Alamo Group Inc.
Annual Report 2017

Plain-text annual report

Annual Financial Report for the year ended 30 June 2017 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 31 August 2017. The Directors have the power to amend and reissue the financial report. For personal use only For personal use only Annual 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 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 from derivative financial instruments   Management fees   Other expenses   Remuneration of auditor   Income tax (benefit)/expense   (Losses)/earnings per security/share   Distributions and dividends paid and payable   Receivables   Derivative financial instruments   Inventories   Discontinued operations   Property classified as held for sale   Construction in progress   Other assets   Property, plant and equipment   Intangible assets   Deferred tax assets   Payables   Interest bearing liabilities   Provisions   Other liabilities   Deferred tax liabilities   Contributed equity   Security-based payments   Other equity   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   Fair value measurement 41.  Contingent liabilities 42.  Capital and lease commitments 43.  Deed of Cross Guarantee 44.  Parent entity financial information 45.  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  38  39  40 41  42  43  59  59  59  59  60  60  61  61  62  63  65  65  66  67  67  70  71  71  72  75  78  79  79  82  83  83  84  85  91  92  93  93  93  94  95  95  97  102  110  113  113  115  117  118  119  120 128 129 130 Ardent Leisure Group | Annual Report 2017 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 2017 (FY17). 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: George Venardos (appointed as Chair 6 November 2016); Roger Davis; Randy Garfield (appointed 14 August 2017); David Haslingden; Simon Kelly (appointed 9 June 2017); Don Morris AO; Melanie Willis; Neil Balnaves AO (retired as Chair and as a Director 6 November 2016); and Deborah Thomas (retired 1 July 2017). 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 of America. Other than the completion of the sale of the Health Clubs business in October and the completion of the sale of Marinas in August, there were no significant changes in the nature of the activities of the Group. 3. Distributions The total distribution of income for the year ended 30 June 2017 will be 3.00 cents (30 June 2016: 12.50 cents) per stapled security paid by the Group. The reduction in distribution compared to the prior year reflects the adverse impact of the Dreamworld incident on Group’s results as well as retention of earnings from US Entertainment Centres to fund the roll out of new centres. An interim distribution of 2.00 cents (31 December 2015: 7.00 cents) per stapled security was paid in February 2017. This comprised a distribution paid by the Trust of 2.00 cents (31 December 2015: 7.00 cents) and no dividend paid by the Company (31 December 2015: nil) per stapled security. A final distribution for the year ended 30 June 2017 of 1.00 cent (2016: 5.50 cents) per stapled security will be paid by the Trust in August 2017. A provision has not been recognised in the financial statements at 30 June 2017 as this distribution had not been declared at the reporting date. 4. Operating and financial review Overview During the year, the Group‘s operations comprised five operating divisions, being entertainment centres in the US and bowling and entertainment centres, theme parks, marinas and, until 25 October 2016, health clubs in Australia. On 19 August 2016, the Group announced its decision to sell the health clubs business, with completion occurring on 25 October 2016. The consideration of $260.0 million was received on 13 December 2016 and a gain of $45.0 million before tax was recognised on disposal. The results of this business have been presented as a discontinued operation at 30 June 2017. On 12 December 2016, the Group announced that it had entered into an agreement to dispose of its interest in the Marinas division. Completion, which was subject to landlord consents for the transfer of the head leases, occurred effective 14 August 2017. The associated assets and liabilities have been presented as held for sale and the results included as a discontinued operation at 30 June 2017. Following the sale of the health clubs and marinas businesses, the strategic transition to a customer experience driven leisure and entertainment portfolio of assets is complete. The continuing businesses are:  US Entertainment Centres, trading as “Main Event”  Australian Bowling and Entertainment Centres, and  Australian Theme Parks, including Dreamworld. 2 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Group results On 25 October 2016, an incident on the Thunder River Rapids ride at Dreamworld resulted in four fatalities at the theme park. The park and adjoining WhiteWater World were subsequently closed for 45 days. The parks were re-opened on 10 December 2016 following successful completion of a multi-tiered mechanical and operational safety review. The impact of the incident, subsequent closure of the parks and progressive re-opening of rides has negatively impacted attendance and revenues at the theme parks. As a result, the Group has recognised an impairment of goodwill of $0.8 million and a revaluation decrement to associated property, plant and equipment of $91.7 million of which $88.7 million has been recognised in the Income Statement and $3.0 million has been recognised in reserves. Refer to Note 20 of the financial statements. The performance of the Consolidated Group, as represented by the aggregated results of its operations for the year, was as follows: Segment revenues 2017 $’000 300,147 127,655 70,934 9 498,745 24,131 62,677 86,808 585,553 US Entertainment Centres Australian Bowling and Entertainment Centres Australian Theme Parks Other Continuing operations Marinas Health Clubs (disposed 25 October 2016) Discontinued operations Total Corporate costs Core EBITDA Depreciation and amortisation* Core EBIT Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, movements in onerous lease provisions, intangible asset amortisation, impairment of goodwill and property, plant and equipment, Marina selling costs and other one-off and restructuring expenses not included in divisional EBIT Valuation gain - investment properties Valuation loss - property, plant and equipment (relating to Dreamworld) Loss on closure of Australian Bowling and Entertainment Centres Loss on disposal of assets Gain on sale and leaseback of US Entertainment Centres Gain on disposal of health clubs Net loss from derivative financial instruments Dreamworld incident costs, net of insurance recoveries Interest income Business acquisition costs refunded Borrowing costs Net tax benefit/(expense) (Loss)/profit for the year Core earnings (Note 11 to the financial statements) Segment revenues 2016 $’000 238,974 130,494 107,582 9 477,059 23,000 187,555 210,555 687,614 Segment EBITDA* 2017 $’000 61,041 15,204 (3,408) - 72,837 9,820 9,772 19,592 92,429 (16,338) 76,091 (44,949) 31,142 (31,580) - (88,747) (470) (3,328) - 45,009 (421) (5,389) 86 - (12,191) 3,332 (62,557) 11,287 Segment EBITDA* 2016 $’000 59,168 18,224 34,725 - 112,117 10,157 30,114 40,271 152,388 (15,144) 137,244 (47,166) 90,078 (27,383) 2,059 - - (514) 1,672 - (170) - 81 134 (14,874) (8,696) 42,387 62,395 * Segment earnings before interest, tax, depreciation and amortisation (EBITDA) excludes pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, movements in onerous lease provisions, amortisation of health club brands and customer relationship intangible assets, impairment of property, plant and equipment and intangible assets, gain on sale of discontinued operations and associated selling costs, valuation gains/losses of investment property and property, plant and equipment, costs associated with the Dreamworld incident, loss on closure of Australian Bowling and Entertainment Centres and other one-off and restructuring expenses. 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. Ardent Leisure Group | Annual Report 2017 3 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Group results (continued) The Group reported a loss of $62.6 million for the year, down from a profit of $42.4 million in the prior year, mainly because of the $88.7 million valuation loss on the Dreamworld and WhiteWater World property noted above and the challenging post incident trading conditions at Dreamworld. Other significant factors impacting the result are as follows:  The Group incurred $5.4 million costs relating to the Thunder River Rapids ride incident at Dreamworld, net of insurance recoveries during the year (2016: nil);  There were $4.0 million restructuring and one-off costs in the current year (2016: nil);  Pre-opening expenses increased by $5.3 million to $13.9 million reflecting the roll out of new US Entertainment Centres during the year;  The Group incurred a loss on disposal of assets of $3.3 million (2016: $0.5 million);  There was a $2.1 million valuation gain in investment properties and $1.7 million gain on sale and leaseback of US Entertainment Centres in the prior year (current year: nil); and  There was a $0.5 million increase in onerous lease provisions in the current year compared to a $2.2 million reduction in onerous lease provisions in the prior year. However, this was partially offset by the following factors:  The Group recognised a $45.0 million gain on sale of the health clubs’ business;  Depreciation (including IFRS depreciation) and amortisation of property, plant and equipment and software decreased by $9.7 million to $55.0 million;  Borrowing costs decreased by $2.7 million to $12.2 million; and  There was a tax benefit of $3.3 million in the current year compared to tax expense of $8.7 million in the prior year. The above factors also delivered a decrease in core earnings of $51.1 million, to $11.3 million. Core earnings (as defined in Note 11 to the financial statements) represents the earnings of the Group after adding back impairment of property, plant and equipment and intangible assets, amortisation of intangible assets, one-off realised items and unrealised items (such as unrealised gains or losses on derivatives and unrealised valuation gains and losses on investment properties and property, plant and equipment), straight lining of fixed rent increases, IFRS depreciation and onerous lease costs. US Entertainment Centres The performance of the US Entertainment Centres, in US dollars, is summarised as follows: Total revenue EBRITDA (excluding pre-opening expenses) Operating margin Property costs EBITDA 2017 US$'000 226,240 74,977 33.1% (29,005) 45,972 2016 US$'000 174,683 63,996 36.6% (20,449) 43,547 Change % 29.5 17.2 41.8 5.6 During the year, total US dollar revenue grew by 29.5%, driven by full year impact of centres opened in FY16 and contribution from new centres opened in FY17, partially offset by a decline in constant centre revenue. EBITDA grew 5.6%, with margin declining by 460 basis points. Margins were impacted by the combination of the loss of “honeymoon” effect on FY16 non-constant centres, slower ramp up in the FY17 new centre openings, and the flow through effect of a decline in constant centre revenues, given the relatively fixed cost nature of the business. Initiatives are in place to improve constant centre revenue growth and lift the returns from the new centres opened in FY17. 4 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) US Entertainment Centres (continued) Constant centres Non-constant centres New centres opened in FY17 Corporate and regional office expenses/sales and marketing Total Revenue 2017 US$'000 Revenue 2016 US$'000 141,561 60,492 24,183 4 145,732 28,951 - - 226,240 174,683 Change % (2.9) 108.9 29.5 EBRITDA 2017 US$'000 60,615 24,902 7,525 (18,065) 74,977 EBRITDA 2016 US$'000 64,525 13,310 - (13,839) 63,996 Change % (6.1) 87.1 30.5 17.2 Constant centres were impacted by several factors including intensified competition over the past few years with a significant increase in supply that put older centres (which have been underinvested) under pressure, strategic cannibalisation of existing centres as the business build-out clusters (which is positive for the long-term strategic strength of the business but negative to short-term reported performance). Constant centres revenue trends improved in the second half of FY17 with trends towards the end of the year being positive driven by the refocus of management, revitalisation of menus, refurbishment of older centres and marketing initiatives. Overall, centres that were opened from FY12 to FY16 continue to deliver above the Group’s target return of investment of 30%. Ten new centres were opened during the year, bringing the total number of centres to 37 in 14 states. These new centres experienced slower ramp up due to limited or no prior presence, which were driven by several factors including the need to build brand awareness especially for centres without prominent highway visibility and accessibility. Nevertheless, the FY17 cohort performance is expected to improve over time underpinned by initiatives to drive higher market awareness in non-traditional locations. Australian Bowling and Entertainment Centres This business is transitioning from its traditional bowling heritage into multi-attraction entertainment destinations. The performance of the Australian Bowling and Entertainment 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 2017 $'000 127,655 42,402 33.2% (27,198) 15,204 2016 $'000 130,494 45,291 34.7% (27,067) 18,224 Change % (2.2) (6.4) 0.5 (16.6) Revenue declined marginally due to the impact of the closure of Kingpin Crown for five months for refurbishment and closure of four AMF centres, offset by positive constant centre growth. The overall revenue decline dropped through to the bottom line, impacting EBITDA and the percentage margin which reduced from 34.7% to 33.2% in the year. A further analysis of the Bowling and Entertainment Centres’ performance is summarised as follows: Constant centres Centres closed New centres /acquisitions/renovations Corporate and regional office expenses/sales and marketing Total Revenue 2017 $'000 101,183 3,056 23,400 Revenue 2016 $'000 97,905 5,766 26,823 16 127,655 - 130,494 Change % 3.3 (47.0) (12.8) - (2.2) EBRITDA 2017 $'000 49,152 998 10,935 (18,683) 42,402 EBRITDA 2016 $'000 47,561 2,098 13,606 (17,974) 45,291 Change % 3.3 (52.4) (19.6) 3.9 (6.4) The division recorded its eighth consecutive quarter of constant centre growth, which was achieved through a blend of volume, sales mix and price, with AMF, Kingpin and Playtime brands all contributing to growth. Despite the constant centre revenue growth, the overall performance continues to be weighed down by the lower returning AMF sites. The division continued its transition through the year with one new Playtime, two refurbishments and four non-core AMF centres closed. Ardent Leisure Group | Annual Report 2017 5 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) Australian Bowling and Entertainment Centres (continued) The investments made in rebranding legacy centres and opening new Kingpin and Playtime concepts is starting to improve returns. The returns on these new concepts are attractive. This business will start to see the financial returns improve from the FY17 trough over FY18 and beyond. Australian Theme Parks The division was adversely impacted by the Thunder River Rapids ride incident in October 2016 noted above. The performance of the Australian Theme Parks is summarised as follows: Total revenue EBRITDA Operating margin Property costs EBITDA Attendance Per capita spend ($) 2017 $'000 70,934 (2,381) (3.4%) (1,027) (3,408) 2016 $'000 107,582 35,947 33.4% (1,222) 34,725 1,662,992 42.65 2,413,937 44.57 Change % (34.1) (106.6) (16.0) (109.8) (31.1) (4.3) Revenue declined by $36.6 million, or 34.1% to $70.9 million, with an EBITDA loss of $3.4 million, down from a profit of $34.7 million in the prior year. In order to assist the recovery process, Dreamworld established a Community Advisory Committee consisting of various internal and external stakeholders such as Yugambeh, PCYC, Red Cross, government, business and local representatives. This committee continues to operate and provides advice to Dreamworld on all matters relating to the incident and the connection with the community. During the recovery period, the wellbeing of Dreamworld’s staff has remained a key focus of management. A number of wellness and support programs were established to assist individual team members with resilience and coping with challenging environments. Recovery of the theme parks is expected to take two years and is largely on track. Notwithstanding the extremely challenging post incident trading conditions, the LEGO store launched in January 2017 has been very successful, meeting its full year sales forecasts within its first six months. The store is accessible by both park visitors and the general public and has demonstrated the potential to develop more unique concepts using the land and facilities adjoining the park that do not necessarily require park entry. The tiger island precinct is a world class exhibit and has received very positive feedback from visitors. Despite the challenging year, guest satisfaction and feedback remained positive and has continued to improve over the past three years. An events program has been implemented which has been well supported and is a key driver of the recovery through encouraging increased visitation. Marinas The performance of Marinas is summarised as follows: Total revenue EBRITDA Operating margin Property costs EBITDA 2017 $'000 24,131 12,724 52.7% (2,904) 9,820 2016 $'000 23,000 12,569 54.6% (2,412) 10,157 Change % 4.9 1.2 20.4 (3.3) Revenue from marinas increased by 4.9% to $24.1 million, and EBITDA decreased by 3.3% to $9.8 million. Marina revenue principally comprises the following: Berthing Land Fuel and other Total 2017 $'000 14,203 5,134 4,794 24,131 2016 $'000 13,203 5,206 4,591 23,000 Change % 7.6 (1.4) 4.4 4.9 On 22 March 2016, the Group announced its decision to sell this division as part of the Group’s refocus on entertainment. Completion of the sale occurred effective 14 August 2017. 6 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 4. Operating and financial review (continued) 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 (1) Current year results are for the period up to 25 October 2016. 2017(1) $'000 62,677 25,612 40.9% (15,840) 9,772 2016 $'000 187,555 77,511 41.3% (47,397) 30,114 Change % (66.6) (67.0) (66.6) (67.5) On 19 August 2016, the Group announced its decision to sell the Health Clubs business, with completion occurring on 25 October 2016. Refer to Note 16 to the financial statements for further information. Strategic focus Following the sale of Health Clubs and Marinas the common theme across the Group’s assets is the provision of leisure and entertainment experiences. However, each business has its own unique strategic position and objectives and all are at different stage of evolution with discrete opportunities for growth and unlocking value.  The US Entertainment Centres’ strategic goal is to become a leading customer experience-driven leisure and entertainment franchise in the US;  The Australian Bowling and Entertainment Centres business will continue to evolve beyond its heritage as a bowling business into a multi-attraction entertainment experience; and  The strategic goal for the Australian Theme Parks is to cement their position as “must visit” Gold Coast attractions and in the case of Dreamworld, to evolve the concept of a leisure and entertainment precinct centred around the current site. (i) US Entertainment Centres This business has expanded its number of centres rapidly over the last few years. It’s now time to ensure there is the appropriate balance between operational performance and growth and that each new centre meets strict selection criteria. Going forward, management’s target is for 5 to 10 new centre openings per annum. However, the constraint will be the strict application of selection criteria, so in any year there could be greater or fewer new centres than this range. A quality index has been developed that, when applied back against prior centres, is a good predictor of success and this measurement has been built into the decision-making process. New beachhead centres will be considered in a very measured way, ensuring that the bulk of the rollout beyond FY18 will be directed towards building out clusters. (ii) Australian Bowling and Entertainment Centres The objective is to create a multi-attraction entertainment experience. The initial strategic threshold is to improve returns to in excess of benchmarks, and clear pathway to achieve that outcome over the next 3-4 years has been established. The focus is on transitioning legacy under-performing centres and investing in the new higher returning concepts, whilst building scale and operational efficiency. This outcome is constrained by pre-existing leases on legacy centres and the availability of new sites for new concept centres. Like the US Entertainment Centres, site location is paramount to success and site selection will not be compromised to expedite a centre number target. (iii) Australian Theme Parks The key focus is on driving attendance back to historic levels through a combination of “smart” capital investment and an event pipeline both of which provide opportunities to promote and target revisitation. Investments will be targeted to drive visitation and will be economically responsible, such as repurposing infrastructure that already exists. This will enable new experiences to be delivered without the need for large capital outlays. The excess land that sits around the Dreamworld site is potentially of great value. The park occupies just over 50% of the land that is owned and a process of determining the best use of this land has commenced. This is likely to include a build out of tourist related adjacencies around the park itself. The plan may also involve an element of other commercial and residential uses. Ardent Leisure Group | Annual Report 2017 7 For personal use only Directors’ report to stapled security holders 5. Significant changes in the state of affairs As noted above, on 25 October 2016, the Group completed the disposal of its Health Clubs business and, effective 14 August 2017, the Group completed the disposal of its Marinas business. 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. 6. Value of assets Value of total assets Value of net assets Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 974,213 531,722 1,157,632 619,983 592,695 177,034 ALL Group 2016 $’000 649,324 174,883 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 2017 Consolidated Group 2016 463,039,616 4,812,776 1,300,892 442,322,106 19,377,615 1,339,895 469,153,284 463,039,616 Stapled securities on issue at the beginning of the year Stapled securities issued under Distribution Reinvestment 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 Directors George Venardos Chair Appointed: Ardent Leisure Management Limited – 22 September 2009 Ardent Leisure Limited – 22 September 2009 Age: 59 George Venardos was appointed Chairman of both the Company and the Manager in November 2016, having served as a Director since September 2009. George is a Chartered Accountant with more than 36 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. George is the Non-Executive Chair of the Group and a member of the Audit and Risk Committee (Char until 16 December 2016), Remuneration and Nomination Committee and Safety, Sustainability and Environment Committee. Former listed directorships in the last three years: BluGlass Limited (resigned 23 November 2016) Interest in stapled securities: 215,839 8 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 8. Information on Directors (continued) Roger Davis Director Appointed: Ardent Leisure Management Limited – 1 September 2009 Ardent Leisure Limited – 28 May 2008 Age: 65 Roger Davis was appointed a Director of the Company in 2008. Roger brings to the Board over 36 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 and AIG Australia Limited. Previously, he was Managing Director at Citigroup where he worked for over 20 years and more recently was Group Managing Director at ANZ Banking Group. Roger’s former directorships include the Chairmanship of Esanda, along with directorships of Aristocrat Leisure Limited, 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 Bachelor of Economics (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 the Audit and Risk Committee. Former listed directorships in last three years: Aristocrat Leisure Limited (resigned 27 February 2017) Interest in stapled securities: 200,658 Randy Garfield Director Appointed: Ardent Leisure Management Limited – 14 August 2017 Ardent Leisure Limited – 14 August 2017 Age: 65 Randy Garfield was appointed a Director of both the Manager and the Company in August 2017. During his 43 year travel industry career Mr Garfield spent over 30 years working in senior executive roles specialising in global marketing and sales, sponsorship development and sales operations. As Executive Vice President of Worldwide Sales & Travel Operations at Walt Disney Parks & Resorts, he led the worldwide sales, convention services, resort contact centres and distribution marketing efforts for the Disneyland Resort, Walt Disney World Resort, Disneyland Paris, Hong Kong Disneyland Resort, Shanghai Disney Resort, Disney Cruise Line, Disney Vacation Club, Adventures by Disney, Aulani-a Disney Resort & Spa in Hawaii and Golden Oak. Throughout his 20+ year Disney career he also served as President of Walt Disney Travel Company, one of the largest tour operators in the USA. Prior to joining Disney Randy also served as Vice President of Sales for Universal Studios Hollywood starting in 1986 where he helped generate record attendance and trail blazed the launch of Universal Studios Florida by crafting their pre-opening sales plan. He moved to Orlando in summer 1989 as Executive Vice President of Marketing and Sales/Chief Marketing Officer and led the business through its preopening and launch, and also served in a leadership role on the team which formulated the expansion plan including a second theme park as well as hotels and a massive retail, dining and entertainment complex. Randy’s current directorships include Deep Blue Communications, Rocky Mountaineer, US Travel Association and Destination Canada. Previous Board roles include the US Travel Association (Chairman) and Brand USA. Randy is an inductee into the US Travel Hall of Leaders, and has been recognised three times as one of the most extraordinary sales and marketing minds by Hospitality Sales & Marketing Association International. Former listed directorships in last three years: None Interest in stapled securities: Nil Ardent Leisure Group | Annual Report 2017 9 For personal use only Directors’ report to stapled security holders 8. Information on Directors (continued) David Haslingden Director Appointed: Ardent Leisure Management Limited – 6 July 2015 Ardent Leisure Limited – 6 July 2015 Age: 56 David Haslingden was appointed a Director of both the Company and the Manager in July 2015 and brings to the Board considerable international business experience, particularly in the US and Australia. David is a director and major shareholder of Blue Ant Media Inc, a Canadian company that owns and operates production companies and cable networks in Canada and around the world. 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 Bachelor of Arts and Bachelor of Laws from The University of Sydney and a Master of Law from the University of Cambridge. David is Chair of the Remuneration and Nomination Committee and a member of 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 Simon Kelly Managing Director and Chief Executive Officer Appointed: Ardent Leisure Management Limited – 9 June 2017 Ardent Leisure Limited – 9 June 2017 Age: 53 Simon Kelly was appointed the Managing Director and Chief Executive Officer of both the Manager and Company in June 2017. Simon brings over 30 years’ experience in strategic, financial and general management in the entertainment, media, technology, FMCG and manufacturing sectors. Simon’s previous roles include Chief Operating Officer and Chief Financial Officer of Nine Entertainment Co. Holdings Limited, Chief Financial Officer and Director of Aristocrat Leisure Limited and a number of senior executive roles at Goodman Fielder Limited. More recently, he led the re-capitalisation of Virgin Australia Holdings Limited. Prior directorships include ASX listed technology company, Intecq Limited, subscription video on demand start up “Stan”, Sky News, ASX listed Clarius Group and literacy e-learning business Intrepica. Simon holds a Bachelor of Arts (First Class, Honours) in Economics and Accounting from the University of Reading, is a Fellow of The Institute of Chartered Accountants in England and Wales, a member of Chartered Accountants Australia and New Zealand and a member of the Australian Institute of Company Directors. Former listed directorships in the last three years: Intecq Limited (resigned 16 December 2016) Interest in stapled securities: 280,409 10 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 8. Information on Directors (continued) Don Morris AO Director Appointed: Ardent Leisure Management Limited – 1 January 2012 Ardent Leisure Limited – 1 January 2012 Age: 72 Don Morris was appointed a Director of both the Company and the Manager in January 2012 and brings to the Board significant experience of advertising, marketing and promotion, particularly for tourism entities. Don was a founding principal of Mojo Australia Advertising, creators of several iconic Australian advertising campaigns, including ‘I Still Call Australia Home’ for Qantas, the Paul Hogan ‘Shrimp on the Barbie’ for Australian tourism and ‘C’mon Aussie C’mon’ for World Series Cricket. Don was 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, Ausflag Limited and The Sport and Tourism Youth Foundation. He is Chair of Tourism Think Tank, and Chair of Pure Projects, the largest wholly Australian international project management group. He was appointed an Adjunct Professor in Tourism by 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 Chair of the Customer & Digital Committee and a member of the Remuneration and Nomination Committee. Former listed directorships in the last three years: None Interest in stapled securities: 13,950 Melanie Willis Director Appointed: Ardent Leisure Management Limited – 17 July 2015 Ardent Leisure Limited – 17 July 2015 Age: 52 Melanie Willis was appointed a Director of both the Company and the Manager in July 2015, bringing significant experience in finance, investment banking and professional services sectors. Melanie has had extensive exposure to leisure-related businesses and is currently a non-executive director and Chair of the Audit & Risk Committee at Mantra Group (an Australian hotel and resort marketer and operator with over 20,000 rooms) and a non-executive director of 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 also a member of Chief Executive Women. Melanie is Chair of the Audit and Risk Committee (appointed Chair 16 December 2016). Former listed directorships in the last three years: Crowe Horwath Limited (resigned 30 October 2014) Interest in stapled securities: 9,674 Ardent Leisure Group | Annual Report 2017 11 For personal use only Directors’ report to stapled security holders 8. Information on Directors (continued) Neil Balnaves AO Former Chair Appointed: Ardent Leisure Management Limited – 26 October 2001 (retired 6 November 2016) Ardent Leisure Limited – 28 April 2003 (retired 6 November 2016) Age: 73 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 was a 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 Deborah Thomas Former Chief Executive Officer Appointed: Ardent Leisure Management Limited – 1 December 2013 (retired 1 July 2017) Ardent Leisure Limited – 1 December 2013 (retired 1 July 2017) Age: 61 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 brought 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: 42,269 12 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 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 Eligible to attend 13 13 13 1 13 13 4 13 Attended 13 11 11 1 13 13 4 12 Eligible to attend 5 5 N/A N/A N/A 5 1 N/A Attended 5 4 N/A N/A N/A 5 1 N/A Eligible to attend 3 1 3 N/A 3 1 1 N/A Attended 3 - 3 N/A 3 1 1 N/A Safety, Sustainability and Environment Eligible to attend Attended 7 6 7 N/A 7 N/A N/A 7 7 7 7 N/A 7 N/A N/A 7 Customer & Digital Eligible to attend N/A N/A N/A N/A 1 1 N/A N/A Attended N/A N/A N/A N/A 1 1 N/A N/A George Venardos Roger Davis David Haslingden Simon Kelly Don Morris AO Melanie Willis Neil Balnaves AO Deborah Thomas In addition to the above scheduled Board meetings, the Directors attended numerous additional meetings during the weeks immediately following the Dreamworld incident. 10. Company Secretary The Group’s Company Secretary is Bronwyn Weir. Bronwyn was appointed to the position of interim Company Secretary of the Manager and Company on 10 April 2017. Prior to being appointed interim Company Secretary, Bronwyn was the Assistant Company Secretary for the Group since 21 November 2014. Before joining the Group, Bronwyn was Assistant Company Secretary at the Royal Australasian College of Physicians. Bronwyn holds a Bachelor of Commerce and Graduate Certificate in Commercial Law from Deakin University and a Certificate in Governance Practice and a Graduate Diploma of Applied Corporate Governance from the Governance Institute of Australia. Alan Shedden resigned from the position of Company Secretary effective from 10 April 2017. 11. Remuneration report Introduction from the Chair of the Remuneration and Nomination Committee The Directors of Ardent Leisure Group (the Company) are pleased to present security holders with the 2017 Remuneration Report. This report outlines the Company’s approach to remuneration for its Directors and Executives. The Remuneration and Nomination Committee (Committee), on behalf of the Board, oversees the Company’s remuneration framework ensuring that it aligns the interests of our security holders and reflects the Company’s commitment to deliver market competitive remuneration to attract, retain and motivate high quality directors and executives. Changes to Key Management Personnel There were significant changes in Directors and Executive Key Management Personnel (KMPs) during the year, including the the appointment of Simon Kelly as Chief Executive Officer and Managing Director in place of Deborah Thomas who left the business on 1 July 2017 and the retirement of the CFO, Mr Richard Johnson, who returned to the UK. Mr Kelly has also joined the Board. Mr Kelly brings extensive experience in senior executive roles across a number of leading major Australian listed businesses, including global business strategy and development, entertainment and gaming, business optimisation and shareholder value creation. Mr Kelly was previously Chief Operating Officer and Chief Financial Officer of Nine Entertainment Co. and has also held senior executive roles at Goodman Fielder, Aristocrat Leisure and Virgin Australia. Mr Kelly’s remuneration package was determined following a market review. Mr Kelly agreed to take an upfront grant of restricted equity which vests over time in lieu of a portion of his cash remuneration for the first three years of his tenure. In doing so, Mr Kelly’s interests are immediately aligned with Security holders. The restricted equity begins to vest 6 months from appointment. Securities are held in trust and restricted from sale for three years. Mr Kelly’s base salary is also fixed for three years, with no review until 2020. Ardent Leisure Group | Annual Report 2017 13 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) Changes to Key Management Personnel (continued) Ms Thomas was paid a termination benefit lower than the prima facie contractual entitlement in alignment with the Corporations Amendment (Improving Accountability on Termination Payments) Act. Though paid in FY18, the payment is included in this year’s Remuneration Report for completeness and transparency as it was contractually committed during FY17. Entitlements under the Group’s equity based, deferred short-term incentive (DSTI), which had not vested by 1 July 2017, were forfeited. Ms Thomas however, will retain the right to previously granted, but unvested entitlements, under the Group’s equity based long-term incentive plan (LTIP), which remain subject to performance criteria. Unvested LTIP entitlements that are subject to tenure only will be forfeited. Full details of Ms Thomas’ termination arrangements including a transitional consultancy arrangement in respect of the impending Coronial Inquiry into the Dreamworld tragedy, are included in Section (d). The FY16 cash based short-term incentive (STI) payment of $167,500 to Ms Thomas, was subsequently donated by her in full to the Red Cross after the Dreamworld tragedy. Changes to Board of Directors During the year, there were further changes to the Company’s Board including the retirement of former Chairman, Neil Balnaves AO, who was succeeded by George Venardos and the appointment of Simon Kelly as Managing Director. When coupled with the addition of Mr Haslingden and Ms Willis to the Board in 2015, almost 50% of the Board has now changed in the last 3 years, including a change in Chairman. In line with the increasing importance of the US Entertainment Centres business in the United States the Committee also resolved to seek the appointment of two US-based American Non-Executive Directors to the Board. To this end, in the first quarter of this year, the Committee enlisted the assistance of Heidrick & Struggles, a leading global recruitment firm, to undertake an extensive search process. To date our search has resulted in the appointment of Randy Garfield to the Board effective 14 August 2017. Mr Garfield has had over 20 years’ experience working in senior executive roles across the Walt Disney Company and in total more than four decades in the travel and tourism industries. A second uniquely qualified US based individual who has multi-site, broad leisure and entertainment experience, has also been identified and the Ardent Board is in advanced discussions with the proposed candidate to join the Board. Remuneration structure The Committee has overseen a number of changes to remuneration structures and reporting during the year:  In prior years, we have reported STI and LTI awards in the year the award was paid / vested (typically in August following the end of the financial year in which the performance being rewarded occurred). With effect from FY17, we have reported STI and LTI awards in the year based on the amount accrued / earned in respect of the financial year in which the performance being rewarded occurred.  From FY18, no grants of LTI will be made where vesting is subject only to completion of a specific period of tenure, expect for grants made to the CEO and Executives of the US Entertainment Centres business based in the USA. These officers will continue to receive grants subject to service, consistent with prevailing market practice in the USA; and  Since inception, the LTI plan has used an accounting (fair value) calculation to determine the number of performance rights to grant to executives. The Committee has since adopted a revised valuation methodology for LTI grants that uses the 5-day volume weighted average price (VWAP) valuation (market value) methodology. The change in approach aligns with market practice and expectations. The Committee continues to review and amend executive remuneration arrangements as appropriate in line with good corporate governance. Any changes to executive remuneration arrangements for FY18 will be advised as part of the Notice of Meeting for the 2017 Annual General Meeting. Remuneration outcomes in FY17 FY17 was a challenging year. However, the Group finished on a positive trajectory, with both Australian Theme Parks and US Entertainment Centres showing improving outcomes towards the end of FY17. Focus is now firmly on the execution of opportunities to deliver further value upside for security holders and optimising our allocation of scarce capital resources to secure returns above our cost of capital. During FY17 the Group completed the transition to becoming a global customer experience driven, leisure and entertainment business, following the profitable sale of Health Clubs and, post-reporting period, our Marina business and relocating the released capital, into the US Entertainment Centres business. Financial performance unfortunately, was impacted by the closure of Dreamworld / Whitewater World for 45 days and significantly reduced attendance on re-opening, the completion of the Health Clubs sale in October 2016 and the closure of Crown Kingpin for five months for refurbishment. 14 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) Remuneration outcomes in FY17 (continued) As a result of the disappointing overall financial performance for the year, no short-term incentive payments were made to the retiring Managing Director, the CEO of the Australian Theme Parks or the CEO of the US Entertainment Centres business. Further, because every KMP’s short-term incentive award is linked to specific financial metrics (equal to at least 60% of the total potential annual award), as none of these metrics were met in FY17, none of the current KMP received any portion of their short-term incentive award linked to financial metrics except for the ex-CEO – Health Clubs, who received his full short-term incentive award in recognition of his key contribution to the successful sale of the Health Clubs division in October 2016. As regards vesting rights under the Company’s current Long Term Incentive Plan, 45,377 performance rights vested this month in respect of grants made in FY14, FY15 and FY16. This represents 10.8% of the total number of performance rights that would have vested had all Total Shareholder Return (TSR) and Earnings Per Security (EPS) targets been hit. Further information regarding the STI and LTI outcomes in respect of FY17 is set out in Section (c). Other People initiatives The Dreamworld tragedy has had a significant effect on many of our team members at the park. Immediately after the incident, significant resources were deployed to provide trauma counselling to those directly involved as well as focused employee assistance programmes to staff generally. The People and Culture team also designed a specific training programme around dealing with our guests once the park had reopened. Since that time, a number of team members continue to be heavily involved in assisting with the pending Coronial Inquiry and recovery projects. To further assist them in this respect, the Company has also introduced an extensive ‘Wellness Programme’ specifically designed around trauma and resilience. This includes individual treatment plans, individualised intervention sessions where required and structured support group sessions more broadly. The Board remains committed to continuing this program for as long as required. The Committee remains committed to refining and evolving the Group’s remuneration arrangements to drive performance and align with security holder interests and general market practice and I look forward to updating you on our progress as we do so. We trust that this simplified report provides security holders with clarity regarding our remuneration structures and outcomes. David Haslingden Chair, Remuneration and Nomination Committee Ardent Leisure Group | Annual Report 2017 15 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) Contents The remuneration report for the Group for the year ended 30 June 2017 is set out as follows: (a) Who is covered by this report (b) Remuneration Governance (c) Remuneration framework; structures, opportunities and performance outcomes (d) Remuneration outcomes for executives (e) Service agreements of Key Management Personnel (f) Non-Executive Director Fees (g) Additional Statutory Disclosures The information provided in the Remuneration Report has been audited as required by Section 308 (3C) of the Corporations Act 2001. (a) Who is covered by this report 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 2017, the KMP for the Group comprise the following: Position Executives Group Chief Executive Officer & Managing Director Chief Financial Officer CEO – Australian Bowling and Entertainment Centres CEO – Health Clubs CEO – US Entertainment Centres CEO – Australian Theme Parks Former Group Chief Executive Officer Name Simon Kelly (commenced employment 9 June 2017) Richard Johnson Nicole Noye Greg Oliver (ceased employment 25 October 2016) Charlie Keegan Craig Davidson Deborah Thomas Independent Directors Independent Chair (effective 6 November 2016) Independent director Independent director Independent director Independent director Independent Chair (retired 6 November 2016) George Venardos Roger Davis David Haslingden Don Morris AO Melanie Willis Neil Balnaves AO Mr Kelly was appointed Group Chief Executive Officer and Managing Director commencing 9 June 2017. 16 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (a) (i) Who is covered by this report (continued) Changes to KMP effective after the end of the reporting period The following changes occurred after the end of the reporting period:  Deborah Thomas ceased employment on 1 July 2017;  Richard Johnson ceased employment on 14 July 2017;  Geoff Richardson was appointed interim Chief Financial Officer commencing 3 July 2017; and  Randy Garfield was appointed to the Board on 14 August 2017. (b) Remuneration Governance The Remuneration and Nomination Committee’s purpose is to review, evaluate and make recommendations to the Board in relation to the following key remuneration areas:  Remuneration policies for remuneration programs appropriate to the Group;  The remuneration framework for directors and executives;  Reviewing the performance of the Chief Executive Officer to pre determined criteria on an annual basis;  Recruitment, retention and termination policies and procedures for executives;  The appointment of any remuneration consultants providing advice to the Group on the scale and components of remuneration packages of KMP; and  Reporting on executive remuneration. The Committee seeks to align the interests of the executives with those of security holders through the use of performance hurdles to drive sustainable growth and by requiring executives to hold a minimum shareholding from vested LTIP awards equal to their annual pre-tax salary. The Committee has adopted a process of benchmarking the executive KMP remuneration’s using independently provided market data. The reports are provided directly to the Chair of the Committee to ensure they are prepared in a manner free from undue influence by the Group’s executives. During FY17, Ernst and Young provided the following remuneration-related services to the Group:  Assistance with changes to the Group’s executive reward framework, associated changes to plan documents and tax advice;  Provision of market remuneration data and market practice information;  Legal services regarding the implementation of an employee share trust;  Legal and tax advice in relation to the incoming CEO’s remuneration arrangements and equity awards; and  Assistance with the Remuneration Report. Ernst and Young was not requested to, and did not provide, a remuneration recommendation in relation to any of the above services Ardent Leisure Group | Annual Report 2017 17 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) Remuneration framework: structures, opportunities and performance outcomes The remuneration framework seeks to align executive reward with the achievement of the Group’s strategic objectives: The minimum shareholding requirement was introduced from the FY17 long-term incentive grant onwards. Further details of executive security holdings are included in Section (g). (i) Remuneration structure The executive remuneration framework that was in place during the course of the year ended 30 June 2017 has three components: From FY18 the LTIP tranche subject to tenure will not be used for grants to executives based in Australia (LTIP grants made to the CEO and Executive of the US Entertainment Centres business based in the USA will continue to have a tranche subject to service in line with prevalent market practice in the USA). Instead, the LTIP issuance as at the commencement of FY18 will be granted to executives based in Australia with 50% subject to a relative TSR measure and 50% subject to an EPS growth measure. 18 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) (ii) Remuneration framework: structures, opportunities and performance outcomes (continued) Remuneration mix – FY17 The relative target proportions of annual base salary and performance incentives for executive KMP are set out below. Note that Mr Kelly’s annual base salary is delivered approximately 55% in cash and 45% in equity (determined based on a notional equity value as agreed at grant). The final value of the equity grant will vary with fluctuations in the security price and cannot be accessed until 2020. Mr Kelly’s remuneration quantum opportunity will not be reviewed until 2020. Mr Kelly did not receive STI or LTIP awards in respect of FY17. However, Mr Kelly’s on-target remuneration mix for FY18 is included below for completeness. Simon Kelly ‐ Chief Executive Officer & Managing Director 29% 24% 23% 23% Richard Johnson ‐ Chief Financial Officer 44% 28% 28% Nicole Noye ‐ CEO – Australian Bowling Centres Greg Oliver ‐ CEO – Health Clubs Charlie Keegan ‐ CEO – US Entertainment Centres Craig Davidson ‐ CEO – Australian Theme Parks  Deborah Thomas ‐ Former Chief Executive Officer 53% 53% 44% 53% 46% 24% 24% 24% 24% 24% 31% 24% 27% 24% 27% Annual base salary (cash) Annual base salary (equity) Target STI LTIP (iii) Remuneration elements Annual base salary Annual base salary includes cash salary, employer superannuation contributions and non-financial benefits and for Mr Kelly, a portion is delivered in equity. Annual base salary may be reviewed annually to ensure executive pay is competitive with the market. There are no guaranteed base pay increases in any of the executive KMP contracts. Annual base salary is also reviewed on promotion. The market for remuneration reviews typically considers companies of similar size, by market capitalisation and revenue for corporate roles, and ASX 200 Consumer Discretionary companies for Australian business unit roles. Consideration is given to US-listed companies with similar revenue as US Entertainment Centres within similar industries for the CEO – US Entertainment Centres. Remuneration packages for current KMP The remuneration packages of current KMP was as follows for the year ended 30 June 2017: Fixed Annual base salary (cash) $600,000 $420,000 US$512,500 $384,375 Annual base salary (equity) $500,000(2) - - - At risk Target STI(1) $475,000 $189,000 US$281,875 $172,969 Target LTIP grant value $475,000 $189,000 US$358,750 $172,969 Total target remuneration $2,050,000 $798,000 US$1,153,125 $730,313 Simon Kelly Nicole Noye Charlie Keegan Craig Davidson (1) Excludes Stretch STI (2) Mr Kelly agreed to take an upfront grant of restricted equity which vests over time in lieu of a portion of his cash remuneration for the first three years of his tenure. The restricted equity begins to vest 6 months from appointment. Securities are held in trust and restricted from sale for three years. Mr Kelly’s base salary is also fixed for three years, with no review until 2020. The number of rights was determined using the 5-day VWAP to 7 April 2017 of $1.876562, as agreed per the terms of Mr Kelly’s appointment. Refer Section (g)(vi) of this report for further details. Ardent Leisure Group | Annual Report 2017 19 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) Remuneration framework: structures, opportunities and performance outcomes (continued) (iii) Remuneration elements (continued) Short-term incentive Who can participate? All executives are able to participate in the STI; however participation and payment of any STI remains at the Company’s absolute discretion When is the STI paid? If performance is sufficient, STI awards are payable in cash by 30 September each year. What are the individual opportunities? Target awards for executives range between 43% and 63% of an executive’s annual base salary (including superannuation) dependent upon the executive’s position. What performance measures are used? Maximum awards range between 69% and 100% of an executive’s annual base salary (including superannuation). Key performance indicators (KPI’s) are split into financial and personal measure categories: Financial KPIs Earnings and revenue targets representing between 40% and 60% of an executive’s STI opportunity. For executives who act in Group-wide roles, the financial KPIs are based on Group earnings and revenue related measures. Divisional earnings and revenue measures also apply to those executives who occupy divisional roles. Personal KPIs Personal KPIs (representing the remaining 40% to 60% of an executive’s STI opportunity) are [typically] not financial in nature and are set to support execution of improvements and initiatives in such functions as: relationship management; risk and insurance management;  health, safety and engineering operations;   compliance;   customer and community engagement;  employee engagement;  business development; and  other strategic initiatives. Each individual typically has 5-7 personal KPIs which each represent 5% - 10% of the STI opportunity. What are stretch STI awards? KMP are eligible to receive a stretch STI award for out-performance of financial KPIs. The stretch STI opportunity allows KMP to receive up to 160% of their target STI if they exceed financial key performance indicators by 120%. Deferred Short Term Incentive Plan (DSTI) Historically, a percentage of the STI outcome an executive earned was deferred and settled in rights to acquire fully paid Group stapled securities for nil exercise price. These rights were issued under the terms of the Group’s Deferred Short Term Incentive Plan rules and vested in two equal tranches at 12 months and 24 months after the grant date. As part of a change in overall remuneration mix, from FY17 onwards executives were no longer eligible to participate in the DSTI. Two outstanding tranches (tranche 2 of the 2015 grant and tranche 1 of the 2016 grant) vested in FY17. The delivery of the stretch STI payment was previously made under the DSTI plan. The second tranche of the final DSTI grant made to KMP (in FY16) will vest in FY18. From FY17 onwards stretch STI payments will be made in cash. Details of the outstanding grants and the number of rights that vested are set out in Section (g). Additional details regarding the terms of the DSTI can be found in the FY16 Remuneration Report. 20 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) (iv) Remuneration framework: structures, opportunities and performance outcomes (continued) STI outcomes in respect of FY17 performance The percentage of STI that was awarded to the executives and the percentage that was forfeited because the executive did not meet the performance criteria are set out below, in respect of FY17 and FY16 performance. These are presented on an accruals basis. FY16 outcomes have been re-stated for the change from a cash to an accruals basis. Actual payments are made to individuals following the release of audited results. Name Simon Kelly Richard Johnson Nicole Noye Greg Oliver Charlie Keegan Craig Davidson Deborah Thomas Financial year FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 STI Awarded - N/A 40% 93% 40% 95% 100% 98% 0% 86% 0% 89% 0% 100% STI Forfeited - N/A 60% 7% 60% 5% 0% 2% 100% 14% 100% 11% 100% 0% STI outcome - N/A $147,826 $275,341 $75,600 $132,636 $291,181 $189,508 - US$150,308 - $117,193 - $167,500(1) (1) The FY16 cash-based Short-Term Incentive (STI) payment of $167,500 to Ms Thomas was subsequently donated by her in full to the Red Cross after the Dreamworld tragedy. Ardent Leisure Group | Annual Report 2017 21 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) (v) Remuneration framework: structures, opportunities and performance outcomes (continued) Long-term incentive Plan (LTIP) Who can participate? All executives are eligible for participation at the discretion of the Board. What are the individual opportunities? The LTIP awards range between 45% and 79% of an executive’s annual base salary (including superannuation) dependent upon the executive’s role. What types of securities are issued? The LTIP is typically granted in the form of performance rights that can be converted into fully paid securities once vested. Performance rights do not carry any voting or distribution entitlements. What restrictions are there on the securities? Performance rights are non-transferable. Executives may not hedge any portion of their unvested awards. Is there a performance gateway? When can the performance rights vest? How are non-Australian residents treated? From FY17, for any rights to vest under the LTIP an initial gateway performance hurdle must be met or exceeded. The gateway hurdle is a minimum return on equity target equal to or greater than 2.5X the 10 year bond yield rate for Australian Government bonds. Once the performance gateway is achieved the performance rights can vest as follows:  1/3rd are subject to a service condition of three years (note that from FY18, the tenure component will no longer apply to Australian executives);  1/3rd are subject to a TSR performance hurdle tested equally two, three and four years following the grant date; and  1/3rd are subject to a compound EPS performance hurdle tested equally two, three and four years following the grant date. For employees who are not Australian residents, the LTIP has previously granted equivalent awards in cash. Administrative arrangements have now been made to issue equity awards and not cash awards to non-Australian resident executives. All awards, whether equity or cash, are subject to the same performance and tenure hurdles. What is TSR and how is TSR measured? TSR is the total return an investor would receive over a set period of time assuming that all distributions were reinvested in the entities securities. The TSR definition takes account of both capital growth and distributions. TSR is measured against the S&P/ASX 200 Industrials Index over the performance period. TSR performance is measured by an independent third party. The vesting schedule for the portion of the grant subject to TSR performance is as follows: 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% What is EPS and how is EPS measured? The EPS hurdle refers to the compound annual growth of earnings per security over the vesting period. The vesting schedule for the portion of the grant subject to EPS performance is as follows: 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% (vi) LTIP outcomes Three LTIP tranches (issued in FY14, FY15 and FY16) are due to vest in August 2017, subject to performance. 45,377 performance rights out of a total of 418,435 that were subject to vesting will vest and a corresponding number of stapled securities will be issued to Australian employees under the terms of the LTIP. 22 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (c) (vi) Remuneration framework: structures, opportunities and performance outcomes (continued) LTIP outcomes (continued) Details of the TSR and EPS performance are set out in the tables below: Tranche Performance period T3-2013 T2-2014 T1-2015 1 July 2013 – 30 June 2017 (4 years) 1 July 2014 – 30 June 2017 (3 years) 1 July 2015 – 30 June 2017 (2 years) TSR performance rights EPS performance rights Group TSR performance Percentile Vesting percentage Group CAGR EPS Vesting percentage 48.31% 53.26 54.70% N/A N/A (13.93%) 37.30 Nil (44.88%) 2.05% 43.89 Nil (56.79%) Nil Nil Ardent previously disclosed details of vested awards in the year they were paid (for example in the FY16 Remuneration Report, LTIP awards that were measured on performance up to 30 June 2015 and vested in August 2015 were reported as remuneration in FY16). From this year, LTIP outcomes reported are aligned to the performance period ending in the current financial year to more closely align reporting of LTIP outcomes with the Group’s financial performance for the relevant year. For awards that were due to vest in August 2016 and have not yet been disclosed, the performance outcomes were as follows: Tranche T3 2012 T2 2013 T1 2014 Performance Period Group TSR performance Quartile Ranking Vesting Percentage 1 July 2012 to 30 June 2016 1 July 2013 to 30 June 2016 1 July 2014 to 30 June 2016 105.30% 46.45% (15.01%) 73.26 61.05 38.93 96.5% 72.1% Nil The CAGR EPS for the testing period (1 July 2014 to 30 June 2016) was approximately 2.39% and as such none of the EPS tested rights vested under the 2014 grant.  Details of these awards are included in Section (g)  Ardent Leisure Group | Annual Report 2017 23 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (d) Remuneration outcomes for executives This section sets out the actual remuneration outcomes realised by executives and the statutory remuneration disclosures for FY17 and FY16 as well as a summary of the Group’s business performance over the last five years. (i) Actual remuneration outcomes The table below sets out the total realised pay in respect of the years ended 30 June 2017 and 30 June 2016. The deferred equity and LTIP vested elements of realised pay relate to both individual and the Group’s performance up to 30 June 2017. The information below is different to the statutory required information later in this section, which includes the accounting value of equity expensed in the year, rather than the vested value shown in this table. Name Simon Kelly(3) Richard Johnson(4) Nicole Noye Greg Oliver(5) Charlie Keegan Craig Davidson Deborah Thomas(2) STI on an accrued basis Financial year Base salary (incl Super) paid Cash Deferred equity vested(1) LTIP vested(1) Termination payment Total realised pay in respect of the financial year FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 - $54,634 N/A N/A $147,826 $666,305 $275,341 $516,305 $75,600 $420,026 $132,636 $400,000 $291,181(6) $166,603 $189,508 $568,449 US$512,500 - US$500,000 US$150,308 - $117,193 - $167,500(7) $384,376 $375,000 $757,516 $670,000 - N/A $95,521 $71,307 $108,361 $54,388 $170,174 $79,236 US$147,311 US$112,799 $99,091 $76,418 $86,989 $18,830 - N/A $67,657 $238,078 - - $222,842 $82,088 US$13,577 US$40,231 - - - - - N/A - - - - - - - - - - $731,291 - $54,634 N/A $977,309 $1,101,031 $603,987 $587,024 $850,800 $919,281 US$673,388 US$803,338 $483,467 $568,611 $1,575,796 $856,330 (1) The vesting of Deferred equity and LTIP performance rights into fully paid stapled securities reflect previous performance of executives and of the Group up to 30 June 2017. Securities to be issued in respect of the financial year are valued at $1.88 per security, representing the closing price at 30 June 2017 (2016: $1.88 per security, representing the closing price at 30 June 2016). Amounts expressed in US dollars are converted from Australian dollars at an exchange rate of 0.7692, representing the closing rate at 30 June 2017 (2016: 0.7426, representing the closing rate at 30 June 2016) (2) Ceased employment 1 July 2017. Ms Thomas was paid a termination benefit of $731,291 equal to 12 months average base remuneration on 1 July 2017. This amount was lower than the prima facie contractual entitlement in alignment with the Corporations Amendment (Improving Accountability on Termination Payments) Act. Though paid in FY18, the payment is included in this remuneration outcomes table for completeness and transparency as it was contractually committed during FY17. Entitlements under the Group’s DSTI which had not vested by 1 July 2017 were forfeited. Ms Thomas will retain the right to previously granted but unvested entitlements under the Group’s LTI plan which remain subject to performance criteria. Vesting of those entitlements will remain subject to Ardent achieving TSR and EPS growth targets as specified in the LTI plan. Unvested LTIP entitlements that are subject to tenure were forfeited. Ms Thomas and Ardent have entered into a transitional consultancy arrangement, whereby Ms Thomas will provide ongoing support to the CEO, senior management and Board of Ardent in respect of the pending Coronial Inquiry into the Dreamworld tragedy. Ms Thomas will be paid a consultancy fee of $3,000 per day, for each day reasonably expended in relation to the Coronial Inquiry. The Board has determined this arrangement is appropriate based on external professional advice and market benchmarking. The consultancy agreement can be terminated by either party with one month’s notice following the conclusion of the Coronial Inquiry. (3) Commenced employment 9 June 2017. Mr Simon Kelly’s annual base salary relates to the period employed from 9 June 2017 and an additional 5 days for work product provided to the Group prior to commencement of employment calculated based on Mr Kelly’s notional annual base salary (4) Ceased employment 14 July 2017. (5) Ceased employment on the sale of Health Clubs on 25 October 2016. During the prior year, Greg Oliver was paid $78,449 in lieu of unused annual leave from previous years. (6) Sale completion bonus. STI paid on completion of the sale of Health Clubs in October 2016 of $220,500 plus prorated STI paid for 117 days of $70,681. (7) The FY16 cash-based Short-Term Incentive (STI) payment of $167,500 to Ms Thomas was subsequently donated by her in full to the Red Cross after the Dreamworld tragedy. 24 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (d) (ii) Remuneration outcomes for executives (continued) Details of remuneration – Executive Key Management Personnel Details of the remuneration of Executive KMP of the Group for FY17 and FY16 are set out in the tables below. The tables set out the total cash benefits paid to the executives 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. Due to a change in reporting methodology, FY16 disclosures are restated on an accruals basis and therefore some figures may differ from amounts disclosed in the FY16 Remuneration Report. Short term benefits Post- employment benefits Other long term benefits Salary Cash bonus $ FY17 51,860 $ - Annual leave(1) $ 4,038 FY16 FY17 FY16 FY17 N/A N/A N/A 631,305 147,826 (27,884) 496,996 275,341 400,410 75,600 23,389 (6,197) FY16 380,692 132,636 17,446 Simon Kelly(2) Chief Executive Officer and Managing Director Richard Johnson(3) Chief Financial Officer Nicole Noye CEO – Australian Bowling and Entertainment Centres Greg Oliver(5) CEO – Health Clubs Charlie Keegan(4) FY17 FY16 FY17 156,795 291,181 8,523 549,141 189,508 (44,800) 681,481 - CEO – US Entertainment Centres FY16 687,570 206,694 Craig Davidson CEO – Australian Theme Parks Deborah Thomas Former Chief Executive Officer FY17 FY16 FY17 FY16 355,692 117,193 722,516 - 650,692 167,500(6) 364,760 - (17,674) 14,216 9,520 297 18,107 35,085 (6,871) 40,937 Super- annuation Termination Total cash payment Security- based payments Total Security- based payment % of total $ 2,774 N/A 35,000 19,308 19,616 19,308 9,808 19,308 - - 19,616 19,308 35,000 19,308 $ - $ $ $ 58,672 31,798 90,470 35.15% N/A N/A N/A N/A N/A - - - - - - - - - - 786,247 646,231 1,432,478 45.11% 815,034 246,589 1,061,623 23.23% 489,429 182,706 672,135 27.18% 550,082 87,285 637,367 13.69% 466,307 285,217 751,524 37.95% 713,157 154,171 867,328 17.78% 695,697 438,891 1,134,588 38.68% 903,784 320,858 1,224,642 26.20% 366,702 180,480 547,182 32.98% 492,490 125,998 618,488 20.37% 731,291(7) 1,506,914 512,335 2,019,249 25.37% - 872,585 101,845 974,430 10.45% FY17 3,009,127 514,607 FY16 3,120,783 1,088,872 121,814 731,291 4,369,968 2,277,658 6,647,626 34.26% 96,540 - 4,347,132 1,036,746 5,383,878 19.26% (1) Annual leave amounts represent the increase/(decrease) in the liability for accumulated annual leave during the year. (2) Commenced employment 9 June 2017. Mr Simon Kelly’s annual base salary relates to the period employed from 9 June 2017 and an additional 5 days for work product provided to the Group prior to commencement of employment. (3) Ceased employment 14 July 2017. During FY16, Richard Johnson was awarded a $75,000 increase of annual base salary which was deferred to 1 July 2016, as disclosed in the FY16 Remuneration Report. This amount has been included in the annual base salary disclosed above. (4) Remuneration is converted from US dollars to Australian dollars at the average exchange rate of 0.7542 (2016: 0.7272) and includes both cash settled and equity settled awards. (5) Ceased employment on the sale of Health Clubs on 25 October 2016. During the prior year, Greg Oliver was paid $78,449 in lieu of unused annual leave from previous years. (6) The FY16 cash-based Short-Term Incentive (STI) payment of $167,500 to Ms Thomas was subsequently donated by her in full to the Red Cross after the Dreamworld tragedy. (7) Ceased employment 1 July 2017. Ms Thomas was paid a termination benefit of $731,291 equal to 12 months average base remuneration on 1 July 2017. This amount was lower than the prima facie contractual entitlement in alignment with the Corporations Amendment (Improving Accountability on Termination Payments) Act. Though paid in FY18, the payment is included in this table for completeness and transparency as it was contractually committed during FY17. Entitlements under the Group’s DSTI which had not vested by 1 July 2017 were forfeited. Ms Thomas will retain the right to previously granted but unvested entitlements under the Group’s LTI plan which remain subject to performance criteria. Vesting of those entitlements will remain subject to Ardent achieving TSR and EPS growth targets as specified in the LTI plan. Unvested LTIP entitlements that are subject to tenure will be forfeited. Ms Thomas and Ardent have entered into a transitional consultancy arrangement, whereby Ms Thomas will provide ongoing support to the CEO, senior management and Board of Ardent in respect of the pending Coronial Inquiry into the Dreamworld tragedy. Ms Thomas will be paid a consultancy fee of $3,000 per day, for each day reasonably expended in relation to the Coronial Inquiry. The Board has determined this arrangement is appropriate based on external professional advice and market benchmarking. The consultancy agreement can be terminated by either party with one month’s notice following the conclusion of the Coronial Inquiry. Ardent Leisure Group | Annual Report 2017 25 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (d) (ii) Remuneration outcomes for executives (continued) Details of remuneration – Executive Key Management Personnel (continued) Note that the Income Statement expense includes accelerated expensing of LTIP and DSTI for Ms Deborah Thomas and Mr Richard Johnson which is due to vest in future periods as no future service obligations remain and these entitlements were contracted prior to 30 June 2017. Security-based payments included in the tables above reflect the amounts in the Income Statements of the Group. For performance rights issued to executives, the 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. 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 executive compensation would be reduced by $423,418 to $1,854,240 (FY16: reduced by $9,780 to $1,239,468) (iii) Summary of performance Between 30 June 2013 and 30 June 2016 (prior to the Dreamworld incident), core earnings per security of the Group had increased by 5.0%. Over the last five years, the market capitalisation of the Group has increased by 29.3%. The table below compares the Group’s security price (as at 30 June each year), core earnings per security, distribution/dividend per security and market capitalisation over the past five years. Further details of TSR and EPS performance over the relevant vesting periods for the LTIP are included later in this section. Security price as at 30 June Core earnings per security (cents) Distribution/dividend per security (cents) Market capitalisation as at 30 June ($ million) (e) Service agreements of Key Management Personnel 2017 $1.880 2.41 3.00 $882.0 2016 $1.880 13.80 12.50 $870.5 2015 $2.170 12.92 12.50 $959.8 2014 $2.710 14.40 13.00 $1097.7 2013 $1.715 13.14 12.00 $682.2 Remuneration and other terms of employment for KMP are formalised in service agreements. The major provisions of the agreements relating to remuneration are set out below: Executive Term Termination Simon Kelly Chief Executive Officer and Managing Director Richard Johnson Chief Financial Officer Nicole Noye CEO – Australian Bowling and Entertainment Centres Greg Oliver CEO – Health Clubs Charlie Keegan CEO – US Entertainment Centres Craig Davidson CEO – Australian Theme Parks No fixed term. No fixed term. 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. The Group may also make a payment in lieu of notice, in which case Mr Kelly will also be entitled to receive an additional severance payment of $350,000 prorated commensurate with the notice period being paid out. Employment continued with the Group unless the executive gave the Group six months’ notice in writing, or the Group gave the executive 12 months’ notice in writing. No fixed term. Employment shall continue with the Group unless either party gives three months’ notice in writing. No fixed term. No fixed term. Automatic renewal on a year by year basis. No fixed term. Employment shall continue with the Group unless the executive gives the Group three months’ notice in writing, or the Group gives the executive six months’ notice in writing. During the contract term, employment shall continue with the Group unless the executive gives three months’ notice in writing. An early termination payment equal to 12 months’ salary is payable to the executive if the Group terminates the executive during the contract, other than for gross misconduct. Employment shall continue with the Group unless either party gives three months’ notice in writing. Employment continued with the Group unless the executive gave the Group six months’ notice in writing, or the Group gave the executive 12 months’ notice in writing. Deborah Thomas Former Chief Executive Officer No fixed term. Other than as set out above, there are no contracted termination benefits payable to any KMP. 26 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (f) Non-Executive Director Fees 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 Non-Executive Directors do not participate in equity nor 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 total aggregate level of directors’ fees payable by the Group is $1,200,000 per annum as set by investors at the 30 October 2014 general meeting. There is no proposal to increase the aggregate fee cap in FY18. The Board has determined that Board fees for FY17 be the same as Board fees for the prior year. They are as follows: Position Board Chair Other Non-Executive Director Audit and Risk Committee Other Committee - Chair - Member - Chair - Member Non Executive Director Fees $205,000 $120,000 $20,000 $15,000 $12,500 $7,500 There are no further changes to directors’ fees proposed for FY18, other than the introduction of a A$136,000 per annum fee for any US- based Non-Executive Directors. Details of the actual fees delivered to Non-Executive Directors of the Group for FY17 and FY16 are set out below: Independent Directors George Venardos Roger Davis David Haslingden Don Morris AO Melanie Willis Neil Balnaves AO Salary $ Superannuation $ FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 197,748 146,119 142,104 141,553 130,023 120,528 130,023 123,288 136,872 122,738 77,352 208,192 814,122 862,418 17,211 13,881 13,500 13,447 12,352 11,450 12,352 11,712 13,003 11,660 7,080 19,308 75,498 81,458 Total $ 214,959 160,000 155,604 155,000 142,375 131,978 142,375 135,000 149,875 134,398 84,432 227,500 889,620 943,876 (1) Retired 6 November 2016. (g) (i) Additional Statutory disclosures Directors’ interests in securities Changes to Directors’ interests in stapled securities during the period are set out below: George Venardos Roger Davis David Haslingden Simon Kelly Don Morris AO Melanie Willis Neil Balnaves AO Deborah Thomas (1) Securities held on joining/leaving the Group Opening balance 209,857 200,658 160,000 - 13,950 9,674 3,001,510 31,358 3,627,007 Acquired 5,982 - - - - - 10,911 16,893 Disposed - - - - - - - - - Other Changes(1) - - - 280,409 - - (3,001,510) - (2,721,101) Closing balance 215,839 200,658 160,000 280,409 13,950 9,674 - 42,269 922,799 Ardent Leisure Group | Annual Report 2017 27 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (g) (ii) Additional Statutory disclosures (continued) Other KMP intersts in securities Changes to the interests of other KMP in stapled securities during the period are set out below: Opening balance 100,000 2,500 600,347 33,630 13,306 749,783 Acquired under the Group's equity plans 164,566 28,930 294,862 93,171 40,648 622,177 Disposed Other Changes(1) Closing balance - (25,644) (600,347) - (3,954) (629,945) - - (294,862) - - (294,862) 264,566 5,786 - 126,801 50,000 447,153 Richard Johnson Nicole Noye Greg Oliver Charlie Keegan Craig Davidson (1) Securities held on joining/leaving the Group (iii) Valuation inputs For performance rights outstanding at 30 June 2017, the tables below show 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 performance rights granted to employees at 30 June 2017: DSTI 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 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 LTIP 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 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 $0.72 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 $1.44 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 2016 23 August 2016 31 August 2017 31 August 2018 1.40% per annum 40.0% per annum 5.0% per annum $2.50 $2.32 2016 23 August 2016 31 August 2018 31 August 2019 31 August 2020 1.40% per annum 40.0% per annum 5.0% per annum $2.50 $1.52 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. 28 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. (g) (iii) Remuneration report (continued) Additional Statutory disclosures (continued) Valuation inputs (continued) The tables below show the fair value of the performance rights in each grant as at 30 June 2017 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 2017: DSTI 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 2015 18 August 2015 31 August 2016 31 August 2017 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $1.87 LTIP 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 at year end 2013 23 August 2013 20 August 2015 31 August 2016 31 August 2017 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.02 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.08 2015 15 December 2015 31 August 2017 31 August 2018 31 August 2019 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.31 (iv) Details of equity grant movements 2016 23 August 2016 31 August 2017 31 August 2018 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $1.86 2016 23 August 2016 31 August 2018 31 August 2019 31 August 2020 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.80 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 Number lapsed Value of performance rights at lapse Number vested Value of performance rights at vesting Maximum value yet to vest Year Number $ $ $ $ Simon Kelly Richard Johnson Grant in lieu of remuneration 2017 Total LTIP 2012 2013 2014 2015 2016 2014 2015 2016 DSTI Total T1 T3 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T4 T2 T1 T2 T1 T2 2020 2017 2017 2018 2017 2018 2019 2018 2019 2020 2019 2020 2021 2020 2017 2017 2018 2018 2019 799,334 799,334 82,075 65,789 65,789 33,804 33,804 33,804 65,994 65,994 65,994 32,719 32,719 32,719 49,080 16,920 21,009 21,010 29,799 29,799 778,821 1,658,059 1,658,059 49,491 51,388 47,579 58,846 52,751 44,523 82,407 73,867 66,133 49,445 45,247 33,753 105,493 46,474 43,152 40,749 70,788 67,334 - - 2,872 18,355 - 33,804 - - - - - - - - - - - - - - 1,029,420 55,031 - - - - 79,203 8,070 47,434 51,578 - - - 94,989 - - - - - - - - - - - - - - - - - - 16,920 - 21,009 - - - - - - - 154,637 164,566 1,658,059 - - 1,658,059 - - 47,579 - 52,751 44,523 82,407 73,867 66,133 49,445 45,247 33,753 105,493 - - 40,749 70,788 67,334 780,069 222,560 133,290 - - - - - - - - - - - 47,545 59,035 - - - 462,430 Ardent Leisure Group | Annual Report 2017 29 For personal use only Directors’ report to stapled security holders 11. (g) (iv) Remuneration report (continued) Additional Statutory disclosures (continued) Details of equity grant movements (continued) Year granted Tranche Financial years in which performance rights may vest Year Number Nicole Noye LTIP 2015 2016 DSTI 2015 Greg Oliver Total LTIP DSTI 2016 2012 2013 2014 2015 2014 2015 2016 T1 T2 T3 T1 T2 T3 T4 T1 T2 T1 T2 T3 T2 T3 T1 T2 T3 T1 T2 T3 T2 T1 T2 T1 T2 2018 2019 2020 2019 2020 2021 2020 2017 2018 2018 2019 2017 2017 2018 2017 2018 2019 2018 2019 2020 2017 2017 2018 2018 2019 Value of performance rights at grant Number lapsed Value of performance rights at lapse Number vested 17,857 17,857 17,857 16,733 16,733 16,733 25,100 28,930 28,930 28,709 28,710 $ 22,298 19,987 17,894 25,287 23,140 17,262 53,950 59,422 56,110 68,198 64,873 - - - - - - - - - - - - $ - - - - - - - - - - - - Value of performance rights at vesting Maximum value yet to vest $ $ - - - - - - - 81,293 - - - 22,298 19,987 17,894 25,287 23,140 17,262 53,950 - 56,110 68,198 64,873 - - - - - - - 28,930 - - - 244,149 428,421 28,930 81,293 368,999 28,043 23,026 23,026 14,941 14,941 14,941 21,875 21,875 21,875 24,388 17,759 17,760 36,379 36,379 16,910 17,986 16,652 26,009 23,315 19,679 27,315 24,485 21,921 66,987 36,477 34,446 86,418 82,202 981 6,424 - 14,941 - - - - - - - - - - 2,757 18,051 - 41,984 - - - - - - - - - - 27,062 16,602 23,026 - 14,941 14,941 21,875 21,875 21,875 24,388 17,759 17,760 36,379 36,379 76,044 46,652 54,111 - 35,111 35,111 51,406 51,406 51,406 68,530 49,903 41,736 85,491 85,491 - - - - - - - - - - - - - - - Total 317,208 500,802 22,346 62,792 294,862 732,398 30 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 11. (g) (iv) Remuneration report (continued) Additional Statutory disclosures (continued) Details of equity grant movements (continued) Year granted Tranche Financial years in which performance rights may vest Value of performance rights at grant Number lapsed Value of performance rights at lapse Number vested Charlie Keegan LTIP 2013 2014 2015 2016 2014 2015 2016 2012 2014 2015 2016 2014 2015 2016 2015 2016 DSTI LTIP Total LTIP DSTI Total LTIP Cash Settled Charlie Keegan Craig Davidson Deborah Thomas DSTI 2015 2016 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T4 T2 T1 T2 T1 T2 T3 T1 T2 T3 T1 T2 T3 T1 T2 T3 T4 T2 T1 T2 T1 T2 T1 T2 T3 T1 T2 T3 T4 T1 T2 T1 T2 Year Number 2017 2018 2017 2018 2019 2018 2019 2020 2019 2020 2021 2020 2017 2017 2018 2018 2019 17,162 17,162 27,961 27,961 27,961 62,055 62,056 62,056 41,710 41,709 41,709 62,565 21,653 59,144 59,144 42,724 42,724 $ 13,405 12,412 48,675 43,633 36,827 77,488 69,459 62,186 63,032 57,679 43,027 134,477 59,474 121,482 114,710 101,491 96,539 4,788 - 27,961 - - - - - - - - - - - - - - $ 13,454 - 78,570 - - - - - - - - - - - - - - 12,374 - - - - - - - - - - - 21,653 59,144 - - - Value of performance rights at vesting Maximum value yet to vest $ $ 34,771 - - - - - - - - - - - 60,845 166,195 - - - - 12,412 - 43,633 36,827 77,488 69,459 62,186 63,032 57,679 43,027 134,477 - - 114,710 101,491 96,539 2017 17,039 10,275 596 1,675 16,443 46,205 - 734,495 1,166,271 33,345 93,699 109,614 308,016 912,960 2017 2018 2019 2018 2019 2020 2019 2020 2021 2020 2017 2017 2018 2018 2019 2018 2019 2020 2019 2020 2021 2020 2017 2018 2018 2019 11,368 11,368 11,368 16,741 16,741 16,741 15,313 15,314 15,314 22,971 13,307 27,341 27,341 25,367 25,367 19,789 17,740 14,973 20,904 18,738 16,776 23,141 21,178 15,798 49,374 36,550 56,158 53,028 60,259 57,319 11,368 - - - - - - - - - - - - - - 31,944 - - - - - - - - - - - - - - - - - - - - - - - - 13,307 27,341 - - - - - - - - - - - - - 37,393 76,828 - - - - 17,740 14,973 20,904 18,738 16,776 23,141 21,178 15,798 49,374 - - 53,028 60,259 57,319 271,962 481,725 11,368 31,944 40,648 114,221 369,228 99,702 99,702 99,703 38,731 38,732 38,732 58,098 10,016 10,017 36,255 36,256 124,498 111,596 99,912 58,530 53,562 39,956 124,876 20,573 19,428 86,124 81,924 - - - - - - 58,098 - - - 36,256 - - - - - - 109,224 - - - 68.161 - - - - - - - 10,016 - - - - - - - - - - 28,145 - - - 124,498 111,596 99,912 58,530 53,562 39,956 - - 19,428 86,124 - Total 565,944 820,979 94,354 177,385 10,016 28,145 593,606 Ardent Leisure Group | Annual Report 2017 31 For personal use only Directors’ report to stapled security holders 11. Remuneration report (continued) (g) (v) Additional Statutory disclosures (continued) LTI performance rights The number of performance rights on issue and granted to the Group’s executive KMP under the LTIP is set out below: 30 June 2017 Current executives Richard Johnson Nicole Noye Charlie Keegan Craig Davidson Deborah Thomas Equity settled Current executive Charlie Keegan Cash settled Total performance rights (vi) DSTI rights Opening balance Granted as compensation Vested Lapsed Closing balance Vested and exercisable Unvested 513,047 53,571 304,374 84,327 299,107 1,438,969 147,237 75,299 187,693 68,912 174,293 653,434 (126,637) - (12,374) - - (301,208) (55,031) - (32,749) (11,368) (58,098) (179,592) 478,616 128,870 446,944 141,871 415,302 1,611,603 17,039 17,039 1,456,008 - - 653,434 (16,443) (16,443) (317,651) (596) (596) (180,188) - - 1,611,603 - - - - - - - - - 478,616 128,870 446,944 141,871 415,302 1,611,603 - - 1,611,603 The number of rights on issue and granted to the Group’s executive KMP under the DSTI is set out below: Opening balance Granted as compensation Vested Lapsed Closing balance Vested and exercisable 30 June 2017 Current executives Richard Johnson Nicole Noye Greg Oliver Charlie Keegan Craig Davidson Deborah Thomas 58,939 57,860 59,907 139,941 67,989 20,033 59,598 57,419 72,758 85,448 50,734 72,511 (37,929) (28,930) (132,665) (80,797) (40,648) (10,016) - - - - - (36,256) 80,608 86,349 - 144,592 78,075 46,272 Unvested 80,608 86,349 - 144,592 78,075 46,272 435,896 - - - - - - - Total performance rights 404,669 398,468 (330,985) (36,256) 435,896 (vi) Rights delivered to Simon Kelly as part of fixed remuneration 30 June 2017 Current executives Simon Kelly Total performance rights Opening balance Granted as compensation Vested Lapsed Closing balance Vested and exercisable Unvested - - 799,334 799,334 - - - - 799,334 799,334 - - 799,334 799,334 (vii) Loans and other transactions with KMP There were no loans made to KMP during the financial year, as disclosed in Note 37(e) to the financial statements. Refer to Note 37(f) to the financial statements for details of other transactions with KMP during the financial year. 32 Ardent Leisure Group | Annual Report 2017 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 37. 14. Events occurring after reporting date Subsequent to 30 June 2017, a distribution of 1.0 cent per stapled security has been declared by the Board of Directors. The total distribution amount of $4.7 million will be paid on or before 31 August 2017 in respect of the half year ended 30 June 2017. As noted above, effective 14 August 2017, the Group completed the disposal of its Marinas business for gross sale proceeds (excluding working capital adjustments) of $126.0 million. 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 2017. 15. Likely developments and expected results of operations The financial statements have been prepared on the basis of the current known market conditions. The extent to which any potential deterioration in either the capital or physical property markets may have on the future results of the Group is unknown. Such results could include the potential to influence property market valuations, the ability of borrowers, including the Group, to raise or refinance debt, and the cost of such debt and the ability to raise equity. At the date of this report, and to the best of the Directors’ knowledge and belief, there are no other anticipated changes in the operations of the Group which would have a material impact on the future results of the Group. Ardent Leisure Group | Annual Report 2017 33 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 2017 and fees paid to its related entities during the financial year are disclosed in Notes 7 and 37 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) Theme Parks – Australia 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 10 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. 34 Ardent Leisure Group | Annual Report 2017 For personal use only Directors’ report to stapled security holders 18. Environmental regulations (continued) (b) Marinas – Australia During the period of ownership by the Group, Schedule 1 Environment Protection Licences were held for all five NSW marinas in the portfolio in accordance with the Protection of the Environment Operations Act 1997 (NSW). There were no specific environmental licence requirements in Victoria relating to the Pier 35 or Victoria Harbour marinas. During the period, the NSW Environment Protection Authority (EPA) commenced proceedings against Ardent Leisure Limited in relation to the diesel spill that occurred at Rushcutters Bay marina in May 2016. Ardent Leisure Limited pleaded guilty to those proceedings on 30 June 2017, however the outcome will not be determined until later in 2017. To the extent that statutory fines or penalties may be imposed, they are not expected to be material to the Group and, in any event, will be met by insurance cover. (c) Bowling and Entertainment Centres – Australia Australian Bowling and Entertainment 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 and Entertainment Centres – New Zealand There are no specific requirements relating to the New Zealand centres that are not reflected in the above statement. (e) US Entertainment Centres – United States of America The US Entertainment Centres are 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 the US Entertainment Centres, the OSHA requires that MSDS be available to all 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 the US Entertainment Centres. (f) Goodlife Health Clubs – Australia During the period of ownership by the Group, Goodlife was subject to environmental regulations across the business and had initiatives in place to meet all areas of environmental compliance. Water conservation was a high priority and management implemented a range of strategies to meet current water regulations as per each State’s regulations. A recycling program was implemented across the business, assisting with reduction of waste products and meeting environmental standards. Hazardous substances and dangerous goods were strictly monitored in the business and, where possible, non-hazardous chemicals were used. All hazardous chemicals and dangerous goods were disposed as per current regulations. All clubs held site specific chemical registers with safe work methods. Noise emissions did not contravene State regulations or impact on surrounding business or neighbourhoods. Ardent Leisure Group | Annual Report 2017 35 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 2015/2016 emissions report under the Act in September 2016. 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. George Venardos Chairman Sydney 31 August 2017 Simon Kelly Managing Director 36 Ardent Leisure Group | Annual Report 2017 For personal use only Auditor’s Independence Declaration As lead auditor for the audit of Ardent Leisure Group for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Ardent Leisure Group, which includes Ardent Leisure Trust and Ardent Leisure Limited and the entities they controlled during the period. Timothy J Allman Partner PricewaterhouseCoopers Brisbane 31 August 2017 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 2017 Income Statements Income Revenue from operating activities Management fee income Valuation gains - investment properties Interest income Gain on sale and leaseback of US Entertainment Centres Other income Note 3 7(b) Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 498,048 - - 86 - 1,727 477,059 - 2,050 81 1,672 - 498,048 1,200 - 77 - 1,727 477,059 1,200 - 68 1,672 - Total income 499,861 480,862 501,052 479,999 Expenses Purchases of finished goods Salary and employee benefits Borrowing costs Property expenses Depreciation and amortisation Loss on closure of Australian Bowling and Entertainment 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 Valuation loss - property, plant and equipment Dreamworld incident costs Net loss from derivative financial instruments Other expenses 4 5 6 8 69,860 206,925 12,160 68,421 48,894 470 2,681 24,082 28,730 13,888 - 255 783 88,747 7,048 421 48,543 62,772 178,688 14,737 57,531 42,214 - 397 18,131 22,335 7,525 64 301 - - - 170 40,965 69,860 206,652 9,571 80,233 32,646 4 789 24,082 28,730 13,888 - - 783 - 6,701 - 48,062 62,772 178,862 10,146 100,370 23,642 - 23 18,131 22,335 7,525 64 - - - - - 40,314 Total expenses 621,908 445,830 522,001 464,184 (Loss)/profit before tax (benefit)/expense Income tax (benefit)/expense (Loss)/profit from continuing operations Profit from discontinued operations (Loss)/profit for the year 10 16(b) (122,047) (5,561) (116,486) 53,929 (62,557) 35,032 7,448 27,584 14,803 42,387 (20,949) (5,421) (15,528) 18,592 3,064 15,815 7,426 8,389 2,252 10,641 Attributable to: Stapled security holders (Loss)/profit for the year (62,557) (62,557) 42,387 42,387 3,064 3,064 10,641 10,641 The above Income Statements should be read in conjunction with the accompanying notes. Total basic (losses)/earnings per security/share (cents) Basic (losses)/earnings per security/share (cents) from continuing operations Total diluted (losses)/earnings per security/share (cents) Diluted (losses)/earnings per security/share (cents) from continuing operations 11 11 11 11 (13.37) (24.89) (13.34) (24.84) 9.37 6.10 9.35 6.09 0.65 (3.32) 0.65 (3.31) 2.35 1.85 2.35 1.85 38 Ardent Leisure Group | Annual Report 2017 For personal use only Statements of Comprehensive Income for the year ended 30 June 2017 Statements of Comprehensive Income (Loss)/profit for the year Other comprehensive income for the year Items that may be reclassified to profit and loss: Cash flow hedges Foreign exchange translation difference Income tax (expense)/benefit relating to these items Items that will not be reclassified to profit and loss: (Loss)/gain on revaluation of property, plant and equipment Other comprehensive (loss)/income for the year, net of tax Total comprehensive (loss)/income for the year, net of tax Attributable to: Stapled security holders Total comprehensive (loss)/income for the year, net of tax Total comprehensive (loss)/income for the year attributable to stapled security holders arises from: Continuing operations Discontinued operations Total comprehensive (loss)/income for the year, net of tax Note 31 31 31 31 Consolidated Group 2017 Consolidated Group 2016 $’000 $’000 (62,557) 42,387 ALL Group 2017 $’000 3,064 ALL Group 2016 $’000 10,641 3,154 (3,280) (562) (1,215) (1,903) (64,460) (1,878) 2,049 441 10,534 11,146 53,533 1,549 (3,837) (562) - (2,850) 214 (1,321) 2,277 441 - 1,397 12,038 (64,460) (64,460) 53,533 53,533 214 214 12,038 12,038 16(b) (118,389) 53,929 (64,460) 38,730 14,803 53,533 (18,378) 18,592 9,786 2,252 214 12,038 The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes. Ardent Leisure Group | Annual Report 2017 39 For personal use only Balance Sheets as at 30 June 2017 Current assets Cash and cash equivalents Receivables Derivative financial instruments Inventories Current tax receivables Assets classified as held for sale Property classified as held for sale Construction in progress inventories Other Total current assets Non-current assets Property, plant and equipment Investments held at fair value 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 Interest bearing liabilities 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 Other equity Reserves (Accumulated losses)/retained profits Total equity attributable to stapled security holders Total equity Note 34 13 14 15 16(d) 17 18 19 20 40 14 21 22 23 18 14 24 25 16(d) 26 14 24 25 27 28 30 31 32 Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 10,842 5,367 - 13,256 - 120,721 13,840 56,756 5,089 225,871 636,440 3,201 272 293 96,587 11,549 748,342 974,213 102,960 50,050 1,005 54,466 602 2,973 4,892 2,675 219,623 316 178,161 7,595 36,796 222,868 442,491 531,722 662,450 (1,662) (26,861) (102,205) 531,722 531,722 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 9,352 5,367 - 13,256 - 3,244 13,840 56,756 4,467 106,282 374,587 3,201 196 293 96,587 11,549 486,413 592,695 96,371 50,050 - - 602 2,973 4,558 2,675 157,229 29 218,844 2,763 36,796 258,432 415,661 177,034 170,699 (1,662) 6,185 1,812 177,034 177,034 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 The above Balance Sheets should be read in conjunction with the accompanying notes. 40 Ardent Leisure Group | Annual Report 2017 For personal use only Statements of Changes in Equity for the year ended 30 June 2017 Statements of Changes in Equity Consolidated Group Total equity at 1 July 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 Total equity at 30 June 2016 Loss for the year Other comprehensive loss for the year Total comprehensive loss 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 Acquisition of treasury shares Distributions paid and payable Total equity at 30 June 2017 ALL Group Total equity at 1 July 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: Contributions of equity, net of issue costs Security-based payments - shares issued Total equity at 30 June 2016 Profit for the year Other comprehensive loss for the year Total comprehensive (loss)/income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of issue costs Security-based payments - shares issued Acquisition of treasury shares Note Contributed equity $’000 Other equity $’000 Reserves $’000 Retained profits/ (accumulated losses) $’000 Total equity $’000 605,181 - - - - 41,162 3,377 - - 649,720 - - - - - - - - - - - - - - - - - 9,247 3,483 - - - - - (1,662) - (30,691) 4,992 579,482 - 11,146 11,146 (1,866) - - - (3,527) (24,938) - (1,903) (1,903) (20) - - - - 42,387 - 42,387 42,387 11,146 53,533 - - - (55,705) 3,527 (4,799) (62,557) - (62,557) - - - - (34,849) (1,866) 41,162 3,377 (55,705) - 619,983 (62,557) (1903) (64,460) (20) 9,247 3,483 (1,662) (34,849) 662,450 (1,662) (26,861) (102,205) 531,722 155,262 - - - 10,958 880 167,100 - - - - - - - - - - - - - - 7,638 - 1,397 1,397 - - 9,035 - (2,850) (2,850) 2,608 991 - - - (1,662) - - - (11,893) 151,007 10,641 - 10,641 10,641 1,397 12,038 - - (1,252) 10,958 880 174,883 3,064 - 3,064 - - - 3,064 (2,850) 214 2,608 991 (1,662) 31 28 28 32 31, 32 31 28 28 30 32 28 28 28 28 30 Total equity at 30 June 2017 170,699 (1,662) 6,185 1,812 177,034 The above Statements of Changes in Equity should be read in conjunction with the accompanying notes. Ardent Leisure Group | Annual Report 2017 41 For personal use only Statements of Cash Flows for the year ended 30 June 2017 Statements of Cash Flows Note Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Property expenses paid Payments for construction in progress inventories Early termination of interest rate swap 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 (paid)/received Insurance recoveries Income tax received/(paid) Net cash flows from operating activities 35(a) Cash flows from investing activities Payments for property, plant and equipment and other intangible assets Purchase of assets on behalf of 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 Proceeds from the sale of health clubs, net of cash disposed Payments for purchase of investments Payments for purchase of businesses, net of cash acquired Net cash flows from investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Borrowing costs Costs of issue of stapled securities Payments for securities acquired by Ardent Leisure Employee Share Trust Proceeds from borrowings from the Trust Repayments of borrowings to the Trust Distributions paid to stapled security holders Net cash flows from financing activities Net increase 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 34 647,442 (491,335) (87,289) (58,670) (72) 86 - 58,123 - (137) 1,052 2,977 72,177 (212,164) - - 384 - 259,328 (3,201) - 44,347 1,610,810 (1,687,010) (11,439) (38) (1,662) - - (25,564) (114,903) 1,621 9,072 153 10,846 752,923 (503,891) (109,140) (70,832) - 81 - 68,116 - 206 - (2,042) 135,421 (154,444) - - 186 23,849 - - (3,789) (134,198) 2,572,503 (2,539,083) (15,960) (78) - - - (14,465) 2,917 4,140 4,986 (54) 9,072 648,762 (500,817) (83,013) (58,670) - 77 (66,641) 58,123 38,291 - 1,052 2,975 40,139 (171,266) (40,668) 40,579 199 - 202,530 (3,201) - 28,173 878,285 (864,464) (10,030) (11) (1,662) 202,058 (271,409) - (67,233) 1,079 8,393 (116) 9,356 755,995 (495,286) (105,169) (70,832) - 68 (122,453) 68,116 62,224 - - (2,039) 90,624 (132,132) (20,210) 20,803 186 23,849 - - (1,488) (108,992) 1,334,380 (1,296,954) (14,077) (21) - 82,598 (83,800) - 22,126 3,758 4,685 (50) 8,393 The above Statements of Cash Flows should be read in conjunction with the accompanying notes. 42 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 2017 are set out below. These policies have been consistently applied to the years presented, unless otherwise stated. (a) Basis of preparation As permitted by ASIC 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 as amended by ASIC Class Order 13/1644. These Class Orders allow the presentation of consolidated financial statements covering all the entities in a stapled group. There are no non-controlling interests that are attributable to the stapled security holders. Compliance with IFRS as issued by the IASB Compliance with Australian Accounting Standards ensures that the financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Consequently, these financial statements have also been prepared in accordance with and comply with IFRS as issued by the IASB. New and amended standards adopted by the Group The Group has applied the following new and amended standards for first time for the annual reporting period commencing 1 July 2016:     AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle; AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101; AASB 2015-9 Amendments to Australian Accounting Standards – Scope and Application Paragraphs; and AASB 2015-10 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128. There has been no impact to the financial statements as a result of the new or amended accounting standards. 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. Ardent Leisure Group | Annual Report 2017 43 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (a) Summary of significant accounting policies (continued) Basis of preparation (continued) 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), 1(ab), 1(ac), 1(ag) and 1(ah) and assumptions related to deferred tax assets and liabilities, impairment testing of goodwill, operating lease make good obligations 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 At 30 June 2017, the ALL Group had a deficiency of current assets of $50.9 million (30 June 2016: $49.2 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 ALL Group has $153.4 million (30 June 2016: $300.0 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). (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. 44 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (b) Summary of significant accounting policies (continued) Principles of consolidation (continued) The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. Disposals to non-controlling interests result in gains and losses for the Group that are recorded in the Income Statement. Purchases from non-controlling interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary. Inter-entity transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. (c) Cash and cash equivalents For Statement of Cash Flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. (d) Receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method less provision for doubtful debts. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. The collectability of debts is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off in the period in which they are identified. A provision for doubtful debts is raised where there is objective evidence that the Group will not collect all amounts due. The amount of the provision is the difference between the carrying amount and estimated future cash flows. Cash flows relating to current receivables are not discounted. The amount of any impairment loss is recognised in the Income Statement within other expenses. When a trade receivable for which a provision has been recognised becomes uncollectible in a subsequent period, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited against other expenses in the Income Statement. (e) Inventories Inventories are valued at the lower of cost and net realisable value. Cost of goods held for resale is determined by weighted average cost. Cost of catering stores (which by nature are perishable) and other inventories is determined by purchase price. (f) Investment properties Investment properties comprise investment interests in land and buildings (including integral plant and equipment) held for the purposes of letting to produce rental income. Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition, the investment properties are then stated at fair value. Gains and losses arising from changes in the fair values of investment properties are included in the Income Statement in the period in which they arise. At each reporting date, the fair values of the investment properties are assessed by the Manager by reference to independent valuation reports or through appropriate valuation techniques adopted by the Manager. Fair value is determined assuming a long term property investment. Specific circumstances of the owner are not taken into account. The use of independent valuers is on a progressive basis over a three year period, or earlier, where the Manager believes there may be a material change in the carrying value of the property. Where an independent valuation is obtained, the valuer considers the valuation under both the discounted cash flow (DCF) method and the income capitalisation method, with the adopted value generally being a mid-point of the valuations determined under these methods. Under the DCF method, a property’s fair value is estimated using the explicit assumptions regarding the benefits and liabilities of ownership over the asset’s life. The DCF method involves the projection of a series of cash flows on the property. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the income stream associated with the property. Under the income capitalisation method, the total income receivable from the property is assessed and this is capitalised in perpetuity to derive a capital value, with allowances for capital expenditure required. Ardent Leisure Group | Annual Report 2017 45 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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;  DCF models;  Available sales evidence; and  Comparisons to valuation professionals performing valuation assignments across the market. As the fair value method has been adopted for investment properties, the buildings and any component thereof are not depreciated. Taxation allowances for the depreciation of buildings and plant and equipment are claimed by the Trust and contribute to the tax deferred component of distributions. (g) Property, plant and equipment Revaluation model The revaluation model of accounting is used for Australian Theme Parks land, 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;  DCF models;  Available sales evidence; and  Comparisons to valuation professionals performing valuation assignments across the market. 46 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 2017 2016 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 US Entertainment Centres for resale. Refer to Note 18. 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. Ardent Leisure Group | Annual Report 2017 47 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 (30 June 2016: 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 (30 June 2016: 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 (30 June 2016: 10 and 13 years). Other intangible assets Liquor licences are amortised over the length of the licences which are between 10 and 16 years (30 June 2016: 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 (30 June 2016: 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 38). (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. 48 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 31. 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. 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. 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. Ardent Leisure Group | Annual Report 2017 49 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 3.17% per annum (30 June 2016: 3.60% per annum) for Australian dollar debt and 2.16% per annum (30 June 2016: 1.61% 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) 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. 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. 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. 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. 50 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (s) Summary of significant accounting policies (continued) Employee benefits (continued) Long Term Incentive Plan (LTIP) Australian employees Long term incentives are provided to certain executives under the LTIP. 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. Deferred Short Term Incentive Plan (DSTI) Long term incentives are also provided to certain executives under the DSTI. The characteristics of the DSTI indicate that, at the Ardent Leisure Group level, it is an equity settled share-based payment under AASB 2 Shared-based Payment as the holders are entitled to the securities as long as they meet the DSTI’s service criteria. However, as ALL is considered to be a subsidiary of the Trust, in the financial statements of the ALL Group the DSTI is accounted for as a cash settled share-based payment. Ardent Leisure Group | Annual Report 2017 51 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (s) Summary of significant accounting policies (continued) Employee benefits (continued) Deferred Short Term Incentive Plan (DSTI) (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. (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. 52 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 investment 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: 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 has been recognised on a straight-line basis over the membership period. Revenue relating to theme park annual passes is recognised as the passes are used. Ardent Leisure Group | Annual Report 2017 53 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (x) 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. 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. 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) 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. 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. 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 2017, the spot rate used was A$1.00 = NZ$1.0500 (2016: A$1.00 = NZ$1.0489) and A$1.00 = US$0.7692 (2016: A$1.00 = US$0.7426). The average spot rate during the year ended 30 June 2017 was A$1.00 = NZ$1.0573 (2016: A$1.00 = NZ$1.0874) and A$1.00 = US$0.7542 (2016: A$1.00 = US$0.7272). (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. 54 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. Summary of significant accounting policies (continued) (aa) Earnings per stapled security Basic earnings per stapled security are determined by dividing profit by the weighted average number of ordinary stapled securities on issue during the period. Diluted earnings per stapled security are determined by dividing the profit by the weighted average number of ordinary stapled securities and dilutive potential ordinary stapled securities on issue during the period. (ab) Fair value estimation The Group measures financial instruments, such as derivatives, and non-financial assets such as investment properties, at fair value at each balance date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:   In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Quoted market prices or dealer quotes for similar instruments are used for long term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The nominal value less estimated credit adjustments of trade receivables and payables approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (ac) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a business comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. Ardent Leisure Group | Annual Report 2017 55 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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) Treasury securities Own equity instruments that are reacquired (treasury securities) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued to employees under the Group’s LTIP and DSTI, is recognised in the share-based payments reserve. Performance rights vesting during the reporting period may be satisfied with treasury securities. (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: 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. 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. 56 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (af) 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. 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) Financial assets Investments held at fair value The investments held at fair value are classified as available-for-sale (AFS) financial assets. The AFS financial assets include investments in unlisted equity shares. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at fair value through profit or loss. After initial measurement, AFS financial assets are subsequently measured at fair value with unrealised gains or losses recognised in other comprehensive income and credited to the AFS reserve until the investment is derecognised, at which time, the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the Income Statement. The Group assesses at each reporting date whether there is objective evidence that the investment is impaired. In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement – is removed from other comprehensive income and recognised in the Income Statement. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognised in other comprehensive income. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost. Ardent Leisure Group | Annual Report 2017 57 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 1. (ai) Summary of significant accounting policies (continued) 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 2017 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 and the ALL Group do not intend to adopt AASB 15 before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2019. 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 and the ALL Group have not elected to apply any pronouncements before their operative date. (aj) 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. 58 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 Other revenue Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 331,938 166,101 9 2016 $’000 326,916 150,134 9 2017 $’000 331,938 166,101 9 2016 $’000 326,916 150,134 9 Revenue from operating activities 498,048 477,059 498,048 477,059 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 40(c). 5. Property expenses Landlord rent and outgoings Insurance Rates Land tax Increase in onerous lease provisions Other Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 12,788 (738) 110 12,160 2016 $’000 14,987 (404) 154 14,737 2017 $’000 10,062 (491) - 9,571 2016 $’000 10,369 (223) - 10,146 Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 65,977 327 1,191 682 218 26 2016 $’000 55,083 371 1,260 616 169 32 2017 $’000 80,233 - - - - - 2016 $’000 100,370 - - - - - 68,421 57,531 80,233 100,370 Ardent Leisure Group | Annual Report 2017 59 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Net loss from derivative financial instruments Unrealised net loss on derivative financial instruments Early termination of interest rate swap Management fees The Manager of the Trust is Ardent Leisure Management Limited. Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 349 72 421 2016 $’000 170 - 170 2017 $’000 - - - 2016 $’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 ALL Group ALL Group 2017 $’000 - - 2016 $’000 - - 2017 $’000 1,200 1,200 2016 $’000 1,200 1,200 60 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 Remuneration of auditor Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 823 4,058 2,964 80 12,983 366 3,540 989 6,553 541 3,262 2,651 190 169 130 341 3,157 1,144 3,727 85 790 2016 $’000 797 2,468 2,147 100 11,752 517 3,267 654 5,446 538 2,786 2,326 181 318 84 444 2,245 1,353 2,732 113 697 2017 $’000 597 4,058 2,964 - 12,983 366 3,540 989 6,553 541 3,227 2,651 190 169 130 244 3,157 1,144 3,727 - 832 2016 $’000 562 2,357 2,147 - 11,752 517 3,267 654 5,446 538 2,765 2,326 181 318 84 411 2,245 1,353 2,732 - 659 48,543 40,965 48,062 40,314 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 2017 $ Consolidated Group 2016 $ ALL Group 2017 $ ALL Group 2016 $ 683,686 257,788 222,764 264,441 103,618 1,532,297 615,978 180,812 28,278 415,641 1,550 1,242,259 418,401 257,788 118,828 212,152 103,618 1,110,787 381,020 180,812 - 411,031 1,550 974,413 Ardent Leisure Group | Annual Report 2017 61 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Income tax (benefit)/expense (a) Income tax (benefit)/expense Current tax Deferred tax Under/(over) provided in prior year Income tax (benefit)/expense is attributable to: (Loss)/profit from continuing operations Profit from discontinued operations Deferred income tax (benefit)/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 2017 $’000 1,962 (5,421) 127 (3,332) (5,561) 2,229 (3,332) 2016 $’000 (981) 10,258 (581) 8,696 7,448 1,248 8,696 2017 $’000 1,826 (5,421) 403 (3,192) (5,421) 2,229 (3,192) 2016 $’000 (1,008) 10,258 (576) 8,674 7,426 1,248 8,674 22 27 (23,403) 17,982 (5,421) (878) 11,136 10,258 (23,403) 17,982 (5,421) (878) 11,136 10,258 (b) Numerical reconciliation of income tax (benefit)/expense to prima facie tax expense (Loss)/profit from continuing operations before income tax (benefit)/expense Profit from discontinued operations before income tax expense Less: Loss/(profit) from the trusts(1) Prima facie profit/(loss) Tax at the Australian tax rate of 30% (2016: 30%) Tax effects of amounts which are not deductible/(taxable) in calculating taxable income: Impairment of goodwill Entertainment Non-deductible depreciation and amortisation Sundry items Employee security-based payments Business acquisition costs Gain on disposal of health clubs Selling costs associated with discontinued operation classified as held for sale Foreign exchange conversion differences US State taxes Withholding tax Research and development and other credits Difference in overseas tax rates Under/(over) provided in prior year Income tax (benefit)/expense (122,047) 35,032 (20,949) 15,815 56,158 (65,889) 71,113 5,224 16,051 51,083 (44,540) 6,543 1,567 1,963 20,821 (128) - (128) (38) 3,500 19,315 - 19,315 5,795 235 134 2,731 (210) 270 - (9,923) 240 45 878 136 (338) 776 127 (3,332) - 104 3,909 358 264 (40) - - 24 1,533 3 (515) 1,674 (581) 8,696 235 134 - (286) 270 - (5,511) 240 45 878 - (338) 776 403 (3,192) - 104 - 410 264 (40) - - 24 1,533 - (515) 1,675 (576) 8,674 (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. 62 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 10. (c) Income tax (benefit)/expense (continued) Income tax expense/(benefit) relating to items of other comprehensive income Unrealised gain/(loss) on derivative financial instruments recognised in the cash flow hedge reserve 22, 31 Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 562 562 (441) (441) 562 562 (441) (441) (d) Unrecognised temporary differences There were no unrecognised temporary differences as at 30 June 2017 (2016: 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. (Losses)/earnings per security/share Basic (losses)/earnings per security/share (cents) from continuing operations Basic earnings per security/share (cents) from discontinued operations Total basic (losses)/earnings per security/share (cents) Diluted (losses)/earnings per security/share (cents) from continuing operations Diluted earnings per security/share (cents) from discontinued operation Total diluted (losses)/earnings per security/share (cents) Core earnings per security (cents) Diluted core earnings per security (cents) (Losses)/earnings used in the calculation of basic and diluted earnings per security/share ($'000) Earnings used in the calculation of core earnings per security (refer to calculation in table below) ($'000) Weighted average number of stapled securities on issue used in the calculation of basic and core earnings per security/share ('000) Weighted average number of stapled securities held by ALL employees under employee share plans (refer to Note 29) ('000) Weighted average number of stapled securities on issue used in the calculation of diluted earnings per security/share ('000) Consolidated Group 2017 Consolidated Group 2016 ALL Group 2017 ALL Group 2016 (24.89) 11.52 (13.37) (24.84) 11.50 (13.34) 2.41 2.41 6.10 3.27 9.37 6.09 3.26 9.35 13.79 13.76 (3.32) 3.97 0.65 (3.31) 3.96 0.65 N/A N/A 1.85 0.50 2.35 1.85 0.50 2.35 N/A N/A (62,557) 42,387 3,064 10,641 11,287 62,395 N/A N/A 467,938 452,484 467,938 452,484 997 991 997 991 468,935 453,475 468,935 453,475 Ardent Leisure Group | Annual Report 2017 63 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 11. (a) (Losses)/earnings per security/share (continued) Calculation of core earnings The table below outlines the Manager’s adjustments to profit under Australian Accounting Standards to determine the amount the Manager believes should be available for distribution for the current year. The Manager uses this amount as guidance for distribution determination. Core earnings is a financial measure which is not prescribed by Australian Accounting Standards and represents the profit under Australian Accounting Standards (statutory profit) adjusted for certain unrealised and non-cash items, reserve transfers and one off realised items. Under the Trust Constitution, the amount distributed to stapled security holders by the Trust is at the discretion of the Manager. Management will use the core earnings calculated for assessing the performance of the Group and as a guide to assessing an appropriate distribution to declare. This measure is considered more relevant than statutory profit as it represents an estimate of the underlying recurring cash earnings of the Group and provides more meaningful comparison between financial years. The adjustments between profit under Australian Accounting Standards and core earnings may change from time to time depending on changes to accounting standards and the Manager’s assessment as to whether non-recurring or infrequent items (such as realised gains on the sale of properties) will be distributed to stapled security holders. (Loss)/profit used in calculating earnings per stapled security Unrealised items - Unrealised net loss on derivative financial instruments - Valuation gain - investment properties - Valuation loss - property, plant and equipment - Impairment - property, plant and equipment - Impairment - goodwill Non-cash items - Straight lining of fixed rent increases - IFRS depreciation(1) - Amortisation of health club brands and customer relationship intangible assets One-off realised items - Pre-opening expenses - Business acquisition costs refunded - Increase/(decrease) in onerous lease provisions - Gain on sale and leaseback of US Entertainment Centres - Loss on closure of Australian Bowling and Entertainment Centres - Dreamworld incident costs, net of insurance recoveries - Gain on sale of discontinued operation - Selling costs associated with discontinued operation classified as held for sale - Early termination of interest rate swap - Other restructuring and one-off expenses Tax impact of above adjustments Core earnings Consolidated Group Consolidated Group 2017 $’000 2016 $’000 (62,557) 42,387 349 - 88,747 145 783 1,328 9,102 907 13,888 - 492 - 470 5,389 (45,009) 796 72 4,139 (7,754) 11,287 170 (2,059) - 463 - 1,909 13,029 4,490 8,638 (134) (2,193) (1,672) - - - 1,047 - - (3,680) 62,395 (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 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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: Dividend cents per stapled security Distribution cents per stapled security 2017 dividends and distributions for the half year ended: 31 December 2016 30 June 2017(1) - - - 2016 dividends and distributions for the half year ended: 31 December 2015 30 June 2016(2) - - - 2.00 1.00 3.00 7.00 5.50 12.50 Total amount $’000 9,382 4,691 14,073 31,377 25,467 56,844 Distribution tax deferred % Distribution CGT concession amount % Distribution Taxable % - 46.29 53.71 50.48 - 49.52 (1) The distribution of 1.00 cent per stapled security for the half year ended 30 June 2017 was not declared prior to 30 June 2017. Refer to Note 45. (2) 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. (b) ALL Group No dividends were paid by the ALL Group during the year (2016: nil). (c) Franking credits The tax consolidated group has franking credits of $1,501,307 (30 June 2016: $2,468,214). It is the tax consolidated group’s intention to distribute these franking credits to security holders where possible. Receivables Trade receivables Provision for doubtful debts Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 5,461 (94) 5,367 13,801 (515) 13,286 5,461 (94) 5,367 13,801 (515) 13,286 The Group has recognised an expense of $437,797 in respect of bad and doubtful trade receivables during the year ended 30 June 2017 (30 June 2016: $252,912). The expense has been included in other expenses in the Income Statement. Refer to Note 39(e) for information on the Group’s management of, and exposure to, credit risk. Ardent Leisure Group | Annual Report 2017 65 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Derivative financial instruments Current assets Forward foreign exchange contracts Non-current assets Interest rate swaps Current liabilities Forward foreign exchange contracts Interest rate swaps Non-current liabilities Interest rate swaps Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 - - 272 272 41 964 1,005 316 316 131 131 113 113 - 1,202 1,202 2,937 2,937 - - 196 196 - - - 29 29 - - - - - 132 132 1,283 1,283 (a) 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$1.4 million (30 June 2016: A$0.6 million). The forward contracts do not qualify for hedge accounting and accordingly, changes in fair value of these contracts are recorded in the Income Statement. Notwithstanding the accounting outcome, the Manager considers that these derivative contracts are appropriate and effective in offsetting the economic foreign exchange exposures of the Group. (b) Interest rate swaps The Group has entered into interest rate swap agreements totalling $70.0 million (30 June 2016: $80.0 million) and US$55.0 million (30 June 2016: US$95.0 million) that entitle it to receive interest, at quarterly intervals, at a floating rate on a notional principal and oblige 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 $70.0 million (30 June 2016: $120.0 million) with start dates from June 2018 and maturities up to June 2019. All interest rate swap agreements 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 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 14. (b) 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 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 70,000 141,503 - - - - 113,292 70,000 154,064 - - - - 71,503 - - - - 40,399 - 74,064 - - - 211,503 337,356 71,503 114,463 Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 13,372 (116) 13,256 2016 $’000 13,022 (20) 13,002 2017 $’000 13,372 (116) 13,256 2016 $’000 13,022 (20) 13,002 There was $0.1 million of write-downs of inventories during the year ended 30 June 2017 (30 June 2016: nil). Discontinued operations (a) Overview On 19 August 2016, the Group announced its decision to sell the Health Clubs business, with completion occurring on 25 October 2016. The gross consideration of $260.0 million comprised a cash component of $230.0 million and deferred consideration of $30.0 million in the form of vendor loan notes for which payment was received on 13 December 2016. The Health Clubs business, previously a reportable segment, comprised 76 Goodlife health clubs in Queensland, New South Wales, Victoria, South Australia and Western Australia, including 14 in-club Hypoxi studios. The division also included two independent Hypoxi studios in New South Wales and two independent Hypoxi studios in Phoenix, Arizona. Following the sale, the business has been classified as a discontinued operation at 30 June 2017. On 12 December 2016, the Group announced that it had entered into a put and call option agreement to dispose of its entire interest in the Marinas division for gross proceeds (excluding working capital adjustments) of $126.0 million. Completion, which was subject to landlord consents for the transfer of the head leases, occurred effective 14 August 2017. The Marinas, previously a reportable segment, comprised seven marinas in New South Wales and Victoria. The sale process incurred transaction costs of approximately $0.8 million in the period. The associated assets and liabilities have been presented as held for sale and a discontinued operation at 30 June 2017. Ardent Leisure Group | Annual Report 2017 67 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 16. (b) Discontinued operations (continued) Financial performance The financial performance for the year ended 30 June 2017 was as follows: Revenue Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operation Gain on sale of discontinued operation after tax Costs incurred relating to the sale of discontinued operation currently classified as held for sale Profit from discontinued operations Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 86,808 (74,863) 11,945 (2,058) 9,887 44,838 (796) 53,929 2016 $’000 210,761 (193,663) 17,098 (1,248) 15,850 - (1,047) 14,803 2017 $’000 86,808 (83,383) 3,425 (2,058) 1,367 18,169 (944) 18,592 2016 $’000 210,753 (207,253) 3,500 (1,248) 2,252 - - 2,252 The sale of the Marinas business was completed subsequent to 30 June 2017 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 2017 were $0.8 million, which have been recognised as expenses in the Income Statement. Cash flow information (c) The cash flows for the year ended 30 June 2017 were as follows: Net cash inflow from operating activities Net cash inflow/(outflow) from investing activities Net cash outflow from financing activities Net increase in cash and cash equivalents Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 12,059 241,702 (740) 253,021 2016 $’000 36,333 (32,824) (3,232) 277 2017 $’000 3,806 193,862 (632) 197,036 2016 $’000 23,976 (20,508) (3,191) 277 The net cash inflow from investing activities in the Consolidated Group for the year ended 30 June 2017 includes an inflow of $259.3 million and an outflow of related selling costs of $6.2 million from the disposal of the Health Clubs business. The net cash inflow from investing activities in the ALL Group for the year ended 30 June 2017 includes an inflow of $202.5 million and an outflow of related selling costs of $5.4 million from the disposal of the Health Clubs business. 68 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 16. (d) Discontinued operations (continued) 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 2017: Assets classified as held for sale Cash and cash equivalents Receivables Inventories Deferred tax assets Investment properties Property, plant and equipment Other Total assets of disposal group held for sale Labilities directly associated with assets classified as held for sale Payables Provisions Other Total liabilities of disposal group held for sale (e) (i) Details of the sale of Health Clubs Gain on sale Consideration received or receivable: Cash consideration Cash payment for working capital adjustments Total disposal consideration Selling costs Carrying amount of net assets sold Gain on sale before income tax Income tax expense on gain Gain on sale after income tax Consolidated Group Consolidated Group 2017 $’000 2016 $’000 4 618 181 32 108,494 10,473 919 120,721 (3,777) (100) (1,015) (4,892) 2 652 201 104 102,838 8,096 1,047 112,940 (3,114) (40) (950) (4,104) ALL Group ALL Group 2017 $’000 4 618 181 32 - 2,079 330 3,244 2016 $’000 2 652 201 104 - 1,474 349 2,782 (3,443) (100) (1,015) (4,558) (2,726) (40) (950) (3,716) Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 2016 $’000 2017 $’000 2016 $’000 260,000 (416) 259,584 (6,221) (208,354) 45,009 (171) 44,838 - - - - - - - - 203,200 (416) 202,784 (5,436) (179,008) 18,340 (171) 18,169 - - - - - - - - Ardent Leisure Group | Annual Report 2017 69 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 16. (e) (ii) Discontinued operations (continued) Details of the sale of Health Clubs (continued) Carrying value of assets on sale The carrying amount of assets and liabilities as at the 25 October 2016 date of sale were as follows: Cash and cash equivalents Receivables Inventories Property, plant and equipment Intangible assets Deferred tax assets Other Total assets Payables Provisions Total liabilities Net assets Property classified as held for sale US Entertainment Centre Opening balance Additions Foreign exchange movements Closing balance Consolidated Group 25 October 2016 $’000 ALL Group 25 October 2016 $’000 256 4,324 1,574 82,131 151,950 2,565 5,051 247,851 (30,523) (8,974) (39,497) 208,354 254 4,324 1,574 38,070 151,950 2,565 5,044 203,781 (21,346) (3,427) (24,773) 179,008 Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 13,840 13,840 - - 13,840 13,840 - - Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 - 14,200 (360) 13,840 - - - - - 14,200 (360) 13,840 - - - - The property classified as held for sale relates to a US Entertainment Centre at Pittsburgh, which is under a sale and leaseback arrangement. Completion of the sale occurred on 26 July 2017. 70 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Construction in progress Construction in progress inventories relate to US 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 2017, the Group had agreements for construction of five US Entertainment Centres at North Kansas City, Humble, Knoxville, Suwanee and Gilbert. 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 2017, 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 2017 $’000 2016 $’000 2017 $’000 2016 $’000 61,796 58,670 (63,985) 275 56,756 - 74,868 (12,176) (896) 61,796 61,796 58,670 (63,985) 275 56,756 - 74,868 (12,176) (896) 61,796 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 received Settlements of deposits received Foreign exchange movements Carrying amount at the end of the period Other assets Prepayments Accrued revenue Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 2016 $’000 2017 $’000 55,494 58,123 (63,985) 418 50,050 - 68,116 (12,176) (446) 55,494 55,494 58,123 (63,985) 418 50,050 2016 $’000 - 68,116 (12,176) (446) 55,494 Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 4,404 685 5,089 2016 $’000 4,608 3,305 7,913 2017 $’000 3,782 685 4,467 2016 $’000 4,079 3,305 7,384 Ardent Leisure Group | Annual Report 2017 71 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Property, plant and equipment Consolidated Group Note Segment Australian Theme Parks Australian Bowling and Entertainment Centres US Entertainment Centres Health Clubs Other Total Cost less accumulated depreciation 2017 $’000 Cumulative revaluation (decrements) /increments 2017 $’000 Consolidated book value 2017 $’000 Cost less accumulated depreciation 2016 $’000 Cumulative revaluation increments/ (decrements) 2016 $’000 Consolidated book value 2016 $’000 (1) (2) (3) 223,361 (36,922) 186,439 219,927 47,806 267,733 (4) (5) 119,712 327,445 - 1,653 672,171 1,191 - - - (35,731) 120,903 327,445 - 1,653 636,440 104,131 223,732 84,711 2,347 634,848 1,191 (86) - - 48,911 105,322 223,646 84,711 2,347 683,759 (1) The book value of Dreamworld and WhiteWater World land and buildings and major rides and attractions (including intangible assets of $1.2 million (30 June 2016: $1.6 million) and livestock of $0.3 million (30 June 2016: $0.2 million) is $151.8 million (30 June 2016: $235.0 million)). In an independent valuation performed at 30 June 2017 by Jones Lang LaSalle Advisory Services Pty Limited, the fair value for these assets was assessed to be in the range of $146.0 - $154.0 million (30 June 2016: $235.0 million). Having regard to independent advice, the Directors have assessed the fair value of those assets to be $151.8 million and have valued other property, plant and equipment of Dreamworld and WhiteWater World at 30 June 2017 at $0.1 million (30 June 2016: $0.2 million). Refer to additional Australian Theme Parks valuation information below. (2) The excess land adjacent to Dreamworld has been valued by the Directors at $3.6 million (2016: $3.6 million). (3) The book value of SkyPoint (including intangible assets of $3.6 million (30 June 2016: $3.6 million)) is $36.0 million (30 June 2016: $34.3 million). In an independent valuation performed at 30 June 2017 by Jones Lang LaSalle Advisory Services Pty Limited, the fair value for SkyPoint was assessed to be $36.0 million. (4) At 30 June 2017, the Directors assessed the fair value of the one remaining freehold building to be $1.6 million (30 June 2016: $1.6 million). The freehold building was last independently valued at 30 June 2016 at $1.6 million. (5) The property, plant and equipment relating to health clubs was sold during the year – refer to Note 16. Refer to Note 40b) for information on the valuation techniques used to derive the fair value of the Australian Theme Parks. A reconciliation of the carrying amount of property, plant and equipment at the beginning and end of the current and previous years is set out below: Land and buildings $’000 Major rides and attractions $’000 Plant and equipment $’000 Furniture, fittings and equipment $’000 Motor vehicles $’000 Total $’000 683,759 191,111 (82,131) - (400) (4,177) (51,299) (10,316) (89,962) (145) 290 150 (21) - - (17) (51) - - - 351 636,440 Consolidated Group - 2017 Carrying amount at the beginning of the year Additions Disposal relating to the sale of health clubs Reclassification of asset categories Transfer to intangible assets Disposals Depreciation Foreign exchange movements Revaluation decrements Impairment 348,200 96,858 (54,268) (491) (400) (1,470) (11,753) (3,462) (89,962) (145) 65,066 1,400 - (79) - (890) (1,389) - - - 256,987 90,216 (24,052) 570 - (1,670) (35,535) (6,852) - - Carrying amount at the end of the year 283,107 64,108 279,664 13,216 2,487 (3,790) - - (130) (2,571) (2) - - 9,210 72 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 20. Property, plant and equipment (continued) Land and buildings $’000 Major rides and attractions Plant and equipment Furniture, fittings and equipment $’000 $’000 $’000 Motor vehicles $’000 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 330,577 41,558 - 3,586 (1,632) (22,616) (16,310) 2,966 10,534 (463) 65,202 1,378 - - - (1) (1,513) - - - 196,618 101,011 667 - (4,679) (1,483) (35,877) 730 - - 17,037 2,078 - - (1,759) (21) (4,128) 9 - - Carrying amount at the end of the year 348,200 65,066 256,987 13,216 248 270 - - (26) (109) (93) - - - 290 ALL Group - 2017 Carrying amount at the beginning of the year Additions Disposal relating to the sale of health clubs Transfer to intangible assets Disposals Depreciation Foreign exchange movements Reversal of impairment Carrying amount at the end of the year 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 Total $’000 609,682 146,295 667 3,586 (8,096) (24,230) (57,921) 3,705 10,534 (463) 683,759 Total $’000 287,061 170,940 (38,070) (400) (1,183) (33,623) (10,255) 117 Land and buildings $’000 Plant and equipment $’000 88,962 67,342 (10,526) (400) (251) (2,600) (3,436) 117 198,099 103,598 (27,544) - (932) (31,023) (6,819) - 139,208 235,379 374,587 Land and buildings $’000 Plant and equipment $’000 86,833 25,050 - (2) (22,612) (3,071) 2,922 (158) 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) 88,962 198,099 287,061 Ardent Leisure Group | Annual Report 2017 73 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 20. (a) Property, plant and equipment (continued) Australian Theme Parks valuation On 25 October 2016, an incident on the Thunder River Rapids ride at Dreamworld resulted in four fatalities at the theme park. The park and adjoining WhiteWater World were subsequently closed for 45 days. On 10 December 2016, the parks were reopened following successful completion of a multi-tiered mechanical and operational safety review with all WhiteWater World slides, pools and cabanas and several of Dreamworld’s rides and attractions operational at that date. Dreamworld’s other rides were progressively reopened as they were signed off as part of the safety review process. The impact of the incident, subsequent closure of the parks and progressive re-opening of rides, negatively impacted attendance and revenues. As a result, the Group has recognised a revaluation decrement to the property, plant and equipment of Dreamworld and WhiteWater World of $91.7 million, of which $88.7 million has been recognised in the Income Statement and $3.0 million has been recognised in reserves. At 30 June 2017, the valuation of Dreamworld and WhiteWater World has been determined in accordance with AASB 13 Fair Value Measurement which defines fair value as the price that would be received to sell an asset in an orderly transaction between market participants. This Standard requires that the valuation take account of the benefits attainable under the highest and best use, provided that any alternate uses are physically possible, legally permissible and financially feasible. Under the Standard, uses that are legally permissible take into account any legal restrictions on the use of the asset that market participants would take into account when pricing the asset (eg the zoning regulations applicable to a property). As noted in the financial statements for the half year ended 31 December 2016, in determining fair value at 31 December 2016 (the first reporting date after the incident), the Group undertook an extensive process including engagement of a number of independent external specialists including:  A Gold Coast town planning consultant to evaluate possible alternate uses of the land under the current and recently superseded Gold Coast Town Plans. This confirmed that highest and best use under the Plans to be its current use;  A land valuation specialist to determine the base valuation of the land considering the findings of the town planning consultant;  Jones Lang LaSalle valuation specialists to undertake a valuation assessment of the property. In determining the valuation, the valuer considered:  Management forecasts for the parks for FY17 and FY18, including the necessary estimation of the financial impact created by the Thunder River Rapids ride incident;  Work undertaken by the town planning analysis and land valuation specialist; and  Impact of the incident on investment parameters, including capitalisation rates and discount rates; and  A leading international accounting firm to review the process, key assumptions and sensitivities underlying management forecasts provided to the JLL valuer and the key valuation assumptions and conclusions of the JLL valuation specialist. At 30 June 2017, the Group has again engaged independent valuation specialists from Jones Lang LaSalle to undertake a valuation assessment of the property. In determining the valuation, the valuer has considered the work undertaken at 31 December 2016 and reviewed management’s updated forecasts in light of the parks’ actual performance in the second half of the year. The significant unobservable inputs associated with the valuation of the Dreamworld and WhiteWater World valuation at 30 June 2017 are as follows: Capitalisation rate Discount rate Terminal yield FY18 (year one) EBITDA ($’000) June 2017 12.25% June 2016 9.50% 14.75% - 15.25% 13.25% - 13.50% 12.25% - 12.75% 10.50% - 10.75% 31,652 9,170 In addition, the valuer has assumed a gradual recovery of attendances to FY16 (pre-incident) levels over the next four years, with FY18 attendances estimated to be approximately 84% of FY16 levels. In preparing the valuation assessment, the independent valuer has noted the material valuation uncertainty which exists both in terms of market disruption (e.g. liquidity) and availability of inputs (e.g. cash flows, discount rates and capitalisation rates) which could impact the valuation of these assets. As noted above, in accordance with AASB 13, the valuation reflects current zoning restrictions on the main Dreamworld and WhiteWater World site. As noted in footnote (2) on page 69, the excess land adjacent to this site has been valued by the Directors at $3.6 million (2016: $3.6 million). The Group is currently reviewing optimal uses and zoning of the excess land and other unused surplus land on the main Dreamworld and WhiteWater World site, which have the potential to deliver upside to this valuation. 74 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 20. (a) Property, plant and equipment (continued) Australian Theme Parks valuation (continued) 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 0.5% increase in rate Capitalisation rate (%) - $6.0 million Discount rate (%) - $5.1 million Terminal Yield (%) - $2.5 million FY18 (year one) EBITDA N/A Fair value measurement sensitivity to 0.5% decrease in rate + $6.5 million + $5.3 million + $2.7 million N/A Fair value measurement sensitivity to 10.0% increase in assumed FY18 attendance levels Fair value measurement sensitivity to 10.0% decrease in assumed FY18 attendance levels N/A N/A N/A N/A N/A + $2.6 million N/A - $2.6 million When calculating the income capitalisation approach, EBITDA 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. 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 Total intangible assets Consolidated Group 2017 Consolidated Group 2016 ALL Group 2017 $’000 $’000 $’000 - - - - - - 21,364 (7,748) 13,616 95,452 (12,481) 82,971 96,587 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 - - - - - - 19,936 (6,320) 13,616 95,452 (12,481) 82,971 96,587 ALL Group 2016 $’000 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 Ardent Leisure Group | Annual Report 2017 75 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 21. Intangible assets (continued) Customer relationships Opening net book amount Additions Disposals Amortisation Closing net book amount Brands Opening net book amount Additions Disposals Amortisation Foreign exchange movements Closing net book amount Other intangible assets Opening net book amount Additions Transfer from property, plant and equipment Disposals Amortisation Foreign exchange movements Closing net book amount Goodwill Opening net book amount Additions Disposals Impairment Foreign exchange movements Closing net book amount Total intangible assets (a) Customer relationships Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 2,202 - (1,652) (550) - 5,715 - (5,328) (359) (28) - 10,179 8,530 400 (2,640) (2,724) (129) 5,549 13 - (3,360) 2,202 6,766 34 - (1,131) 46 5,715 5,477 7,002 - - (2,250) (50) 2,202 - (1,652) (550) - 5,715 - (5,328) (359) (28) - 10,179 8,530 400 (2,640) (2,724) (129) 5,549 13 - (3,360) 2,202 6,766 34 - (1,131) 46 5,715 5,477 7,002 - - (2,250) (50) 13,616 10,179 13,616 10,179 228,033 - (142,432) (783) (1,847) 82,971 96,587 225,152 857 - - 2,024 228,033 246,129 228,033 - (142,432) (783) (1,847) 82,971 96,587 225,152 857 - - 2,024 228,033 246,129 Customer relationships relate to the relationships with health club members which were acquired as part of the various acquisitions of health clubs, and have been disposed as part of the disposal of the Health Clubs business (refer to Note 16). (b) 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, and have been disposed as part of the disposal of the Health Clubs business (refer to Note 16). (c) 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. (d) 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 disposal of the Health Clubs business (refer to Note 16), an impairment write-off to goodwill at Dreamworld and WhiteWater World subsequent to the Thunder River Rapids ride incident on 25 October 2016, and the movement in the USD:AUD foreign exchange rate. 76 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 21. (d) Intangible assets (continued) Goodwill (continued) 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 five reportable segments as disclosed in Note 38. A segment level summary of the goodwill allocation is presented below: Consolidated Group and ALL Group 2017 Australian Theme Parks Marinas Australian Bowling and Entertainment Centres US Entertainment Centres 2016 Australian Theme Parks Australian Bowling and Entertainment Centres US Entertainment Centres Health Clubs (i) Impairment tests for goodwill Australia United States New Zealand $’000 $’000 $’000 3,583 - 21,127 - 24,710 - - - 54,527 54,527 - - 3,734 - 3,734 Australia United States New Zealand $’000 $’000 $’000 4,366 21,127 - 142,432 - - 56,369 - - 3,739 - - Total $’000 3,583 - 24,861 54,527 82,971 Total $’000 4,366 24,866 56,369 142,432 167,925 56,369 3,739 228,033 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) 2017 2016 2017 2016 2017 2016 % per annum % per annum % per annum % per annum % per annum % per annum Australian Theme Parks(3) Australian Bowling and Entertainment Centres US Entertainment Centres N/A 2.00 2.00 N/A 2.00 3.00 N/A 2.00 2.00 N/A 2.00 3.00 N/A 7.68 7.30 N/A 7.65 6.89 (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 7.87% (2016: 8.19%) for Australian Bowling and Entertainment Centres and 8.69% (2016: 8.30%) for US Entertainment Centres. (3) All non-current assets in the Australian Theme Parks division are already held at fair value at 30 June 2017 and were independently valued by Jones Lang LaSalle (refer to Note 20). As a result, no impairment testing is required at 30 June 2017. 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 2018-2021 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. Ardent Leisure Group | Annual Report 2017 77 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 21. (d) (i) Intangible assets (continued) Goodwill (continued) Impairment tests for goodwill (continued) Sensitivity to changes in assumptions Management recognises that the calculation of recoverable amount can vary based on the assumptions used to project or discount cash flows and those changes to key assumptions can result in recoverable amounts falling below carrying amounts. In relation to the CGUs above, the recoverable amounts of Australian Bowling and Entertainment Centres and US Entertainment Centres 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 would cause the CGUs’ carrying amount to exceed their recoverable amount to be reasonably possible. 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 Tax losses 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(d)) (Debited)/credited to cash flow hedge reserve (refer to Note 31) Disposal of Health Clubs business Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 2016 $’000 2017 $’000 2016 $’000 42 5,415 1,613 - 100 124 15 - 8,718 18,231 17 154 6,032 3,284 1,398 50 119 8 26 4,701 - 452 42 5,415 1,613 - 100 124 15 - 8,718 18,231 17 154 6,032 3,284 1,398 50 119 8 26 4,701 - 452 34,275 16,224 34,275 16,224 (1,146) (21,580) 11,549 16,224 23,403 - (562) (4,790) (3,057) (7,170) 5,997 15,066 878 (165) 441 4 (1,146) (21,580) 11,549 16,224 23,403 - (562) (4,790) (3,057) (7,170) 5,997 15,066 878 (165) 441 4 Balance at the end of the year 34,275 16,224 34,275 16,224 Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months 6,733 27,542 8,587 7,637 6,733 27,542 8,587 7,637 34,275 16,224 34,275 16,224 78 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 22. (a) Deferred tax assets (continued) Tax losses Consolidated Group 2017 $’000 Consolidated Group ALL Group 2017 $’000 2016 $’000 ALL Group 2016 $’000 Unused capital tax losses for which no deferred tax asset has been recognised Potential tax benefit at 30% 32,952 9,886 - - 32,952 9,886 - - The unused capital tax losses were realised on sale of the Health Clubs business in October 2016 and can only be used to offset capital gains occurring in the future. See Note 1(t) for information about recognised tax losses. Payables Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 Current Custodian fee Interest payable GST payable Trade creditors Payable to the Trust Property expenses payable Employee equity plans Employee benefits Deferred income Straight-line rent liability Lease incentive liabilities Property tax payable Capital expenditure including construction in progress inventories payable Other creditors and accruals 34 538 98 14,089 - 1,094 105 16,232 4,726 9,327 23,576 3,935 15,811 13,395 47 513 1,617 17,143 - 1,001 107 20,785 8,422 18,699 14,155 2,456 6,833 14,629 - 369 34 14,089 602 - 1,542 16,232 4,726 2,154 23,576 3,935 15,811 13,301 - 180 1,619 17,143 1,414 - 1,742 20,785 8,422 4,642 14,155 2,456 7,014 14,127 Total payables 102,960 106,407 96,371 93,699 Interest bearing liabilities Current Bank loan - term debt(1) Total current Non-current Bank loan - term debt Less: amortised costs - bank loan Loans from the Trust(2) Total interest bearing liabilities Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 54,466 54,466 178,793 (632) - 232,627 - - - - - - 314,944 (2,041) - 312,903 157,793 (290) 61,341 218,844 148,869 (1,002) 128,221 276,088 (1) Further information relating to the term debt classified as current is included in Note 24(b)(i). (2) Further information relating to these loans is included in Note 37(g). The term debt is secured by mortgages over all freehold property, leasehold mortgages over key bowling centre and marina leases, registered security interests over all present and after acquired property of key Group companies, and pledged interests over all US property. Ardent Leisure Group | Annual Report 2017 79 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 24. Interest bearing liabilities (continued) 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);  Fixed charge cover ratio, being the ratio of adjusted EBITDA to fixed rent and interest charges; and  Capital expenditure. (a) Total secured liabilities and assets pledged as security The carrying amounts of assets pledged as security for borrowings are as follows:: Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 108,494 108,494 102,838 102,838 10,842 5,586 - 13,256 - 12,227 56,756 13,840 5,089 117,596 226,090 9,070 13,286 131 13,002 3,275 10,102 61,796 - 7,913 118,575 221,413 - - 9,352 5,586 - 13,256 - 3,244 56,756 13,840 4,467 106,501 106,501 282,888 282,888 348,200 348,200 138,989 138,989 353,333 3,201 272 293 13,616 370,715 653,603 879,693 335,559 - 113 221 18,096 353,989 702,189 923,602 235,379 3,201 196 293 13,616 252,685 391,674 498,175 - - 8,391 13,286 - 13,002 3,275 2,782 61,796 - 7,384 109,916 109,916 88,962 88,962 198,099 - - 221 18,096 216,416 305,378 415,294 Current Mortgage Assets classified as held for sale Floating charge Cash and cash equivalents Receivables Derivative financial instruments Inventories Current tax receivables Assets classified as held for sale Construction in progress inventories US Entertainment Centres classified as held for sale Other Total current assets Non-current Mortgage Land and buildings Floating charge Plant and equipment Investments held at fair value Derivative financial instruments Livestock Intangible assets Total non-current assets Total assets 80 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 24. (b) Interest bearing liabilities (continued) Credit facilities As at 30 June 2017, the Group had unrestricted access to the following credit facilities: A$ 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 (i) Consolidated Group Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 133,334 (75,466) 57,868 249,610 (157,793) 91,817 200,000 (142,433) 57,567 377,054 (172,511) 204,543 - - - - - - - - - 230,574 (157,793) 72,781 141,958 (61,341) 80,617 382,944 (233,259) 149,685 577,054 (314,944) 262,110 372,532 (219,134) 153,398 - - - 350,121 (148,869) 201,252 226,933 (128,221) 98,712 577,054 (277,090) 299,964 The Group has access to A$133.3 million (30 June 2016: A$200.0 million) syndicated facilities and US$192.0 million (A$249.6 million) (30 June 2016: US$280.0 million (A$377.1 million)) syndicated facilities. A$66.7 million (2016: A$66.7 million) will mature on 10 August 2019 and A$66.7 million has been cancelled following the sale of Marinas in August 2017. US$68.3 million (2016: US$93.3 million) of the USD facilities will mature on 10 August 2018, US$93.3 million (2016: US$93.3 million) will mature on 10 August 2019 and US$30.3 million (2016: 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 2017, including the impact of the interest rate swaps, are 5.39% per annum for AUD denominated debt (30 June 2016: 4.32% per annum) and 3.19% per annum for USD denominated debt (30 June 2016: 2.37% per annum). (ii) 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 $82.2 million (30 June 2016: $200.0 million) have a maturity date of 10 August 2018. In addition, the ALL Group has US$45.9 million (A$59.7 million) (30 June 2016: US$20.0 million (A$26.9 million)) facilities with the Trust maturing on 26 October 2019. The ALL Group has access to US$177.4 million (A$230.6 million) (30 June 2016: US$260.0 million (A$350.1 million)) syndicated facilities. US$53.7 million (2016: US$73.3 million) of the facilities will mature on 10 August 2018, US$93.3 million (2016: US$93.3 million) will mature on 10 August 2019 and US$30.3 million (2016: 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 39. Ardent Leisure Group | Annual Report 2017 81 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 2017 $’000 - 34,849 (25,564) (9,285) - 2016 $’000 - 55,705 (14,465) (41,240) - 2017 $’000 - - 2,619 (2,619) - 2016 $’000 - - 10,979 (10,979) - A provision for the distribution relating to the half year to 30 June 2017 was not recognised as the distribution had not been declared at the reporting date. Refer to Note 45. (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 Movements in sundry provisions Carrying amount at the beginning of the year Additional provisions recognised Amounts utilised Carrying amount at the end of the year Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 2016 $’000 2017 $’000 2,631 342 2,973 1,009 580 6,006 7,595 10,568 158 483 (299) 342 3,871 158 4,029 1,262 2,030 11,695 14,987 19,016 189 292 (323) 158 2,631 342 2,973 1,009 - 1,754 2,763 5,736 158 483 (299) 342 2016 $’000 3,871 158 4,029 1,262 382 2,770 4,414 8,443 189 292 (323) 158 (1) Sundry provisions include insurance excess/deductible amounts for public liability insurance, fringe benefits tax provisions and other royalty provisions. The current provision for employee benefits includes accrued long service leave which covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. This is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. 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. 82 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Other liabilities Security deposits 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 Disposal of Health Clubs business 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 2017 $’000 2,675 2,675 2016 $’000 1,985 1,985 2017 $’000 2,675 2,675 2016 $’000 1,985 1,985 Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 - 530 143 58,849 2,355 385 81 40,944 - 530 143 58,849 59,522 43,765 59,522 (1,146) (21,580) 36,796 (3,057) (7,170) 33,538 (1,146) (21,580) 36,796 43,765 17,982 - (2,225) 59,522 633 58,889 59,522 32,686 11,136 (61) 4 43,765 383 43,382 43,765 43,765 17,982 - (2,225) 59,522 633 58,889 59,522 2,355 385 81 40,944 43,765 (3,057) (7,170) 33,538 32,686 11,136 (61) 4 43,765 383 43,382 43,765 Ardent Leisure Group | Annual Report 2017 83 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Contributed equity No. of securities/shares Details Date of income entitlement Note Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 442,322,106 19,377,615 1,339,895 - 463,039,616 4,812,776 1,300,892 - 469,153,284 1 Jul 2015 30 Jun 2015 1 Jul 2015 Securities/shares on issue DRP issue Security-based payments - securities/shares issued Issue costs paid Securities/shares on issue DRP issue Security-based payments - securities/shares issued Issue costs paid Securities/shares on issue 30 Jun 2017 30 Jun 2016 1 Jul 2016 1 Jul 2016 605,181 41,240 3,377 (78) 649,720 (a) (b) (a) (b) 649,720 9,285 3,483 (38) 167,100 2,619 991 (11) 155,262 10,979 880 (21) 167,100 662,450 649,720 170,699 167,100 (a) Distribution Reinvestment Plan (DRP) issues The Group has established a DRP under which stapled security holders may elect to have all or part of their distribution entitlements satisfied by the issue of new stapled securities rather than being paid in cash. The discount available on stapled securities issued under the DRP is 2.0% on the market price. The DRP will not be in operation for the distribution for the half year ended 30 June 2017 and was not in operation for the distribution for the half year ended 31 December 2016. (b) 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. 84 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Security-based payments (a) 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. (i) Equity settled security-based payments 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 697,239 performance rights vested on 25 August 2016 and a corresponding number of stapled securities were issued to employees under the terms of the DSTI (2016: 384,988). The characteristics of the DSTI indicate that, at the Ardent Leisure Group level, it is an equity settled security-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. Fair value The fair value of equity settled 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. 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 2017 85 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 29. Security-based payments (continued) (a) (ii) Deferred Short Term Incentive Plan (DSTI) (continued) Cash settled security-based payments 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. ALL is considered to be a subsidiary of the Trust, therefore in the financial statements of the ALL Group the DSTI is accounted for as a cash settled security-based payment. Fair value The fair value of cash settled performance rights granted under the DSTI 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. 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. (iii) Valuation inputs For the performance rights outstanding at 30 June 2017, 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 2017: 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 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 2016 23 August 2016 31 August 2017 31 August 2018 1.40% per annum 40.0% per annum 5.0% per annum $2.50 $2.32 The table below shows the fair value of the performance rights in each grant as at 30 June 2017 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 2017: 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 2015 18 August 2015 31 August 2016 31 August 2017 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $1.87 2016 23 August 2016 31 August 2017 31 August 2018 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $1.86 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. 86 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 29. (a) (iv) 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: Performance rights issued to participating executives: Performance rights 722,966 791,724 722,966 791,724 Consolidated Group 2017 Consolidated Group 2016 ALL Group 2017 ALL Group 2016 Grant date Expiry date Exercise price Valuation per right Balance at beginning of the year Granted Exercised Failed to vest 19 Aug 2014 25 Aug 2016 nil 280.8 cents 147,441 18 Aug 2015 31 Aug 2017 nil 199.7 cents 644,283 - - (147,441) (393,306) 23 Aug 2016 31 Aug 2018 nil 231.8 cents - 693,535 791,724 693,535 (154,381) (695,128) - - - - Balance at the end of the year - 241,441 481,525 722,966 Cancelled - (9,536) (57,629) (67,165) The rights have an average maturity of six months. (b) Long Term Incentive Plan (LTIP) Plan name Who can participate? Types of securities issued Treatment of non-Australian residents LTIP All employees are eligible for participation at the discretion of the Board; however, Non-Executive Directors do not participate in the LTIP. Performance rights that can be converted into fully paid securities once vested. The performance rights differ from options in that they do not carry an exercise price. Performance rights do not represent physical securities and do not carry any voting or distribution entitlements. For employees who are not Australian residents, the LTIP historically granted cash awards to those executives. Administrative arrangements have now been made to issue equity awards and not cash awards to non-resident executives. All awards, whether equity or cash, are subject to the same performance and tenure hurdles. What restrictions are there on the securities? Performance rights are non-transferable. When can the securities vest? The plan contemplates that the performance rights will vest equally two, three and four years following the grant date, subject to meeting the total shareholder return (TSR) and internal compound earnings per security (EPS) performance hurdles. The weighting between the two hurdles will be split as follows:  TSR – 50%; and  EPS – 50%. Ardent Leisure Group | Annual Report 2017 87 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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. (i) Equity settled security-based payments 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 2012, 2013 and 2014 with the following results: Tranche T3-2012 T2-2013 T1-2014 TSR 105.30 46.45 (15.01) Percentile 73.26 61.05 38.93 Vesting percentage 96.50% 72.10% - A total of 603,653 performance rights vested on 25 August 2016 and a corresponding number of stapled securities were issued to employees under the terms of the LTIP (2016: 954,907). 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. 88 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 29. (b) (i) Security-based payments (continued) Long Term Incentive Plan (LTIP) (continued) Equity settled security-based payments (continued) Fair value The fair value of the equity settled 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. 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. (ii) Cash settled security-based payments 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. 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 16,443 cash settled performance rights vested on 25 August 2016 to US employees under the terms of the LTIP (2016: 38,998). ALL is considered to be a subsidiary of the Trust, therefore in the financial statements of the ALL Group the LTIP is accounted for as a cash settled security-based payment. Fair value The fair value of cash settled performance rights granted under the LTIP 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. 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. (iii) Valuation inputs For performance rights outstanding at 30 June 2017, 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 2017: 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 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 $0.72 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 $1.44 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 2016 23 August 2016 31 August 2018 31 August 2019 31 August 2020 1.40% per annum 40.0% per annum 5.0% per annum $2.50 $1.52 Ardent Leisure Group | Annual Report 2017 89 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 29. (b) (iii) 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 2017 as well as the factors used to value the performance rights at 30 June 2017. Under AASB 2, this valuation is used to value the cash settled performance rights granted to employees at 30 June 2017: 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 at year end 2013 23 August 2013 20 August 2015 31 August 2016 31 August 2017 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.02 2014 19 August 2014 31 August 2016 31 August 2017 31 August 2018 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.08 2015 15 December 2015 31 August 2017 31 August 2018 31 August 2019 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.31 2016 23 August 2016 31 August 2018 31 August 2019 31 August 2020 1.80% per annum 45.0% per annum 1.6% per annum $1.88 $0.80 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. (iv) 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% 90 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 29. (b) (iv) Security-based payments (continued) Long Term Incentive Plan (LTIP) (continued) Performance hurdles (continued) The number of rights outstanding and the grant dates of the rights are shown in the tables below: Performance rights issued to participating executives: Performance rights 1,896,003 2,162,697 1,896,003 2,162,697 Consolidated Group 2017 Consolidated Group 2016 ALL Group 2017 ALL Group 2016 Grant date Expiry date Exercise price Valuation per right 24 Aug 2012 25 Aug 2016 nil 23 Aug 2013 31 Aug 2017 nil 19 Aug 2014 31 Aug 2018 nil 15 Dec 2015 31 Aug 2019 nil 23 Aug 2016 31 Aug 2020 nil 60.9 cents 72.3 cents 143.9 cents 112.3 cents 151.9 cents Balance at beginning of the year Granted Exercised 323,590 514,337 472,095 852,675 - - - - - 653,434 (312,268) (212,321) (29,882) (65,625) - 2,162,697 653,434 (620,096) Failed to vest (11,322) (73,247) (157,365) - - (241,934) Balance at the end of the year - 228,769 284,848 787,050 595,336 1,896,003 Cancelled - - - - (58,098) (58,098) The rights have an average maturity of one year and four months. The expense recorded in the Group financial statements in the year in relation to the DSTI and LTIP performance rights was $3,491,225 (30 June 2016: $1,529,237). The expense recorded in the ALL Group financial statements in the year in relation to the DSTI and LTIP performance rights was $3,400,593 (30 June 2016: $1,703,232). Other equity Treasury securities Closing balance Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 1,662 1,662 2016 $’000 - - 2017 $’000 1,662 1,662 2016 $’000 - - Treasury securities are securities in Ardent Leisure Limited that are held by the Ardent Leisure Employee Share Trust for the purpose of issuing securities under the Group’s DSTI and LTIP. Securities issued to employees are recognised on a first-in-first-out basis. Opening balance Acquisition of securities by the Ardent Leisure Employee Share Trust Closing balance No. of securities - 799,334 799,334 $’000 - 1,662 1,662 Ardent Leisure Group | Annual Report 2017 91 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Reserves Asset revaluation reserve Opening balance Revaluation - Australian Theme Parks Revaluation - Australian Bowling and Entertainment Centres Transfer to retained profits - realised items 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 Total reserves Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 2016 $’000 2017 $’000 2016 $’000 17,436 (1,215) - - 16,221 (3,495) 3,154 (562) (903) 10,429 11,243 (709) (3,527) 17,436 (2,058) (1,878) 441 (3,495) (33,096) (3,280) (36,376) (35,145) 2,049 (33,096) (5,783) (20) (5,803) (26,861) (3,917) (1,866) (5,783) (24,938) 3,416 - - - 3,416 (950) 1,549 (562) 37 6,569 (3,837) 2,732 - - - 6,185 3,416 - - - 3,416 (70) (1,321) 441 (950) 4,292 2,277 6,569 - - - 9,035 The asset revaluation reserve is used to record increments and decrements on the revaluation of property, plant and equipment. 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) 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. 92 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 (Accumulated losses)/retained profits Opening balance (Loss)/profit for the year Available for distribution Transfer from asset revaluation reserve Distributions and dividends paid and payable Closing balance Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 2016 $’000 2017 $’000 2016 $’000 (4,799) (62,557) (67,356) - (34,849) (102,205) 4,992 42,387 47,379 3,527 (55,705) (4,799) (1,252) 3,064 1,812 - - 1,812 (11,893) 10,641 (1,252) - - (1,252) Note 25(a) The distribution of 1.0 cent per stapled security for the year ended 30 June 2017 totalling $4.7 million had not been declared at year end. This will be paid on or before 31 August 2017, as described in Note 45. Business combinations Prior period During the prior period, the Group finalised its acquisition of the KAOS Amusement Arcade and Hypoxi Caroline Springs. Purchase price and goodwill adjustments on finalisation were immaterial in nature. 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 2017 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 2017 $’000 10,781 61 10,842 2016 $’000 9,009 61 9,070 2017 $’000 9,291 61 9,352 2016 $’000 8,330 61 8,391 Cash on deposit at call in the Group bears an average floating interest rate of 1.50% per annum (30 June 2016: 1.66% per annum). Cash on deposit at call in the ALL Group bears an average floating interest rate of 1.38% per annum (30 June 2016: 1.75% per annum). Ardent Leisure Group | Annual Report 2017 93 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Cash flow information (a) Reconciliation of (loss)/profit to net cash flows from operating activities (Loss)/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 Inventory provision Increase/(decrease) in onerous lease provisions Loss on sale of property, plant and equipment and livestock Loss on closure of Australian Bowling and Entertainment Centres Impairment of property, plant and equipment Valuation losses/(gains) on investment properties and property, plant and equipment Classified as financing activities Borrowing costs Classified as investing activities Unrealised net loss on derivative financial instruments Gain on the sale of health clubs before selling costs Gain on sale and leaseback of US Entertainment Centres Changes in asset and liabilities: Decrease/(increase) 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 (b) Non-cash financing and investing activities Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 (62,557) 42,387 3,064 10,641 51,299 3,633 25 783 3,511 438 96 492 3,328 470 145 57,921 6,741 24 - 1,539 253 - (2,193) 513 - 463 33,623 3,633 25 783 3,421 438 96 (206) 1,083 4 (117) 34,151 6,741 24 - 1,713 253 - (1,146) 139 - 158 88,747 (2,059) - - 12,191 14,874 10,204 13,337 349 (51,230) - 170 - (1,672) - (23,776) - - - (1,672) 2,972 (1,905) (8,068) 5,315 1,171 22,347 (702) - (5,862) 451 4,738 72,177 (3,336) (1,831) (1,857) (62,692) 1,533 18,917 174 - 55,940 (1,398) 11,010 135,421 2,972 (1,905) (8,068) 5,315 1,168 7,988 538 551 (5,862) 429 4,738 40,139 (981) (1,831) (1,857) (62,692) (2,233) 33,960 217 (3,824) 55,940 (1,424) 11,010 90,624 Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 Note 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 25(a) 9,285 41,240 2,619 10,979 94 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 Consolidated Group 2017 $’000 2016 $’000 974,213 (96,587) (442,491) 435,135 1,157,632 (246,129) (537,649) 373,854 469,153,284 $0.93 463,039,616 $0.81 The following persons have held office as Directors of the Manager and ALL during the period and up to the date of this report: George Venardos (appointed as Chair 6 November 2016); Roger Davis; Randy Garfield (appointed 14 August 2017); David Haslingden; Simon Kelly (appointed 9 June 2017); Don Morris AO; Melanie Willis; Neil Balnaves AO (retired as Chair and as a Director 6 November 2016); and Deborah Thomas (retired 1 July 2017). (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. (c) 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 Controlled entities of Ardent Leisure Trust: Ardent Leisure Trust Ardent Leisure (NZ) Trust Principal lessee: Marinas, Bowling and Entertainment Centres Principal lessee: Bowling and Entertainment Centres Country of establishment Class of equity securities Australia Ordinary New Zealand Ordinary Controlled entities of Ardent Leisure Limited: Ardent Leisure Limited Theme Parks, Marinas Bowling Centres Australia Pty Limited Bowling and Entertainment Centres Australia Australia Ardent Leisure Operations (NZ) Limited Bowling and Entertainment Centres New Zealand Main Event Holdings, Inc Family Entertainment Centres USA Ordinary Ordinary Ordinary Ordinary Ardent Leisure Group | Annual Report 2017 95 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 37. (d) (i) Related party disclosures (continued) Transactions with related parties Key management personnel Short term employee benefits Post-employment benefits Termination benefits Share-based payments Consolidated Group 2017 $ 4,330,985 197,312 731,291 2,277,658 7,537,246 Consolidated Group 2016 $ 5,113,010 177,998 - 1,036,746 6,327,754 ALL Group 2017 $ 4,330,985 197,312 731,291 2,277,658 7,537,246 ALL Group 2016 $ 5,113,010 177,998 - 1,036,746 6,327,754 Remuneration of key management personnel (KMP) is shown in the Directors’ report from pages 12 to 28. (e) Loans to KMP There were no loans to KMP during the financial year or prior corresponding period. (f) Other transactions with KMP Any agreements entered have been on normal commercial bases and fees and transactions have been based on normal commercial terms and conditions. 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. (g) 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 as follows: 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 Consolidated Group 2017 $ Consolidated Group 2016 $ ALL Group 2017 $ ALL Group 2016 $ (73,335) (6,580) (856,133) (37,226) (73,335) (6,580) (856,133) (37,226) - - - - - - - - - - - - - - 114,696 (4,538,444) (128,221,273) (204,550,323) 275,733,857 21,311 (4,324,640) (61,341,068) (126,900,500) (85,096,033) 89,699,028 (25,183) (5,898,585) (128,221,273) 96 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Segment information (a) Business segments The Group is organised on a global basis into the following divisions by product and service type: (i) Marinas This segment comprises seven d’Albora Marina properties, located in New South Wales and Victoria. This business was sold on 14 August 2017. (ii) US Entertainment Centres This segment comprises 37 entertainment centres in Texas, Arizona, Georgia, Illinois, Kentucky, Missouri, New Mexico, Ohio, Oklahoma, Kansas, Florida, Indiana, Pennsylvania and Tennessee, United States of America. (iii) Australian Bowling and Entertainment Centres This segment comprises 43 bowling centres and five amusement arcades located in Australia and one bowling centre located in New Zealand. (iv) Australian Theme Parks This segment comprises Dreamworld and WhiteWater World in Coomera, Queensland and the SkyPoint observation deck and climb in Surfers Paradise, Queensland. (v) Health Clubs Up to the date of sale on 25 October 2016, the segment comprised 76 clubs in Queensland, New South Wales, Victoria, South Australia and Western Australia, including 14 in-club Hypoxi studios. The division also included 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, movements in onerous lease provisions, amortisation of health club brands and customer relationship intangible assets, impairment of property, plant and equipment and intangible assets, gain on sale of discontinued operation and associated selling costs, valuation gains/losses on investment property and property, plant and equipment, costs associated with the Dreamworld incident and loss on closure of Australian Bowling and Entertainment Centres. 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. Ardent Leisure Group | Annual Report 2017 97 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 38. Segment information (continued) (a) Business segments (continued) Consolidated Group - 2017 Discontinued operations Continuing operations Total Health Clubs $’000 US Entertainment Centres $’000 Bowling and Australian Theme Parks $’000 Entertainment Centres $’000 Marinas $’000 Australian Other $’000 $’000 Revenue from operating activities One-off deferred revenue adjustment 24,131 62,677 - - Core revenue from operating activities 24,131 62,677 Divisional EBITDA before property costs(1) Property costs Divisional EBITDA(2) Corporate costs Core EBITDA Depreciation and amortisation(3) 12,724 (2,904) 9,820 - 9,820 - 25,612 (15,840) 9,772 - 9,772 (3,728) 299,450 697 300,147 99,493 (38,452) 61,041 - 61,041 (24,559) 127,655 - 70,934 - 127,655 70,934 9 584,856 697 - 9 585,553 42,402 (27,198) 15,204 - 15,204 (10,210) (2,381) (1,027) (3,408) - (3,408) (5,222) - - - (16,338) (16,338) (1,230) 177,850 (85,421) 92,429 (16,338) 76,091 (44,949) Core EBIT(4) 9,820 6,044 36,482 4,994 (8,630) (17,568) 31,142 Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, increase in onerous lease provisions, intangible asset amortisation, impairment of goodwill and property, plant and equipment, Marina selling costs and other one-off and restructuring expenses not included in divisional EBIT Valuation losses - property, plant and equipment Loss on closure of Australian Bowling and Entertainment Centres Loss on disposal of assets Gain on disposal of health clubs Net loss from derivative financial instruments Dreamworld incident costs, net of insurance recoveries Interest income Borrowing costs Net tax benefit Loss for the year (31,580) (88,747) (470) (3,328) 45,009 (421) (5,389) 86 (12,191) 3,332 (62,557) Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 121,276 - 473,695 156,725 203,349 19,168 974,213 8,033 3,039 158,892 33,946 17,360 604 221,874 (1) Excludes pre-opening expenses of $13,888,000. (2) Excludes straight lining of fixed rent increases of $1,328,000, pre-opening expenses of $13,888,000, increase in onerous lease provisions of $492,000. (3) Excludes IFRS depreciation of $9,102,000, amortisation of health club brands and customer relationship intangible assets totalling $907,000, impairment of property, plant and equipment of $145,000 and impairment of goodwill of $783,000. (4) Excludes of pre-opening expenses of $13,888,000, straight lining of fixed rent increases of $1,328,000, increase in onerous lease provisions of $492,000, IFRS depreciation of $9,102,000, amortisation of health club brands and customer relationship intangible assets of $907,000, Marina selling costs of $796,000, impairment of property, plant and equipment of $145,000, impairment of goodwill of $783,000 and other one-off and restructuring expenses of $4,033,000. 98 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 38. Segment information (continued) (a) Business segments (continued) Consolidated Group - 2016 Discontinued operations Continuing operations Total Health Clubs $’000 US Entertainment Centres $’000 Bowling and Australian Theme Parks $’000 Entertainment Centres $’000 Marinas $’000 Australian Other $’000 $’000 Revenue from operating activities 23,000 187,555 238,974 130,494 107,582 9 687,614 Divisional EBITDA before property costs(1) Property costs Divisional EBITDA(2) Corporate costs Core EBITDA Depreciation and amortisation(3) 12,569 (2,412) 10,157 - 77,511 (47,397) 30,114 - 10,157 (730) 30,114 (12,620) 87,260 (28,092) 59,168 - 59,168 (17,827) 45,291 (27,067) 18,224 - 18,224 (9,344) 35,947 (1,222) 34,725 - - (15,144) 34,725 (5,492) (15,144) (1,153) - - 258,578 (106,190) 152,388 (15,144) 137,244 (47,166) Core EBIT(4) 9,427 17,494 41,341 8,880 29,233 (16,297) 90,078 Pre-opening expenses, straight lining of fixed rent increases, IFRS depreciation, decrease in onerous lease provisions, intangible asset amortisation, impairment of property, plant and equipment and Marina selling costs not included in divisional EBIT Valuation gains - investment properties Loss on disposal of assets Gain on sale and leaseback of US Entertainment Centres Net loss from derivative financial instruments Interest income Business acquisition costs refunded Borrowing costs Net tax expense Profit for the year (27,383) 2,059 (514) 1,672 (170) 81 134 (14,874) (8,696) 42,387 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 113,093 251,144 357,836 137,986 283,774 13,799 1,157,632 6,448 20,612 106,013 16,968 9,638 592 160,271 (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 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 pre-opening expenses of $8,638,000, straight lining of fixed rent increases of $1,909,000, 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 2017 99 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 38. Segment information (continued) (a) Business segments (continued) ALL Group - 2017 Discontinued operations Continuing operations Total US Health Entertainment Centres Clubs $’000 $’000 Bowling and Australian Theme Parks $’000 Entertainment Centres $’000 Marinas $’000 Australian Revenue from operating activities One-off deferred revenue adjustment 24,131 - 62,677 - Core revenue from operating activities 24,131 62,677 Divisional EBITDA before rent to Trust(1) Rent to the Trust Divisional EBITDA after rent to Trust(1) Corporate costs Core EBITDA Depreciation and amortisation(2) 12,724 (11,784) 940 - 940 - 21,417 (13,299) 8,118 - 8,118 (3,728) 299,450 697 300,147 61,041 - 61,041 - 61,041 (24,559) 127,655 - 70,934 - 127,655 70,934 Other $’000 $’000 9 584,856 697 - 9 585,553 42,217 (35,638) 6,579 - 6,579 (4,941) (2,381) (4,349) (6,730) - (6,730) (1,916) - - - (14,316) (14,316) (1,230) 135,018 (65,070) 69,948 (14,316) 55,632 (36,374) Core EBIT(3) 940 4,390 36,482 1,638 (8,646) (15,546) 19,258 (21,388) 18,340 (1,083) (5,042) 77 (87) (10,203) 3,192 3,064 Pre-opening expenses, straight lining of fixed rent increases, decrease in onerous lease provisions, intangible asset amortisation, impairment of goodwill, reversal of impairment on property, plant and equipment, selling costs associated with the sale of Marinas, other one-off and restructuring expenses not included in divisional EBIT Gain on disposal of health clubs Loss on disposal of assets Dreamworld incident costs, net of insurance recoveries Interest income Foreign exchange losses Borrowing costs Net tax expense Profit for the year Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 3,799 - 473,771 71,435 26,154 17,536 592,695 605 2,194 158,892 26,809 4,771 604 193,875 (1) Excludes pre-opening expenses of $13,888,000, straight lining of fixed rent of $1,030,000, decrease in onerous lease provisions of $167,000. (2) Excludes amortisation of health club brands and customer relationship intangible assets totalling $907,000, reversal of impairment of property, plant and equipment of $117,000, impairment of goodwill of $783,000. (3) Excludes pre-opening expenses of $13,888,000, straight lining of fixed rent of $1,030,000, decrease in onerous lease provisions of $167,000, amortisation of health club brands and customer relationship intangible assets of $907,000, reversal of impairment of property, plant and equipment of $117,000, impairment of goodwill of $783,000, Marina selling costs of $944,000 and other one-off and restructuring expenses of $4,033,000. 100 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements For the year ended 30 June 2017 38. Segment information (continued) (a) Business segments (continued) ALL Group - 2016 Discontinued operations Continuing operations Total US Health Entertainment Centres Clubs $’000 $’000 Bowling and Australian Theme Parks $’000 Entertainment Centres $’000 Marinas $’000 Other $’000 $’000 Australian Revenue from operating activities 23,000 187,555 238,974 130,494 107,582 9 687,614 Divisional EBITDA before rent to Trust(1) Rent to the Trust Divisional EBITDA after rent to Trust(1) Corporate costs Core EBITDA Depreciation and amortisation(2) 12,569 (11,492) 1,077 - 1,077 (163) 64,531 (41,138) 23,393 - 23,393 (12,620) 59,168 - 59,168 - 59,168 (17,827) 45,271 (37,942) 7,329 - 7,329 (3,015) 35,947 (33,108) 2,839 - - - - (13,516) 2,839 (13,516) (1,153) (1,647) 217,486 (123,680) 93,806 (13,516) 80,290 (36,425) Core EBIT(3) 914 10,773 41,341 4,314 1,192 (14,669) 43,865 Pre-opening expenses, straight lining of fixed rent increases, decrease in onerous lease provisions, 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 US Entertainment Centres Interest income Foreign exchange gain Business acquisition costs refunded Borrowing costs Net tax expense Profit for the year (13,063) (140) 1,672 68 116 134 (13,337) (8,674) 10,641 Total assets Acquisitions of property, plant and equipment, investment properties and intangible assets 2,972 206,187 357,907 47,735 21,679 12,844 649,324 706 14,189 106,022 12,256 2,789 592 136,554 (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 totalling $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 2017 101 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 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 net debt to net debt plus equity. At 30 June 2017, gearing was 29.5% (2016: 33.0%) 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) (i) 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. 102 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. Capital and financial risk management (continued) (c) (i) 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 US Entertainment Centre classified as held for sale Construction in progress inventories Investments held at fair value 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 2017 $’000 2016 $’000 3,774 15,474 105 120,721 - - 3,201 299,678 41,496 11,831 496,280 41,647 - 1,321 4,892 75,126 5,925 128,911 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 2017 $’000 1,457 376 - - - - - 939 3,685 11 6,468 305 - - - - - 305 2016 $’000 1,031 238 - - - - - 2,018 3,689 19 6,995 658 - - - - - 658 2017 $’000 5,611 7,862 167 - 13,840 56,756 - 335,823 51,406 - 471,465 67,258 50,050 - - 157,501 38,466 313,275 2016 $’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 Net assets 367,369 562,061 6,163 6,337 158,190 51,585 Notional value of derivatives - - - - 1,326 774 Net exposure to foreign exchange movements 367,369 562,061 6,163 6,337 159,516 52,359 Ardent Leisure Group | Annual Report 2017 103 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. Capital and financial risk management (continued) (c) (i) Market risk (continued) Foreign exchange risk (continued) Foreign investment (continued) Australian dollars New Zealand dollars US dollars ALL Group Assets Cash and cash equivalents Receivables and other current assets Derivative financial instruments Assets classified as held for sale US Entertainment Centre classified as held for sale Construction in progress inventories Investments held at fair value 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 2017 $’000 3,763 15,284 - 3,244 - - 3,201 38,486 41,496 11,831 117,305 34,947 - - 4,558 61,387 1,093 101,985 2016 $’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 2017 $’000 687 66 - - - - - 278 3,685 11 4,727 416 - - - - - 416 2016 $’000 566 172 - - - - - 13 3,689 19 4,459 317 - - - - - 317 2017 $’000 4,902 7,740 196 - 13,840 56,756 - 335,823 51,406 - 470,663 67,258 50,050 29 - 157,457 38,466 313,260 2016 $’000 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 Net assets 15,320 95,342 4,311 4,142 157,403 75,399 Net exposure to foreign exchange movements (ii) Foreign exchange rate sensitivity 15,320 95,342 4,311 4,142 157,403 75,399 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 2017 $’000 (119) 146 - - 2016 $’000 (79) 96 - - 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% 104 Ardent Leisure Group | Annual Report 2017 Core earnings movement 2017 $’000 2016 $’000 - - - - - - - - Profit movement 2017 $’000 2016 $’000 - - - - - - - - Total equity movement 2017 $’000 (14,501) 17,724 (560) 686 2016 $’000 (4,760) 5,818 (576) 704 Total equity movement 2017 $’000 (14,309) 17,489 (390) 482 2016 $’000 (6,854) 8,378 (378) 459 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. Capital and financial risk management (continued) (c) (ii) Market risk (continued) Foreign exchange rate sensitivity (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. (iii) 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 Fixed rates Interest bearing liabilities Floating rates Cash and cash equivalents Interest bearing liabilities Australian interest US interest 2017 $’000 2016 $’000 2017 $’000 2016 $’000 - - - - - - - - 5,231 (75,466) (70,235) 4,316 (142,433) (138,117) 5,611 (157,793) (152,182) 4,754 (172,511) (167,757) Interest rate swaps 70,000 80,000 71,503 127,929 Net interest rate exposure (235) (58,117) (80,679) (39,828) Refer to Note 14 for further details on the interest rate swaps. Ardent Leisure Group | Annual Report 2017 105 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. (c) (iii) 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 Australian interest US interest 2017 $’000 2016 $’000 2017 $’000 - - - - - - 2016 $’000 - - 4,450 (61,341) (56,891) 3,733 (128,569) (124,836) 4,902 (157,793) (152,891) 4,658 (148,521) (143,863) Interest rate swaps - - 71,503 105,036 Net interest rate exposure (56,891) (124,836) (81,388) (38,827) (iv) Interest rate sensitivity 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 2017 $’000 6 (6) (815) 815 2016 $’000 (573) 573 (408) 408 2017 $’000 (2) 2 (807) 807 2016 $’000 (581) 581 (398) 398 2017 $’000 1,337 (1,337) 535 (535) 2016 $’000 1,711 (1,711) 2,234 (2,234) Profit movement Total equity movement 2017 $’000 (569) 569 (814) 814 2016 $’000 (1,248) 1,248 (388) 388 2017 $’000 (569) 569 536 (536) 2016 $’000 (1,248) 1,248 2,040 (2,040) At reporting date, the Group has fixed 60.7% (30 June 2016: 66.0%) of its floating interest exposure. 106 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. (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 2017. 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 2017 Book value $’000 Less than 1 year $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 Payables Term debt Interest rate swaps designated as hedges of the term debt Forward foreign exchange contracts Total undiscounted financial liabilities 102,960 102,960 59,559 233,259 - - 71,347 111,156 1,008 41 1,085 1,020 337,268 164,624 668 - - - 72,015 111,156 - - - - - - - - - - - - - - - Consolidated Group 2016 Book value $’000 Less than 1 year $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 Over 5 years $’000 Payables Term debt Interest rate swaps designated as hedges of the term debt Forward foreign exchange contracts Total undiscounted financial liabilities 106,407 106,407 8,510 314,944 4,026 (131) 2,077 644 425,246 117,638 - - 8,510 193,390 115,392 - 1,657 - - - 10,167 194,595 115,392 1,205 - - - - - - - - - - - ALL Group 2017 Payables Term debt Loan from the Trust Interest rate swaps designated as hedges of the term debt Total undiscounted financial liabilities ALL Group 2016 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 96,371 157,793 61,341 96,371 4,156 2,649 - 70,628 61,638 - 90,074 - (167) 53 315,338 103,233 132,319 57 - 90,074 - - - - - - - - - - - - - - - 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 93,699 148,869 128,221 93,699 2,913 5,505 - - 2,913 99,946 5,505 128,839 - 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 Ardent Leisure Group | Annual Report 2017 107 Total $’000 102,960 242,062 1,753 1,020 347,795 Total $’000 106,407 325,802 4,939 644 437,792 Total $’000 96,371 164,858 64,287 110 325,626 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. (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 of the concentration of credit exposure of the Group’s assets are as follows: Cash and cash equivalents Receivables - Australasia Receivables - US Derivative financial instruments Consolidated Group Consolidated Group ALL Group ALL Group 2017 $’000 10,842 3,463 1,904 272 16,481 2016 $’000 9,070 11,537 1,749 244 22,600 2017 $’000 9,352 3,463 1,904 196 14,915 2016 $’000 8,391 11,537 1,749 - 21,677 108 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 39. (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 2017 Receivables - Australasia Receivables - US Consolidated Group 2016 Receivables - Australasia Receivables - US ALL Group 2017 Receivables - Australasia Receivables - US ALL Group 2016 Receivables - Australasia Receivables - US Past due but not impaired Impaired Total Less than 30 days $’000 31 to 60 days $’000 61 to 90 days $’000 More than 90 days $’000 $’000 $’000 555 75 630 1,228 98 1,326 555 75 630 1,228 98 1,326 230 520 750 204 55 259 230 520 750 204 55 259 116 24 140 264 48 312 116 24 140 264 48 312 1,066 13 1,079 638 9 647 1,066 13 1,079 638 9 647 221 - 221 831 - 831 221 - 221 831 - 831 2,188 632 2,820 3,165 210 3,375 2,188 632 2,820 3,165 210 3,375 Based on a review of receivables by management, a provision of $94,000 (30 June 2016: $515,000) has been made against receivables with a gross balance of $221,000 (30 June 2016: $831,000). 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. Ardent Leisure Group | Annual Report 2017 109 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 Fair value measurement (a) Fair value hierarchy The Group measures and recognises the following assets and liabilities at fair value on a recurring basis:  Derivative financial instruments;  Investments held at fair value;  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 2017 Assets measured at fair value: Investments held 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 40(c)) 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 40(c)) (1) Land and buildings of the Australian Theme Parks. Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - - - - 272 1,321 233,259 3,201 186,439 116,888 - - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - - 244 4,139 314,944 267,733 109,459 - - - Total $’000 3,201 186,439 116,888 272 1,321 233,259 Total $’000 267,733 109,459 244 4,139 314,944 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 2017 and 30 June 2016, refer to Notes 16, 17 and 20. 110 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 40. (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 2017 Assets measured at fair value: Investments held at fair value(1) Derivative financial assets Liabilities measured at fair value: Derivative financial instruments Liabilities for which fair values are disclosed: Interest bearing liabilities (refer to Note 40(c)) ALL Group 2016 Liabilities measured at fair value: Derivative financial instruments Liabilities for which fair values are disclosed: Interest bearing liabilities (refer to Note 40(c)) Level 1 $’000 Level 2 $’000 - - - - - 196 29 219,134 Level 3 $’000 3,201 - - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - 1,415 277,090 - - Total $’000 3,201 196 29 219,134 Total $’000 1,415 277,090 (1) On 20 December 2016, the Group acquired a non-controlling equity interest of $3.2 million in Online Media Holdings Limited, an unlisted entity which develops and markets online location-based social media and customer data collection services. 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 2017 and 30 June 2016, refer to Notes 17 and 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 2017. (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 except for unlisted equity securities, where the fair values have been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk. Ardent Leisure Group | Annual Report 2017 111 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 40. (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. (i) Fair value measurements using significant unobservable inputs For changes in level 3 items for the periods ended 30 June 2017 and 2016, refer to Notes 16, 17, 19 and 20. (ii) 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 (%) 7.00 – 10.50 Discount rate (%) 8.00 - 12.00 Annual net property income ($’000) 340 – 2,413 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 (%) 12.25 11.50 Discount rate (%) 14.75 – 15.25 14.25 – 14.50 Annual net property income ($’000) 9,170 4,777 The sensitivity of the fair values of the investment properties and land and buildings in relation to the significant unobservable inputs is set out in the table below: Fair value measurement sensitivity to significant increase in input Fair value measurement sensitivity to significant decrease in input Decrease Increase Decrease Increase Increase Decrease Capitalisation rate (%) Discount rate (%) Annual net property income ($’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. 112 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 40. (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 2017: Consolidated Group Interest bearing liabilities ALL Group Interest bearing liabilities Carrying amount 2017 $’000 Fair value Discount rate 2017 $’000 2017 % Carrying amount 2016 $’000 233,259 225,252 4.80 314,944 314,345 Fair value Discount rate 2016 $’000 2016 % 2.82 219,134 213,293 4.80 277,090 277,754 2.82 In determining the fair value of the interest bearing liabilities, the Group’s principal payable of $233.3 million (30 June 2016: $314.9 million) has been discounted at a rate of 4.80% (30 June 2016: 2.82%) 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 the Group’s own credit risk. The Group’s own credit risk has been included for the first time in the current financial year following the adoption of AASB 13 Fair Value Measurement. 41. Contingent liabilities On 25 October 2016, an incident on the Thunder River Rapids ride at Dreamworld resulted in four fatalities at the theme park. The park and adjoining WhiteWater World were subsequently closed for 45 days and re-opened on 10 December 2016. Rides in Dreamworld were progressively re-opened as independent safety reviews were completed. The incident is the subject of ongoing investigations by the Queensland Police Service (QPS) and Workplace Health and Safety Queensland (WHSQ). The timing of the conclusion, and the findings, of both investigations are not yet known. The incident will be subject to a coronial inquest, the timing of which is also not yet known. The Group expects to be subjected to prosecution proceedings by WHSQ and civil claims from families and other affected persons, however the nature, timing and likely outcome of such actions are not yet known. As at 30 June 2017, it is too premature to provide any meaningful or reliable estimate of the quantum of potential pecuniary penalties or damages to civil claimants. The Group maintains appropriate insurances to respond to all such litigation and regulatory action and associated costs. To date, the Group has taken a conservative approach in recognising insurance recoveries. Unless otherwise disclosed in the financial statements, there are no other material contingent liabilities. 42. (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 2017 Consolidated Group 2016 ALL Group 2017 $’000 $’000 $’000 ALL Group 2016 $’000 2,878 2,878 770 770 2,878 2,878 770 770 Ardent Leisure Group | Annual Report 2017 113 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 42. (b) Capital and lease commitments (continued) Lease commitments Cancellable operating leases Non-cancellable operating leases Finance leases (i) Operating leases Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 - 600,518 - 600,518 - 678,481 - 678,481 ALL Group 2017 $’000 - 482,718 - 482,718 ALL Group 2016 $’000 - 423,494 - 423,494 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, Marinas, Bowling and Entertainment Centres and Health Clubs properties in Australia. 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 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 61,536 229,795 309,187 600,518 92,203 298,377 287,901 678,481 40,097 163,624 278,997 482,718 41,493 150,020 231,981 423,494 114 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 43. 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 guaranteed 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 Limited 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. On 25 October 2016, a Notice of Disposal was executed whereby Ardent Leisure Health Clubs 1 Pty Limited, Ardent Leisure Health Clubs 2 Pty Limited, Goodlife Health Clubs Holdings Pty Limited, Goodlife Operations Pty Limited, Fenix Holdings Pty Limited, Hypoxi Australia Pty Limited and Hypoxi North America Pty Limited were released from the Deed of Cross Guarantee. By entering into the deeds, Bowling Centres Australia Pty Limited, has been relieved from the requirement to prepare a financial report and Directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 which has replaced ASIC Instrument 2016/785. (a) Consolidated Income Statement ALL and Bowling Centres Australia 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 2017 of the Closed Group: Income Revenue from operating activities Other income Expenses Purchases of finished goods Salary and employee benefits Borrowing costs Property expenses Depreciation and amortisation Loss on closure of Australian Bowling and Entertainment Centres Advertising and promotions Repairs and maintenance Impairment of property, plant and equipment Dreamworld incident costs Other expenses Pre-opening expenses Business acquisition costs Loss before tax benefit Income tax benefit Loss from continuing operations Profit from discontinued operations Loss for the year 2017 $’000 2016 $’000 196,668 1,727 235,594 - (26,530) (102,888) (2,026) (39,794) (7,965) (4) (10,814) (12,071) (783) (6,534) (20,060) (1,242) - (32,316) 10,389 (21,927) 17,002 (4,925) (28,704) (99,144) (2,612) (70,383) (5,619) - (9,188) (10,699) - - (19,320) 289 (64) (9,850) 3,209 (6,641) 2,252 (4,389) Ardent Leisure Group | Annual Report 2017 115 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 43. (b) Deed of Cross Guarantee (continued) Consolidated Statement of Comprehensive Income Set out below is a consolidated Statement of Comprehensive Income for the year ended 30 June 2017 of the Closed Group: 2017 $’000 (4,925) - (4,925) 2017 $’000 3,761 3,458 8,986 - 4,442 3,244 23,891 45,915 293 24,165 11,542 111,761 193,676 217,567 24,646 4,400 4,558 5 33,609 53,780 1,009 54,789 88,398 129,169 170,699 45 (41,575) 129,169 2016 $’000 (4,389) - (4,389) 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 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year (c) Consolidated Balance Sheet Set out below is a consolidated Balance Sheet as at 30 June 2017 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 116 Ardent Leisure Group | Annual Report 2017 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 43. (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 2017 of the Closed Group: Total equity at 30 June 2015 Total comprehensive loss for the year Reserve transfers Contributions of equity, net of issue costs Total equity at 30 June 2016 Total comprehensive loss for the year Reserves Contributions of equity, net of issue costs Total equity at 30 June 2017 44. (a) Parent entity financial information Summary financial information Balance sheet Current assets Total assets Current liabilities Total liabilities Equity Contributed equity Reserves Accumulated losses Total equity Contributed equity $’000 Reserves $’000 Accumulated losses $’000 155,262 - - 11,838 167,100 - - 3,599 170,699 - - (4) - (4) - 49 - 45 (32,261) (4,389) - - (36,650) (4,925) - - (41,575) Total equity $’000 123,001 (4,389) (4) 11,838 130,446 (4,925) 49 3,599 129,169 Consolidated Group 2017 $’000 Consolidated Group 2016 $’000 ALL Group 2017 $’000 ALL Group 2016 $’000 124,555 456,784 70,106 96,002 118,811 617,113 15,728 187,690 27,490 244,884 22,860 80,969 491,751 (940) (130,029) 360,782 482,620 (2,545) (50,652) 170,698 - (6,784) 429,423 163,914 158,436 18,206 249,978 21,391 91,542 167,100 - (8,664) (Loss)/profit for the year (79,377) 42,826 1,880 (9,031) Total comprehensive (loss)/income for the year (78,377) 42,269 1,880 (9,031) (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 43), there are no other material guarantees entered into by Ardent Leisure Limited and Ardent Leisure Trust in relation to the debts of their subsidiaries. Ardent Leisure Group | Annual Report 2017 117 For personal use only Notes to the Financial Statements for the year ended 30 June 2017 44. (c) Parent entity financial information (continued) Contingent liabilities On 25 October 2016, an incident on the Thunder River Rapids ride at Dreamworld resulted in four fatalities at the theme park. The park and adjoining WhiteWater World were subsequently closed for 45 days and re-opened on 10 December 2016. Rides in Dreamworld were progressively re-opened as independent safety reviews were completed. The incident is the subject of ongoing investigations by the Queensland Police Service (QPS) and Workplace Health and Safety Queensland (WHSQ). The timing of the conclusion, and the findings, of both investigations are not yet known. The incident will be subject to a coronial inquest, the timing of which is also not yet known. Ardent Leisure Trust and Ardent Leisure Limited expect to be subjected to prosecution proceedings by WHSQ and civil claims from families and other affected persons, however the nature, timing and likely outcome of such actions are not yet known. As at 30 June 2017, it is too premature to provide any meaningful or reliable estimate of the quantum of potential pecuniary penalties or damages to civil claimants. Ardent Leisure Trust and Ardent Leisure Limited maintain appropriate insurances to respond to all such litigation and regulatory action and associated costs. Unless otherwise disclosed in the financial statements, Ardent Leisure Trust and Ardent Leisure Limited have no other material contingent liabilities. (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 2017 $’000 2016 $’000 2017 $’000 - - - - 75 75 2016 $’000 104 104 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 $75,000 (30 June 2016: $104,000). Any commitments relating to the Australian and New Zealand geographic segments will therefore be subsequently reimbursed by the Trust the month following payment. 45. Events occurring after reporting date Subsequent to 30 June 2017, a distribution of 1.0 cent per stapled security has been declared by the Board of Directors. The total distribution amount of $4.7 million will be paid on or before 31 August 2017 in respect of the half year ended 30 June 2017. As noted above, effective 14 August 2017, the Group completed the disposal of its Marinas business for gross sale proceeds (excluding working capital adjustments) of $126.0 million. 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 2017. 118 Ardent Leisure Group | Annual Report 2017 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 34 to 114 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 2017 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 43 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 43. 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. George Venardos Chairman Sydney 31 August 2017 Simon Kelly Managing Director Ardent Leisure Group | Annual Report 2017 119 For personal use only Independent auditor’s report To the stapled security holders of Ardent Leisure Trust and Ardent Leisure Limited Report on the audit of the financial reports Our opinion In our opinion: The accompanying financial reports of Ardent Leisure Group (the Group), which comprises Ardent Leisure Trust (the Trust) and its controlled entities, and Ardent Leisure Limited Group (the ALL Group), which comprises Ardent Leisure Limited (the Company or ALL) and its controlled entities, are in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; b) giving a true and fair view of the ALL Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and c) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The consolidated financial reports of the Group and the ALL Group comprise: ● ● ● ● ● ● ● the balance sheets as at 30 June 2017; the income statements for the year ended 30 June 2017; the statements of comprehensive income for the year ended 30 June 2017; the statements of changes in equity for the year ended 30 June 2017; the statements of cash flows for the year ended 30 June 2017; the notes to the financial statements, which include a summary of significant accounting policies; and the directors’ declaration to stapled security holders. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group and the ALL Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Our audit approach An audit is designed to provide reasonable assurance about whether the financial reports are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if For personal use only individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report of the Group as a whole and on the financial report of the ALL Group as a whole, taking into account the geographic and management structure of the Group and the ALL Group, their accounting processes and controls and the industry in which they operate. The Group and the ALL Group have three main operating segments being US Entertainment Centres, Australia Bowling and Entertainment Centres and Australian Theme Parks. Two operating segments, Marinas and Health Clubs were classified as discontinued operations during the year. Materiality of the Group • For the purpose of our audit of the Group, we used overall group materiality of $1.6 million, which represents approximately 5% of the Group’s profit before tax from continuing operations, adjusted for selected unusual or unfrequently occurring items. • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial reports as a whole. • We chose the Group’s profit before tax from continuing operations because, in our view, it is the metric against which the performance of the Group is most commonly measured and is a generally accepted benchmark. • We selected 5% based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit scope of the Group • Our audit focused on where subjective judgements were made; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • We structured our audit as follows: ● Audit procedures were performed over financially significant segments and discontinued operations, assisted by local component auditors in the USA for US Entertainment Centres. ● Further audit procedures were performed at a Group level, including audit procedures over the consolidation of the Group and the preparation of the financial report. ● As part of our audit, PwC valuation experts and tax specialists assisted with the audit procedures on impairment models, property valuations and tax calculations. To be satisfied that sufficient audit evidence had been obtained as a basis for our opinion on the financial report as a whole, there was regular communication with the component auditors throughout the audit with phone calls, discussions and written instructions, where appropriate. The group engagement team also visited the head office of US Entertainment Centres and met with management and the component auditors. We also visited the following head offices- AMF Bowling (Sydney, Australia), Dreamworld (Gold Coast, Australia), Goodlife (Brisbane, Australia), D’Albora Marinas (Sydney, Australia) and Group/Head office (Sydney, Australia). Key audit matters • Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee: – Carrying value of assets For personal use only – Divestment of Health Clubs and Marinas – Construction of US Entertainment Centre assets – Revenue recognition – Dreamworld contingencies • These are further described in the Key audit matters section of our report. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial reports for the current period and were determined separately for the Group and ALL Group. Relevant amounts listed for the Group and ALL Group represent balances as they are presented in the financial reports and should not be aggregated. The key audit matters were addressed in the context of our audit of the financial report of the Group as a whole and the financial report of the ALL Group as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Carrying value of assets Goodwill ALL Group – Note 21 Goodwill: $83.0m Group – Note 21 Goodwill: $83.0m Key audit matter The Group and ALL Group recognised goodwill of $83.0 million as at 30 June 2017, allocated predominately to two cash generating units (CGUs), being Australian Bowling and Entertainment Centres and US Entertainment Centres. As required by Australian Accounting Standards, at 30 June 2017 the Group and ALL Group performed an assessment of whether there was any impairment of the goodwill balance by calculating the ‘value in use’ (VIU) for each CGUs’ goodwill, using discounted cash flow models (models). Refer to page 73, note 21, for details of the impairment test and assumptions. This was a key audit matter due to the financial size of the goodwill balance and because the Group and ALL Group’s assessment of the models involved significant judgements and estimates about the future results of the CGUs, and the discount rates and long-term growth rates applied to future cash flows. How our audit addressed the key audit matter We performed a number of audit procedures in relation to goodwill, including the following: • • • • • Evaluating the CGUs’ cash flow forecasts used in the models and the process by which they were developed, including testing the mathematical accuracy of the underlying calculations. Comparing the cash flow forecasts for FY2018 in the models to the Board approved budgets for FY2018. We found that the cash flow forecast used in the models was consistent with the Board approved budgets and that the key assumptions were subject to oversight by the Directors. Comparing the FY2017 actual results with prior year forecasts to assess the historical accuracy of the Group’s forecasting processes. With assistance from PwC valuations experts, we also assessed: key assumptions for long-term growth rates used in the models by comparing them to historical results and economic and industry forecasts; and the discount rates used in the models by assessing the cost of capital for the Group by comparing it to market data and industry research. We found that the long-term growth rates and the For personal use onlyCarrying value of assets discount rates used were consistent with our internally developed benchmarks, which were based on market data and industry research. We then performed a sensitivity analysis on the models by adopting other assumptions which we viewed as reasonably possible for the FY2018 cash flow forecasts, the long term growth rates and the discount rates. As a final test we also compared the Group’s net assets as at 30 June 2017 of $531.7 million to its market capitalisation of $882.0 million as at 30 June 2017. Australian Theme Parks (carried at fair value) Group – Note 20, Note 40 ALL Group Theme Parks (carried at fair value): $186.4m KAM not applicable Key audit matter How our audit addressed the key audit matter The Group carries Australian Theme Parks assets (including associated land and buildings and major rides and attractions) at fair value. External valuers are utilised by the Group to assist in the valuation of the Australian Theme Park assets held at fair value. This was a key audit matter due to the financial size of the balance and the inherent judgement involved in determining the fair value of Australian Theme Park assets, particularly because of the material valuation uncertainty as explained in note 20. As at 30 June 2017 the Australian Theme Park assets measured at fair value were recognised at $186.4 million. A valuation loss of $88.7 million was recorded in the Group 30 June 2017 financial statements. We performed a number of audit procedures in relation to the valuations, including the following: • Assessing and considering the independence and qualifications of the Group’s external valuers at 30 June 2017. • With assistance from PwC valuation experts, considering the reasonableness of the key assumptions and variables used in the Group’s external valuations, including growth and discount rates in light of our understanding of the business and the current market. • • • • Comparing the cash flow forecasts for FY2018 in the valuations to the Board approved budgets for FY2018. Comparing the FY2017 actual results with prior year forecasts to assess the historical accuracy of the Group’s forecasting processes. Reconciling the underlying Management forecasts to the information used in the Group’s external valuations. Reconciling the movement in fair value to the financial statements. Group –Note 16 ALL Group – Note 16 Divestment of Health Clubs and Marinas Profit from discontinued operations: $53.9m Profit from discontinued operations: $18.6m Key audit matter How our audit addressed the key audit matter During the year, the Group and ALL Group sold the operating segment Health Clubs for total proceeds of $260 million. A gain on disposal of this business of $44.8 million was recognised in the 30 June 2017 We performed a number of audit procedures in relation to the discontinued operations, including the following • Obtaining the sale agreements for Health Clubs and Marinas to assess whether the sale For personal use onlyDivestment of Health Clubs and Marinas financial statements by the Group and a gain on disposal of $18.2 million was recognised by the ALL Group. transactions were recorded and disclosed in accordance with the terms of the respective sale agreements. Marinas remains a discontinued operation as at 30 June 2017, with a Put and Call Option Deed signed on 9 December 2016 to sell the d’Albora Marinas business. Total consideration for the sale was $126m. The Businesss Purchase Deed was executed on 14 August 2017. This was a key audit matter because of the significant impact of the gain on disposal on the profit and the importance to readers of the disclosure of the discontinued operations in the financial reports. • • • • • Performing audit procedures on the Health Club’s balance sheet on the date the sale transaction was completed. Reperforming the calculations of the gain on disposal by comparing the consideration received to the carrying value of the identified assets and liabilities disposed. Agreeing the consideration received from the sale to the respective contracts and to bank records. Assessing the Group and ALL Group’s calculation that the current carrying value of Marinas is less than the fair value less costs to sell of the disposal group. Examining the discontinued operations disclosures included in the financial report in line with the requirements of the Australian Accounting Standards. Construction of US Entertainment Centre assets Group –Note 18, Note 20, Note 38 ALL Group – Note 18, Note 20, Note 38 US Entertainment Centre Acquisitions: $158.9m US Entertainment Centre Acquisitions: $158.9m Key audit matter How our audit addressed the key audit matter During the year, the Group and ALL Group constructed several centres in the US Entertainment Centres segment, which resulted in asset additions recognised of $158.9 million, which predominately relate to property, plant and equipment. These assets were funded through the Group’s debt facility and third party funding. Third party advances of $50.1 million have been recognised in the 30 June 2017 financial statements by the Group and ALL Group. This was a key audit matter because of the material impact of the asset additions and third party advances on the financial report. We performed detailed testing of a sample of asset additions, which included the following: • • • Agreeing the amount of the asset addition to an invoice or contract. Checking the approval of the asset addition was within the delegations of authority and the board approved budget. Testing whether the asset addition was capital in nature by inspecting the description of the asset on the invoice or contract. We performed detailed testing of the third party funding arrangements, which included the following: • • • Obtaining third party funding contracts. Agreeing the advanced deposits recorded to the contract and bank records. Testing whether the assets and advances were appropriately disposed and settled upon completion of the construction of the centre by comparing the completion date to the certificate of completion and considering the For personal use onlyConstruction of US Entertainment Centre assets final invoice and payment to indicate the transfer of risk. Group –Note 3 ALL Group – Note 3 Revenue from continuing operations: $498.0m Revenue from continuing operations: $498.0m Revenue recognition Key audit matter How our audit addressed the key audit matter The Group’s and ALL Group’s revenue is based on a very high volume of transactions across several businesses, which each have several streams of revenue, such as entry revenue, games revenue and food and beverage revenue. Each of these revenue streams is underpinned by different POS systems and detailed processes and controls. Whilst there is little estimation or judgement involved in the recognition of the Group’s and ALL Group’s revenue, our focus was whether revenue was being correctly recorded (accuracy) and also recognised in the appropriate period (cut-off). Due to the opportunity for manual intervention and the high volume of transactions, and the interfaces of the multiple POS systems with the general ledger system, there is potential for these transactions to be recorded incorrectly. This was a key audit matter due to the quantum of the Group’s revenue, and the number of different revenue streams and associated systems and processes. We developed an understanding of the revenue processes and performed detailed testing of a sample of revenue transactions, which included the following: • Assessing the consistency of the application of the revenue recognition policy by considering the accounting policy for the different sources of the Group and ALL Group’s revenue. Developing an understanding of and evaluated the key controls in place for each revenue stream, including both automated and manual controls. • Performing tests of the key manual internal controls over revenue recognised in the financial statements. • Using Computer Assisted Audit Techniques to perform testing of the occurrence of a sample of recorded revenue transactions, and testing a sample of journal entries posted to revenue and other general ledger accounts. • For all major revenue streams, agreeing a sample of transactions from the general ledger listing to supporting documentation, including bank statements. This included checking a sample of transactions either side of the Group year end date were recorded in the appropriate period. Dreamworld contingencies ALL Group – Note 41 Group –Note 41 Key audit matter We focused on this area because of the incident that occurred at Dreamworld on 25 October 2016. The incident is the subject of ongoing investigations by the Queensland Police Service and Workplace Health and Safety Queensland. The incident will be subject to a coronial inquest, the timing of which is not yet known. This was a key audit matter because in assessing and measuring potential liabilities and contingencies, the Group and ALL Group are required to make judgements based on available How our audit addressed the key audit matter Our procedures included, amongst others: • Discussing legal and regulatory matters with Group Legal Counsel. We sought and obtained access to relevant documents in order to develop our understanding of these matters. • Evaluating accounting policies relating to the treatment of potential legal obligations attributable to the incident. • For outstanding legal and regulatory matters, For personal use only information of the probability and estimation of potential financial outcomes, which may be dependent on legal and regulatory processes. considering the Group's judgement as to whether there is potential material financial exposure for the Group. Dreamworld contingencies • Where the Group determined that they were unable to reliably estimate the possible financial impact of a legal or regulatory action, we assessed the appropriateness of their conclusion. • Assessing the adequacy of the related disclosures in light of the requirements of Australian Accounting Standards. Other information The directors of the 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 other information. The other information included in the Group’s and the ALL Group’s annual report comprises the Director’s report for the year ended 30 June 2017 (but does not include the financial report and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report. We also expect other information to be made available to us after the date of this auditor’s report, including the Investor Analysis, Investor Relations and the Corporate Directory. Our opinion on the financial reports does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial reports, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial reports or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received as identified above, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report 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 gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial reports, the directors are responsible for assessing the ability of the Group and the ALL Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the ALL Group or to cease operations, or have no realistic alternative but to do so. For personal use only Auditor’s responsibilities for the audit of the financial reports Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial reports. A further description of our responsibilities for the audit of the financial reports is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 16 to 32 of the directors’ report for the year ended 30 June 2017. In our opinion, the remuneration report of Ardent Leisure Limited for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of Ardent Leisure Limited 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. PricewaterhouseCoopers Timothy J Allman Partner Brisbane 31 August 2017 For personal use only Investor Analysis HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited Portfolio Services Pty Ltd Kayaal Pty Ltd BNP Paribas Noms Pty Ltd UBS Nominees Pty Ltd CS Third Nominees Pty Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited - A/C 2 BNP Paribas Nominees Pty Ltd RBC Investor Services Australia Nominees Pty Ltd National Nominees Limited UBS Nominees Pty Ltd Ragusa Pty Ltd Ragusa Pty Ltd Citicorp Nominees Pty Limited Merrill Lynch (Australia) Nominees Pty Limited Balnaves Foundation Pty Ltd Portfolio Services Pty Ltd Top 20 Investors as at 31 August 2017 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Balance of Register Grand Total No. of Securities 84,481,947 71,984,761 29,537,098 21,965,804 18,470,782 15,897,069 14,609,718 13,628,729 13,258,037 12,585,204 10,743,022 8,233,333 5,959,947 4,785,893 4,626,603 3,071,942 3,056,020 1,810,539 1,795,243 1,250,000 341,751,691 127,482,201 469,233,892 Range Report as at 31 August 2017 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 367,957,031 70,940,531 16,314,707 12,759,546 1,262,077 469,233,892 % 78.42 15.12 3.48 2.72 0.27 100.00 No of Holders 139 2,812 2,142 4,444 2,813 12,350 The total number of investors with an unmarketable parcel of 78,530 securities as at 31 August 2017 was 1,046. Voting Rights % 18.00 15.34 6.29 4.68 3.94 3.39 3.11 2.90 2.83 2.68 2.29 1.75 1.27 1.02 0.99 0.65 0.65 0.39 0.38 0.27 72.83 27.17 100.00 % 1.13 22.27 17.34 35.98 22.78 100.00 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 31 August 2017 The Ariadne Substantial Holder Group* Viburnum Funds Pty Ltd FIL Ltd Ausbil Investment Management Ltd Investec Australia Limited BT Investment Management Ltd JCP Investment Partners Ltd Sumitomo Mitsui Trust Holdings Inc *The Ariadne Substantial Holder Group includes the following companies and partnerships – Portfolio Services Pty Limited, Ariadne Holdings Pty Limited, Ariadne Australia Limited, Bivaru Pty Limited and Kayaal Pty Ltd No. of Securities 51,116,531 45,951,509 40,478,296 37,280,709 37,261,564 22,815,453 24,117,135 23,494,066 % 10.90% 9.79% 9.15% 8.05% 7.94% 5.63% 5.14% 5.01% Stapling Disclosure 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 are issued by the Company or Trust which are not stapled to equivalent securities in the other entity. 128 Ardent Leisure Group | Annual Report 2017 For personal use only Investor Relations The website is a useful source of information about the Group and its business and property portfolio. The site contains a variety of investor information, including presentations, webcasts, newsletters, half year updates, annual reports, distribution history and timetable, security price information and announcements to the ASX. Corporate Governance Statement In accordance with the ASX Listing Rules, the Group’s Corporate Governance Statement dated 30 June 2017 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 2016/17 annual taxation statement online, please visit the Link Investor Service Centre at www.linkmarketservices.com.au Distribution Reinvestment Plan (DRP) The DRP did not apply for the half year ended 30 June 2017. 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 1300 720 560 (within Australia) +61 1300 720 560 (outside Australia) Telephone 1300 720 560 (within Australia) +61 1300 720 560 (outside Australia) Facsimile +61 2 9287 0303 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 Ardent Leisure Group | Annual Report 2017 129 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 Roger Davis David Haslingden Randy Garfield (appointed 14 August 2017) Simon Kelly (appointed 9 June 2017) Don Morris AO Brad Richmond (appointed 3 September 2017) George Venardos (Chairman) Gary Weiss (appointed 3 September 2017) Melanie Willis (resigned 8 September 2017) Managing Director and Chief Executive Officer Simon Kelly Chief Financial Officer Geoff Richardson Company Secretary Bronwyn Weir 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 130 Ardent Leisure Group | Annual Report 2017 For personal use only 

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