Alamo Group Inc.
Annual Report 2016

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  28 September 2016  The Manager  Company Notices Section  ASX Limited  20 Bridge Street  SYDNEY   NSW   2000  Dear Sir/Madam  2016 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 2016, 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 2016 The financial report was authorised for issue by the Directors of Ardent Leisure Management Limited (ABN 36 079 630 676) and Ardent Leisure Limited (ABN 22 104 529 106) on 23 August 2016. The Directors have the power to amend and reissue the financial report. For personal use only Financial Report 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.  Summary of significant accounting policies   Ardent Leisure Trust and Ardent Leisure Limited formation   Revenue from operating activities   Borrowing costs 5.  Property expenses   Net (loss)/gain from derivative financial instruments   Management fees   Other expenses   Remuneration of auditor   Income tax expense   Earnings per security/share   Distributions and dividends paid and payable   Receivables   Derivative financial instruments   Inventories   Discontinued operation   Construction in progress   Other assets   Investment properties   Property, plant and equipment   Intangible assets 22.  Deferred tax assets 23.  Payables 24.  Interest bearing liabilities 25.  Provisions 26.  Other liabilities 27.  Deferred tax liabilities 28.  Contributed equity 29.  Security-based payments   Reserves   (Accumulated losses)/retained profits   Business combinations   Cash and cash equivalents   Cash flow information   Net tangible assets   Related party disclosures   Segment information   Capital and financial risk management 39.  Fair value measurement 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 2  39  40  41  42  43  44  44  59  59  59  60  60  60  61  61  62  63  65  65  66  67  67  69  70  70  71  73  76  77  77  80  81  81  82  83  90  91  92  93  93  94  94  96  101  109  112  112  114  116  117  118  119  121 122 123 Ardent Leisure Group | Annual Report 2016 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 2016. 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); Don Morris AO; 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 2016 will be 12.5 cents (2015: 12.5 cents) per stapled security which will be paid by the Group. An interim distribution of 7.0 cents (2015: 7.0 cents) per stapled security was paid in February 2016. This comprised a distribution paid by the Trust of 7.0 cents (31 December 2014: 4.0 cents) and no dividend paid by the Company (31 December 2014: 3.0 cents) per stapled security. A final distribution for the year ended 30 June 2016 of 5.5 cents (2015: 5.5 cents) per stapled security will be paid by the Trust in August 2016. A provision has not been recognised in the financial statements at 30 June 2016 as this distribution had not been declared at the reporting date. 4. Operating and financial review Overview The Group’s strategy is to focus primarily on leisure and entertainment segments within its geographical areas of operation with mass market appeal. During the year, the Group‘s operations comprised its five operating divisions, being family entertainment centres in the US, bowling centres, marinas, theme parks and health clubs. On 6 October 2015, the Group acquired an amusement arcade at Penrith, NSW for $1.3 million and a Hypoxi studio in Caroline Springs, Victoria for $0.1 million. Refer to Note 32 to the financial statements. On 22 March 2016, the Group announced its decision to sell the Marinas division as part of the Group’s refocus on family entertainment and capital management plan, with plans to reinvest the majority of proceeds into Main Event, the family entertainment division in the US. The sale process is well advanced and, at 30 June 2016, this business has been classified as a discontinued operation, with associated assets and liabilities classified as held for sale. On 19 August 2016, the Group announced that it had entered into a sale agreement to dispose of its entire interests in the health clubs division for gross proceeds (excluding working capital adjustments and selling costs) of $260.0 million, comprising a cash payment of $230.0 million and deferred consideration of $30.0 million in the form of vendor loan notes payable no later than two years from completion. Completion is subject to landlord and other third party approvals and is expected to occur prior to 31 December 2016. The financial information relating to the health clubs division is set out in Note 37 to the financial statements. The Group expects to recognise a profit on disposal. 2 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) 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, decrease in onerous lease provisions, health club brands and customer relationship intangible asset amortisation, impairment of property, plant and equipment and intangible assets and discontinued operation selling costs not included in divisional EBIT Valuation gain/(loss) - investment properties Loss on closure of bowling centre Loss on disposal of assets Gain on sale and leaseback of family entertainment centres Net (loss)/gain from derivative financial instruments Interest income Corporate costs Business acquisition costs refunded/(paid) Borrowing costs Net tax expense Profit for the year Core earnings (Note 11 to the financial statements) Segment revenues 2016 $’000 238,974 130,494 23,000 107,582 187,555 9 687,614 Segment revenues 2015 $’000 177,123 116,510 22,952 99,571 178,388 59 594,603 Segment EBITDA* 2016 $’000 59,168 18,224 10,157 34,725 30,114 - 152,388 (47,166) 105,222 (27,383) 2,059 - (514) 1,672 (170) 81 (15,144) 134 (14,874) (8,696) 42,387 62,395 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 56,234 * Segment earnings before interest, tax, depreciation and amortisation (EBITDA) excludes pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, increase/decrease in onerous lease provisions, amortisation of health club brands and customer relationship intangible assets, impairment of property, plant and equipment and intangible assets and selling costs associated with a discontinued operation. 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 increased by $10.3 million, or 32.0%, to $42.4 million, mainly due to the following factors:  Revenue from operating activities increased by $93.0 million, or 15.6% to $687.6 million and divisional EBITDA increased by $22.4 million, or 17.2%, to $152.4 million. Further commentary on divisional results is set out separately below;  There were $2.1 million of valuation gains on investment properties in the current year compared to a $0.5 million valuation loss on investment properties in the prior year;  There was a $2.2 million reduction in onerous lease provisions in the current year compared to a $2.6 million increase in onerous lease provisions in the prior year;  There was a $2.1 million reduction in business acquisition costs compared to the prior year. Ardent Leisure Group | Annual Report 2016 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:  Depreciation (including IFRS depreciation) and amortisation of property, plant and equipment and software increased by $9.8 million to $64.7 million; Pre-opening expenses increased by $2.1 million to $8.6 million; There was a $1.7 million gain on the sale and leaseback on two Main Event family entertainment centres compared $7.0 million in the prior year; $1.0 million of selling costs associated with sale of d’Albora Marinas were incurred in the current year; Borrowing costs increased by $3.5 million to $14.9 million; and      Net tax expenses increased by $1.7 million to $8.7 million. The above factors also delivered an increase in core earnings of $6.2 million, or 11.0%, to $62.4 million. Core earnings (as defined in Note 11 to the financial statements) represents the earnings of the Group after adding back unrealised items (such as unrealised gains or losses on derivatives and unrealised valuation gains and losses on investment properties and property, plant and equipment), straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, impairment of property, plant and equipment and intangible assets, amortisation of intangible assets and one off realised items. Family entertainment centres The performance of Main Event’s family entertainment centres is summarised as follows: Total revenue EBRITDA (excluding pre-opening expenses) Operating margin Property costs EBITDA 2016 US$'000 174,683 63,996 36.6% (20,449) 43,547 2015 US$'000 143,612 52,043 36.2% (15,352) 36,691 Change % 21.6 23.0 33.2 18.7 During the year, total US dollar revenue grew by 21.6%, driving EBITDA growth of 18.7% underpinned by the success and strong performance of new centres opened over the last 12 months as set out below: Constant centres New centres Corporate and regional office expenses/sales and marketing Total Revenue Revenue Change EBRITDA EBRITDA Change 2016 2015 US$'000 US$'000 97,739 76,944 99,474 44,138 - 174,683 - 143,612 % (1.7) 74.3 - 21.6 2016 2015 US$'000 US$'000 44,214 33,621 45,280 18,681 (13,839) 63,996 (11,918) 52,043 % (2.4) 80.0 16.1 23.0 Seven new centres were opened during the year, bringing the total number of centres to 27 in 10 states. This contributed a $14.1 million increase in EBRITDA. Over the last two years, the portfolio has more than doubled in size and the success of new centres outside of Texas has confirmed the broader US roll out opportunity and created geographical diversification. Operating margins for the division have improved to 36.6% due to economies of scale from an increased number of centres and disciplined management of costs of sales and labour. The division is currently focussed on growing its portfolio with the portfolio expected to grow at a rate of 30-40% per annum, mostly concentrated outside of Texas. Construction is underway on four new locations, with plans for 11 new centres in the next 12 months. 4 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Bowling centres 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 2016 $'000 130,494 45,291 34.7% (27,067) 18,224 2015 $'000 116,510 40,279 34.6% (26,290) 13,989 Change % 12.0 12.4 3.0 30.3 The division recorded total revenues of $130.5 million, being an increase of 12.0% compared to the prior year. EBITDA grew by 30.3% through a combination of constant centre growth and growth from new centres and acquisitions. Operating margins have increased slightly from 34.6% to 34.7% in the year. 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 Revenue Change EBRITDA EBRITDA Change 2016 $'000 113,623 991 15,880 2015 $'000 109,086 2,497 4,874 % 4.2 (60.3) 225.8 2016 $'000 54,909 269 8,087 2015 $'000 53,061 856 2,652 - 130,494 53 116,510 (100.0) 12.0 (17,974) 45,291 (16,290) 40,279 % 3.5 (68.6) 204.9 10.3 12.4 The division experienced four consecutive quarters of constant centre and new centre revenue growth which, combined with a strong focus on management of operational costs, delivered EBITDA growth of 30.3%. Solid revenue growth was driven by a multi-attraction entertainment offering (including new food menus in all centres and new amusement games with an improved redemption product offering), targeted multi-channel marketing, digital development and an energised customer service culture focussed on hospitality. Three new sites were opened over the last 12 months which contributed positively to the division’s results: Kingpin Darwin, NT (August 2015), Playtime Penrith, NSW (October 2015) and Playtime Miranda, NSW (February 2016). During the year, the division also exited a centre at Golden Grove, SA and will continue to evaluate divestment opportunities for any under-performing non-core centres. The division will continue to focus on investing in the customer experience through digital transformation, an improved product offering and better customer service. Key growth initiatives include identification of additional family entertainment and amusements sites, refurbishment and conversion of existing traditional sites to multi-attraction family entertainment centres and the extensive refurbishment of the flagship Kingpin Crown venue which will commence in July 2016 and reopen in December 2016. Marinas The performance of marinas is summarised as follows: 2016 $'000 2015 $'000 Change % Total revenue EBRITDA Operating margin (7.8) Property costs EBITDA 0.1 Revenue from marinas increased by 0.2% to $23.0 million, and EBITDA increased by 0.1% to $10.2 million. Marina revenue principally comprises the following: 22,952 12,765 55.6% (2,615) 10,150 23,000 12,569 54.6% (2,412) 10,157 0.2 (1.5) Berthing Land Fuel and other Total 2016 $'000 13,203 5,206 4,591 23,000 2015 $'000 12,865 5,220 4,867 22,952 Change % 2.6 (0.3) (5.7) 0.2 Ardent Leisure Group | Annual Report 2016 5 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Marinas (continued) EBITDA was broadly comparable with the prior year with berthing revenue recovering well through the year after the early adverse impact of the Spit redevelopment. Occupancy was in line with the prior year at 86% and operating margins were strong despite being impacted during the year by one off items such as the Spit redevelopment and Nelson Bay function centre start-up costs. On 22 March 2016, the Group announced its decision to sell this division as part of the Group’s refocus on family entertainment and capital management plan, with plans to reinvest the majority of proceeds into the Main Event family entertainment division in the US. Theme parks The performance of the theme parks is summarised as follows: Total revenue EBRITDA Operating margin Property costs EBITDA Attendance Per capita spend ($) 2016 $'000 107,582 35,947 33.4% (1,222) 34,725 2015 $'000 99,571 33,163 33.3% (1,148) 32,015 2,413,937 44.57 2,132,927 46.68 Change % 8.0 8.4 6.4 8.5 13.2 (4.5) Total revenue has increased by $8.0 million, or 8.0% to $107.6 million driven by improvements across all major categories. Full year EBITDA earnings increased by 8.5% to $34.7 million with operating margins improving slightly to 33.4%. Food and beverage and retail sales performed strongly on new, themed outlets including the new gourmet burger bar and retro-style ice cream parlour. Entry revenue growth has been driven by visitor growth across all key domestic and international markets, particularly China (up 36% over prior year), outstripping the broader Gold Coast tourism growth. The division continues to focus on delivering unique attractions and experiences to drive attendance and spend. This includes partnerships with iconic brands, including Mattel Hot Wheels, DreamWorks, V8 Supercars and ABC Kids. During the year, the division has benefited from the launch of a new motorsport precinct with state of the art race car simulators, extended summer trade including Beatbox sound and light show and the arrival of new tiger cubs. It has also launched two multi lingual apps to improve the interpretation experience at SkyPoint and Dreamworld Corroboree. The SkyPoint business continues to perform well, with strong growth across all revenue segments, and surpassed $10.0 million in annual revenue for the first time. The division has received excellent customer feedback with customer satisfaction up on all measures. Customer research has helped guide investment decisions around improving service levels and park development. This includes expanded shows and entertainment, continued focus on park presentation, theming and atmosphere, investment in queue line entertainment and earlier opening during peak periods. The division will continue to focus on developing new and unique attractions and food, retail and events products. This includes plans for new Asian themed food and retail outlets at Tiger Island, a 270 seat undercover event space, unique indigenous experiences at Corroboree, extended summer opening hours and virtual reality experiences. The redeveloped, interactive Tiger Island is expected to re-open in September 2016 and Australia’s largest LEGO retail store is expected to launch in November 2016. 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 2016 2016 $'000 187,555 77,511 41.3% (47,397) 30,114 2015 $'000 178,388 72,543 40.7% (44,391) 28,152 Change % 5.1 6.8 6.8 7.0 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Health clubs (continued) Revenue from the health clubs division increased by 5.1% to $187.6 million for the year, underpinned by exceptional member sales and growth in average revenue per member. Constant clubs Clubs closed New clubs/acquisitions Corporate and regional office expenses/sales and marketing Total Revenue Revenue Change EBRITDA EBRITDA Change 2016 $'000 160,392 30 24,568 2015 $'000 157,055 342 18,156 2,565 187,555 2,835 178,388 % 2.1 (91.2) 35.3 (9.5) 5.1 2016 $'000 81,421 10 13,133 2015 $'000 77,249 (18) 9,824 (17,053) 77,511 (14,512) 72,543 % 5.4 (155.6) 33.7 17.5 6.8 Constant clubs recorded significant improvement in EBRITDA performance, with a 5.4% increase on prior year driven by various initiatives including conversion to 24/7 operations, a full service large format offering and an improved program and product offering. As a result, constant centre members grew by over 14,000 members during the year. 45 clubs were converted to 24/7 operations in the year, with a further 19 clubs on schedule to be converted by the end of June 2017. Sales in these converted clubs were up 36% and leavers down 18% on prior corresponding periods. The divisional operating margin has improved from 40.7% to 41.3%, with continued focus on cost control including reduced staff in 24/7 clubs, rostering improvements, targeted marketing spend and utility efficiency programs. New clubs at Docklands, VIC (March 2016) and Success, WA (April 2015) continue to perform ahead of expectations. As noted above, on 19 August 2016, the Group announced that it had entered into a sale agreement to dispose of this division with completion expected to occur prior to 31 December 2016. Strategic focus Overall, the Group benefits from the diversity of its operating divisions. Each of the divisions has a growth strategy for FY17 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 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 As noted above, on 22 March 2016, the Group announced its decision to sell the Marinas division as part of the Group’s capital management plan and to reinvest the majority of proceeds into the Group’s Family entertainment centres division in the US. In addition, on 19 August 2016, the Group announced that it had entered into a sale agreement to dispose of the Health clubs division. In the opinion of the Directors, there were no other 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 2016 7 For personal use only Directors’ report to stapled security holders 6. Value of assets Value of total assets Value of net assets Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 2015 $’000 1,157,632 619,983 996,507 579,482 649,324 174,883 499,065 151,007 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 2016 2015 442,322,106 19,377,615 - - 1,339,895 405,055,708 6,358,756 20,746,888 8,298,754 1,862,000 463,039,616 442,322,106 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: 72. 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 was appointed Chancellor of Charles Darwin University on 21 April 2016 and is also 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: 3,001,510. 8 Ardent Leisure Group | Annual Report 2016 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: 64. Roger Davis was appointed a Director of the Company in May 2008 and the Manager in September 2009. 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: 55. David Haslingden was appointed a Director of both the Manager and the Company in July 2015 and brings to the Board considerable international business experience, particularly in the US and Australia. David owns and operates the RACAT Group of television production companies in Australia and overseas, including Natural History New Zealand, Northern Pictures and ZooMoo. He is also a Director of US charity WildAid, having been Chairman for the eight years prior to 2015. Previously, David was Chairman and a non-executive director of Nine Entertainment Co. Holdings Limited, President and Chief Operating Officer of Fox Networks Group and Chief Executive of Fox International Channels. David holds a BA and LLB from The University of Sydney and a LLM from the University of Cambridge. David is a member of the Remuneration and Nomination Committee and the Safety, Sustainability and Environment Committee. Former listed directorships in the last three years: Nine Entertainment Co. Holdings Limited (resigned 1 March 2016). Interest in stapled securities: 160,000. Ardent Leisure Group | Annual Report 2016 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: 71. Don Morris was appointed a Director of both the Manager and the Company 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 both the Australian Tourist Commission and Tourism Queensland. He is a former director of Mojo MDA Group Limited, R M 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 Fantasea Cruising Pty Limited, Riverside Marine NSW Pty Limited, 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 & Environment Committee. Former listed directorships in the last three years: None. Interest in stapled securities: 13,950. 10 Ardent Leisure Group | Annual Report 2016 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: 60. Deborah Thomas was appointed a Director of both the Manager and the Company 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, digital development and 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), former Deputy Chair of the National Library of Australia and a founding member of the Taronga Conservation Foundation. Former listed directorships in the last three years: None. Interest in stapled securities: 31,358. George Venardos Director Appointed: Ardent Leisure Management Limited – 22 September 2009. Ardent Leisure Limited – 22 September 2009. Age: 58. George Venardos was appointed a Director of both the Manager and the Company 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 Chartered Accountants Australia and New Zealand, 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: None. Interest in stapled securities: 209,857. Ardent Leisure Group | Annual Report 2016 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 Manager and the Company in July 2015 bringing significant experience in the global financial, investment banking and professional services sectors. Melanie has had extensive exposure to leisure related businesses and is currently a non-executive director of Mantra Group (an Australian hotel and resort marketer and operator with over 20,000 rooms) and Pepper Group (a leading non-bank lender and third party servicer with operations in Australia, Europe and Asia). Melanie is also a Non- Executive Director and Chair of the Audit & Risk Committee of Southern Cross Media Group Limited. Previously, she was Chief Executive Officer of NRMA Investments where she was responsible for the tourism and leisure portfolio. She 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. Melanie is a member of both the Audit and Risk Committee and the Remuneration and Nomination Committee. Former listed directorships in the last three years: Crowe Horwath Limited (resigned 30 October 2014). Interest in stapled securities: 9,674. 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 10 10 10 10 10 10 10 Attended 9 8 10 10 10 10 10 Eligible to attend 4 4 N/A N/A N/A 4 3 Attended 3 4 N/A N/A N/A 4 3 Eligible to attend 6 6 5 6 N/A 6 5 Attended 6 6 4 6 N/A 6 5 Eligible to attend N/A 4 4 4 4 4 N/A Attended N/A 4 3 4 4 4 N/A Neil Balnaves AO Roger Davis David Haslingden Don Morris AO Deborah Thomas George Venardos Melanie Willis 10. Company Secretary The Group’s Company Secretary is Alan Shedden. Alan was appointed to the position of Company Secretary of the Manager and ALL on 9 September 2009. Alan has over 18 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, compliance, risk 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 2016 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 2016. The remuneration report is set out under the following main headings: (a) Remuneration framework and strategy; (b) Details of remuneration – key management personnel; (c) Service agreements of key management personnel; (d) Deferred Short Term Incentive Plan (DSTI); (e) Long Term Incentive Plan (LTIP); and (f) Additional information. The information provided in the remuneration report has been audited as required by section 308 (3C) of the Corporations Act 2001. (a) Remuneration framework and strategy 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. 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 2016, the KMP for the Group comprise the Independent Directors and the following: Position Chief Executive Officer Chief Financial Officer CEO – Bowling centres CEO – Health clubs CEO – Main Event CEO – Theme parks (i) Package structure review Name Deborah Thomas Richard Johnson Nicole Noye Greg Oliver Charlie Keegan Craig Davidson Over the course of the past six years, an inconsistency of relative package mix between the Group’s KMP has arisen. This is largely due to structural remuneration changes driven by senior appointments and the evolution of the Group towards a truly global business with the significant growth of the Main Event Entertainment division. The current package mix for KMP is shown below: Current package mix Deborah Thomas Richard Johnson Nicole Noye Greg Oliver(1) Charlie Keegan(1) Craig Davidson 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fixed remuneration STI LTIP Throughout the financial year, a program of work has been undertaken to review and recommend changes to KMP packages and relative mix. The scope of the review was to identify opportunities to ensure that the overall framework reflects both market and current best practice including the adoption of a face value methodology for calculating grant of equity awards to replace the previous fair value LTIP grant calculation methodology. A number of alterations have been considered by the Directors and the following have been adopted: Ardent Leisure Group | Annual Report 2016 13 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (a) (i) Remuneration framework and strategy (continued) Package structure review (continued) LTIP valuation methodology Effective for LTIP grants in the 2017 financial year and beyond, the Board has adopted a revised valuation methodology to calculate the number of equity rights to grant to participants. The revised methodology will use the Group’s volume weighted average price (VWAP) for the five preceding days up to and including the date of the Board meeting approving the grant. A corresponding adjustment will be made to KMP entitlements under the LTIP whereby contractual entitlements were increased by 33.3% (one third) to compensate for the change in grant valuation methodology from fair value to face value. Gateway hurdle In addition, for any equity rights to vest under the LTIP an initial Gateway Hurdle must be met or exceeded. The Gateway Hurdle adopted by the Board will apply a minimum return on equity target equal to or greater than 2.5x the 10 year bond yield rate for Australian Government bonds. Should the Gateway Hurdle be met, then the remaining performance hurdles must also be met. TSR comparator group Future grants under the LTIP will no longer be compared against the S&P/ASX Small Industrials Index in calculating total shareholder return (TSR) and instead will be measured against the performance of the S&P/ASX 200 Industrials Index. The use of the S&P/ASX 200 Industrials Index as a comparative peer group better reflects the recent growth of the Group. LTI performance hurdles The existing cumulative average growth rate earnings per security (CAGR EPS) and TSR hurdles will remain in place for grants under the LTIP; however, a 33.3% (one third) component of the LTIP will be tenure based with a three year tenure period. The incorporation of a tenure hurdle replaces the existing two year retention tool previously provided by the Deferred STI plan and extends the required retention period from two to three years. Performance hurdle CAGR EPS TSR Tenure (three years) Total Deferred Short Term Incentive Plan % of total 33.3% 33.3% 33.3% 100.0% The use of performance rights granted to KMP under the DSTI as deferral of Cash STI will cease with effect from the 2017 financial year. The DSTI remains in place for other executives who do not form part of the Group’s KMP. Options The LTIP rules also allow for the use of options as the equity vehicle for grants. The Board has reviewed the use of options and determined that options would only be considered for grants to KMP who meet the minimum qualifying holding instead of performance rights. Grants of options under the LTIP will be calculated using a fair value approach. Minimum qualifying holding In considering the use of options under the LTIP, the Board has determined that the following minimum security holding requirement would have to be implemented. As at 30 June each year, executives would be required to hold securities in value equal or exceeding their pre-tax fixed remuneration. If an executive did not meet the minimum security holding requirement, then they would automatically receive performance rights in their grant under the LTIP. 14 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (a) (i) Remuneration framework and strategy (continued) Package structure review (continued) Automatic vesting The existing LTIP operates mandatory automatic vesting of performance rights into fully paid stapled securities. Recent changes to the deferred taxing point relating to the exercise of equity rights means that the rights only become taxable when they are actually exercised. As a result of this change, the requirement for automatic vesting of equity rights under the LTIP will be removed. Stretch cash STI The Board has extended the Stretch Cash STI target previously only offered to the CEO Health clubs and CEO Main Event, to all KMP. The Stretch Cash STI operates purely in relation to the over-achievement of financial KPIs and allows participating executives the opportunity to receive 160% of their target STI if they exceed their financial key performance indicators (KPIs) by 120%. Delivery of the stretch payment for performance in the 2016 financial year will be made through the issue of performance rights under the terms of the DSTI which vest into fully paid stapled securities over the following one and two years after grant. Thereafter, payment of the Stretch Cash STI will be made in cash. Package components In order to equalise the relative package components of KMP the Board has approved a new incentive split whereby the contractual LTIP (after being increased by one third), the target Cash STI and the DSTI have all been combined and then split into two. This provides for a more equal package split between the Cash STI and LTIP incentive components. With effect from the 2017 financial year, it is proposed that the package mix for KMP will reflect the following: Proposed package mix Deborah Thomas Richard Johnson Nicole Noye Greg Oliver Charlie Keegan Craig Davidson 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fixed remuneration STI LTIP Throughout this process, the Remuneration and Nomination Committee has sought to maintain the alignment of the interests of key executives with those of investors through the use of performance hurdles 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. The advisory work carried out by Ernst & Young constituted a “remuneration recommendation” under the Corporations Act 2001 and was both independently prepared and reported directly to the Chair of the Remuneration and Nomination Committee. As at the date of this remuneration report, the fees that have been paid to Ernst & Young in respect of their engagement in the package structure review are set out below: Date 27 October 2015 22 February 2016 3 May 2016 10 June 2016 Total Value (ex-GST) $20,600 $23,690 $25,853 $9,991 $80,134 Ardent Leisure Group | Annual Report 2016 15 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (a) (ii) Remuneration framework and strategy (continued) Benchmarking The 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. The Board has adopted a process of annual benchmarking of key management personnel (KMP) and accordingly the Remuneration and Nomination Committee commissioned independent benchmarking from Ernst & Young of the packages of all KMP. This report was dated 9 February 2016 and formed part of the Board’s program to review KMP package structures that had been commenced in 2015. Any resulting changes to fixed remuneration will take effect in the 2017 financial year. Although the benchmark report did not constitute a “remuneration recommendation” under the Corporations Act 2001, as a matter of good governance it was prepared independently and presented directly to the Chair of the Remuneration and Nomination Committee. As a result, the Directors are satisfied that the report was prepared in a manner free from undue influence by the Group’s KMP. The components of the remuneration package of the Chief Executive Officer and other executive KMP for the 2016 financial year are set out in the table below: Position Name Chief Executive Officer Chief Financial Officer CEO – Bowling centres CEO – Health clubs CEO – Main Event CEO – Theme parks Deborah Thomas Richard Johnson(2) Nicole Noye Greg Oliver(3) Charlie Keegan(3) Craig Davidson Annual base salary $670,000 $591,304 $400,000 $490,000 US$500,000 $375,000 STI(1) LTIP(1) Deferred equity 25% 25% 35% 35% 35% 35% 50.00% 37.50% 15.00% 15.00% 30.00% 15.00% Cash 25% 50% 35% 35% 35% 35% Total annual target remuneration $1,340,000 $1,256,521 $740,000 $906,500 US$1,000,000 $693,750 (1) Target STI and LTIP components are expressed as percentages of annual base salary. (2) During the year, Mr Johnson was awarded a $75,000 deferred increase of fixed remuneration payable on 1 July 2016. (3) Total target annual remuneration does not include stretch potential for over-achievement of financial KPIs. 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. (iii) 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 June 2015 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 16 Ardent Leisure Group | Annual Report 2016 Current annual fee $205,000 $120,000 $20,000 $15,000 $12,500 $7,500 For personal use only Directors’ report to stapled security holders 11. (a) Remuneration report (continued) Remuneration framework and strategy (continued) (iv) Executive pay The executive pay and reward framework that was in place during the course of the financial year ended 30 June 2016 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 Cash Equity STI Performance incentives LTIP 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 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 executive KMP are set out below: Position Chief Executive Officer Chief Financial Officer CEO – Bowling centres CEO – Health clubs CEO – Main Event CEO – Theme parks Name Deborah Thomas Richard Johnson Nicole Noye Greg Oliver(1) Charlie Keegan(1) Craig Davidson Fixed 50.00% 47.06% 54.05% 54.05% 50.00% 54.05% STI 25.00% 35.29% 37.84% 37.84% 35.00% 37.84% LTIP 25.00% 17.65% 8.11% 8.11% 15.00% 8.11% (1) Cash STI excludes stretch potential for over-achievement of financial KPIs. 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 KPIs. These KPIs are split into financial and personal categories, with the financial measures based around earnings and revenue targets representing between 40% and 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 2016 17 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (a) Remuneration framework and strategy (continued) (iv) 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 and other strategic initiatives. Hypothetical examples of personal KPIs which may be used are set out in the table below: Strategy Financial management Sales and marketing People and culture Innovation Health and safety Customer Drive organic revenue growth across the Group’s existing businesses and identify appropriate strategic growth opportunities. Monitor the Group’s balance sheet and cash flow capacity to meet the Group’s strategic plan whilst optimising the cost of capital and funding flexibility. Execute a digital sales and marketing strategy to deliver an increase in gross revenue across constant clubs or centres. Adopt a standardised approach to talent management, succession planning and leadership development across all divisions. Develop and implement a plan to increase the overall employee engagement score by 5% based upon the 2015 results. Develop a culture of innovation and collaboration across the Group and implement suitable supporting enterprise architecture. Develop and implement a strategic plan for the sharing of business intelligence between each of the operating divisions and the Head Office. Drive the adoption of a Group-wide safety and return-to-work system and reporting framework to the standards of a self-insured entity. Implement an appropriate program of research into social and consumer views of the Group’s products and experiences to assist in identifying organic growth opportunities and improving customer experience and engagement. Measure and evidence an improvement of 15% in customer Net Promoter Scores based upon customer service and satisfaction in the prior financial year. 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. Target awards to KMP under the STI range between 50% and 75% of an executive’s base salary (including superannuation) dependent upon the executive’s position. Maximum achievable awards to KMP under the STI, taking into account the stretch STI component made available to the CEO – Main Event and CEO – Health clubs, range between 50% and 91% of an executive’s base salary (including superannuation). 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 12 months and 24 months. LTIP The LTIP awards performance rights ranging between 15% and 50% of an executive’s base salary (including superannuation) dependent upon the executive’s role. Further details of the LTIP are set out in section (e) below. (v) 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 2016 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. 18 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. (a) (v) 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 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. (b) Details of remuneration – key management personnel Details of the remuneration of KMP of the Group for 2016 and 2015 are set out in the tables below. The tables set out the total cash benefits paid to the KMP in the relevant period and, under the heading “Security-based payments”, shows 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 (d) and (e) 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 $ Security- based payment $ % of total Total Independent Directors Neil Balnaves AO Chair Roger Davis David Haslingden(1) Don Morris AO George Venardos Melanie Willis(2) Executive Director Deborah Thomas(3) Chief Executive Officer 2016 208,192 2015 207,762 2016 141,553 2015 141,553 2016 120,528 2015 - 2016 123,288 2015 121,005 2016 146,119 2015 142,838 2016 122,738 - 2015 - - - - - - - - - - - - - - - - - - - - - - - - 19,308 18,783 13,447 13,447 11,450 - 11,712 11,495 13,881 13,570 11,660 - 2016 635,676 2015 244,002 40,000 15,016 - - 19,308 13,173 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 227,500 226,545 155,000 155,000 131,978 - 135,000 132,500 160,000 156,408 134,398 - - - - - - - - - - - - - 227,500 226,545 155,000 155,000 131,978 - 135,000 132,500 160,000 156,408 134,398 - - - - - - - - - - - - - 710,000 257,175 101,845 - 811,845 257,175 12.54% - Ardent Leisure Group | Annual Report 2016 19 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (b) 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 Security- based payment Total $ $ $ $ $ $ $ $ $ $ % of total Other key management personnel Current Craig Davidson 2016 327,811 109,185 27,881 CEO – Theme parks 2015 309,837 74,720 21,379 Richard Johnson 2016 472,147 167,800 24,849 Chief Financial Officer 2015 414,937 190,018 7,414 Charlie Keegan 2016 675,315 97,938 12,255 CEO – Main Event 2015 454,967 148,986 27,658 Nicole Noye 2016 367,515 115,530 13,177 CEO – Bowling centres 2015 325,469 - 15,748 Greg Oliver(4) 2016 459,830 70,921 89,311 2015 425,944 136,945 15,273 CEO – Health clubs Past Greg Shaw(5) - Ex Chief Executive Officer 2015 738,984 336,509 42,065 Anne Keating(6) - 2016 - Ex Independent Director 2015 15,023 400,000 - 43,916 2016 - - 19,308 18,783 19,308 18,783 - - 19,308 18,783 19,308 18,783 4,827 18,783 - 4,172 2016 3,815,735 1,001,374 182,489 182,825 2015 3,571,214 887,178 129,537 168,555 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 484,185 125,998 610,183 424,719 64,024 488,743 684,104 246,589 930,693 631,152 248,250 879,402 785,508 320,858 1,106,366 631,611 251,404 883,015 515,530 87,285 602,815 360,000 - 360,000 639,370 154,171 793,541 596,945 187,110 784,055 855,644 1,275,494 - 1,136,341 - - 48,088 - 212,502 1,487,996 534,100 1,670,441 - 48,088 - - 855,644 6,038,067 1,249,248 7,287,315 - 4,756,484 1,284,888 6,041,372 20.65% 13.10% 26.50% 28.23% 29.00% 28.47% 14.48% - 19.43% 23.86% 14.28% 31.97% - - 17.1% 21.3% (1)   David Haslingden was appointed a Non-Executive Director of the Group effective 6 July 2015 and is considered KMP from this date. (2) Melanie Willis was appointed a Non-Executive Director of the Group effective 17 July 2015 and is considered KMP from this date. (3) Deborah Thomas was appointed a Non-Executive Director of the Group on 1 December 2013 and was appointed Chief Executive Officer effective 7 April 2015. (4) During the year, Greg Oliver was paid $78,449 in lieu of unused annual leave from previous years. (5) Greg Shaw ceased to be considered KMP on 7 April 2015. (6) Anne Keating resigned from the Group effective 29 October 2014. The table above shows termination payments made to past KMP during the year. No termination benefits were paid to current 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 KMP 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. 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 reduced by $9,780 to $1,239,468 (2015: increased by $380,464 to $1,665,352). 20 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. (b) Remuneration report (continued) Details of remuneration – key management personnel (continued) The table below sets out the total target remuneration and the total realised pay throughout the year ended 30 June 2016. It should be noted that elements of realised pay relate to both individual and the Group’s performance in prior financial years. Name Deborah Thomas Richard Johnson(2) Nicole Noye Greg Oliver Charlie Keegan(3) Craig Davidson Annual base salary $670,000 $516,304 $400,000 $490,000 US$500,000 $375,000 STI(1) Cash Deferred equity - $102,872 - $139,045 US$102,670 $30,670 $40,000 $167,800 $115,530 $70,921 US$131,600 $109,185 LTIP(1) - $585,544 - $190,167 US$95,905 - Total realised pay $710,000 $1,372,520 $515,530 $890,133 US$830,175 $514,855 Total annual target remuneration $1,340,000 $1,256,521 $740,000 $906,500 Variance ($630,000) $115,999 ($224,470) ($16,367) US$1,000,000 (US$169,825) ($178,895) $693,750 (1) STI cash payments and the vesting of DSTI and LTIP performance rights into fully paid stapled securities reflect previous performance of executives and of the Group over a period of time. Securities issued are valued at $2.305 per security representing the five day VWAP up to and including the date of the full year results release. (2) During the year, Richard Johnson was awarded a $75,000 deferred increase of fixed remuneration payable on 1 July 2016. (3) Total realised is converted from Australian dollars into US dollars at the exchange rate of 0.7167 on 28 August 2015 and includes both cash settled and equity settled awards. The percentage of Cash STI (as listed in the table above) that was awarded to the Group’s KMP and the percentage that was forfeited because the executive did not meet the performance criteria are set out below. No part of any Cash STI is payable in future years. Name Deborah Thomas(1) Richard Johnson Nicole Noye Greg Oliver Charlie Keegan(2) Craig Davidson STI Awarded STI Forfeited 100.00% 65.00% 91.69% 44.05% 94.00% 89.13% - 35.00% 8.31% 55.95% 6.00% 10.87% (1) Deborah Thomas’ STI award reflects her service period from appointment as Group Chief Executive Officer effective 7 April 2015. (2) Charlie Keegan was also awarded a Stretch STI payment of US$42,000 due to over-achievement of financial KPIs. The delivery of the Stretch STI payment was made in the form of performance rights that vest in one and two years following grant. Ardent Leisure Group | Annual Report 2016 21 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) 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 are set out below: Executive Deborah Thomas Richard Johnson Nicole Noye Greg Oliver Charlie Keegan Craig Davidson Position Term Chief Executive Officer Chief Financial Officer CEO – Bowling centres CEO – Health clubs CEO – Main Event CEO – Theme parks No fixed term. No fixed term. No fixed term. No fixed term. No fixed term. No fixed term. Automatic renewal on a year by year basis. Base annual salary $670,000 for the year ended 30 June 2016. $591,304 for the year ended 30 June 2016 (Note 1). $400,000 for the year ended 30 June 2016. $490,000 for the year ended 30 June 2016. US$500,000 for the year ended 30 June 2016. $375,000 for the year ended 30 June 2016. Termination 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 the executive gives the Group three months’ notice in writing. Employment shall continue with the Group unless the executive gives the Group six months’ notice in writing. Employment shall continue with the Group unless either party gives three 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 12 months’ salary is payable to the executive if the Group terminates the executive during the contract, other than for gross misconduct. (1) Effective 1 July 2015, Richard Johnson received an increase in fixed remuneration of $75,000 with payment deferred until 1 July 2016. All base annual 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. 22 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (d) 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 384,988 performance rights vested. Australian employees Since the DSTI was approved in July 2010, incentives have been provided to certain executives under the DSTI. Under the terms of the DSTI, participants 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 possible vesting date being the day after the full year financial results announcement for the year ended 30 June 2011. A total of 286,776 performance rights vested on 20 August 2015 and a corresponding number of stapled securities were issued to Australian employees under the terms of the DSTI (2015: 716,574). 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 2016 23 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (d) 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 was 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 was made. Due to the nature of the scheme, this was considered to be a cash settled share-based payment under AASB 2. All performance rights issued after 1 July 2014 to US employees are settled in equity upon vesting. As such, these performance rights are considered to be equity settled share-based payments under AASB 2. A total of 98,212 equity settled performance rights vested during the financial year (2015: 56,829). In the ALL financial statements, all performance rights issued to US employees are considered 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 each 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 2016, 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. Under AASB 2, this valuation is used to value the equity settled performance rights granted to employees at 30 June 2016: 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 2014 19 August 2014 20 August 2015 31 August 2016 2.50% per annum 27.0% per annum 4.3% per annum $3.00 $2.81 2015 18 August 2015 31 August 2016 31 August 2017 1.90% per annum 34.5% per annum 5.7% per annum $2.18 $2.00 The table below shows the fair value of the performance rights in each grant as at 30 June 2016 as well as the factors used to value the performance rights as at 30 June 2016. Under AASB 2, this valuation is used to value the cash settled performance rights granted to employees at 30 June 2016: 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 2014 19 August 2014 20 August 2015 31 August 2016 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.88 2015 18 August 2015 31 August 2016 31 August 2017 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.81 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. 24 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (d) 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 2016 Current executives Craig Davidson Richard Johnson Charlie Keegan Nicole Noye Greg Oliver Deborah Thomas Total performance rights Opening balance Granted as compensation Exercised Lapsed Closing balance Vested and exercisable 26,613 61,550 83,802 - 84,710 - 54,682 42,019 118,288 57,860 35,519 20,033 (13,306) (44,630) (62,149) - (60,323) - 256,675 328,401 (180,408) - - - - - - - 67,989 58,939 139,941 57,860 59,906 20,033 404,668 - - - - - - - Unvested 67,989 58,939 139,941 57,860 59,906 20,033 404,668 Ardent Leisure Group | Annual Report 2016 25 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (e) 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 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 with maximum vesting achieved at the 75th percentile; 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 with maximum vesting achieved at 10% compound EPS growth. 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 S&P/ASX Small Industrials Index. Did any of the securities vest? During the financial year, a total of 993,905 performance rights vested into fully paid stapled securities following an independent third party assessment of the Group’s TSR performance compared to the benchmark. 26 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (e) 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 S&P/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 2011, 2012 and 2013 with the following results: Tranche T3-2011 T2-2012 T1-2013 TSR 119.09% 103.94% 45.48% Percentile 81.82 79.12 68.63 Vesting percentage 100.0% 100.0% 87.3% A total of 939,923 performance rights vested on 20 August 2015 and a corresponding number of stapled securities were issued to Australian employees under the terms of the LTIP (2015: 1,145,426). 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 cash settled share-based payments. 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 38,998 cash settled performance rights vested on 20 August 2015 to US employees under the terms of the LTIP (2015: 57,452). All performance rights issued after 1 July 2014 to US employees are settled in equity upon vesting. These performance rights are considered to be equity settled share-based payments under AASB 2. A total of 14,984 equity settled performance rights vested on 20 August 2015 to US employees under the terms of the LTIP (2015: nil). 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. Ardent Leisure Group | Annual Report 2016 27 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (e) Long Term Incentive Plan (LTIP) (continued) Valuation inputs For performance rights outstanding at 30 June 2016, 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. Under AASB 2, this valuation is used to value the equity settled performance rights granted to employees at 30 June 2016: 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 2012 24 August 2012 19 August 2014 20 August 2015 31 August 2016 2.73% per annum 35% per annum 9.1% per annum $1.29 $0.61 2013 23 August 2013 20 August 2015 31 August 2016 31 August 2017 2.60% per annum 32% per annum 6.6% per annum $1.82 $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 2015 15 December 2015 31 August 2017 31 August 2018 31 August 2019 2.1% per annum 38.3% per annum 5.8% per annum $2.17 $1.12 The table below shows the fair value of the performance rights for each grant as at 30 June 2016 as well as the factors used to value the performance rights at 30 June 2016. Under AASB 2, this valuation is used to value the cash settled performance rights granted to employees at 30 June 2016: 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 2012 24 August 2012 19 August 2014 20 August 2015 31 August 2016 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.21 2013 23 August 2013 20 August 2015 31 August 2016 31 August 2017 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.04 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $0.28 2015 15 December 2015 31 August 2017 31 August 2018 31 August 2019 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $0.85 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. 28 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (e) 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 Proportion of performance rights vesting 0% 50% Straight-line vesting between 50% and 100% 100% The weighting is split equally between the two performance measures. 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 2016 Current executives Craig Davidson Richard Johnson Charlie Keegan Nicole Noye Greg Oliver Deborah Thomas Equity settled 34,104 577,452 135,370 - 204,344 - 951,270 50,223 197,982 186,167 53,571 65,625 299,107 852,675 - (254,032) (14,984) - (82,502) - (351,518) - (8,355) (2,179) - (2,924) - (13,458) 84,327 513,047 304,374 53,571 184,543 299,107 1,438,969 Current executive Charlie Keegan Cash settled Total performance rights 56,037 56,037 1,007,307 - - 852,675 (38,998) (38,998) (390,516) - - (13,458) 17,039 17,039 1,456,008 - - - - - - - - - - 84,327 513,047 304,374 53,571 184,543 299,107 1,438,969 17,039 17,039 1,456,008 Ardent Leisure Group | Annual Report 2016 29 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Additional information Performance of the Group Over the past five years, core earnings per security of the Group have increased by 10.05% and the market capitalisation of the Group has increased by 114.60%. 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 2011 (based upon an initial security price of $1.275) Details of remuneration: cash bonuses and options 2016 $1.880 $0.070 $2.1067 $0.055 $1.9292 463,039,616 $870.5 13.80 $7,287,315 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 2013 $1.715 $0.066 N/A $0.054 $1.6841 2012 $1.275 $0.065 $1.0073 $0.052 $1.2373 405,055,708 397,803,987 334,209,401 $426.1 12.91 $6,052,116 $682.2 13.14 $5,102,854 $1,097.7 14.40 $5,512,165 $9,655 $10,490 $12,752 $7,984 $5,545 All service and performance criteria were met by executives eligible for a bonus with respect to their performance in the 30 June 2015 financial year. These bonuses were paid during the current 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 2016 financial year have been accrued but are subject to approval by the Group’s Remuneration and Nomination Committee before payment. Plan securities and performance rights granted to executives automatically 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. 30 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) 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: Year granted Tranche Financial years in which performance rights may vest Value of performance rights at grant Value of performance rights at lapse Number lapsed Value of performance rights at vesting Maximum value yet to vest Number vested Cash STI (%) Year Number $ Current executives Equity settled Craig Davidson LTI 2014 2015 DSTI 2014 2015 2011 2012 2013 2014 2015 2013 2014 2015 Richard Johnson Total LTI DSTI Total Nicole Noye LTI 2015 DSTI 2015 T1 T2 T3 T1 T2 T3 T1 T2 T1 T2 T3 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 T1 T2 T3 T1 T2 2017 2018 2019 2018 2019 2020 2016 2017 2017 2018 2016 2016 2017 2016 2017 2018 2017 2018 2019 2018 2019 2020 2016 2016 2017 2017 2018 2018 2019 2020 2017 2018 11,368 11,368 11,368 16,741 16,741 16,741 13,306 13,307 27,341 27,341 19,789 17,740 14,973 20,904 18,738 16,776 38,171 36,550 56,158 53,028 165,622 292,827 114,522 82,075 82,075 65,790 65,789 65,789 33,804 33,804 33,804 65,994 65,994 65,994 27,711 16,919 16,920 21,009 21,010 49,244 50,181 49,491 51,678 51,388 47,579 58,846 52,751 44,523 82,407 73,867 66,133 44,498 48,536 46,474 43,152 40,749 17,857 17,857 17,857 28,930 28,930 22,298 19,987 17,894 59,422 56,110 Total 111,431 175,711 $ - - - - - - - - - - - $ $ Awarded Forfeited 89.13 10.87 - - - - - - - - - - - - 19,789 17,740 14,973 20,904 18,738 16,776 13,306 33,531 - - - - - - - 36,550 56,158 53,028 13,306 33,531 254,656 - 114,522 - - 82,075 - 288,595 206,829 - - - 49,491 65.00 35.00 - - - - - - - - - - - - - - 8,355 21,055 57,435 144,736 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 27,711 16,919 69,832 42,636 51,388 47,579 58,846 52,751 44,523 82,407 73,867 66,133 - - - - - - - - 46,474 43,152 40,749 91.69 8.31 - - - - - - - - - - - - - - - - - - - - - - - 22,298 19,987 17,894 59,422 56,110 - 175,711 Ardent Leisure Group | Annual Report 2016 31 879,003 901,497 8,355 21,055 298,662 752,628 657,360 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Additional information (continued) Year granted Tranche Financial years in which performance rights may vest Value of performance rights at grant Value of performance rights at lapse Number lapsed Value of performance rights at vesting Maximum value yet to vest Number vested Cash STI (%) Greg Oliver LTI 2011 2012 2013 2014 2015 Deborah Thomas DSTI 2013 2014 2015 Total LTI 2015 DSTI 2015 Total Charlie Keegan LTI 2013 2014 2015 DSTI 2013 2014 2015 2011 2012 Cash settled Charlie Keegan LTI Year 2016 2016 2017 2016 2017 2018 2017 2018 2019 2018 2019 2020 2016 2016 2017 2017 2018 2018 2019 2020 2017 2018 2016 2017 2018 2017 2018 2019 2018 2019 2020 2016 2016 2017 2017 2018 2016 2016 2017 T3 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 T1 T2 T3 T1 T2 T1 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 T3 T2 T3 Number 34,357 28,042 28,043 23,027 23,026 23,026 14,941 14,941 14,941 21,875 21,875 21,875 35,936 24,387 24,387 17,759 17,760 $ 14,774 17,145 16,910 18,088 17,986 16,652 26,009 23,315 19,679 27,315 24,485 21,921 57,706 69,959 66,984 36,477 34,446 - - - $ - - - 34,357 28,042 - $ $ Awarded Forfeited 44.05 55.95 86,580 70,666 - - - 16,910 2,924 7,368 20,103 50,660 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 35,936 24,387 90,559 61,455 17,986 16,652 26,009 23,315 19,679 27,315 24,485 21,921 - - - - - - - - 66,984 36,477 34,446 390,198 509,851 2,924 7,368 142,825 359,920 332,179 99,702 99,702 99,703 10,016 10,017 124,498 111,596 99,912 20,573 19,428 319,140 376,007 - - - - - - - - - - - - - - - - - - - - - - - 124,498 100.00 - 111,596 99,912 20,573 19,428 - 376,007 17,163 17,162 17,162 27,961 27,961 27,961 62,055 62,056 62,056 36,496 25,653 21,653 59,144 59,144 21,960 17,038 17,039 13,482 13,405 12,412 48,675 43,633 36,827 77,488 69,459 62,186 58,605 73,591 59,474 121,482 114,710 9,443 10,417 10,275 2,179 5,491 14,984 37,760 - 94.00 6.00 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 36,496 25,653 91,970 64,646 13,405 12,412 48,675 43,633 36,827 77,488 69,459 62,186 - - - - - - - - 59,474 121,482 114,710 21,960 17,038 - 55,339 42,936 - - - 10,275 Total 579,664 835,564 2,179 5,491 116,131 292,651 670,026 32 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Additional information (continued) Directors’ interests in securities Changes to Directors’ interests in stapled securities during the period are set out below: Neil Balnaves AO Roger Davis David Haslingden Don Morris AO Deborah Thomas George Venardos Melanie Willis Opening balance 2,801,510 200,658 - 13,950 20,331 198,053 - 3,234,502 Acquired 200,000 - 160,000 - 11,027 11,804 9,674 392,505 Acquired under the Group's equity plans Disposed - - - - - - - - - - - - - - - - Other 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 - 100,000 36,497 2,500 478,522 617,519 Acquired under the Group's equity plans Acquired - - - - - - 13,306 298,662 77,133 - 142,825 531,926 Disposed - (298,662) (80,000) - (21,000) (399,662) Closing balance 3,001,510 200,658 160,000 13,950 31,358 209,857 9,674 3,627,007 Closing balance 13,306 100,000 33,630 2,500 600,347 749,783 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. The following table shows the votes that were cast on the adoption of the 2015 remuneration report at the AGM held on 5 November 2015: Date of meeting 5 November 2015 30 October 2014 Votes for 98.50% 97.53% Votes against 1.12% 1.78% Votes abstain 0.38% 0.69% Ardent Leisure Group | Annual Report 2016 33 For personal use only Directors’ report to stapled security holders 12. Non-audit services The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the 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 section 307C of the Corporations Act 2001 is set out on page 38. 14. Events occurring after reporting date Subsequent to 30 June 2016, a distribution of 5.5 cents per stapled security has been declared by the Board of Directors. The total distribution amount of $25.5 million will be paid on or before 31 August 2016 in respect of the half year ended 30 June 2016. As noted above, on 19 August 2016, the Group announced that it had entered into a sale agreement to dispose of its entire interests in the health clubs division for gross proceeds (excluding working capital adjustments and selling costs) of $260.0 million, comprising a cash payment of $230.0 million and deferred consideration of $30.0 million in the form of vendor loan notes payable no later than two years from completion. Completion is subject to landlord and other third party approvals and is expected to occur prior to 31 December 2016. The financial information relating to the health clubs division is set out in Note 37 to the financial statements. The Group expects to recognise a profit on disposal. 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 2016. 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. As noted above, the Group is in the process of disposing of its Marinas and Health clubs divisions, with completion expected during the next financial year. 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. 34 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 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 2016 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 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 the 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 to operate throughout the theme park with proceeds used 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. 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. Ardent Leisure Group | Annual Report 2016 35 For personal use only Directors’ report to stapled security holders 18. Environmental regulations (continued) (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. (f) 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. 36 Ardent Leisure Group | Annual Report 2016 For personal use only Directors’ report to stapled security holders 18. Environmental regulations (continued) (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 2014/2015 emissions report under the Act in October 2015. 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 ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 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 Instrument, 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 23 August 2016 Deborah Thomas Managing Director Ardent Leisure Group | Annual Report 2016 37 For personal use only Auditor’s Independence Declaration As lead auditor for the audit of Ardent Leisure Group for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been: 1. 2. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 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 it controlled during the period. Timothy J Allman Partner PricewaterhouseCoopers Brisbane 23 August 2016 PricewaterhouseCoopers, ABN 52 780 433 757 480 Queen 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 2016 Income Statements Income Revenue from operating activities Management fee income Valuation gains - investment properties Net gain from derivative financial instruments Interest income Business acquisition costs refunded Gain on sale and leaseback of family entertainment centres Note 3 7(b) 6 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 664,614 - 2,050 - 81 198 1,672 571,651 - - 552 121 - 6,959 664,614 1,200 - - 68 198 1,672 571,651 1,200 - - 77 - 6,959 Total income 668,615 579,283 667,752 579,887 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 Income tax expense Profit from continuing operations Profit from discontinued operation Profit for the year Attributable to: Stapled security holders Profit for the year 4 5 6 8 10 16 65,675 250,571 14,874 104,289 63,955 - 500 24,057 32,164 8,638 64 463 - 170 - 60,421 55,126 221,361 11,333 96,388 53,949 104 523 20,305 25,542 6,521 1,938 2,646 141 - 513 53,029 65,675 250,745 13,337 154,033 40,752 - 126 24,057 32,164 8,455 64 158 - - - 59,771 55,126 222,196 11,731 138,182 31,700 - 376 20,305 25,542 6,521 1,938 1,009 141 - - 52,133 625,841 549,419 649,337 566,900 42,774 8,421 34,353 8,034 42,387 29,864 6,634 23,230 8,892 32,122 18,415 8,399 10,016 625 10,641 12,987 6,843 6,144 718 6,862 42,387 42,387 32,122 32,122 10,641 10,641 6,862 6,862 The above Income Statements should be read in conjunction with the accompanying notes. Basic earnings per security/share (cents) Basic earnings per security/share (cents) from continuing operations Diluted earnings per security/share (cents) Diluted earnings per security/share (cents) from continuing operations 11 11 11 11 9.37 7.59 9.35 7.58 7.38 5.34 7.35 5.32 2.35 2.21 2.35 2.21 1.58 1.42 1.57 1.41 Ardent Leisure Group | Annual Report 2016 39 For personal use only Statements of Comprehensive Income for the year ended 30 June 2016 Statements of Comprehensive Income Note Consolidated Group 2016 Consolidated Group 2015 ALL Group 2016 ALL Group 2015 $’000 $’000 $’000 $’000 Profit for the year 42,387 32,122 10,641 6,862 30 30 30 30 Other comprehensive income for the year 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 Total comprehensive income for the year attributable to stapled security holders arises from: Continuing operations Discontinued operations Total comprehensive income for the year, net of tax (1,878) 2,049 441 10,534 11,146 53,533 (958) 3,623 24 7,541 10,230 42,352 (1,321) 2,277 441 - 1,397 12,038 (75) 6,916 24 - 6,865 13,727 53,533 53,533 42,352 42,352 12,038 12,038 13,727 13,727 45,499 8,034 53,533 33,460 8,892 42,352 11,413 625 12,038 13,009 718 13,727 The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes. 40 Ardent Leisure Group | Annual Report 2016 For personal use only Balance Sheets as at 30 June 2016 Balance Sheets Current assets Cash and cash equivalents Receivables Derivative financial instruments Inventories Current tax receivables Assets classified as held for sale Construction in progress inventories 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 Construction in progress deposits Derivative financial instruments Current tax liabilities Provisions Liabilities directly associated with assets classified as held for sale 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 (Accumulated losses)/retained profits Total equity attributable to stapled security holders Total equity Note 33 13 14 15 16(c) 17 18 19 20 14 21 22 23 17 14 25 16(c) 26 14 24 25 27 28 30 31 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 9,070 13,286 131 13,002 3,275 112,940 61,796 7,913 221,413 - 683,759 113 221 246,129 5,997 936,219 1,157,632 106,407 55,494 1,202 63 4,029 4,104 1,985 173,284 2,937 312,903 14,987 33,538 364,365 537,649 619,983 649,720 (24,938) (4,799) 619,983 619,983 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 8,391 13,286 - 13,002 3,275 2,782 61,796 7,384 109,916 - 287,061 - 221 246,129 5,997 539,408 649,324 93,699 55,494 132 63 4,029 3,716 1,985 159,118 1,283 276,088 4,414 33,538 315,323 474,441 174,883 167,100 9,035 (1,252) 174,883 174,883 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 The above Balance Sheets should be read in conjunction with the accompanying notes. Ardent Leisure Group | Annual Report 2016 41 For personal use only Statements of Changes in Equity for the year ended 30 June 2016 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 2014 Profit for the year Other comprehensive income for the year 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 2015 Profit for the year Other comprehensive income for the year 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 513,912 (45,918) - - - - 10,230 10,230 - 85,786 5,483 - - 605,181 - - - - 41,162 3,377 - - (3,821) - - - 8,818 (30,691) - 11,146 11,146 (1,866) - - - (3,527) 30 28 28 31 30, 31 30 28 28 31 30, 31 Total equity at 30 June 2016 649,720 (24,938) 37,508 32,122 - 32,122 - - - (55,820) (8,818) 4,992 42,387 - 42,387 - - - (55,705) 3,527 (4,799) - - - - - - - - - - - - - - - - - - - ALL Group Total equity at 1 July 2014 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of issue costs Security-based payments - shares issued Capital reallocation Reserve transfers Repayment of non-controlling interests Dividends paid and payable Total equity at 30 June 2015 Profit for the year Other comprehensive income for the year Total comprehensive income for the year 28 28 28 30, 31 31 Transactions with owners in their capacity as owners: Contributions of equity, net of issue costs Security-based payments - shares issued Total equity at 30 June 2016 28 28 16,309 (1,537) (1,655) 71,359 - - - 15,189 937 122,827 - - - 155,262 - - - 10,958 880 167,100 - 6,865 6,865 - - - 2,310 - - 7,638 - 1,397 1,397 - - 9,035 6,862 - 6,862 - - - (2,310) - (14,790) (11,893) 10,641 - 10,641 - - (1,252) - - - - - - - (71,359) - - - - - - - - The above Statements of Changes in Equity should be read in conjunction with the accompanying notes. 42 Ardent Leisure Group | Annual Report 2016 Total equity $’000 505,502 32,122 10,230 42,352 (3,821) 85,786 5,483 (55,820) - 579,482 42,387 11,146 53,533 (1,866) 41,162 3,377 (55,705) - 619,983 84,476 6,862 6,865 13,727 15,189 937 122,827 - (71,359) (14,790) 151,007 10,641 1,397 12,038 10,958 880 174,883 For personal use only Statements of Cash Flows for the year ended 30 June 2016 Statements of Cash Flows Note Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 2015 $’000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Property expenses paid Payments for construction in progress inventories Interest received Rent payments to the Trust Deposits received for construction in progress Receipts of funds for property costs from the Trust US withholding tax received/(paid) Income tax paid Net cash flows from operating activities 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 34(a) 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 increase/(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 33 752,923 (503,891) (109,140) (70,832) 81 - 68,116 - 206 (2,042) 135,421 650,383 (436,132) (96,189) - 121 - - - (140) (2,691) 115,352 755,995 (495,286) (105,169) (70,832) 68 (122,453) 68,116 62,224 - (2,039) 90,624 (154,444) - - 186 23,849 (3,789) (134,198) (133,965) - - 628 41,719 (33,322) (124,940) (132,132) (20,210) 20,803 186 23,849 (1,488) (108,992) 2,572,503 (2,539,083) (15,960) - (78) - - - - (14,465) 2,917 4,140 4,986 (54) 9,072 2,084,223 (2,095,274) (10,937) 70,000 (993) - - - (61) (39,041) 7,917 (1,671) 7,079 (422) 4,986 1,334,380 (1,296,954) (14,077) - (21) - 82,598 (83,800) - - 22,126 3,758 4,685 (50) 8,393 651,136 (433,864) (92,330) - 77 (115,766) - 58,922 - (2,691) 65,484 (115,862) (19,108) 18,387 270 41,719 (31,195) (105,789) 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 The above Statements of Cash Flows should be read in conjunction with the accompanying notes. Ardent Leisure Group | Annual Report 2016 43 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 are set out below. These policies have been consistently applied to the years presented, unless otherwise stated. (a) Basis of preparation As permitted by Corporations (Stapled Group Reports) Instrument 2015/838, 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 (AASB), 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. 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 2015:   AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality; and AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Groups with a Foreign Parent. There has been no impact to the financial statements as a result of the new or amended accounting standards. 44 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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(m), 1(p), 1(s)(v), 1(s)(vi), 1(ab), 1(ac) and 1(ag) 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 In the prior year, the Group had a deficiency of current assets of $58.7 million and, as at 30 June 2016, the ALL Group had a deficiency of current assets of $48.4 million (2015: $45.5 million). 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 deficiencies of current assets. The Group has $262.1 million (2015: $128.6 million) of unused loan capacity at 30 June 2016 which can be drawn on as required. The ALL Group has $300.0 million (2015: $171.0 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. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 1(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 is reclassified to profit or loss where appropriate. Ardent Leisure Group | Annual Report 2016 45 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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. 46 Ardent Leisure Group | Annual Report 2016 For personal use only       DCF models;   Notes to the Financial Statements for the year ended 30 June 2016 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; 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; available sales evidence; and comparisons to valuation professionals performing valuation assignments across the market.       DCF models;   Ardent Leisure Group | Annual Report 2016 47 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 2015 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 3 - 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) Construction in progress inventories During the year, the Group entered into agreements with a third party to construct family entertainment centres for resale. Refer to Note 17. Construction in progress inventories are valued at the lower of cost and net realisable value. Cost of construction in progress comprises the purchase price and other costs, including labour costs which are allocated in accordance with the terms of the agreements. 48 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 to 50 years (2015: 5 to 50 years). (l) 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 (2015: four years). The amortisation charge is weighted towards the first year of ownership where the majority of economic benefits arise. 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 and 13 years (2015: 10 and 13 years). Other intangible assets Liquor licences are amortised over the length of the licences which are between 10 and 16 years (2015: 10 and 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 and 8 years (2015: 5 and 8 years). 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 to 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. Ardent Leisure Group | Annual Report 2016 49 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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. 50 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 3.60% per annum (2015: 4.16% per annum) for Australian dollar debt and 1.61% per annum (2015: 1.54% 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. 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. Ardent Leisure Group | Annual Report 2016 51 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 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. 52 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 grant 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 difference in the movement in the fair value of the financial liability being recognised in the Income Statement. The fair value of each grant 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. Ardent Leisure Group | Annual Report 2016 53 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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. 54 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016, the spot rate used was A$1.00 = NZ$1.0489 (2015: A$1.00 = NZ$1.1294) and A$1.00 = US$0.7426 (2015: A$1.00 = US$0.7680). The average spot rate during the year ended 30 June 2016 was A$1.00 = NZ$1.0874 (2015: A$1.00 = NZ$1.0801) and A$1.00 = US$0.7272 (2015: A$1.00 = US$0.8288). (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. Ardent Leisure Group | Annual Report 2016 55 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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. 56 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 prior 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. Ardent Leisure Group | Annual Report 2016 57 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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) Non-current assets (or disposal groups) held for sale and discontinued operations Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) 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 (or disposal group), 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 non-current asset (or disposal group) is recognised at the date of derecognition. Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the Balance Sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the Balance Sheet. A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the Income Statement. (ah) 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 2016 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 2018) The IASB has issued a new standard for the recognition of revenue. This will replace AASB 118 Revenue which covers contracts for goods and services and AASB 111 Construction Contracts which covers construction contracts. The Group is in the process of considering the impact of the new rules on its revenue recognition policies. 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 2019. 58 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 1. Summary of significant accounting policies (continued) (ah) New accounting standards, amendments and interpretations (continued) AASB 16 Leases (effective from 1 January 2019) The AASB has issued a new standard for leases which applies to accounting periods commencing on or after 1 January 2019. Given the number of properties the Group leases under operating leases, it is expected that the impact of this standard will be significant. Specifically, new assets will be realised (the right to use the leased asset) as well as new liabilities, being the liability to pay rentals. The consolidated Statement of Comprehensive Income will also be affected. The Group will conduct a detailed assessment of the new standard and will assess whether to adopt AASB 16 before its operative date; if not, it would be first applied in the annual reporting period ending 30 June 2020. 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 2016. (ai) Rounding The Group has relied on the relief provided by ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 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 Instrument, unless otherwise indicated. 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 2016 $’000 2015 $’000 2016 $’000 495,415 153,795 15,395 9 426,587 126,797 17,872 395 495,415 153,795 15,395 9 2015 $’000 426,587 126,797 17,872 395 Revenue from operating activities 664,614 571,651 664,614 571,651 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). Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 15,032 (446) 288 14,874 11,580 (573) 326 11,333 13,525 (223) 35 13,337 2015 $’000 12,049 (357) 39 11,731 Ardent Leisure Group | Annual Report 2016 59 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 5. Property expenses Landlord rent and outgoings Insurance Rates Land tax (Decrease)/increase in onerous lease provisions Other Net (loss)/gain from derivative financial instruments Unrealised net (loss)/gain on derivative financial instruments Management fees The Manager of the Trust is Ardent Leisure Management Limited. Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 2015 $’000 102,952 88,544 154,033 138,182 549 2,127 819 (2,193) 35 589 3,456 485 2,598 716 - - - - - - - - - - 104,289 96,388 154,033 138,182 Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 (170) (170) 2015 $’000 552 552 2016 $’000 - - 2015 $’000 - - 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 2016 $’000 2015 $’000 - - - - ALL Group ALL Group 2016 $’000 1,200 1,200 2015 $’000 1,200 1,200 60 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 $’000 797 2,639 3,397 100 17,264 1,032 3,627 654 11,975 1,079 4,587 3,132 181 318 84 444 3,062 1,775 3,177 113 984 60,421 2015 $’000 653 1,776 3,075 101 15,434 1,187 3,422 725 10,214 1,007 4,844 2,727 184 171 165 239 2,147 1,407 2,677 43 831 53,029 2016 $’000 562 2,528 3,397 - 17,264 1,032 3,627 654 11,975 1,079 4,566 3,132 181 318 84 411 3,062 1,775 3,177 - 947 59,771 2015 $’000 437 1,776 3,075 - 15,434 1,187 3,422 724 10,214 1,007 4,822 2,727 184 171 165 212 2,147 1,407 2,677 - 345 52,133 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 2016 $ Consolidated Group 2015 $ ALL Group 2016 $ ALL Group 2015 $ 615,978 180,812 28,278 415,641 1,550 1,242,259 533,268 120,198 27,105 212,088 1,530 894,189 381,020 180,812 - 411,031 1,550 974,413 316,339 120,198 - 212,088 1,530 650,155 Ardent Leisure Group | Annual Report 2016 61 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Income tax expense (a) Income tax expense Current tax Deferred tax Over provided in prior year Income tax expense is attributable to: Profit from continuing operations Deferred income tax expense included in income tax expense comprises: Increase in deferred tax assets Increase in deferred tax liabilities Note Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 (1,256) 10,258 (581) 8,421 2015 $’000 (1,613) 8,354 (107) 6,634 2016 $’000 (1,283) 10,258 (576) 8,399 2015 $’000 (1,444) 8,354 (67) 6,843 8,421 6,634 8,399 6,843 22 27 (878) 11,136 10,258 (6,732) 15,086 8,354 (878) 11,136 10,258 (6,732) 15,086 8,354 (b) Numerical reconciliation of income tax expense to prima facie tax expense Profit from continuing operations before income tax expense Less: Profit from the trusts(1) Prima facie profit 42,774 (37,131) 5,643 29,864 (27,104) 2,760 18,415 - 18,415 12,987 - 12,987 Tax at the Australian tax rate of 30% (2015: 30%) 1,693 828 5,525 3,896 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 Research and Development and other credits Difference in overseas tax rates Over provided in prior year Income tax expense 104 3,909 353 264 (40) 24 1,533 3 (515) 1,674 (581) 8,421 92 3,331 (118) 281 581 42 1,115 (182) (275) 1,046 (107) 6,634 104 - 405 264 (40) 24 1,533 - (515) 1,675 (576) 8,399 92 - 132 281 581 42 1,115 - (275) 1,046 (67) 6,843 (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 (441) (441) (24) (24) (441) (441) (24) (24) 62 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 10. (d) Income tax expense (continued) Unrecognised temporary differences There are no unrecognised temporary differences as at 30 June 2016 (2015: 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 Consolidated Group Consolidated Group ALL Group ALL Group 2016 2015 2016 2015 Basic earnings per security/share (cents) from continuing operations Basic earnings per security/share (cents) from discontinued operation Total basic earnings per security/share (cents) Diluted earnings per security/share (cents) from continuing operations Diluted earnings per security/share (cents) from discontinued operation Total diluted earnings per security/share (cents) 7.59 1.78 9.37 7.58 1.77 9.35 5.34 2.04 7.38 5.32 2.03 7.35 Core earnings per security (cents) Diluted core earnings per security (cents) 13.79 13.76 12.92 12.86 2.21 0.14 2.35 2.21 0.14 2.35 N/A N/A 1.42 0.16 1.58 1.41 0.16 1.57 N/A N/A Earnings used in the calculation of basic and diluted earnings per security/share ($'000) 42,387 32,122 10,641 6,862 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) 62,395 56,234 N/A N/A 452,484 435,208 452,484 435,208 991 2,069 991 2,069 453,475 437,277 453,475 437,277 Ardent Leisure Group | Annual Report 2016 63 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 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 loss/(gain) on derivative financial instruments - Valuation (gain)/loss - investment properties - 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 (refunded)/paid - (Decrease)/increase in onerous lease provisions - Gain on sale and leaseback of family entertainment centres - Loss on closure of bowling centres - Selling costs associated with discontinued operation Tax impact of above adjustments Core earnings Consolidated Group Consolidated Group 2016 $’000 2015 $’000 42,387 32,122 170 (2,059) 463 - 1,909 13,029 4,490 8,638 (134) (2,193) (1,672) - 1,047 (3,680) 62,395 (552) 501 2,646 141 2,336 11,102 6,778 6,521 1,938 2,598 (6,959) 104 - (3,042) 56,234 (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. 64 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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: 2016 dividends and distributions for the half year ended: 31 December 2015 30 June 2016(1) 2015 dividends and distributions for the half year ended: 31 December 2014 30 June 2015(2) Dividend cents per stapled security Distribution cents per stapled security Total amount $’000 Distribution tax deferred % Distribution CGT concession amount % Distribution Taxable % - - - 7.00 5.50 12.50 31,377 25,467 56,844 3.00 - 3.00 4.00 5.50 9.50 30,707 24,328 55,035 50.48 30.87 - - 49.52 69.13 (1) The distribution of 5.50 cents per stapled security for the half year ended 30 June 2016 was not declared prior to 30 June 2016. Refer to Note 44. (2) 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. (b) ALL Group No dividends were paid by the ALL Group during the year. During the prior year, a subsidiary of ALL paid to the Trust $1.6 million relating to convertible notes which were classified as equity under Australian Accounting Standards. A fully franked dividend of 3.0 cents per stapled security was paid from the ALL Group totalling $13.2 million during the prior financial year. (c) Franking credits The tax consolidated group has franking credits of $2,468,214 (2015: $3,414,276). 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 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 13,801 - (515) 13,286 11,315 - (459) 10,856 13,801 - (515) 13,286 11,315 2,354 (459) 13,210 The Group has recognised an expense of $252,912 in respect of bad and doubtful trade receivables during the year ended 30 June 2016 (2015: $199,959). The expense has been included in other expenses in the Income Statement. Refer to note 38(e) for information on the Group’s management of, and exposure to, credit risk. Ardent Leisure Group | Annual Report 2016 65 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Derivative financial instruments Current assets Forward foreign exchange contracts Non-current assets Forward foreign exchange contracts Interest rate swaps Current liabilities Interest rate swaps Non-current liabilities Interest rate swaps Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 131 131 - 113 113 1,202 1,202 2,937 2,937 263 263 114 - 114 98 98 - - - - - 132 132 - - - - - - - 2,133 2,133 1,283 1,283 129 129 Forward foreign exchange contracts The Group has entered into forward foreign exchange contracts to buy US dollars and sell Australian dollars. These contracts total A$0.6 million (2015: A$2.1 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 $80.0 million (2015: $70.0 million) and US$95.0 million (2015: US$47.0 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 $120.0 million (2015: $90.0 million) and US$7 million (2015: nil) with start dates from June 2017 and maturities up to June 2019. 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. 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. 66 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 113,292 70,000 154,064 - - - 40,000 111,198 70,000 - - - 40,399 - 74,064 - - - - 39,063 - - - - 337,356 221,198 114,463 39,063 Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 13,022 (20) 13,002 2015 $’000 11,392 (20) 11,372 2016 $’000 13,022 (20) 13,002 2015 $’000 11,392 (20) 11,372 There were no write-downs or reversals of write-downs of inventories during the year ended 30 June 2016 (2015: nil). Discontinued operation (a) Description On 22 March 2016, the Group announced its intention to sell d’Albora Marinas, the reportable segment comprising seven marinas located in New South Wales and Victoria. The formal sales process commenced on 12 May 2016. The associated assets and liabilities have been presented as held for sale and a discontinued operation in the annual financial report at 30 June 2016. (b) Financial performance and cash flow information The financial performance for the year ended 30 June 2016 was as follows: Revenue Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operation Costs incurred relating to the sale of the discontinued operation Profit from discontinued operation Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 23,008 13,652 9,356 275 9,081 (1,047) 8,034 2015 $’000 22,965 13,759 9,206 314 8,892 - 8,892 2016 $’000 23,000 22,100 900 275 625 - 625 2015 $’000 22,952 21,920 1,032 314 718 - 718 The sale of the Marinas was not completed at 30 June 2016 and therefore no gain on sale of the Marinas has been included in the results for the year. Costs incurred associated with the sale of the Marinas at 30 June 2016 were $1.0 million, which have been recognised as expenses in the Income Statement. Ardent Leisure Group | Annual Report 2016 67 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 16. (c) Discontinued operation (continued) Cash flow information The cash flows for the year ended 30 June 2016 were as follows: Net cash inflow from operating activities Net cash outflow from investing activities Net cash outflow from financing activities Net decrease in cash and cash equivalents Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 11,518 (8,039) (3,530) (51) 2015 $’000 13,787 (4,214) (9,610) (37) 2016 $’000 4,616 (1,137) (3,530) (51) 2015 $’000 9,831 (258) (9,610) (37) (d) Assets and liabilities of disposal group classified as held for sale The following assets and liabilities were reclassified as held for sale in relation to the discontinued operation as at 30 June 2016: Assets classified as held for sale Cash and cash equivalents Receivables Inventories Other Investment properties Property, plant and equipment Deferred tax assets Total assets of disposal group held for sale Labilities directly associated with assets classified as held for sale Payables Other Provisions Total liabilities of disposal group held for sale Consolidated Group 2016 $’000 ALL Group 2016 $’000 2 652 201 1,047 102,838 8,096 104 112,940 3,114 950 40 4,104 2 652 201 349 - 1,474 104 2,782 2,726 950 40 3,716 68 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Construction in progress Construction in progress inventories relate to family entertainment centres being constructed by the Group but contractually held for resale under an agreement that the Group has entered into with a third party. Once the Group has satisfied the requirements of the agreement and acceptance of the centre by the third party has occurred, the risks and rewards pass to the third party and a sale is recorded. The costs funded by the third party during the course of construction are recorded as a current liability, construction in progress deposits, and upon acceptance of the centre by the third party, this liability and related construction in progress inventories are settled. Any net realisable value adjustment is recorded in the Income Statement as a gain/loss on sale of the construction in progress inventories. At 30 June 2016, the Group had agreements for construction of six family entertainment centres at Louisville, West Chester, Olathe, Hoffman Estates, Suwanee and Albuquerque. These agreements set out agreed construction timetables, estimated costs and other key terms, including the right of the third party to exercise a put option and recover deposits advanced to the Group should construction not be completed within agreed timeframes. At 30 June 2016, construction on these sites is well progressed and expected to be completed within 12 months and agreed timeframes. A reconciliation of the carrying amount of the construction in progress inventories at the beginning and end of the current period is set out below: Construction in progress inventories Carrying amount at the beginning of the period Additions Disposals Foreign exchange movements Carrying amount at the end of the period Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 - 74,868 (12,176) (896) 61,796 2015 $’000 - - - - - 2016 $’000 - 74,868 (12,176) (896) 61,796 2015 $’000 - - - - - A reconciliation of the carrying amount of the construction in progress deposits liability at the beginning and end of the current period is set out below: Construction in progress deposits Carrying amount at the beginning of the period Deposits advanced Foreign exchange movements Settlements of deposits advanced Carrying amount at the end of the period Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 - 68,116 (446) (12,176) 55,494 2015 $’000 - - - - - 2016 $’000 - 68,116 (446) (12,176) 55,494 2015 $’000 - - - - - Ardent Leisure Group | Annual Report 2016 69 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Other assets Prepayments Accrued revenue Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 4,608 3,305 7,913 2015 $’000 6,779 3,957 10,736 2016 $’000 4,079 3,305 7,384 2015 $’000 3,069 3,957 7,026 Investment properties Consolidated Group Property Note Valuer Excess land at Dreamworld Marinas Total (a) (b) (1) (2) Cumulative revaluation (decrements)/ increments 2016 $’000 - - - Cost 2016 $’000 - - - Consolidated book value 2016 $’000 - - - 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 (a) The excess land has been valued by Directors at $3.6 million (2015: $1.9 million). This property has been transferred to property, plant and equipment at 30 June 2016 (refer to Note 20). (b) The Marinas are now classified as assets held for sale. Refer to Note 16 for further details. At 30 June 2016, the total carrying value of d’Albora Marinas (including plant and equipment of $8.1 million (2015: $7.8 million) was $110.9 million (2015: $105.2 million). (1) Stephen McDonald, CBRE Valuations Pty Limited, independently valued the excess land on Foxwell Road, Coomera at 31 December 2015 at $0.7 million. The remaining excess land has been independently valued by John Muchall, Jones Lang LaSalle Advisory Services Pty Limited, at 30 June 2016 at $2.9 million. (2) Adam Ellis, LandMark White (Sydney) Pty Limited, independently valued one of the seven properties at 30 June 2016 and a further three properties at 31 December 2015. Two of the remaining three properties were last independently valued at 16 September 2015 and one was last independently valued at 30 June 2015. 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 Disposals Revaluation increments/(decrements) Transfer to property, plant and equipment Reclassified as assets held for sale Carrying amount at the end of the year Consolidated Group Consolidated Group 2016 $’000 99,326 5,403 (364) 2,059 (3,586) (102,838) 2015 $’000 95,870 3,957 - (501) - - - 99,326 Amounts recognised in the Income Statement for investment properties: Revenue from investment properties Property expenses incurred on investment properties 18,409 (2,412) 18,085 (2,615) ALL Group ALL Group 2016 $’000 2015 $’000 - - - - - - - - - - - - - - - - - - The revenue from investment properties and property expenses incurred on investment properties during the year relate to the Marinas. At 30 June 2016, the investment properties relating to Marinas are classified as held for sale. Refer to Note 16 for further details. At 30 June 2016, the Group had receivables from third parties totalling $652,110 (2015: $332,646) relating to leases on its investment properties. 70 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Property, plant and equipment Consolidated Group Segment Note Cost less accumulated depreciation 2016 $’000 Cumulative revaluation increments/ (decrements) 2016 $’000 Consolidated book value Cost less accumulated depreciation 2016 $’000 2015 $’000 Cumulative revaluation increments/ (decrements) 2015 $’000 Theme parks Marinas Bowling centres Family entertainment centres Health clubs Other Total (1) (2) (3) (4) (5) (6) (7) 219,927 - 104,131 223,732 84,711 2,347 634,848 47,806 - 1,191 (86) - - 48,911 267,733 - 105,322 223,646 84,711 2,347 683,759 213,490 7,777 104,350 157,322 83,092 2,822 568,853 39,015 - 1,900 (86) - - 40,829 Consolidated book value 2015 $’000 252,505 7,777 106,250 157,236 83,092 2,822 609,682 (1) The book value of Dreamworld and WhiteWater World land and buildings and major rides and attractions (including intangible assets of $1.6 million (2015: $0.8 million) and livestock of $0.2 million (2015: nil)) is $235.0 million (2015: $227.5 million). In an independent valuation performed at 30 June 2016 by Jones Lang LaSalle Advisory Services Pty Limited, the fair value for these assets was assessed to be $235.0 million (2015: $227.0 million). The Directors have valued other property, plant and equipment of Dreamworld and WhiteWater World at 30 June 2016 at $0.2 million (2015: $2.9 million). (2) The book value of SkyPoint (including intangible assets of $3.6 million (2015: $3.6 million)) is $34.3 million (2015: $26.5 million). In an independent valuation performed at 30 June 2016 by Jones Lang LaSalle Advisory Services Pty Limited, the fair value for SkyPoint was assessed to be $34.3 million (2015: $26.5 million). (3) The property, plant and equipment relating to Marinas has been classified as assets held for sale – refer to Note 16 (2015: $7.8 million). (4) The one remaining freehold building was independently valued at 30 June 2016 at $1.6 million. At 30 June 2016, the Directors assessed the fair value of the freehold building to be $1.6 million (2015: $1.9 million) and the remaining property, plant and equipment to be $103.7 million (2015: $104.4 million). (5) At 30 June 2016, the Directors assessed the fair value of the property, plant and equipment in the family entertainment centres to be $223.6 million (2015: $157.2 million). (6) The Directors have valued the property, plant and equipment of health clubs at 30 June 2016 at $84.7 million (2015: $83.1 million). (7) The fair value of other property, plant and equipment was assessed by the Directors to be $2.3 million at 30 June 2016 (2015: $2.8 million). 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: Consolidated Group - 2016 Carrying amount at the beginning of the year Additions Acquired through business combinations Transfer from investment properties Reclassified as assets held for sale Disposals Depreciation Foreign exchange movements Revaluation increments Impairment Carrying amount at the end of the year Land and buildings $’000 330,577 41,558 - 3,586 (1,632) (22,616) (16,310) 2,966 10,534 (463) 348,200 Major rides and attractions $’000 Plant and equipment $’000 Furniture, fittings and equipment $’000 Motor vehicles $’000 65,202 1,378 - - - (1) (1,513) - - - 65,066 196,618 101,011 667 - (4,679) (1,483) (35,877) 730 - - 256,987 17,037 2,078 - - (1,759) (21) (4,128) 9 - - 13,216 248 270 - - (26) (109) (93) - - - 290 Total $’000 609,682 146,295 667 3,586 (8,096) (24,230) (57,921) 3,705 10,534 (463) 683,759 Ardent Leisure Group | Annual Report 2016 71 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 20. 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 $’000 283,047 42,834 63,579 3,389 4,080 - (415) (13,657) 9,793 7,541 (2,646) - - - (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 Land and buildings $’000 Plant and equipment $’000 86,833 25,050 - (2) (22,612) (3,071) 2,922 (158) 88,962 126,767 102,931 667 (1,472) (352) (31,080) 638 - Total $’000 213,600 127,981 667 (1,474) (22,964) (34,151) 3,560 (158) 198,099 287,061 Land and buildings $’000 Plant and equipment $’000 Plant and equipment under finance lease $’000 50,437 30,289 - - (399) (2,305) 9,820 (1,009) 86,833 72,534 62,477 1,441 492 (619) (21,848) 12,290 - 126,767 492 - - (492) - - - - - Total $’000 123,463 92,766 1,441 - (1,018) (24,153) 22,110 (1,009) 213,600 ALL Group - 2016 Carrying amount at the beginning of the year Additions Acquired through business combinations Transfer to assets held for sale Disposals Depreciation Foreign exchange movements Impairment 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 72 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 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 Foreign exchange movements Closing net book amount Goodwill Opening net book amount Additions Foreign exchange movements Impairment Closing net book amount Total intangible assets Consolidated Group 2016 Consolidated Group 2015 ALL Group 2016 $’000 $’000 $’000 35,948 (33,746) 2,202 12,392 (6,677) 5,715 15,203 (5,024) 10,179 239,731 (11,698) 228,033 246,129 35,935 (30,386) 5,549 12,312 (5,546) 6,766 8,251 (2,774) 5,477 236,850 (11,698) 225,152 242,944 35,948 (33,746) 2,202 12,392 (6,677) 5,715 13,775 (3,596) 10,179 239,731 (11,698) 228,033 246,129 ALL Group 2015 $’000 35,935 (30,386) 5,549 12,312 (5,546) 6,766 6,823 (1,346) 5,477 236,850 (11,698) 225,152 242,944 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 5,549 13 (3,360) 2,202 6,766 34 (1,131) 46 5,715 5,477 7,002 (2,250) (50) 10,179 5,115 6,123 (5,689) 5,549 6,396 1,210 (1,089) 249 6,766 1,488 4,803 (814) - 5,477 5,549 13 (3,360) 2,202 6,766 34 (1,131) 46 5,715 5,477 7,002 (2,250) (50) 10,179 5,115 6,123 (5,689) 5,549 6,396 1,210 (1,089) 249 6,766 1,488 4,803 (814) - 5,477 225,152 857 2,024 - 228,033 246,129 188,238 27,664 9,391 (141) 225,152 242,944 225,152 857 2,024 - 228,033 246,129 188,238 27,664 9,391 (141) 225,152 242,944 Ardent Leisure Group | Annual Report 2016 73 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 21. Intangible assets (continued) Customer relationships 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 and franchise agreements 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 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 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. A segment level summary of the goodwill allocation is presented below: Consolidated Group and ALL Group 2016 Theme parks Bowling centres Family entertainment centres Health clubs 2015 Theme parks Bowling centres Family entertainment centres Health clubs Australia United States New Zealand $’000 $’000 $’000 Total $’000 4,366 21,127 - 142,432 - - 56,369 - 167,925 56,369 - 3,739 - - 3,739 4,366 24,866 56,369 142,432 228,033 Australia United States New Zealand $’000 $’000 $’000 Total $’000 4,366 20,270 - 142,432 - - 54,608 - 167,068 54,608 - 3,476 - - 3,476 4,366 23,746 54,608 142,432 225,152 74 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 21. Intangible assets (continued) Impairment tests for goodwill 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 to test for impairment in the business segments to which a significant amount of goodwill was allocated: Budget/forecast EBITDA period growth rate Long term EBITDA growth rate(1) Post-tax discount rate(2) 2016 2015 2016 2015 2016 2015 % per annum % per annum % per annum % per annum % per annum % per annum Theme parks(3) Bowling centres Health clubs Family entertainment centres N/A 2.00 0.00 - 2.00 3.00 N/A 2.00 0.00 - 2.00 3.00 N/A 2.00 2.00 3.00 N/A 2.00 2.00 3.00 N/A 7.65 7.65 6.89 N/A 8.26 8.26 7.16 (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 8.19% (2015: 9.51%) for bowling centres, 8.68% (2015: 9.75%) for health clubs and 8.30% (2015: 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 2016 and were independently valued by Jones Lang LaSalle (refer to Note 20). As a result, no impairment testing is required at 30 June 2016. 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 2017-2020 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. 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 amounts of bowling centres, family entertainment centres and health clubs are all well in excess of their carrying amounts. 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 2016 75 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 Difference in overseas tax rates 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 to the Income Statement (refer to Note 10) Reclassified as assets held for sale (refer to Note 16) 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 ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 2015 $’000 154 6,032 3,284 1,398 50 119 8 26 4,701 452 142 5,471 4,287 831 24 96 - - 4,117 98 154 6,032 3,284 1,398 50 119 8 26 4,701 452 142 5,471 4,287 831 24 96 - - 4,117 98 16,224 15,066 16,224 15,066 (3,057) (7,170) 5,997 15,066 878 (165) 441 4 (4,663) (6,160) 4,243 8,121 6,732 - 24 189 (3,057) (7,170) 5,997 15,066 878 (165) 441 4 (4,663) (6,160) 4,243 8,121 6,732 - 24 189 16,224 15,066 16,224 15,066 8,587 7,637 8,736 6,330 8,587 7,637 8,736 6,330 16,224 15,066 16,224 15,066 76 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 23. Payables Current Custodian fee Interest payable GST payable Trade creditors Payable to the Trust 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 Non-current Bank loan - term debt Less: amortised costs - bank loan Loans from the Trust(1) Total interest bearing liabilities Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 47 513 1,617 17,143 - 1,001 107 20,785 8,422 - - 18,699 14,155 2,456 21,462 106,407 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 - 180 1,619 17,143 1,414 - 1,742 20,785 8,422 - - 4,642 14,155 2,456 21,141 93,699 - 85 1,666 8,770 - - 3,497 17,238 12,864 - 1,823 3,760 11,245 1,826 13,513 76,287 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 314,944 (2,041) - 312,903 279,761 (1,143) - 278,618 148,869 (1,002) 128,221 276,088 110,547 (442) 126,901 237,006 (1) Further information relating to these loans is included in Note 36(g). On 11 August 2015, the Group completed refinancing of its syndicated loan facilities. This resulted in an increase in the available USD facilities to US$280.0 million (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 (2015: $200.0 million); however, they have been similarly extended to mature in equal tranches of three, four and five years respectively. 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. 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 3.5 (2015: 3.75); and  Fixed charge cover ratio, being the ratio of adjusted EBITDA to fixed charges, must be no less than 1.75 (2015: 1.75). Ardent Leisure Group | Annual Report 2016 77 For personal use only Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 102,838 102,838 9,070 13,286 131 13,002 3,275 10,102 61,796 7,913 118,575 221,413 - 348,200 348,200 335,559 113 221 18,096 353,989 702,189 923,602 - - 4,986 10,856 263 11,372 1,740 - - 10,736 39,953 39,953 99,326 330,577 429,903 279,105 114 245 17,792 297,256 727,159 767,112 - - 8,391 13,286 - 13,002 3,275 2,782 61,796 7,384 109,916 109,916 - 88,962 88,962 198,099 - 221 18,096 216,416 305,378 415,294 - - 4,685 13,210 - 11,372 1,740 - - 7,026 38,033 38,033 - 86,833 86,833 126,767 - 245 17,792 144,804 231,637 269,670 Notes to the Financial Statements for the year ended 30 June 2016 24. Interest bearing liabilities (continued) Total secured liabilities and assets pledged as security The carrying amounts of assets pledged as security for borrowings are: Current Mortgage Assets classified as held for sale Floating charge Cash and cash equivalents Receivables Derivative financial instruments Inventories Current tax receivables Assets classified as held for sale Construction in progress inventories Other Total current assets Non-current Mortgage Investment properties Land and buildings Floating charge Plant and equipment Derivative financial instruments Livestock Intangible assets Total non-current assets Total assets 78 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 24. Interest bearing liabilities (continued) Credit facilities As at 30 June 2016, the Group had unrestricted access to the following credit facilities: A$ 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 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 200,000 (142,433) 57,567 377,054 (172,511) 204,543 200,000 (144,400) 55,600 208,334 (135,361) 72,973 - - - - - - 577,054 (314,944) 262,110 408,334 (279,761) 128,573 - - - 350,121 (148,869) 201,252 226,933 (128,221) 98,712 577,054 (277,090) 299,964 - - - 182,292 (110,547) 71,745 226,042 (126,901) 99,141 408,334 (237,448) 170,886 The Group has access to A$200.0 million (2015: A$200.0 million) syndicated facilities and US$280.0 million (2015: US$160.0 million) syndicated facilities. A$66.7 million of the AUD facilities will mature on 10 August 2018, A$66.7 million will mature on 10 August 2019 and A$66.7 million will mature on 10 August 2020. US$93.3 million of the USD facilities will mature on 10 August 2018, US$93.3 million will mature on 10 August 2019 and US$93.3 million will mature on 10 August 2020. 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 2016, including the impact of the interest rate swaps, is 4.32% per annum for AUD denominated debt (2015: 4.28% per annum) and 2.37% per annum for USD denominated debt (2015: 1.92% 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 dollar Trust loan facilities totalling $200.0 million (2015: $200.0 million) have a maturity date of 10 August 2018. In addition, the ALL Group has US$20.0 million (2015: US$20.0 million) facilities with the Trust maturing on 10 August 2018. The ALL Group has access to US$260.0 million (2015: US$140.0 million) syndicated facilities. US$73.3 million of the facilities will mature on 10 August 2018, US$93.3 million will mature on 10 August 2019 and US$93.3 million will mature on 10 August 2020. Information about the Group’s exposure to foreign exchange risk and interest rates is provided in Note 38. Ardent Leisure Group | Annual Report 2016 79 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 $’000 2015 $’000 2016 $’000 2015 $’000 - 55,705 (14,465) (41,240) - - 55,820 (39,041) (16,779) - - - 10,979 (10,979) - - 14,790 (11,132) (3,658) - A provision for the distribution relating to the half year to 30 June 2016 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(1) Total current Non-current Employee benefits Property onerous lease contracts Property make good obligations Total non-current Total provisions Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 3,871 158 4,029 1,262 2,030 11,695 14,987 19,016 3,047 189 3,236 1,803 4,221 9,745 15,769 19,005 3,871 158 4,029 1,262 382 2,770 4,414 8,443 2015 $’000 3,047 189 3,236 1,803 1,569 2,180 5,552 8,788 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 (1) Sundry provisions include insurance excess/deductible amounts for public liability insurance, fringe benefits tax provisions and other royalty provisions. 572 411 (794) 189 189 292 (323) 158 189 292 (323) 158 572 411 (794) 189 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. These employee benefits are actively monitored by management and therefore, the Group expects all employees to take the full amount of accrued leave or require payment within the next 12 months. 80 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 to the Income Statement (refer to Note 10) Reclassified as liabilities directly associated with assets held for sale Acquired through business combinations 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 2016 $’000 2015 $’000 2016 $’000 1,985 1,985 2,694 2,694 1,985 1,985 2015 $’000 2,694 2,694 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 2,355 385 81 40,944 3,682 837 122 28,045 2,355 385 81 40,944 43,765 32,686 43,765 (3,057) (7,170) 33,538 (4,663) (6,160) 21,863 (3,057) (7,170) 33,538 32,686 11,136 (61) 4 15,420 15,086 - 2,180 32,686 11,136 (61) 4 43,765 32,686 43,765 383 43,382 43,765 845 31,841 32,686 383 43,382 43,765 3,682 837 122 28,045 32,686 (4,663) (6,160) 21,863 15,420 15,086 - 2,180 32,686 845 31,841 32,686 Ardent Leisure Group | Annual Report 2016 81 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 28. Contributed equity No. of securities/shares Details Date of income entitlement Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 405,055,708 6,358,756 Securities/shares on issue DRP issue 30 Jun 2014 1 Jul 2014 1,751,698 110,302 20,746,888 8,298,754 - - 442,322,106 19,377,615 1 Jul 2014 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 Securities/shares on issue DRP issue 30 Jun 2015 1 Jul 2015 1,339,895 - 463,039,616 Security-based payments - securities/shares issued 1 Jul 2015 Issue costs paid Securities/shares on issue 30 Jun 2016 (i) Distribution Reinvestment Plan (DRP) issues 513,912 16,779 5,255 228 50,000 20,000 (993) - 605,181 605,181 605,181 41,240 3,377 (78) 649,720 155,262 10,979 880 (21) 167,100 16,309 3,658 878 59 8,356 3,342 (167) 122,827 155,262 155,262 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 2016 and was in operation and fully underwritten for the half year ended 31 December 2015. (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 and future investment in Main Event. (iv) Capital reallocation The Group and ALL Group implemented a capital reallocation during the prior period of 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. 82 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 384,988 performance rights vested. Australian employees Since the DSTI was approved in July 2010, incentives have been provided to certain executives under the DSTI. Under the terms of the DSTI, participants 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 possible vesting date being the day after the full year financial results announcement for the year ended 30 June 2011. A total of 286,776 performance rights vested on 20 August 2015 and a corresponding number of stapled securities were issued to Australian employees under the terms of the DSTI (2015: 716,574). 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 2016 83 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 was 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 was made. Due to the nature of the scheme, this was considered to be a cash settled share-based payment under AASB 2. All performance rights issued after 1 July 2014 to US employees are to be settled in equity upon vesting. As such, these performance rights are considered to be equity settled share-based payments under AASB 2. A total of 98,212 equity settled performance rights vested during the financial year (2015: 56,829). In the ALL financial statements, all performance rights issued to US employees are considered 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 each 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 2016, 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. Under AASB 2, this valuation is used to value the equity settled performance rights granted to employees at 30 June 2016: 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 2014 19 August 2014 20 August 2015 31 August 2016 2.50% per annum 27.0% per annum 4.3% per annum $3.00 $2.81 2015 18 August 2015 31 August 2016 31 August 2017 1.90% per annum 34.5% per annum 5.7% per annum $2.18 $2.00 The table below shows the fair value of the performance rights in each grant as at 30 June 2016 as well as the factors used to value the performance rights as at 30 June 2016. Under AASB 2, this valuation is used to value the cash settled performance rights granted to employees at 30 June 2016: 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 2014 19 August 2014 20 August 2015 31 August 2016 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.88 2015 18 August 2015 31 August 2016 31 August 2017 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.81 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. 84 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 Consolidated Group 2015 ALL Group 2016 ALL Group 2015 Performance rights issued to participating executives: Performance rights 791,724 543,698 791,724 543,698 Grant date Expiry date Exercise price Valuation per right Balance at beginning of the year Granted Exercised Failed to vest 23 Aug 2013 20 Aug 2015 nil 166.1 cents 213,931 19 Aug 2014 31 Aug 2016 nil 280.8 cents 329,767 - - (213,931) (171,057) 18 Aug 2015 31 Aug 2017 nil 199.7 cents - 671,893 543,698 671,893 - (384,988) Cancelled - (11,269) (27,610) (38,879) - - - - Balance at the end of the year - 147,441 644,283 791,724 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 EPS performance hurdles. The weighting between the two hurdles will be split as follows:  TSR – 50%; and  EPS – 50%. Ardent Leisure Group | Annual Report 2016 85 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 with maximum vesting achieved at the 75th percentile; 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 with maximum vesting achieved at 10% compound EPS growth. 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 S&P/ASX Small Industrials Index. Did any of the securities vest? Australian employees During the financial year, a total of 993,905 performance rights vested into fully paid stapled securities 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 S&P/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 2011, 2012 and 2013 with the following results: Tranche T3-2011 T2-2012 T1-2013 TSR 119.09% 103.94% 45.48% Percentile 81.82 79.12 68.63 Vesting percentage 100.0% 100.0% 87.3% A total of 939,923 performance rights vested on 20 August 2015 and a corresponding number of stapled securities were issued to Australian employees under the terms of the LTIP (2015: 1,145,426). 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. 86 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 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 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 38,998 cash settled performance rights vested on 20 August 2015 to US employees under the terms of the LTIP (2015: 57,452). All performance rights issued after 1 July 2014 to US employees are settled in equity upon vesting. These performance rights are considered to be equity settled share-based payments under AASB 2. A total of 14,984 equity settled performance rights vested on 20 August 2015 to US employees under the terms of the LTIP (2015: nil). 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. Valuation inputs For performance rights outstanding at 30 June 2016, 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. Under AASB 2, this valuation is used to value the equity settled performance rights granted to employees at 30 June 2016: 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 2012 24 August 2012 19 August 2014 20 August 2015 31 August 2016 2.73% per annum 35.0% per annum 9.1% per annum $1.29 $0.61 2013 23 August 2013 20 August 2015 31 August 2016 31 August 2017 2.60% per annum 32.0% per annum 6.6% per annum $1.82 $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 2015 15 December 2015 31 August 2017 31 August 2018 31 August 2019 2.10% per annum 38.3% per annum 5.8% per annum $2.17 $1.12 Ardent Leisure Group | Annual Report 2016 87 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 as well as the factors used to value the performance rights at 30 June 2016. Under AASB 2, this valuation is used to value the cash settled performance rights granted to employees at 30 June 2016: 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 2012 24 August 2012 19 August 2014 20 August 2015 31 August 2016 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.21 2013 23 August 2013 20 August 2015 31 August 2016 31 August 2017 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $1.04 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $0.28 2015 15 December 2015 31 August 2017 31 August 2018 31 August 2019 1.60% per annum 40.0% per annum 6.6% per annum $1.88 $0.85 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. 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 is split equally between the two performance measures. Proportion of performance rights vesting 0% 50% Straight-line vesting between 50% and 100% 100% 88 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 Consolidated Group 2015 ALL Group 2016 ALL Group 2015 Performance rights issued to participating executives: Performance rights 2,162,697 2,348,012 2,162,697 2,348,012 Grant date Expiry date Exercise price Valuation per right Balance at beginning of the year Granted Exercised Failed to vest 16 Dec 2010 19 Aug 2014 nil 12 Sep 2011 20 Aug 2015 nil 24 Aug 2012 31 Aug 2016 nil 23 Aug 2013 31 Aug 2017 nil 19 Aug 2014 31 Aug 2018 nil 15 Dec 2015 31 Aug 2019 nil 52.3 cents 43.7 cents 60.9 cents 76.3 cents 153.9 cents 112.3 cents - 441,109 647,177 787,631 472,095 - - - (441,109) - (323,587) - (229,209) - - - - 852,675 2,348,012 852,675 (993,905) - - - (33,341) - - (33,341) Balance at the end of the year - - 323,590 514,337 472,095 852,675 2,162,697 Cancelled - - - (10,746) - - (10,746) 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 $1,529,237 (2015: $1,761,441). The expense recorded in the ALL Group financial statements in the year in relation to the performance rights was $1,703,232 (2015: $2,595,805). Ardent Leisure Group | Annual Report 2016 89 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Reserves Asset revaluation reserve Opening balance Revaluation - Theme parks Revaluation - Bowling centres 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 90 Ardent Leisure Group | Annual Report 2016 Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 2015 $’000 2016 $’000 10,429 11,243 (709) (3,527) 17,436 - - - - 6,225 7,541 - (3,337) 10,429 (11,018) (4,677) 15,695 - (2,058) (1,878) 441 (1,124) (958) 24 (3,495) (2,058) (35,145) 2,049 (38,768) 3,623 (33,096) (35,145) (3,917) (1,866) (5,783) (96) (3,821) (3,917) - - - - - - 1,132 (1,132) - (2,269) 2,269 - 3,416 - - - 3,416 - - - - (70) (1,321) 441 (950) 4,292 2,277 6,569 - - - - - - - - - (24,938) (30,691) 9,035 2015 $’000 3,416 - - - 3,416 - - - - (19) (75) 24 (70) (2,624) 6,916 4,292 - - - - - - (2,310) 2,310 - 7,638 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 was previously 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. This reserve was transferred to retained profits in the prior year. 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 previously 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. The reserve was transferred to retained profits in the prior year. 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 an earlier period, the Group acquired the remaining interest in Ardent Leisure Health Clubs 1 Pty Limited. The reserve was transferred to retained profits in the prior year. (Accumulated losses)/retained profits Opening balance Profit for the year Available for distribution Transfer from asset revaluation reserve Transfer from 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 2016 $’000 2015 $’000 2016 $’000 2015 $’000 4,992 42,387 47,379 3,527 - - - (55,705) (4,799) 37,508 32,122 69,630 3,337 (11,018) 1,132 (2,269) (55,820) 4,992 (11,893) 10,641 (1,252) - - - - - (1,252) (1,655) 6,862 5,207 - - - (2,310) (14,790) (11,893) The distribution of 5.5 cents per stapled security for the year ended 30 June 2016 totalling $25.5 million had not been declared at year end. This will be paid on or before 31 August 2016, as described in Note 44. Ardent Leisure Group | Annual Report 2016 91 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Business combinations Current period KAOS Amusement Arcade On 6 October 2015, the Group acquired an amusement arcade in Penrith, NSW for $1.3 million. Transaction costs totalling $63,782 were incurred on this acquisition, expensed in the Income Statement and recognised within operating cash flows in the Statement of Cash Flows. The acquired business contributed revenues of $0.8 million and a profit before allocation of Group costs and tax of $0.3 million to the Group for the period from 6 October 2015 to 30 June 2016. If the acquisition had occurred on 1 July 2015, it would have contributed revenues of $1.1 million and a profit before allocation of Group costs and tax of $0.4 million for the year ended 30 June 2016. 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 Other current assets Property, plant and equipment Net deferred tax asset Deferred income Provision for property make good obligations Employee benefits provision Net identifiable assets acquired Outflow of cash to acquire business: Cash consideration Outflow of cash Hypoxi Caroline Springs Consolidated Group Acquiree's carrying amount $’000 10 460 4 - - (12) 462 Consolidated Group Fair value $’000 10 584 4 (45) (101) (12) 440 Consolidated Group $’000 ALL Group $’000 1,297 1,297 440 857 1,398 1,398 541 857 ALL Group Acquiree's carrying amount $’000 10 460 4 - - (12) 462 ALL Group Fair value $’000 10 584 4 (45) - (12) 541 Consolidated Group ALL Group $’000 $’000 1,297 1,297 1,398 1,398 On 3 August 2015, the Group acquired a Hypoxi studio at Caroline Springs, Victoria for $0.1 million. No goodwill was recognised on acquisition. Prior period During the period, the Group finalised its prior year acquisitions of the Fitness First WA health clubs, Hypoxi US and Canada distribution and master franchise rights, the amusement arcade at Highpoint Victoria, the Hypoxi Studio at Ballantyne, North Carolina and the Hypoxi Studio at Randwick, Sydney. The deferred payment of $2.4 million relating to the Fitness First WA acquisition was paid in September 2015. Purchase price and goodwill adjustments on finalisation were immaterial in nature. 92 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 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 2016 $’000 9,009 61 9,070 2015 $’000 4,923 63 4,986 2016 $’000 8,330 61 8,391 2015 $’000 4,622 63 4,685 Cash on deposit at call in the Group bears an average floating interest rate of 1.66% per annum (2015: 1.89% per annum). Cash on deposit at call in the ALL Group bears an average floating interest rate of 1.75% per annum (2015: 2.00% per annum). Cash flow information (a) Reconciliation of profit to net cash flows from operating activities Profit for the year Non-cash items Depreciation of property, plant and equipment Amortisation Depreciation of livestock Impairment of goodwill Security-based payments Provision for doubtful debts (Decrease)/increase in onerous lease provisions Loss on sale of property, plant and equipment and livestock Loss on closure of bowling centre Impairment of property, plant and equipment Valuation (gains)/loss on investment properties and property, plant and equipment Classified as financing activities Borrowing costs Classified as investing activities Unrealised net loss/(gain) on derivative financial instruments Gain on sale and leaseback of family entertainment centres Changes in asset and liabilities: (Increase)/decrease in assets: Receivables Inventories Deferred tax assets Construction in progress inventories Other assets Increase/(decrease) in liabilities: Payables and other liabilities Provisions Payable to the Trust Construction in progress deposits Current tax liabilities Deferred tax liabilities Net cash flows from operating activities Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 42,387 32,122 10,641 6,862 57,921 6,741 24 - 1,539 253 (2,193) 513 - 463 47,256 7,592 30 141 1,396 200 2,598 919 104 2,646 34,151 6,741 24 - 1,713 253 (1,146) 139 - 158 24,153 7,592 30 141 2,231 200 1,465 772 - 1,009 (2,059) 501 - - 14,874 11,333 13,337 11,731 170 (1,672) (552) (7,355) - (1,672) - (7,355) (3,336) (1,831) (1,857) (62,692) 1,533 18,917 174 - 55,940 (1,398) 11,010 135,421 (3,345) (1,993) (2,265) - (3,333) 19,040 (136) - - 363 8,090 115,352 (981) (1,831) (1,857) (62,692) (2,233) 33,960 217 (3,824) 55,940 (1,424) 11,010 90,624 (4,633) (1,993) (2,265) - (3,123) 17,422 764 2,033 - 358 8,090 65,484 Ardent Leisure Group | Annual Report 2016 93 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 41,240 16,779 10,979 3,658 Consolidated Group Consolidated Group 2016 $’000 2015 $’000 1,157,632 (246,129) (537,649) 373,854 996,507 (242,944) (417,025) 336,538 463,039,616 $0.81 442,322,106 $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; Don Morris AO; Deborah Thomas; George Venardos; and Melanie Willis. (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. 94 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 Sub Trust 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, Inc (d) Transactions with related parties Key management personnel Short term employee benefits Post-employment benefits Termination 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 2016 $ 4,999,598 182,825 855,644 1,249,248 7,287,315 Consolidated Group 2015 $ 4,587,929 168,555 - 1,284,888 6,041,372 ALL Group 2016 $ 4,999,598 182,825 855,644 1,239,468 7,277,535 ALL Group 2015 $ 4,587,929 168,555 - 1,665,352 6,421,836 Remuneration of key management personnel (KMP) is shown in the Directors’ report from pages 13 to page 33. (e) Loans to KMP There were no loans to KMP during the financial year or prior corresponding period. (f) Other transactions with KMP During the year, the Group entered into commercial arm’s length agreements with companies of interest to David Haslingden and Melanie Willis by virtue of their positions as non-executive directors of those companies or their subsidiaries. The Directors fully disclose their interest in accordance with section 195(1) of the Corporations Act 2001. All agreements have been entered into on normal commercial bases. The fees and transactions were all based on normal commercial terms and conditions. Related party balances above are on interest free terms. 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 2016 95 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 $ Consolidated Group 2015 $ ALL Group 2016 $ ALL Group 2015 $ (856,133) (37,226) - (15,312) (856,133) (37,226) - (15,312) - - - - - - - - (4,538,444) (4,828,281) - - - - - - (126,900,500) (85,096,033) 89,699,028 (25,183) (5,898,585) (128,221,273) (125,365,392) (129,802,645) 134,550,710 (39,692) (6,243,481) (126,900,500) Purchases of goods Purchase of services from related parties 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: Marinas This segment comprises seven d’Albora Marina properties, located in New South Wales and Victoria. Family entertainment centres This segment comprises of 27 Main Event sites in Texas, Arizona, Georgia, Illinois, Kentucky, Missouri, New Mexico, Ohio, Oklahoma and Tennessee, United States of America. Bowling centres This segment comprises 48 bowling centres and six amusement arcades located in Australia and New Zealand. 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 clubs in Queensland, New South Wales, Victoria, South Australia and Western Australia, including 14 in-club Hypoxi studios. The division also includes two independent Hypoxi studios in New South Wales and two independent Hypoxi studios in Phoenix, Arizona. 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, increase/decrease in onerous lease provisions, amortisation of health club brands and customer relationship intangible assets, impairment of property, plant and equipment and intangible assets and discontinued operation selling costs. 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. 96 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 37. Segment information (continued) Business segment 2016 Consolidated Group Discontinued operation Family entertainment centres $’000 Marinas $’000 Continuing operations Total Bowling centres $’000 Theme parks $’000 Health clubs $’000 Other $’000 $’000 Revenue from operating activities 23,000 238,974 130,494 107,582 187,555 9 687,614 Divisional EBITDA before property costs(1) Divisional EBITDA(2) Depreciation and amortisation(3) 12,569 10,157 (730) 87,260 59,168 (17,827) 45,291 18,224 (9,344) 35,947 34,725 (5,492) 77,511 30,114 (12,620) - - (1,153) 258,578 152,388 (47,166) Divisional EBIT(4) 9,427 41,341 8,880 29,233 17,494 (1,153) 105,222 Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, decrease in onerous lease provisions, health club brands and customer relationship intangible asset amortisation, impairment of property, plant and equipment and discontinued operation selling costs not included in divisional EBIT Valuation gains - investment properties Loss on disposal of assets Gain on sale and leaseback of family entertainment centres Net loss from derivative financial instruments Interest income Corporate costs Business acquisition costs refunded Borrowing costs Net tax expense Profit for the year (27,383) 2,059 (514) 1,672 (170) 81 (15,144) 134 (14,874) (8,696) 42,387 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 113,093 357,836 137,986 283,774 251,144 13,799 1,157,632 6,448 106,013 16,968 9,638 20,612 592 160,271 (1) Excludes pre-opening expenses of $8,638,000. (2) Excludes pre-opening expenses of $8,638,000, straight lining of fixed rent increases of $1,909,000 and a decrease in onerous lease provisions of $2,193,000. (3) Excludes IFRS depreciation of $13,029,000, amortisation of health club brands and customer relationship intangible assets totalling $4,490,000 and impairment of property, plant and equipment of $463,000. (4) Excludes of pre-opening expenses of $8,638,000, straight lining of fixed rent increases of $1,909,000, a decrease in onerous lease provisions of $2,193,000, IFRS depreciation of $13,029,000, amortisation of health club brands and customer relationship intangible assets of $4,490,000 and impairment of property, plant and equipment of $463,000. Ardent Leisure Group | Annual Report 2016 97 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 37. Segment information (continued) Business segment 2015 Consolidated Group Family Marinas $’000 entertainment Bowling centres $’000 centres $’000 Theme parks $’000 Health clubs $’000 Other $’000 Total $’000 Revenue from operating activities 22,952 177,123 116,510 99,571 178,388 59 594,603 Divisional EBITDA before property costs(1) Divisional EBITDA(2) Depreciation and amortisation(3) 12,765 10,150 (929) 64,439 45,657 (11,982) 40,279 13,989 (7,859) 33,163 32,015 (5,394) 72,543 28,152 (10,018) 49 49 (816) 223,238 130,012 (36,998) Divisional EBIT(4) 9,221 33,675 6,130 26,621 18,134 (767) 93,014 Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, onerous lease costs, health club brands and customer relationship 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 centre 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 109,862 217,949 140,870 264,552 250,427 12,847 996,507 4,860 88,767 21,530 7,793 59,695 2,158 184,803 (1) Excludes pre-opening expenses of $6,521,000. (2) Excludes pre-opening expenses of $6,521,000, straight lining of fixed rent increases of $2,336,000 and onerous lease costs of $2,598,000. (3) Excludes IFRS depreciation of $11,102,000, amortisation of health club brands and customer relationship 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 lease costs of $2,598,000, IFRS depreciation of $11,102,000, amortisation of health club brands and customer relationship intangible assets of $6,778,000 and impairment of property, plant and equipment and intangible assets of $2,787,000. 98 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 37. Segment information (continued) Business segment 2016 ALL Group Discontinued operation Continuing operations Family entertainment centres $’000 Marinas $’000 Bowling centres $’000 Theme parks $’000 Health clubs $’000 Other $’000 Total $’000 Revenue from operating activities 23,000 238,974 130,494 107,582 187,555 9 687,614 Divisional EBITDA before rent to Trust(1) Divisional EBITDA after rent to Trust(1) Depreciation and amortisation(2) Divisional EBIT(3) 12,569 1,077 (163) 914 59,168 59,168 (17,827) 41,341 45,271 7,329 (3,015) 4,314 35,947 2,839 (1,647) 1,192 - 64,531 - 23,393 (12,620) (1,153) 10,773 (1,153) 217,486 93,806 (36,425) 57,381 Pre-opening expenses, straight lining of fixed rent increases, decrease in onerous lease provisions, health club brands and customer relationship intangible asset amortisation and impairment of property, plant and equipment 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 refunded Borrowing costs Net tax expense Profit for the year (13,063) (140) 1,672 68 116 (13,516) 134 (13,337) (8,674) 10,641 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 2,972 357,907 47,735 21,679 206,187 12,844 649,324 706 106,022 12,256 2,789 14,189 592 136,554 (1) Excludes pre-opening expenses of $8,455,000, straight lining of fixed rent of $1,149,000 and decrease in onerous lease provisions of $1,190,000. (2) Excludes amortisation of health club brands and customer relationship intangible assets of $4,490,000 and impairment of property, plant and equipment of $159,000. (3) Excludes pre-opening expenses of $8,455,000, straight lining of fixed rent of $1,149,000, decrease in onerous lease provisions of $1,190,000, amortisation of health club brands and customer relationship intangible assets of $4,490,000 and impairment of property, plant and equipment of $159,000. Ardent Leisure Group | Annual Report 2016 99 For personal use only Notes to the Financial Statements For the year ended 30 June 2016 37. Segment information (continued) Business segment 2015 ALL Group Family entertainment centres $’000 Marinas $’000 Bowling centres $’000 Theme parks $’000 Health clubs $’000 Other $’000 Total $’000 Revenue from operating activities 22,952 177,123 116,510 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) Divisional EBIT(3) 12,765 1,107 (75) 1,032 45,657 45,657 (11,982) 33,675 40,279 33,163 2,621 (1,113) 1,508 6,261 (1,054) 5,207 60,186 21,317 (9,959) 11,358 49 49 (814) (765) 192,099 77,012 (24,997) 52,015 Pre-opening expenses, straight lining of fixed rent increases, onerous lease costs, health club brands and customer relationship 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 centre 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 3,429 217,842 39,383 16,963 207,054 14,394 499,065 883 88,767 6,898 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 health club brands and customer relationship 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 health club brands and customer relationship intangible assets of $6,778,000 and impairment of property, plant and equipment and intangible assets of $1,150,000. 100 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 Capital and financial risk management (a) 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% to 35% of debt to debt plus equity. At 30 June 2016, gearing was 33.04% (2015: 32.6%) 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% to 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 2016 101 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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% to 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 Assets classified as held for sale Construction in progress inventories Investment properties Property, plant and equipment Intangible assets Other non-current assets Total assets Liabilities Payables and other current liabilities Construction in progress deposits Derivative financial instruments Liabilities directly associated with assets classified as held for sale Interest bearing liabilities Other non-current liabilities Total liabilities 2016 $’000 2015 $’000 3,285 29,524 244 112,940 - - 453,544 187,961 6,558 794,056 70,152 - 2,652 4,104 141,449 13,638 231,995 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 2016 $’000 1,031 238 - - - - 2,018 3,689 19 6,995 658 - - - - - 658 2015 $’000 324 353 - - - - 2,003 3,426 16 6,122 793 - - - - - 793 2016 $’000 2015 $’000 4,754 7,714 - - 61,796 - 228,197 54,479 (359) 356,581 41,674 55,494 1,487 - 171,454 34,887 304,996 1,652 4,675 - - - - 158,480 52,786 (390) 217,203 24,643 - 193 - 134,872 22,901 182,609 Net assets 562,061 539,559 6,337 5,329 51,585 34,594 Notional value of derivatives - - - - 774 2,441 Net exposure to foreign exchange movements 562,061 539,559 6,337 5,329 52,359 37,035 102 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 Assets classified as held for sale Construction in progress inventories Property, plant and equipment Intangible assets Other non-current assets Total assets Liabilities Payables and other current liabilities Construction in progress deposits Derivative financial instruments Liabilities directly associated with assets classified as held for sale Interest bearing liabilities Other non-current liabilities Total liabilities Australian dollars 2015 $’000 2016 $’000 New Zealand dollars 2015 2016 $’000 $’000 US dollars 2016 $’000 2015 $’000 3,167 29,188 2,782 - 58,851 187,961 6,558 288,507 57,815 - - 3,716 128,569 3,065 193,165 2,866 28,834 - - 55,120 186,732 4,862 278,414 58,464 - - - 125,613 4,514 188,591 566 172 - - 13 3,689 19 4,459 317 - - - - - 317 275 152 - - - 3,426 16 3,869 426 - - - - - 426 4,658 7,587 - 61,796 228,197 54,479 (359) 356,358 41,644 55,494 1,415 - 147,519 34,887 280,959 1,544 4,362 - - 158,480 52,786 (390) 216,782 24,618 - 129 - 111,393 22,901 159,041 Net assets 95,342 89,823 4,142 3,443 75,399 57,741 Net exposure to foreign exchange movements Foreign exchange rate sensitivity 95,342 89,823 4,142 3,443 75,399 57,741 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 2016 $’000 (4,760) 5,818 (576) 704 2015 $’000 (3,367) 4,115 (484) 593 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 2016 $’000 2015 $’000 - - - - - - - - Total equity movement 2016 $’000 (4,760) 5,818 (576) 704 Profit movement Total equity movement 2016 $’000 (6,854) 8,378 (378) 459 2015 $’000 (5,249) 6,416 (312) 384 2016 $’000 (6,854) 8,378 (378) 459 2015 $’000 (3,367) 4,115 (484) 593 2015 $’000 (5,249) 6,416 (312) 384 Ardent Leisure Group | Annual Report 2016 103 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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. Consolidated Group Australian interest rates US interest rates Fixed rates Interest bearing liabilities Floating rates Cash and cash equivalents Interest bearing liabilities 2016 $’000 2015 $’000 2016 $’000 - - - - - - 2015 $’000 - - 4,316 (142,433) (138,117) 3,334 (144,400) (141,066) 4,754 (172,511) (167,757) 1,652 (135,361) (133,709) Interest rate swaps 80,000 70,000 127,929 61,198 Net interest rate exposure (58,117) (71,066) (39,828) (72,511) Refer to Note 14 for further details on the interest rate swaps. 104 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 rates US interest rates 2016 $’000 2015 $’000 2016 $’000 - - - - - - 2015 $’000 - - 3,733 (128,569) (124,836) 3,141 (125,613) (122,472) 4,658 (148,521) (143,863) 1,544 (111,835) (110,291) - - 105,036 39,063 (124,836) (122,472) (38,827) (71,228) The table below 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 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 2016 $’000 (573) 573 (408) 408 2015 $’000 (698) 698 (745) 745 2016 $’000 (581) 581 (398) 398 2015 $’000 (711) 711 (725) 725 2016 $’000 1,711 (1,711) 2,234 (2,234) Profit movement Total equity movement 2016 $’000 (1,248) 1,248 (388) 388 2015 $’000 (1,225) 1,225 (712) 712 2016 $’000 (1,248) 1,248 2,040 (2,040) 2015 $’000 1,296 (1,296) 429 (429) 2015 $’000 (1,225) 1,225 36 (36) At reporting date, the Group has fixed 66.0% (2015: 46.9%) of its floating interest exposure. Ardent Leisure Group | Annual Report 2016 105 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016. 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 2016 Payables Term debt Interest rate swaps designated as hedges of the term debt Forward foreign exchange contracts Total undiscounted financial liabilities Consolidated Group 2015 Payables Term debt Interest rate swaps designated as hedges of the term debt Forward foreign exchange contracts Total undiscounted financial liabilities ALL Group 2016 Payables Term debt Loan from the Trust Interest rate swaps designated as hedges of the term debt Total undiscounted financial liabilities 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 Total $’000 106,407 106,407 8,510 314,944 - 8,510 - 193,390 - 115,392 4,026 (131) 2,077 644 425,246 117,638 1,657 - - - 10,167 194,595 115,392 1,205 - - - - - - - - 106,407 325,802 4,939 - - 644 - 437,792 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 Total $’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 - - - - - - - - - - - - 91,323 290,041 3,681 - 2,077 - - 387,122 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 Total $’000 Book value $’000 Less than 1 year $’000 93,699 148,869 128,221 93,699 2,913 5,505 1 to 2 years $’000 - 2,913 5,505 - 99,946 128,839 - 50,227 - 1,415 775 372,204 102,892 681 640 9,099 229,425 - 50,227 - - - - - - - - 93,699 155,999 139,849 - 2,096 - 391,643 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 Total $’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 - - - - - - - - - - - - - 76,287 112,948 138,549 - 616 - 328,400 106 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 38. (e) Capital and financial risk management (continued) Credit risk Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and will 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 Derivative financial instruments Consolidated Group Consolidated Group ALL Group ALL Group 2016 $’000 9,070 11,537 1,749 244 22,600 2015 $’000 4,986 9,539 1,317 377 16,219 2016 $’000 8,391 11,537 1,749 - 21,677 2015 $’000 4,685 11,893 1,317 - 17,895 Ardent Leisure Group | Annual Report 2016 107 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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: Consolidated Group 2016 Receivables - Australasia Receivables - US Consolidated Group 2015 Receivables - Australasia Receivables - US ALL Group 2016 Receivables - Australasia Receivables - US ALL Group 2015 Receivables - Australasia Receivables - US Less than 30 days $’000 Past due but not impaired 61 to 90 days $’000 31 to 60 days $’000 More than 90 days $’000 Impaired Total $’000 $’000 1,228 98 1,326 555 115 670 1,228 98 1,326 555 115 670 204 55 259 262 31 293 204 55 259 262 31 293 264 48 312 97 7 104 264 48 312 97 7 104 638 9 647 222 23 245 638 9 647 222 23 245 831 - 831 679 - 679 831 - 831 679 - 679 3,165 210 3,375 1,815 176 1,991 3,165 210 3,375 1,815 176 1,991 Based on a review of receivables by management, a provision of $515,000 (2015: $459,000) has been made against receivables with a gross balance of $831,000 (2015: $679,000). 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. 108 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 Assets measured at fair value: Property, plant and equipment(1) Assets classified as held for sale 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)) 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)) (1) Land and buildings and major rides and attractions. Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 244 4,139 314,944 413,266 109,459 - 413,266 109,459 244 - - 4,139 314,944 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 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 2016 and 30 June 2015, refer to Notes 16, 19 and 20. Ardent Leisure Group | Annual Report 2016 109 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 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)) 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)) (1) Land and buildings. Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - 88,962 88,962 1,415 277,090 - - 1,415 277,090 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - 86,833 86,833 129 237,448 - - 129 237,448 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 2016 and 30 June 2015, refer to Note 20. 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 2016. (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 (e.g. 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. 110 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 and property, plant and equipment is determined in line with the policy set out in Notes 1(f) and 1(g), 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 2016 and 2015 refer to Notes 16, 19 and 20. 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 (%) 7.3 – 10.8 Discount rate (%) 8.5 - 11.7 Annual net property income ($’000) 358 – 2,396 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 (%) 9.5 12.8 Discount rate (%) 13.5 15.5 Annual net property income ($’000) 31,652 4,611 The sensitivity of the fair values of the investment properties and land and buildings in relation to the significant unobservable inputs is set out in the table below: Fair value measurement sensitivity to significant increase in input Fair value measurement sensitivity to significant decrease in input Decrease Increase Decrease Increase Increase Decrease Capitalisation rate (%) Discount rate (%) Annual net property income ($’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 2016 111 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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. Differences were identified for the following instruments at 30 June 2016: Consolidated Group Interest bearing liabilities ALL Group Interest bearing liabilities Carrying amount 2016 $’000 Fair value Discount rate 2016 $’000 2016 % Carrying amount 2015 $’000 314,944 314,345 2.82 279,761 279,796 Fair value Discount rate 2015 $’000 2015 % 2.80 277,090 277,754 2.82 237,448 240,010 2.80 In determining the fair value of the interest bearing liabilities, the Group’s principal payable of $314.9 million (2015: $279.8 million) has been discounted at a rate of 2.82% (2015: 2.80%) 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 2016 Consolidated Group 2015 ALL Group 2016 $’000 $’000 $’000 ALL Group 2015 $’000 770 770 3,331 3,331 770 770 3,331 3,331 112 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 92,203 298,377 287,901 678,481 - 678,481 - 678,481 83,368 272,461 259,110 614,939 415 614,524 - 614,939 41,493 150,020 231,981 423,494 - 423,494 - 423,494 33,798 124,577 188,130 346,505 415 346,090 - 346,505 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 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 92,203 298,377 287,901 678,481 82,956 272,457 259,111 614,524 41,493 150,020 231,981 423,494 33,386 124,573 188,131 346,090 Ardent Leisure Group | Annual Report 2016 113 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 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 Other expenses Pre-opening expenses Business acquisition costs Loss before tax benefit Income tax benefit Loss from continuing operations Profit from discontinued operation Loss for the year 2016 $’000 2015 $’000 423,346 392,790 (31,607) (171,028) (5,803) (124,046) (22,729) (15,114) (20,528) (158) (38,878) (641) (64) (7,250) 2,236 (5,014) 625 (4,389) (28,949) (161,554) (8,356) (117,746) (18,881) (15,034) (17,967) (1,822) (36,830) (916) (1,938) (17,203) 4,319 (12,884) 718 (12,166) (b) Consolidated Statement of Comprehensive Income Set out below is a consolidated Statement of Comprehensive Income for the year ended 30 June 2016 of the Closed Group: Loss for the year Other comprehensive income for the year Total comprehensive income for the year 114 Ardent Leisure Group | Annual Report 2016 2016 $’000 (4,389) - (4,389) 2015 $’000 (12,166) - (12,166) For personal use only Notes to the Financial Statements for the year ended 30 June 2016 42. (c) Deed of Cross Guarantee (continued) Consolidated Balance Sheet Set out below is a consolidated Balance Sheet as at 30 June 2016 of the Closed Group: Current assets Cash and cash equivalents Receivables Inventories Current tax receivables Assets classified as held for sale 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 Provisions Liabilities directly associated with assets classified as held for sale 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 2016 $’000 3,151 11,138 9,248 996 2,782 9,526 36,841 61,545 221 167,631 6,122 49,730 285,249 322,090 50,197 4,029 3,716 215 58,157 130,423 3,064 133,487 191,644 130,446 167,100 (4) (36,650) 130,446 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 Ardent Leisure Group | Annual Report 2016 115 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 of the Closed Group: Total equity at 30 June 2014 Total comprehensive income for the year Reserve transfers Dividends paid and payable Contributions of equity, net of issue costs Total equity at 30 June 2015 Total comprehensive income for the year Reserves Contributions of equity, net of issue costs Total equity at 30 June 2016 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 Total Equity Contributed equity Accumulated losses Reserves $’000 $’000 $’000 16,309 - - - 138,953 155,262 - - 11,838 167,100 (2,310) - 2,310 - - - - (4) - (4) (4,625) (12,166) (2,310) (13,160) - (32,261) (4,389) - - (36,650) Total equity $’000 9,374 (12,166) - (13,160) 138,953 123,001 (4,389) (4) 11,838 130,446 Consolidated Group 2016 $’000 Consolidated Group 2015 $’000 ALL Group 2016 $’000 ALL Group 2015 $’000 118,811 617,113 15,728 187,690 10,447 606,122 21,117 195,965 18,206 249,978 21,391 91,542 482,620 (2,545) (50,652) 449,919 (4,921) (34,841) 167,100 - (8,664) 15,152 223,167 27,360 67,538 155,262 - 367 429,423 410,157 158,436 155,629 Profit/(loss) for the year 42,826 34,507 (9,031) 12,487 Total comprehensive income/(loss) for the year 42,269 33,624 (9,031) 12,487 (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. 116 Ardent Leisure Group | Annual Report 2016 For personal use only Notes to the Financial Statements for the year ended 30 June 2016 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 2016 or 30 June 2015. (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 2016 $’000 2015 $’000 2016 $’000 2015 $’000 - - - - 104 104 2,943 2,943 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 $104,000 (2015: $2,943,000). 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 30 June 2016, a distribution of 5.5 cents per stapled security has been declared by the Board of Directors. The total distribution amount of $25.5 million will be paid on or before 31 August 2016 in respect of the half year ended 30 June 2016. On 19 August 2016, the Group announced that it had entered into a sale agreement to dispose of its entire interests in the health clubs division for gross proceeds (excluding working capital adjustments and selling costs) of $260.0 million, comprising a cash payment of $230.0 million and deferred consideration of $30.0 million in the form of vendor loan notes payable no later than two years from completion. Completion is subject to landlord and other third party approvals and is expected to occur prior to 31 December 2016. The financial information relating to the health clubs division is set out in Note 37. The Group expects to recognise a profit on disposal. 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 have 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 2016 117 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 39 to 117 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 2016 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 23 August 2016 Deborah Thomas Managing Director 118 Ardent Leisure Group | Annual Report 2016 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 2016, the 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 2016, the 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 Ardent Leisure Limited and 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 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 consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. PricewaterhouseCoopers, ABN 52 780 433 757 489 Queen 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: 1. the financial report of Ardent Leisure Group and Ardent Leisure Limited Group is in accordance with the Corporations Act 2001, including: 2. 3. giving a true and fair view of the consolidated stapled entity's and consolidated ALL Group entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. 4. the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 13 to 33 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Ardent Leisure Group and Ardent Leisure Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Timothy J Allman Partner Brisbane 23 August 2016 For personal use only Investor Analysis nvestor Analysis JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited Citicorp Nominees Pty Limited RBC Investor Services Australia Pty Limited BNP Paribas Noms Pty Ltd BNP Paribas Nominees Pty Ltd Ragusa Pty Ltd Citicorp Nominees Pty Limited Ragusa Pty Ltd Sandhurst Trustees Ltd Top 20 Investors as at 23 August 2016 1 2 3 4 5 6 7 8 9 10 11 12 Warbont Nominees Pty Ltd 13 14 15 Mirrabooka Investments Limited 16 17 18 19 20 Balnaves Foundation Pty Ltd RBC Investor Services Australia Nominees Pty Limited AMCIL Limited Ragusa Pty Ltd Ragusa Pty Ltd HSBC Custody Nominees (Australia) Limited Sevanlab Super Pty Ltd No. of Securities 90,865,234 71,327,391 57,380,479 32,796,541 17,962,783 9,218,443 5,079,208 4,736,716 4,034,177 3,669,855 2,964,237 2,083,395 2,066,243 2,065,192 1,800,000 1,725,000 1,242,383 1,125,101 1,095,908 935,267 314,173,553 148,866,063 % 19.62 15.40 12.39 7.08 3.88 1.99 1.10 1.02 0.87 0.79 0.64 0.45 0.45 0.45 0.39 0.37 0.27 0.24 0.24 0.20 67.85 32.15 463,039,616 100.00 Total Balance of Register Grand Total Range Report as at 23 August 2016 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 345,772,321 84,189,991 18,391,949 13,508,266 1,177,089 463,039,616 % 74.67 18.18 3.97 2.92 0.25 100.00 No of Holders 163 3,332 2,410 4,597 2,594 13,096 % 1.24 25.44 18.40 35.10 19.81 100.00 The total number of investors with an unmarketable parcel of 29,145 securities as at 23 August 2016 was 796. 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 23 August 2016 JCP Investment Partners Ltd FIL Ltd Ausbil Investment Management Limited BT Investment Management Limited Stapling Disclosure No. of Securities 34,248,959 40,478,296 37,280,709 22,815,453 % 7.40% 9.15% 8.05% 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 2016 121 For personal use only Website www.linkmarketservices.com.au Email registrars@linkmarketservices.com.au All other enquiries relating to your Ardent Leisure Group investment or complaints can be directed to: Ardent Leisure Group Level 16, 61 Lavender Street Milsons Point NSW 2061 Telephone 1800 ARDENT (within Australia) +61 2 9409 3670 (outside Australia) Facsimile +61 2 9409 3679 Email investor.relations@ardentleisure.com 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 1800 367 287 (within Australia) Facsimile +61 3 9613 6399 Investor Relations Investor Relations Corporate Governance Statement In accordance with the ASX Listing Rules, the Group’s Corporate Governance Statement dated 30 June 2016 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. 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 2015/16 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 2016 was $1.9292 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 122 Ardent Leisure Group | Annual Report 2016 For personal use only ASX code AAD Custodian Perpetual Level 13, 123 Pitt Street Sydney NSW 2000 Auditor of the Group PricewaterhouseCoopers Riverside Centre 123 Eagle Street Brisbane QLD 4000 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 Ardent Leisure Group | Annual Report 2016 123 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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 2016.   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 19  For personal use only                          Corporate Governance Statement  30 June 2016   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 2016.  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  coordinating the timely completion and despatch of Board and committee papers;  minutes; and   helping to organise and facilitate the induction and professional development of Directors.  For personal use only                    Corporate Governance Statement  30 June 2016  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.  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.    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  All Managers  All Employees  2015 2016 Female 20% 43% 68% Male 80% 57% 32% Female 28% 36% 67% Male  72%  64%  33%  The table above shows the female participation rates across the Group for the past two years.   The  Group  supports  a  number  of  initiatives  aimed  at  increasing  female  participation  and  has  adopted  policies on flexible working arrangements and paid maternity leave.   Gender Pay Comparison  Following  the  provision  of  data  to  the  Workplace  Gender  Equality  Agency  and  the  release  of  the  Australian  National  Gender  Pay  Gap,  the  Group  received  a  report  that  benchmarks  it  against  other  relevant industry data.  The statistics indicate that the Group, across all levels of business, has a gender  pay  gap  of  1.1%  on  base  salary.    The  gender  pay  gap  across  comparable  industries  is  12.9%  and  the  national average is 17.9%   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;  For personal use only                                  Corporate Governance Statement  30 June 2016     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.  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;  For personal use only                      Corporate Governance Statement  30 June 2016  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.  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  2016,  Directors  deemed  to  be  independent  were:  Neil  Balnaves  AO,  Roger  Davis,  David  Haslingden, Don Morris AO George Venardos, and Melanie Willis.   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 2016.  For personal use only                            Corporate Governance Statement  30 June 2016  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  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.  For personal use only                                  Corporate Governance Statement  30 June 2016  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.  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.   For personal use only                          Corporate Governance Statement  30 June 2016   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.  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  For personal use only                        Corporate Governance Statement  30 June 2016  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  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  For personal use only                            Corporate Governance Statement  30 June 2016  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  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, are permitted to trade in securities in  defined trading windows.    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.  For personal use only                                Corporate Governance Statement  30 June 2016  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  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;   For personal use only                            Corporate Governance Statement  30 June 2016   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   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  For personal use only        Corporate Governance Statement  30 June 2016  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;   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.  For personal use only                          Corporate Governance Statement  30 June 2016  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 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.  For personal use only                                Corporate Governance Statement  30 June 2016  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.  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  For personal use only                                   Corporate Governance Statement  30 June 2016  become available on the website.  The default option for receiving the annual report is via the Group’s  website at www.ardentleisure.com.    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  recommending  improvements;  Setting appropriate goals to maintain the Group’s lost time injury frequency rate (LTIFR) below  industry benchmarks;  implementing  and  including  drafting,  the  Group    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.  For personal use only                          Corporate Governance Statement  30 June 2016  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   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,  Resourcing,  Documentation,  Responsibility.  Interpretation,  Escalation,  Reporting,  Board Secretarial   Admission,  Conflict,  Documentation,  Duties,  Governance,  Legal,  Regulatory,  Resolution.  Environmental  &  Safety  Management  Contamination,  Media  /  Publicity,  Employee  Safety,  Guest  &  Contractor  Safety.  For personal use only              Corporate Governance Statement  30 June 2016  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  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  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  Chief  Audit Officer 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 2016.  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.  For personal use only                              Corporate Governance Statement  30 June 2016  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    

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