directors to review, evaluate and make recommendations  to the Board in relation to:  Risk and Internal Control Environment   Evaluating  and  monitoring  the  overall  effectiveness  of  the  Group’s  risk  management,  internal  control and compliance systems;    Evaluating the current “control culture” of the Company and the underlying consistency, direction  and communication to employees of appropriate risk policies therein;   Reviewing existing disaster recovery plans;   Identifying key risks within the organisation and building appropriate risk management controls  and policies to minimize the impact and likelihood of same; and  For personal use only                        Corporate Governance Statement  30 June 2015   Ensuring adequate resources are allocated to assist management and the Board in implementing  an appropriate internal risk culture and discipline;  Evaluating and monitoring the Group’s fraud management policies and exposures; and    Reviewing the entity’s insurance program, having regard to the entity’s business and the insurable  risks associated with its business.   Financial Reporting   Approving  and  monitoring  policies,  procedures  and  content  of  the  Group’s  statutory  and  management reporting;     Considering the appropriateness of the Group’s accounting policies and principles and how those  principles are applied;   Reviewing  and  assessing  existing  management  processes  so  as  to  ensure  compliance  with  applicable laws, regulations and accounting standards;    Ensuring that significant adjustments, unadjusted differences, disagreements with management  and critical accounting policies are discussed in advance with the external auditor;   Reviewing  the  underlying  quality  and  accuracy  of  the  financial  reports  from  the  internal  and  external auditors and making recommendation to the Board on their approval or amendment;   Evaluating  the  adequacy  and  effectiveness  of  the  Company’s  administrative,  operating  and  accounting  policies  through  communication  with  management,  internal  auditors  and  external  auditors;   Ensuring the effective facilitation of the audit process;   Evaluating and monitoring the adequacy of the Group’s management and operational reporting;     Reviewing  and  evaluating  appropriate  disclosures  from  management,  the  internal  auditors  and  external auditors on any significant proposed regulatory, accounting or reporting issue, to assess  the potential impact upon the Group’s financial reporting process; and  Serving as an independent and objective party to review the financial information presented by  management to shareholders, analysts and the general public.   Internal Audit   Making recommendations to the Board on the appointment, and where necessary the removal of  the internal auditor;   Reviewing the role, function and performance of the internal auditor, and management’s response  to the internal auditor’s recommendations;    Appraising the scope and quality of the audits conducted by the Group’s internal auditor to ensure  the widest coverage possible;   Reviewing the findings of the internal audit program and management’s response to the internal  auditor’s recommendations; and   Reviewing the resources of the internal audit function and ensuring no unjustified restrictions or  limitations are imposed.   External Audit   Making recommendations to the Board on the appointment and where necessary the removal of  the external auditor;   Reviewing  annually  the  external  auditor’s  procedures  for  independence  together  with  any  relationships or services, which may impair the external auditor’s independence, and the rotation  of the audit partner;   Reviewing  the  fees  and  terms  of  engagement  of  the  external  auditor,  including  the  scope  and  adequacy of the proposed audit program;   Appraising the scope and quality of the audits conducted by the external auditor to ensure the  widest coverage possible;   Ensuring there is appropriate communication and co‐ordination between the internal and external  auditors on risks, risks policies and audit results;  For personal use only        Corporate Governance Statement  30 June 2015   Reviewing all financial reports and management representation letters and recommending them  to the Board as complete and appropriate; and   Reviewing annually the performance of the external auditor and based on the results of the annual  assessment of the external audit services, determine whether the external audit services should  be re‐tendered.  Compliance   Monitoring the Company’s various disclosure obligations;   Approving  of  the  Group’s  compliance  framework  and  assessing  the  effectiveness  of  the  framework; and   Based  on  the  information  provided  by  Management  in  relation  to  the  Group’s  compliance  framework, ensuring that a proper process is in place for continuous reporting to the ASX.  Right to Obtain Information  The  Committee  is  entitled  to  consult  with  expert  advisers  and  seek  expert  advice  where  it  considers  it  necessary to carry out its duties at the expense of the Group.  The Committee will have a right of access to internal and external auditors and senior management. The  Committee  will  also  meet  separately  with  the  internal  and  external  auditors  at  least  annually  or  as  otherwise required.  Chief Executive Officer and Chief Financial Officer Declarations   The Board has received confirmation from both the Chief Executive Officer and Chief Financial Officer that  their declarations for both the interim and full year financial reporting periods made in accordance with  section  295A  of  the  Corporations  Act  2001,  were  based  upon  sound  system  of  risk  management  and  internal control and further that the system is operating effectively in all material respects in relation to  financial reporting risk.  External Auditors   The external auditor is requested by the Board to attend each AGM to answer questions about the conduct  of the audit and the preparation and contents of the Auditors Report.  Principle 5 – Make timely and balanced disclosure  Continuous Disclosure Policy   In order to regulate the continuous disclosure regime across the Group in relation to any securities issued  by the Group the Board has adopted a Continuous Disclosure Policy.    The Continuous Disclosure Policy aims to ensure that the Group complies with the continuous disclosure  requirements contained in the Corporations Act 2001 (the Act) and the Australian Stock Exchange (ASX)  Listing Rules (the Rules).  The successful operation of the Group’s continuous disclosure regime promotes  investor confidence by providing full and timely information to the market about the activities of the Group  and serves to educate all relevant Group personnel on what continuous disclosure is, and how they can  ensure they meet their individual responsibilities.  Commitment to Continuous Disclosure  Subject to the exceptions contained in the Listing Rules, the Group will immediately notify the market of  any information or matter related to the businesses or financial condition of the Group which a reasonable  For personal use only                            Corporate Governance Statement  30 June 2015  person would expect to have a material effect on the price or value of those securities. Such notifications  will be made by way of an announcement to the ASX.  Reporting of Disclosable Information  Directors and employees must ensure that any information which may require disclosure is reported to the  Company Secretary or his/her nominee as soon as it is known.  The Company Secretary will then determine  whether any item of information is to be disclosed to ASX.  Where the Company Secretary decides that  information reported does not warrant an ASX release and the Director or employee who reported the  information  disagrees  with  that  decision,  they  may  choose  to  refer  the  matter  to  the  Chief  Executive  Officer.    ASX Announcement Approval  If the Company Secretary determines that an item of information is to be disclosed to the ASX then the  draft  of  the  ASX  announcement  must  be  approved  either  verbally  or  in  writing,  by  the  Chief  Executive  Officer  prior  to  release.    ASX  announcements  deemed  to  contain  price  sensitive  information  must  be  circulated to the Board of Directors for comment prior to release.  Release of Information  Price sensitive information must not be released externally until it has first been lodged with the ASX and  the  ASX  has  acknowledged  that  the  information  has  been  released  to  the  market.    That  is,  selective  disclosure of such information cannot be made to brokers, analysts, the media, professional bodies or any  other person until the information has been given to (and released by) the ASX.  This includes information  that is subject to embargo as the ASX does not accept embargoed information.  In the event that at an analyst or media briefing an inadvertent disclosure is made which is price sensitive  then that information must be immediately made available to the market through the ASX.  Analyst and Media Briefings  All material to be presented at an analyst briefing must be approved by or referred through the Company  Secretary prior to the briefing.    Trading Halts  The  Company  Secretary  may,  with  the  approval  of  the  Chair  and  the  Chief  Executive  Officer,  or  failing  whom, the Chief Executive Officer and any other Non‐Executive Director, or failing whom any two Non‐ Executive Directors, request the ASX to halt trading in the securities.  Training and Development  The  Continuous  Disclosure  Policy  requires  that  relevant  employees  undergo  training  with  respect  to  disclosure requirements.  Board Procedures  The Board of Directors must consider and minute at each full Board meeting whether there are any matters  requiring disclosure.  If no matters require disclosure this must also be explicitly included in the minutes.  For personal use only                                  Corporate Governance Statement  30 June 2015  Media Releases   Releases, interviews and other communications to the media may be undertaken so long as they do not  contain or refer to price sensitive transactions and do not fall within the Group’s materiality thresholds.   Any discussions or presentation to third parties should only be undertaken post release to the ASX of the  subject matter if they include material information.  Website  All releases whether material or not are required to be posted to the Group website for access by investors  and other interested parties.  Principle 6 – Respect the rights of shareholders   Corporate Governance   The Group’s website at www.ardentleisure.com has a corporate governance section on its website from  where all relevant corporate governance information can be accessed, including the details on the Board  of Directors, Management Team, the Company and Trust Constitutions, Board and Committee Charters  and various corporate governance policies.  Investor Communications   The Group has adopted a specific investor communications policy for investors and believes that a flexible  approach  to  investor  communications  and  early  adoption  of  emerging  technology  is  the  most effective  manner of increasing investor participation in the business of the Group.  Throughout the year, the Group follows a calendar of regular disclosures to the market on its financial and  operational results.  An indicative calendar of events is made available to investors on the Group’s website.     In  accordance  with  the  Group’s  Continuous  Disclosure  Policy,  the  Group  must  ensure  it  does  not  communicate inside information to an external party except where that information has previously been  disclosed to the market generally.  As soon as is practicable all Group announcements and copies of analyst and media briefing are posted to  the Group’s website.  Other information of relevance to investors is also made available on our website,  including,  annual  and  half  yearly  financial  reports,  key dates,  distribution  history,  cost  base  allocations,  management fee breakdowns and the management investment trust notices.  The website also contains a link to the Group’s security registrars and a live feed from the ASX for the  Group’s security price information.   Investors Reports  The Group prepares annual reports for investors for each financial year ending 30 June and half year for  the period ending 31 December.  These reports are posted on the website on their day of release to the  ASX.  Investors may elect to receive a hard‐copy of these reports or an email notification once they become  available on the website.  The default option for receiving the annual report is via the Group’s website at  www.ardentleisure.com.    For personal use only                                 Corporate Governance Statement  30 June 2015  General Meetings   The Group holds an annual general meeting (AGM) in October or November each year.  The date, time and  venue of the AGM are notified to the ASX when the annual report is lodged with the ASX, generally in  September each year.  The Board of Directors aims to choose a date, venue and time considered convenient  to the greatest number of our investors.  All notices of meetings will be accompanied by clear explanatory notes on the items of business.  A copy of  any such Notice of Meeting will be placed on the Group’s website.  Should an investor not be able to attend  a general meeting they are able to vote on the resolutions by appointing a proxy.  The proxy form included  with the notice of meeting will clearly explain how the proxy form is to be completed and submitted.  As previously stated, the external auditor attends each AGM to answer questions about the conduct of the  audit and the preparation and contents of the Auditors Report.  Investor benefit program  Investors with 2,000 or more securities are entitled to participate in an Investor Benefits Program.  The  program aims to provide qualifying investors with an opportunity to experience some of the assets owned  by the Group at discounted rates.  Principle 7 – Recognise and manage risk  Safety, Sustainability & Environment Committee   In  addition  to  the  Audit  &  Risk  Committee  detailed  in  Principle  4  the  Board  has  established  a  Safety,  Sustainability  &  Environment  Committee  (SSE  Committee).    The  SSE  Committee  was  established  to  monitor, review, evaluate and make recommendations to the Board in relation to occupational health &  safety (OH&S), sustainability and the environment.  The  Committee  was  established  by  the  Board  of  directors  to  monitor,  review,  evaluate  and  make  recommendations to the Board in relation to the following matters:   Safety   The  effectiveness  of  OH&S  policies  and  the  safety  related  aspects  of  the  operational  risk  management  framework  necessary  to  maintain  a  safe  environment  for  both  guests  and  employees across the Group including drafting, implementing and recommending improvements;  Setting appropriate goals to maintain the Group’s lost time injury frequency rate (LTIFR) below  industry benchmarks;    The adequacy of existing OH&S resources as well as their ongoing training and supervision;   The  scope  and  results  of  periodic  internal  and  external  reviews  of  OH&S  and  operational  risks  including the process of identifying and assessing OH&S risks and the adequacy of existing OH&S  risk management systems; and   The compliance of the Company with regard to existing and possible future OH&S regulations and  determining what changes, if any, need to be made to existing work practices in order to ensure  compliance.  Sustainability   Reviewing the Group’s policies and procedures in relation to sustainability;   Monitoring the adequacy of resources applied to sustainability as well as their ongoing training  and supervision;    Reviewing any report on sustainability, which is prepared pursuant to any Listing Rule or legislative  requirement or which is proposed for inclusion in the annual report; and  For personal use only                      Corporate Governance Statement  30 June 2015   The compliance of the Company with regard to current laws and regulations and determining what  changes, if any, need to be made to existing work practices in order to ensure compliance.  Environment   Evaluating  and  monitoring  the  effectiveness  of  the  Group’s  environmental  policies  and  environmental management plans;   Evaluating  and  monitoring  the  adequacy  of  environmental  resources  as  well  as  their  ongoing  training and supervision;   Reviewing the scope and results of periodic internal and external reviews of environmental risks  including the process of identifying and assessing environmental risks and the adequacy of existing  environmental risk management systems; and   The compliance of the Company with regard to current environmental laws and regulations and  determining what changes, if any, need to be made to existing work practices in order to ensure  compliance.  The Committee will not address matters associated with financial or monetary risk associated with internal  financial controls.  Risk Management Framework   The Risk Management framework for the Group requires a periodic review by management and the Board.   These reviews ensure that the risk management framework continues to be a pro‐active tool across the  Group.  Scope of Risks considered  The risk management review covers five key business risks:  Key Business Risk  Risk Categories  Enterprise  Fraud / Error  Business Management  Continuity, Control, Cost, Culture, Efficiency, Insurance, Knowledge, Legal &  Regulatory, Performance, Privacy, Resourcing, Strategic Planning, Strategic  Execution, Succession.  Cash,  Brand  /  Trademark,  Consumables  &  Trading  Stock,  Procurement,  Defamatory,  Financial  Statements,  Furniture  &  Fittings,  Hardware,  Information  Systems,  Information  &  Knowledge,  Job,  Management  Reporting,  Payroll,  Personal  Property,  Software,  Office  Supplies,  Company  Income Tax, GST, FBT, PAYG, Payroll Tax, Web.  Framework  Awareness,  Change,  Confidentiality,  Contract,  Culture,  Detection,  Documentation,  Reporting,  Escalation,  Resourcing, Responsibility.  Interpretation,  Board Secretarial   Admission, Conflict, Documentation, Duties, Governance, Legal, Regulatory,  Resolution.  Environmental  &  Safety  Management  Contamination,  Media  /  Publicity,  Employee  Safety,  Guest  &  Contractor  Safety.  Risk Assessment Methodology  The risk assessment methodology adopted for these reviews includes a three step process.  Firstly, the  inherent risk for each risk category is determined by evaluating likelihood & consequence of the risk based  on the current and existing processes.  Risks are evaluated and ultimately allocated to one of 4 distinct  For personal use only                  Corporate Governance Statement  30 June 2015  categories  of  Extreme,  High,  and  Moderate  and  Low.  Next the  effectiveness  of  existing  risk  controls  is  reviewed and a ranking determined on a scale of Good, Fair or Poor.  Finally, after the controls have been  assessed the residual risk factors are derived into three categories of High, Medium and Low by merging  the inherent risk rating and the effectiveness of the controls rating.  Risk Gap Analysis  During the year the Group’s senior executive reviewed the risk management register and undertook a third  party gap analysis designed to identify any material risks that had not otherwise been included in the risk  review process and to independently assess the Group’s internal residual risk ratings.  Internal Audit   The Group has an Internal Audit function which is responsible for assisting with the accomplishment of the  Group’s objectives by bringing a systematic, disciplined approach to evaluating and continually improving  the effectiveness of its risk management and internal control processes.  The Group Internal Audit Manager  has a direct reporting line to the board via the Audit and Risk Committee.  Principle 8 – Remunerate fairly and responsibly  Remuneration & Nomination Committee   The Directors have established a combined Remuneration and Nomination Committee due to the relatively  infrequent  need  to  call  upon  the  services  of  the  previous  Nomination  Committee.      The  combined  Remuneration and Nomination Committee consists of a minimum of three members with the majority of  members required to be independent directors.    The Remuneration and Nomination Committee is specifically responsible for making recommendations to  the Board in relation to setting policies for remuneration programs appropriate to the Group, remuneration  and incentive schemes of senior management, reviewing the performance of the Chief Executive Officer  on an annual basis, setting the Group’s recruitment, retention and termination policies and procedures for  senior management, superannuation, The remuneration framework for directors and the approval of any  report on executive remuneration, which is required pursuant to any Listing Rule or legislative requirement  or which is proposed for inclusion in the Annual Report.  Further details of the Group’s remuneration policies are set out in the Directors’ Report contained in the  Annual Financial Report for the year ended 30 June 2015.  The  Board  has  adopted  a  specific  clawback  clause  to  be  included  in  grant  letters  for  deferred  equity  whereby any unvested Performance Rights shall be subject to potential lapse, cancellation, rescission or  other action in the event that the Group becomes aware of any misstatement in its financial statements  for any of the immediately preceding 3 financial years due to:  (a) (b) (c) a material non‐compliance with any financial reporting requirement;  the misconduct of any Key Management Personnel; or  the misconduct of any of its other employees, contractors or advisers as a result of the direction  (or lack of direction) by any member of the Key Management Personnel.  To the extent that the Performance Rights granted exceed the number, metrics or outcome that would  have been applied had the misstatement not been made, then the Group may cause the deferred vesting  or lapse of unvested Performance Rights representing all or part of the grant.  For personal use only                            For personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use onlyFor personal use only

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