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2023 ReportAshley Services Group Limited ABN: 92 094 747 510 Annual Report For the Year Ended 30 June 2014 Ashley Services Group Annual Report 2014 CHAIRMAN'S REVIEW ----------------------------------------------------------------------------------------------------------------------- 3 MANAGING DIRECTOR'S REVIEW-------------------------------------------------------------------------------------------------------- 5 DIRECTORS’ REPORT ----------------------------------------------------------------------------------------------------------------------- 15 AUDITOR'S INDEPENDENCE DECLARATION ------------------------------------------------------------------------------------------ 24 CORPORATE GOVERNANCE STATEMENT --------------------------------------------------------------------------------------------- 25 DIRECTORS’ DECLARATION --------------------------------------------------------------------------------------------------------------- 33 INDEPENDENT AUDITOR’S REPORT ---------------------------------------------------------------------------------------------------- 34 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME --------------------------- 37 CONSOLIDATED STATEMENT OF FINANCIAL POSITION -------------------------------------------------------------------------- 38 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY --------------------------------------------------------------------------- 39 CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------------------------------------------------------- 40 NOTES TO THE FINANCIAL STATEMENTS --------------------------------------------------------------------------------------------- 41 ASX ADDITIONAL INFORMATION ------------------------------------------------------------------------------------------------------- 73 CORPORATE DIRECTORY ------------------------------------------------------------------------------------------------------------------ 75 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 2 Chairman’s Review MR PETER TURNER THE YEAR IN REVIEW 25 September 2014 I am pleased to present to you my first report as Chairman of Ashley Services Group Limited (“Ashley Services” or “ASG”), since listing on the Australian Securities Exchange on the 21 August 2014. Ashley Services is a diversified company operating in the training and labour hire industries within Australia. Its training business is one of Australia’s largest non- government Vocational Education and Training (“VET”) providers and its labour hire business is a leading provider to the warehouse and logistics industries. First I would like to welcome all our new shareholders who became investors as part of the listing. I have tried to make this first report as informative as possible. Notwithstanding this, there is some level of duplication of information to that included in the prospectus, lodged with the Australian Securities and Investment Commission on 7 August 2014 (“Prospectus”). Second, I would like to acknowledge the hard work of those involved in the listing process, including our Joint Lead Managers, Canaccord Genuity and Evans & Partners, financial advisers, reporting accountants, Grant Thornton and our corporate lawyers, Norton Rose Fulbright. However, I would like to particularly thank Ross Shrimpton and his hard working executive team for their diligence during the listing process, and at the same time coping with the daily management of the business. I am pleased to advise that our first reported results for the year ended 30 June 2014 were in-line with that of our pro forma forecasts, which were published in the Prospectus. Full details of the audited pro forma results are included in the Managing Director’s Review. The Board is extremely pleased with the development Ashley Services business has made, including: the continued development and extension of new qualifications, including automotive and general trades; completing the acquisition of the Integracom business; development of facilities in Queensland to cope with the new demand driven model; establishment of the new facilities in Melbourne for various courses; growth in the labour division, in particular, the number of major customers; and the continued reduction in the level of injury hours for the labour hire division. Ashley Services will continue with its focus on: building its existing relationships with customers; increasing the level of cross selling between the labour hire and training divisions; and focusing on acquisitions that meet the key criteria of the Board. This, combined with our strong national presence and increasing customer base, places Ashley Services in a strong position to capitalise and develop its core business. Additionally, the Company‘s conservative statement of financial position allows it to capitalise upon strategic acquisition opportunities. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 3 Chairman’s Review I look forward to the year ahead and the continued success of Ashley Services arising from the momentum created by Ross Shrimpton and his management team prior to the initial public offering. Your Board is excited about the many opportunities that are available to Ashley Services both organically and through acquisition. Peter Turner Chairman ASHLEY SERVICES GROUP ANNUAL REPORT 2014 4 ‘‘ ‘‘ The key to our ongoing success is our integrated business model and national footprint ‘‘ Managing Director’s Review MR ROSS SHRIMPTON MARKET AND RESULTS OVERVIEW The 2014 financial year has been a rewarding year with many notable achievements. The significant efforts of our management team during the year were realised with a successful initial public offering (“IPO”) which was completed on the 21 August 2014. I am pleased to report that the Ashley Services and the various entities acquired after 30 June 2014 (referred to as the “Pro Forma Group”) achieved the forecast results set out in the Prospectus. Management of the Group believe the pro forma results are relevant to our stakeholders as it includes the full year performance of entities acquired during the financial year and subsequent to year end. Providing Pro forma results illustrates the performance of the newly established Group. DISCUSSION ON RESULTS Statutory result The year ended 30 June 2014 has seen significant expansion in the Ashley Services labour hire business, contributing to the overall growth in revenues from $106.3 million to $196.7 million or 85%. The key drivers for this growth have been set out in the pro forma discussion below. However, in short, the key areas for growth include the securing of a major logistics customer and general increase in volumes across the board. The platform for these increases was laid some time ago with Ashley Services’ deliberate strategy of seeking out large corporate accounts that can deliver high volumes at a reasonable rate. Despite the growth in revenues, gross margins have declined from 8.3% to 5.9%, reflecting the tight market conditions. Ashley Services experienced a decline in training revenues by approximately 68%. This decline reflects the movement of training activities to a related company (ASH Pty Limited), which is covered by the discussion in the pro forma section below. Pro Forma results The following section is a discussion of the pro forma financial information being that information disclosed in the Prospectus dated 7 August 2014 (“Prospectus”). Full details of the pro forma financial information have been set out in the section below titled “Pro forma Financial Information”. Set out below is an overview of the comparison of the pro forma actual versus pro forma prospectus results for FY 2014 and 2013, as set out in the Prospectus: ASHLEY SERVICES GROUP ANNUAL REPORT 2014 5 Managing Director’s Review Table 1: Pro forma FY14 Results Compared to the Prospectus and FY13 Results Pro forma Actual FY141 (audited) $m Pro forma Prospectus FY14 (reviewed) $m Variance to Prospectus % Pro forma Prospectus FY13 (reviewed) $m Variance to FY13 % 287.1 21.9 22.9 15.0 285.1 21.9 22.8 15.0 +0.7 - +0.4 - 176.0 12.5 13.0 8.5 +63.1 +75.2 +76.5 +76.5 Revenue EBITA2 EBITDA3 NPATA4 Notes: 1. The FY14 Pro forma audited financial results incorporate Ashley Services Group, including Concept Engineering Pty Limited (“Concept”) and Integracom Unit Trust (“Integracom”), as if they were owned by ASG for the whole year. A reconciliation of the statutory financial results to the pro forma results is set out in the section below titled “Pro forma Financial Information”. “EBITA” is defined to mean earnings before interest, taxes and amortisation. 2. 3. “EBITDA” is defined to mean earnings before interest taxes depreciation and amortisation. 4. “NPATA” is defined to mean net profit after tax but before amortisation (and related tax impacts). Despite the demands and time devoted to the IPO, the Pro Forma Group achieved an outstanding result. The key highlights for the Pro Forma Group’s results on a Pro forma basis were: revenues 63.1% higher than for the 2013 financial year; EBITDA was 76.2% higher than for the 2013 financial year; and NPATA was also 76.5% higher than for financial year 2013. Further discussion of the above is as follows: Labour hire labour hire revenues up 62.1% on FY 2013. This increase reflects a number of factors, including: o securing of a major new logistics customer which has significantly contributed to the additional hours; o general increase in volumes with most key customers; o the full year impact of the OneForce acquisition; and market conditions remain highly competitive and as a result, we have seen the continued decline in our margin, with EBITDA margin down from 3.3% in FY 2013 to 3.0% in FY 2014. Training The training division has shown several positive aspects during the FY 2014, including: overall increase in student numbers from approximately 12,000 to approximately 20,000; continued growth in the average fee per student from $2,032.50 per student to $2,185.31, reflecting the benefits of the Pro Forma Group’s willingness to invest in higher value qualifications and the increased contribution of the telecommunications sector; the implementation of the demand driven model (that is, where the student chooses the service training provider) in Queensland, South Australia and Victoria. This model underpins the public sector of the training business; and increased enrolment levels arising from the demand driven model, particularly in South Australia and Queensland. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 6 Managing Director’s Review FY 2014 was a period where we have seen an increased level of confidence across our businesses. However, market conditions generally remain highly competitive and the demands for extra value are growing. This is particularly relevant to our labour hire business where conditions have become extremely tight and are decreasing our margins. In relation to the training division, we have seen an increase in compliance and government activity. Despite this increase in regulation, sufficient funding for training programs across the whole of the business remains in place. It is also interesting to note that despite the “tough” Federal Budget delivered earlier this year, we have not seen any major adverse impacts on funding for training programs. I believe that this reflects the Government’s desire to ensure that Australia has a sufficiently well trained workforce. A key focus of the Pro Forma Group is the integration between our labour hire and training businesses, overlayed with the strong support on quality personnel which is provided by The Blackadder Recruitment business. An overview of this model is set out below: The Group has also had a focus on ensuring that it has a national footprint and as a result, it expanded to 33 strategically located offices and 63 additional training locations around Australia. I believe that our integrated business model and national presence will allow the Group to cater for larger national customers, placing the Group in a unique position to differentiate ourselves from other industry competitors. As noted in the Prospectus, recruitment forms part of the Labour Hire segment and they are collectively treated as a single operating segment. PRO FORMA FINANCIAL INFORMATION The pro forma financial information has been prepared on the same basis as the pro forma consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2014 published in the Prospectus and has been adjusted for the matters detailed in this section. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 7 Corporate relationshipsSkills, qualifications, enhanced service offering and marginsTrainingRecruitmentLabour HireWork experience / Jobs for candidatesCaptive workforceCorporate relationshipsTrainers / Competitive advantageQuality control/Cost savingsCorporate relationshipsCross Selling Opportunities Managing Director’s Review Results A discussion on the actual pro forma results versus the pro forma forecasts results as set out in the Prospectus has been set out in the in the proceeding section “Discussion on results”. This section is to provide further details of the pro forma and actual results of operating and financial results, statement of financial position and statement of cash flows for the Group. Below is a comparison of the Pro forma actual results to the pro forma forecasts results in the Prospectus: Table 2: FY 2014 Actual v Prospectus forecast for FY 2014 $m Revenue Labour Hire Training Total Revenue EBITDA Labour Hire Training Corporate costs Total EBITDA Depreciation EBITA Amortisation EBIT Net Interest Expense Net Profit Before Tax (NPBT) Income Tax Expense Net Profit After Tax (NPAT) NPATA 30 June 20141 Pro forma actual (audited) 30 June 20142 Pro forma forecast Variance 245.4 41.7 287.1 7.3 16.8 (1.2) 22.9 243.6 41.5 285.1 7.3 16.8 (1.3) 22.8 (1.0) (0.9) 21.9 (0.1) 21.8 (0.5) 21.3 (6.4) 14.9 15.0 21.9 (0.1) 21.8 (0.5) 21.3 (6.4) 14.9 15.0 1.8 0.2 2.0 - - 0.1 0.1 (0.1) - - - - - - - - Notes: 1. For details in relation to the pro forma results, please refer to Table 3: Summary of Earnings for FY 2012 to FY 2014 2. As per the Prospectus ASHLEY SERVICES GROUP ANNUAL REPORT 2014 8 Managing Director’s Review Set out below are key statistics relevant to the Group for the years ended 30 June 2012 to 30 June 2014: Table 3: Summary of Earnings for FY 2012 to FY 2014 $m Revenue by Business Channel Labour Hire Training Total Operating Revenue EBITDA by Business Channel Labour Hire Training Corporate Total EBITDA EBITA EBIT NPBT NPAT NPATA Group Statistics Revenue Growth Gross Profit Margin EBITDA Margin EBITDA Growth EBITA Margin EBITA Growth EBIT Margin EBIT Growth NPAT Margin NPAT Growth Labour Hire Statistics Revenue Growth EBITDA Margin EBITDA Growth Total Hours Charged ('000) Average Hourly Rate Training Statistics Revenue Growth EBITDA Margin EBITDA Growth Total Enrolments Average Fee Income per student Corporate Statistics Corporate Expenses Growth in Corporate Expenses Notes: Pro forma financial information is inclusive of the following: 1. 30 June 2012 Pro forma1 30 June 2013 Pro forma1 30 June 2014 Pro forma1 (audited) 141.1 21.3 162.4 5.9 7.7 (1.2) 12.4 12.0 12.0 11.0 8.3 8.3 18.50% 19.30% 7.60% (0.30%) 7.40% (0.40%) 7.40% (0.40%) 5.10% 0.30% 16.80% 4.20% (21.70%) 3,368 $41.89 31.80% 36.20% 29.60% 9,276 2,296.25 1.20 15.40% 151.4 24.6 176.0 5.0 8.9 (0.9) 13.0 12.4 12.4 12.0 8.4 8.4 8.40% 19.10% 7.40% 4.80% 7.00% 3.30% 7.00% 3.30% 4.80% 1.20% 7.30% 3.30% (15.30%) 3,569 $42.42 15.50% 36.20% 15.60% 12,103 2,032.55 0.90 (25.00%) 245.4 41.7 287.1 7.3 16.8 (1.2) 22.9 21.9 21.8 21.3 14.9 15.0 63.10% 18.10% 8.00% 76.20% 7.60% 76.60% 7.60% 75.80% 5.20% 77.40% 62.10% 3.00% 46.00% 6,048 $40.58 69.50% 40.30% 88.80% 19,802 2,105.85 1.20 33.30% related companies who were acquired by Ashley Services on 1 July 2014 referred to as the “ASH Consolidation” ADV Services Pty Limited; Ashley Institute Holdings Pty Limited; full year results for Concept even though it was acquired part way through the year; TBRC Holdings Pty Limited; Tracmin Pty Limited; and Australian Institute of Vocational Development Pty Limited. 2. 3. On 24 June 2014 the Group also entered into a contract with the owners of Integracom (which was completed on 20 August 2014) and as such, the historical financial performance of the company is included in the above pro forma results. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 9 Managing Director’s Review Set out below is a reconciliation from the statutory revenues to pro forma revenues: Table 4: Reconciliation from Statutory to Pro forma Revenue $m Statutory Revenue Impact of the ASH Consolidation Impact of acquisitions Pro forma Revenue Note 1 2 FY14 196.7 54.2 36.2 287.1 Notes: 1. Revenues from those companies under the ASH Consolidation. 2. On 1 May 2014, ASG acquired 100% of Concept. The Pro forma adjustment in the table represents revenue derived by Concept for the 10 months to 30 April 2014. In addition, it reflects the 12 months revenue from Integracom which was acquired on 20 August 2014. Set out below is a reconciliation from the statutory EBITDA to pro forma EBITDA: Table 5: Reconciliation from statutory EBITDA to Pro forma EBITDA $m Statutory EBITDA Impact of ASH Consolidation Impact of acquisitions Pro forma EBITDA Note 1 2 FY14 4.3 9.8 8.8 22.9 Notes: 1. The Pro forma EBITDA includes the effects of the ASH Consolidation. 2. The Pro forma EBITDA includes the EBITDA from Integracom and Concept, on the same basis as that outlined in Pro forma revenue set out above. A reconciliation from the statutory NPAT to pro forma NPAT is also detailed below: Table 6: Reconciliation from statutory NPAT to pro forma NPAT $m Statutory NPAT Impact of the ASH Consolidation Impact of acquisitions Pro forma NPAT Note 1 2 FY14 3.0 6.1 5.8 14.9 Notes: 1. The Pro forma NPAT includes the effects of the ASH Consolidation. 2. The Pro forma NPAT includes the EBITDA from Integracom and Concept, on the same basis as that outlined in Pro forma revenue set out above. Set out below is the pro forma statement of financial position as at 31 December 2013 in the prospectus compared to the actual pro forms statement of financial position as at 30 June 2014: ASHLEY SERVICES GROUP ANNUAL REPORT 2014 10 Managing Director’s Review Table 7: FY14 Pro forma statement of financial position $m Cash and Cash Equivalents Trade & Other Receivables Property, Plant & Equipment Deferred Tax Assets Intangible Assets Other Assets Total Assets Trade & Other Payables Borrowings Current Tax Liabilities Deferred Tax Liabilities Provisions Total Liabilities Net Assets Pro forma Prospectus as at 31 Dec 13 (unaudited) 18.6 39.4 3.2 5.8 74.1 0.6 141.7 25.5 22.8 2.8 0.7 1.7 53.5 88.2 Pro forma Actual as at 30 Jun 14 (audited) 19.1 30.5 4.7 6.8 73.9 0.6 135.6 22.0 18.8 2.6 2.2 1.8 47.4 88.2 Key assumptions in the preparation of pro forma balances: identified under the ASH Consolidation for financial reporting purposes as at those companies 30 June 2014; Integracom which was only acquired subsequent to year end (the acquisition has been provisionally accounted for the purposes of the pro forma balances); issue of 59.5 million shares at $1.66 per share through the initial public offering which was completed on 21 August 2014; payment of costs of for the initial public offering of $6.3 million; and payment of dividends of $33.2 million to the former sole shareholder of the Company. Key points to note in relation to the above: Working capital and capital expenditure Decline in trade receivables and payables between 31 December 2013 and 30 June 2014 is seasonal – particularly in relation to the Labour Hire business. Net Debt Net debt has improved since 31 December 2013 from $4.2 million to a net cash position of $0.3 million. This improvement represents improved cash collections over the last six months. The net debt does not reflect certain professional fees associated with the listing of ASG and these have been paid since balance date. The Pro forma assumed that all professional costs would be paid. Ashley Services has also entered into a $24 million banking facility with BankWest, which provides for additional liquidity for the Company. Net Assets There is no difference in net assets due to the payment of dividends to the vendors, as disclosed in the Prospectus. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 11 Managing Director’s Review Cash flows Table 8: FY14 Pro forma cash flows $m EBITDA Changes in Working Capital Operating Cash Flows before CAPEX Capitalised Course Material Costs and other Payments for Property, Plant & Equipment Operating Cash Flows after CAPEX Net Interest Paid Income Tax Paid Operating Cash Flows Before Dividends Cash Conversion Ratio1 Note: 1. Operating cash flow after capital expenditure as a percentage of EBITDA. Pro forma Prospectus Forecast FY14 (unaudited) Pro forma Actual FY14 (audited) 22.8 (6.5) 16.3 (1.6) 14.7 (0.4) (6.1) 8.2 22.9 (1.2) 21.7 (2.2) 19.5 (0.5) (8.9) 10.1 64.5% 85.2% Key points: Operating cash flow exceeded Prospectus. Factors causing the increase include: o improved debtor collections; and o focus on cash flow management, including timing of payments to suppliers. Greater level of capital expenditure than that included in the Prospectus. Factors causing the increase include: o greater than forecasted level of expenditure on course developments to support the organic growth strategy; o greater level of equipment purchases for the telecommunication business to support national expansion; and o minor over-runs for the head office fit-out. Income tax instalments are calculated based on a fixed percentage, as set by the Australian Taxation Office. The actual amount of income tax paid in FY14 is higher than that of the Prospectus, due to the increased revenue from the Labour Hire division where tax has been based on the fixed instalment rate. As a consequence, this has result in an increased amount in tax instalments paid, which was not included in the Prospectus. The additional amount of tax paid is a timing difference. CAPITAL MANAGEMENT With the completion of the IPO, Ashley Services has at its disposal substantial cash reserves. These reserves, together with the strong cash flows from the ongoing operations of the Group and the banking facilities with BankWest Limited, places it in a strong position with which to capitalise upon new opportunities. The Group will continue its focus on working capital management particularly in relation to the labour hire business which is capital intensive. I am pleased to note that despite the substantial increase in the value of labour hire revenues, the Group was able to achieve a cash conversion rate of 85.2% on a Pro forma basis. This was an improvement on the forecast rate of 64.5% that was referenced in the Prospectus. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 12 Managing Director’s Review STRATEGIC FOCUS Ashley Services has, and will continue to have, a strategic focus on the following: 37 added qualifications developing the number of qualifications with a In focus on higher value qualifications. particular, as noted in the Prospectus, the Group has and new 31 existing qualifications were upgraded in the last two years. The Group remains committed to assessing and developing those qualifications which meet the demand and needs nationally. These qualifications continue to attract ongoing targeted and better resourced funding so as to ensure long term sustainability; supporting the demand driven model in the various states that have provided this support historically, as well as, New South Wales which implements this model in FY 2015; using its integrated model to cross sell between the labour hire and training divisions; in trade level of upskilling increasing the qualifications, for example, moving students from Certificate III to Certificate IV; continuing focus on developing suitable trainers to ensure the delivery of high quality training; cultivating our focus on the apprentice and trades industry personnel; focussing on labour hire clients which fit the skill set of the existing business; looking to establish new government funding such as VET FEE-HELP; and continuing our acquisition strategy for labour hire and training businesses. Target acquisitions complement the existing business model and provide potential operating synergies. IMPROVED PRODUCTIVITY The Group is focused on the continued improvement of business processes and is currently looking into automated systems to improve efficiency within the business. Currently, management believe that there is significant reliance on manual processes, which is impacting upon the Group’s cost structure. GROUP TECHNOLOGY STRATEGY As noted above, the Group is looking to improve its systems. As a result, the Group is looking to undertake a change in its student management systems so as to achieve greater efficiencies in the operation as well as a reduction in the cost base of the Group’s business. KEY BUSINESS RISKS A detailed listing of the business risks that pertain to the Group is set out in the Prospectus. However, a summary of the key risk areas and the Group’s strategy in dealing with these risks are as follows: Training strong focus on quality assurance to ensure that is compliance with registered training there organisation (“RTO”) audit requirements; contracts a significant proportion of the Group’s training revenues are government funded. There is a risk that the Group could lose one or more of those funding for breaches of non- compliance. Additionally, a loss of a funding contract, unsuccessful renewal of an existing contract or a reduction in VET funding by any government agency generally or to sectors which the Group operates in, could have a material adverse effect on the Group’s earnings and Accordingly, ensuring financial position. diversification of contracts with various state and federal authorities assists with the mitigation of such risks. The Group currently has over 15 funding contracts with various state and federal authorities; a number of in state governments have implemented or are the process of implementing a demand driven funding model which allows the student in these states to determine which provider (public or private) will provide training services. This results in the training services provider being subsidised for the delivery of training services. The Group’s financial performance could be adversely affected by any reversal or delay in the implementation of the demand driven funding model. The Group constantly monitors the performance and relevance of its content so as to ensure that it remains relevant in the market place. Additionally, the Group uses its integrated model to effect; that is, it offers employment opportunities as part of its trainings services; ASHLEY SERVICES GROUP ANNUAL REPORT 2014 13 Managing Director’s Review continued focus on ensuring that sufficient attention is given to non-government funded training programs; and there a number competitive factors faced by the Group including, quality of qualifications, pricing, reputation and employability of perceived graduates from training programmes. New competitors, consolidation of existing market participants and changes in government policy may all affect the current competitive landscape. The Group monitors the competitive landscape for the above risks and more importantly attempts to be proactive in its market place. Labour hire The Group constantly reviews there are a number of industrial agreements for its contract labour force and failure to renew such agreements could have a material adverse impact on the Group. Where appropriate, suitable enterprise bargaining agreements are entered into with employees and trade unions and these are reviewed and monitored prior to their renewal; the market place is highly competitive and price sensitive. it pricing strategy, coupled with synergistic benefits to remain competitive; the Group has contracts that have short term notice periods for termination. The Group attempts to manage existing relationships as well as build new relationships to mitigate any loss of contracts there is a risk that customers may not renew contracts during the course of the financial year. The Group is focused on ensuring that there is a strong pipeline of new work to both deal with any lost customer and to continue to grow its business; and the Group has inherent risks associated with workers compensation and insurance premium. Achieving high safety standards is a focus of the Group. The Group’s efforts can be seen by the reduced number of lost work hours over the last three years. economic downturn which may affect both the activity from training and labour hire businesses. The Group attempts to position itself with counter cyclical product and; the Group has a number of brands and enjoys strong brand recognition in the market. A failure to maintain these brands could affect the ability to recruit future students and customers. The Group constantly invests in its brands. STATE FUNDING CONTRACTS As outlined in the Company’s announcement of 18 September 2014, it has been able to successfully remedy a default on one of its minor state funding contracts. As a result the Group is now able to accept enrolments under that funding contract. It is also noted that the Company has no outstanding contractual matters for any other funding contracts held by it. It is not expected that any additional revenue from this contract will be material to the Group’s forecast earnings. OUTLOOK The Group is looking to build on the work done to date and has published its forecasts for FY 2015 in the Prospectus, a summary of these results is set out below: Table 9: FY 2015 Results 30 June 2015 Pro forma (forecast) $ 30 June 2015 Pro forma (Statutory forecast) 319.5 31.0 29.0 29.7 19.8 20.5 316.5 25.4 23.5 24.1 15.8 16.4 $m Revenue EBITDA EBIT EBITA NPAT NPATA As at the date of this report, the directors confirm these forecasts. General acquisition risks – that is, the risk of acquisitions integrating with the not being successfully current business model; Ross Shrimpton Managing Director ASHLEY SERVICES GROUP ANNUAL REPORT 2014 14 Directors’ Report Your Directors present their annual financial report on the consolidated entity, being Ashley Services Group Limited (formerly Ashley Services Group Pty Limited, which became a listed company on 11 April 2014) and its controlled entities (“Group”) for the financial year ended 30 June 2014. GENERAL INFORMATION a. Directors The names of the Directors in office at any time during, or since the end of the year are: Names Mr Peter Turner Mr Ross Shrimpton Mr Simon Crean Mr Vincent Fayad Mr Marc Shrimpton Mr Andrew Shrimpton Appointed / Resigned Appointed 21 July 2014 Appointed 12 October 2000 Appointed 31 July 2014 Appointed 31 July 2014 Appointed 1 June 2014, resigned as a Director on 31 July 2014 and appointed as an Alternative Director on 31 July 2014 Appointed 1 June 2014 and resigned 31 July 2014 The above named Directors held office since the start of the financial year to the date of this report unless otherwise stated. Directors’ Information Mr Ross Shrimpton | Managing Director Qualifications | BComm (UNSW), CA Experience | Ross is the founder and Managing Director of Ashley Services. Ross has been a Director of the Company since incorporation and has been instrumental in the overall growth and strategic direction of Ashley Services. He is a Chartered Accountant with over 40 years’ experience in finance and management across a number of large international organisations such as CSR / Humes and David Brown. Ross commenced his professional career with Deloitte Touche Tohmatsu, where he worked with a number of major listed companies. Overall, Ross has had 18 years of relevant experience in the labour hire and training industries. His prime responsibility is centred on the overall performance and management of Ashley Services, as well as strategic direction, liaison with key executives, finance and administration. Ross is a member of the Remuneration Committee and Audit and Risk Management Committee. Mr Peter Turner | Non-executive Chairman Qualifications | BSc (Melbourne), MBA (RMIT) Experience | Before joining Ashley Services, Peter worked in the biopharmaceutical industry for over 40 years. Peter has held a number of senior positions within CSL Limited, including serving as Chief Operating Officer and Executive Director. Peter was the founding President of CSL Behring, purchased from Aventis in 2004. Between 2000 and 2011, Peter was based in Europe and the United States and was responsible for the integration and performance of several international businesses acquired by CSL. During his tenure, overseas sales grew from $140 million in 2000 to $3.4 billion in 2011. Peter currently sits on the boards of Virtus Health Limited and NPS MedicineWise as a Non-Executive Director. Peter is a graduate member of the Australian Institute of Company Directors. Peter is chairman of the Remuneration Committee, Audit and Risk Management Committee and a member of the Nomination Committee. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 15 Directors’ Report Mr Simon Crean | Non-executive Director Qualifications | BEc (Monash), LLB (Monash) Experience | Prior to joining Ashley Services, Simon was most recently a Member of Federal Parliament and is a former leader of the Australian Labor Party. Simon has held various ministerial portfolios, including Education, Trade, Training, and Workplace Relations. Simon has served on the boards of Qantas and the Australian Industry Development Corporation. Between 1985 and 1990, Simon was President of the Australian Council of Trade Unions and has also served as General Secretary of the Federated Storemen and Packers Union of Australia. Simon is a life member of the Australian Labor Party and the National Union of Workers, and an Adjunct Professor of Deakin University. Simon is currently a member of the Monash University Council and a non-executive director of Linfox International Group. Simon has been awarded a Doctor of Letters by Deakin University. Simon is chairman of the Nomination Committee and a member of the Remuneration Committee and the Audit and Risk Management Committee. Mr Vincent Fayad | Executive Director & Interim Chief Financial Officer Qualifications | BBus (UTS), CA Experience | Vince is a director of PKF Lawler Corporate Finance Pty Limited and has over 30 years’ experience in Chartered Accountancy. Vince holds a Bachelor of Business and is a registered company auditor and tax agent. Vince has advised a broad range of listed and private companies on a number of mergers and acquisitions and undertaken a number of transactions for companies in the recruitment sector, including Initial Public Offers, independent expert reports, valuations and purchase price allocations. Vince has been an adviser to Ashley Services since incorporation. Vince is currently the acting Chief Financial Officer of Ashley Services. Vince has a strong background in accounting and finance as well as strategic and corporate issues. He is currently the Non-executive Chairman of BioProspect Limited and a Non-executive Director of Esperance Minerals Limited. He is also the company secretary of Astro Resources NL. Mr Marc Shrimpton | Alternate Director to Ross Shrimpton (also a Director during the year) Qualifications | Marc is currently a member of the Australian Institute of Company Directors. Marc also holds a Diploma of Management and Leadership and Certificate IV in Workplace Training and Assessment. He is currently undertaking the Owner / President Management program at Harvard Business School, Boston. Experience | Marc joined Ashley Services in 2000. Marc has been the key driver of Blackadder, a professional labour hire and recruitment services business since acquiring the business in 2007. Marc’s role with Blackadder has been as the Managing Director. As the business has developed, Marc’s role has become more strategic and he has been actively involved in growing the national footprint of the business. Prior to the acquisition of Blackadder, Marc held a number of positions within Ashley Services, including state manager roles in the Labour Hire and Training business and has over 14 years relevant industry experience. Marc is actively involved in the recruitment of senior people across Ashley Services and is a key member of the management team. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 16 Directors’ Report Interests in shares and options As at the date of this report, the interests of the directors in the shares of Ashley Services Group Limited were: Table 10: Shares Held by Directors Names Mr Peter Turner Mr Ross Shrimpton Mr Simon Crean Mr Vincent Fayad Mr Marc Shrimpton Number of Shares Held Shareholding % 186,747 82,500,000 52,710 60,240 1,500,000 0.12 55.00 0.04 0.04 1.00 Directorships of other listed companies Directorships held in other listed companies by the Directors in the three years immediately before the end of the financial year are as follows: Table 11: Other Directorships Name Company Date from Date to Mr Peter Turner Mr Ross Shrimpton Mr Simon Crean Mr Vincent Fayad Virtus Health Limited (ASX: VRT) CSL Limited (ASX: CSL) 17 May 2013 1 January 2010 Current 17 October 2012 Nil Nil - - - - Global Strategic Metals NL (ASX: GSZ) Metal Bank Limited (ASX: MBK) BioProspect Limited (ASX: BPO) Esperance Minerals Limited (ASX: ESM) Triple Point Technologies Pty Limited – formerly Qmastor Limited (ASX: QML) 22 March 2012 20 May 2011 29 April 2014 1 February 2013 30 October 2011 29 June 2012 30 October 2012 Current Current Delisted 13 January 2012 & still holds Office Mr Marc Shrimpton Mr Andrew Shrimpton Nil Nil a. Principal activities The principal activities of the Group during the financial year were the provision of recruitment, labour hire and training services. There have been no significant changes in the nature of the Group’s principal activities during the financial year. b. Company secretary Mr Ross Shrimpton held the position of a company secretary from the beginning of the financial year to 21 July 2014. - - - - The position of company secretary was immediately filled by Mr Ronald Hollands up to the date of this report. Ron is a qualified Chartered Accountant and holds a Bachelor of Business from University of Technology, Sydney, an MBA from MGSM and a Graduate Diploma of Applied Corporate Governance from the Governance Institute of Australia. Ron has over 25 years’ experience in a range of industries including professional practice, financial services and real estate. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 17 Directors’ Report d. Directors’ meetings During the financial year, three meetings of directors (including committees of directors) were held. Attendances by each director during the year were as follows: Table 12: Meeting Attendance Board Audit & Risk Management Committee Remuneration Committee Nomination Committee Held Attended Held Attended Held Attended Held Attended Mr Ross Shrimpton1 Mr Andrew Shrimpton Mr Marc Shrimpton 3 - - 3 - - - - - - - - - - - - - - - - - - - - Note: 1. While Marc and Andrew Shrimpton were Directors for a portion of the year, all meetings during the year were held at the time that Ross Shrimpton was the sole Director of the Company. 1. BUSINESS REVIEW a. Operating results The consolidated profit of the Group attributable to equity holders after providing for income tax amounted to $2,989,000 (2013: $2,918,000). On 6 January 2014 the Group declared and paid a final dividend of $2,500,000 to shareholders (2013: $4,500,000). b. Review of operations Information on the operations and financial position of the Group and its business strategies and prospects is set out in the Chairman’s Review and the Managing Director’s Review. c. Significant changes in state of affairs On 1 May 2014 the Group acquired Concept Engineering Pty Limited (refer to note 21(b) for further details). During the financial year there were no other material changes to the Group. However, a number of significant events have arisen since balance date and these include: acquisition of a number of related entities which form the “Ashley Services Group”; initial public offering; acquisition of Integracom, a significant provider to the telecommunications industry; and securing a funding facility with BankWest. Note 28 set outs further details of these matters. d. Future developments Likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations are referred to generally in the Chairman’s Review and the Managing Director’s Review. e. Events subsequent to balance date Apart from the events which have been detailed in Note 28 of the financial statements, there are no other matters or circumstances that have arisen since the end of the year that have significantly affected either: the groups operations in financial year 2015; the forecast results of those operations in financial year 2015. 2. OTHER INFORMATION a. Options There are no unissued ordinary shares that are either under option at the date of this report or have been exercised during the year. b. 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 (Grant Thornton) for audit and non-audit services provided during the year are outlined in Note 4 to the financial statements. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 18 Directors’ Report The Board of Directors has considered the position and, in accordance with the advice received from the Audit and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of the independence of auditors Corporations Act 2001. The Directors are satisfied that the provision of the non-audit services by the auditor, as set out below, did not compromise the the auditor Corporations Act 2001 for the following reasons: the services provided during the year ended 30 June 2014 primarily related to the initial public offering of the Company; requirements of independence imposed by all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out ‘Code of Ethics for Professional Accountants’. in APES 110 c. 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 24 and forms part of this report. d. Environmental issues The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. e. Indemnifying officers or auditors Insurance of officers During the financial year, Ashley Services Group Limited paid a premium to insure the directors and secretaries of the Group and its Australian entities. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the connection with the officers in officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Group. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by indemnified or agreed to indemnify an officer or auditor of the Group or of any related body corporate against a liability incurred as such an officer or auditor. law, Details of the premium paid in respect of insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. f. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. g. Rounding off of amounts The Group is a Company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the Directors’ Report and the consolidated financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. 3. REMUNERATION REPORT – AUDITED the remuneration The directors of Ashley Services Group Limited present for Non- executive directors, executive directors and other in key management accordance with the Corporations Act 2001 and the Corporations Regulations 2001. personnel, prepared report The remuneration report is set out in the following main headings: key management personnel; principles used to determine the nature and amount of remuneration; non-executive Director remuneration; details of remuneration; ASHLEY SERVICES GROUP ANNUAL REPORT 2014 19 Directors’ Report executive service agreements; share-based compensation; and additional information. a. Key management personnel The following persons acted as Directors of the Group or as key management personnel during or since the end of the financial year: Executive directors: Ross Shrimpton; Vince Fayad; Marc Shrimpton; and Andrew Shrimpton. Non-executive directors: Peter Turner; and Simon Crean. Other key management personnel: Brett O’Connor (General Manager, Training); Paul Rixon (General Manager, Labour Hire); Greg Jenkins (General Manager, Finance); Ron Hollands (Company Secretary); and John Knights (General Manager, Strategy and Business Development, resigned 31 August 2014). Key management personnel include both the Directors and other key management personnel named above. b. Principles used to determine the nature and amount of remuneration is that to ensure The objective of the Group’s executive reward framework for performance is competitive and appropriate for the results delivered. The framework seeks to align executive reward with achievement of strategic objectives and the creation of value for shareholders. reward performance linkage / alignment of executive compensation; transparency; and capital management. Alignment of shareholders’ interest focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant return on assets as well as focusing the executive on key non-financial drivers of value; and attracts and retains high-calibre executives. Alignment to program participants’ interests rewards capability and experience; provides a clear structure for earning rewards; and provides recognition for contribution to the business. The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. The Board has established a Remuneration Committee which provides advice on remuneration and incentive policies and practices and specific recommendations on remuneration packages and other terms of employment for executives and Directors. The Corporate Governance Statement provides further information on the role of this committee. Executive pay The executive pay and reward framework has three components: base including benefits, and pay superannuation; short-term performance incentives; and incentives provided long-term in cash and through participation in the Ashley Services Group Performance Rights Share Plan. The Board seeks to ensure that executive reward satisfies the following key criteria for good reward governance practices: competitiveness and reasonableness; acceptability to shareholders; The these combination of executive’s total remuneration. comprises the ASHLEY SERVICES GROUP ANNUAL REPORT 2014 20 Directors’ Report Base pay Base pay is determined by reference to appropriate into account an information, taking benchmark individual’s performance, responsibilities, qualifications and experience, the broad objective being to pitch fixed remuneration at median market levels. Base pay is structured as a package, which may be delivered as a mix of cash and other benefits, such as the provision of a motor vehicle, at the executive’s discretion. There are no guaranteed base pay increases in any executives’ employment contracts. Short-term incentives The Board determined there was no short-term incentive plan for the year ended 30 June 2014. remuneration paid to other non-executive Directors of companies and where necessary will seek external advice. No remuneration consultants were used during the financial year. In accordance with the Company’s Constitution, the Directors are entitled to receive an annual fee and for participation in board sub-committees. For non- executive Directors to performance. fees are not linked The company does not operate equity plans for non- executive Directors. Non-executive Directors are entitled to statutory for statutory Amounts paid superannuation. superannuation are the Directors’ fees. There are no other schemes for retirement benefits for non-executive Directors. included as part of c. Long-term incentive e. Details of remuneration There were no long term incentive payments made during the year ended 30 June 2014. d. Non-executive Director remuneration Non-executive Directors’ remuneration are reviewed annually and are determined by the Board based on Remuneration recommendations Committee. In making its recommendations, the into account Remuneration Committee takes from the Details of remuneration of the Directors and other key management personnel of Ashley Services Group are set out in the tables on pages 21 to 22. The key management personnel of Ashley Services Group are as per page 20. The key management personnel have authority and responsibility for planning, directing and controlling activities of the Group. Remuneration and other terms of employment for the Executive Directors and other Key Management Personnel are formalised in a service agreement. The majority provisions of the agreement relating to remuneration are set out below: Table 13: Executive and Key Management Personnel Service Agreements Name Ross Shrimpton Vincent Fayad Marc Shrimpton Andrew Shrimpton Brett O’Connor Paul Rixon Greg Jenkins John Knights Ron Hollands Base Salary $ 50,000 Term of agreement Notice Period Unspecified 6 months Hourly rate for services provided Unspecified Not applicable – contractor 80,000 125,258 219,600 170,000 170,000 104,016 Unspecified Unspecified Unspecified Unspecified Unspecified Unspecified 6 months 1 month 6 months 6 months 6 months 6 months Hourly rate for services provided Unspecified Not applicable – contractor ASHLEY SERVICES GROUP ANNUAL REPORT 2014 21 Directors’ Report Table 14: 2014 – Remuneration of Key Management Personnel 2014 Name Non-executive Directors Peter Turner Simon Crean Executive Director Ross Shrimpton Vincent Fayad5 Marc Shrimpton Andrew Shrimpton Other key management personnel Brett O’Connor Paul Rixon Greg Jenkins John Knights Ron Hollands Total ST1 employee benefits Salary non- Cash salary cash & fees $ $ PE2 benefits Super- annuation $ - - 52,432 - 78,611 125,238 309,995 215,126 154,617 93,867 - - - - - - - - 14,705 - - - - - 4,624 - 7,111 11,584 25,525 19,900 15,660 8,663 - 1,029,886 14,705 93,067 Termination payments LT3 employee benefit Share-based payment Performance based Remuneration Total4 Shares & options $ - - - - - - - - - - - $ - - 57,056 - 85,722 136,822 335,520 249,731 170,277 102,530 - - 1,137,658 $ - - - - - - - - - - - - $ - - - - - - - - - - - - % - - 12 - 7 8 35 32 - - - - Table 15: 2013 – Remuneration of Key Management Personnel PE2 benefits Termination payments LT3 employee benefit Share-based payment Total4 Performance based Remuneration 2013 Name Non-executive Directors Peter Turner Simon Crean Executive Director Ross Shrimpton Vincent Fayad5 Marc Shrimpton Andrew Shrimpton Other key management personnel Brett O’Connor Paul Rixon Greg Jenkins John Knights Ron Hollands ST1 employee benefits Salary non- Cash salary cash & fees $ $ - - 55,000 n/a 81,157 125,238 191,667 183,915 - - - - - - - 14,302 Super- annuation $ - - - - 6,921 11,271 18,538 16,547 Shares & options $ - - - - - - - - $ - - 55,000 - 88,078 136,509 210,205 214,764 $ - - - - - - - - $ - - - - - - - - 132,478 - - 769,455 - - - 14,302 10,123 - - 63,400 - - - - - - - - - - - - 142,601 - - 847,157 Total Note: 1. ST – Short-term. 2. PE – Post-employment. 3. LT – Long-term. 4. Amounts included in the above table include amounts paid to key management from all entities. This includes entities which were acquired by the Group subsequent to year end – refer to note 28. 5. During the year financial advisory fees have been paid to PKF Lawler Corporate Finance (Company in which Vincent Fayad is a Director). These amounts were incurred prior to Vince’s appointment as Director and Interim CFO. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 % - - - - 8 8 19 21 7 - - - 22 Directors’ Report Other personnel transactions with key management Information on share-based payments and other transactions with key management personnel is set out above. f. Shares held by key management personnel The number of ordinary shares in the companies during the 2014 reporting period held by each of the groups’ key management personnel, including their related parties are set out below: Table 16: Shares held by Key Management Personnel 2014 Balance at start of the year - - 2,866 - - - - - - - - Name Peter Turner Simon Crean Ross Shrimpton1 Vincent Fayad Marc Shrimpton Andrew Shrimpton Brett O’Connor Paul Rixon Greg Jenkins John Knights Ron Hollands Note: 1. This includes shares owned by Catherine Shrimpton (wife of Shares Purchased - - 4 - - - - - - - - Shares Granted - - - - - - - - - - - Balance at end of the year - - 2,870 - - - - - - - - present and potential contributions are important to the success of the Company and its subsidiaries by offering them an opportunity to share in the ownership of the Company. The Performance Rights Share Plan is administered by the Board in its The terms and conditions of the discretion. Preference Rights Share Plan are summarised below. No Performance Rights shares have been issued during the year. Should the Directors issue shares under the Performance Rights Share Plan, as required by AASB2, the fair value of the shares is determined as the market price at grant date. issued Options There are no options on issue as at the date of this report. Senior Executive options No options were issued during the year to the senior executives. End of audited Remuneration Report. Signed in accordance with a resolution of the Board of Directors made pursuant to section 298(2) of the Corporations Act 2001: Ross Shrimpton) and their family company g. Executive service agreements On appointment to the Board, all non-executive Directors sign a letter of appointment with the Company. letter summarises the terms including compensation, relevant to the office of Director. The All contracts with executives may be terminated by either party with a notice period as outlined in Table 13 above. Executives are typically restricted for six months after termination from conducting or engaging from solicitation of customers and employees of the Company. in competing businesses and h. Share-based compensation Senior Executive Share Plan The Company established the Performance Rights Share Plan on the 31 July 2014. The Performance Rights Share Plan is intended to provide incentives to attract retain and motivate key executives whose Peter Turner Chairman Ross Shrimpton Managing Director Sydney, 25th September 2014 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 23 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Ashley Services Group Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Ashley Services Group Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants C F Farley Partner - Audit & Assurance Sydney, 25 September 2014 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies. 24 Corporate Governance Statement This Corporate Governance Statement is effective from 31 July 2014 and was not in effect during the financial year under review. The Board of Directors (Board) is responsible for the overall corporate governance of the Company and has adopted as a guiding principle that it act honestly, conscientiously and fairly in accordance with the law and in the interests of the shareholders with a view to building sustainable value for them, the Company’s employees and other stakeholders in the Company. The Board has adopted a suite of governance in the Corporate materials which are available Governance section of the Company’s website (www.ashleygroup.com.au), “Investor Centre”. The governance materials have been prepared and adopted on the basis that corporate governance procedures can add to the performance of the Company and the creation of shareholder value, and help to engender the confidence of the investment market. under This statement sets out the material governance principles and processes adopted by the Board. The Board supports the Corporate Governance Principles and Recommendations, 2nd edition as released by the ASX Corporate Governance Council (ASX Principles). The Board considers and applies these recommendations to the extent there is sound reason to do so given the circumstances of the Company. The Board is responsible for the management of the affairs of the Company and its subsidiaries including: strategic and financial performance; executive management; audit and risk management; strategic planning; corporate governance; and performance evaluation. Directors’ attendance at Board and committee meetings this year is set out on page 18. It is noted that Ashley Services was a private company up to 11 April 2014 with a sole director and as such, the quorum for a meeting was one person. The role of senior management is to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board is to oversee the activities of management in carrying out these delegated duties. The Board approves all delegations of authority to Board committees and management. Senior management invited to attend Board meetings; however the initial part of each meeting is conducted in the absence of senior management. is for reserved Responsibilities the Board are contained in the Board Charter which is available on the Corporate Governance section of the Company’s website. Management is responsible for the day to day operation of the Company in line with Board approved delegations of authority. Board composition The number of the Directors (excluding alternate Directors) must be not less than three or more than nine. Since listing on the 21 August 2014, the Board comprised of two non-executive directors and two executive directors. This is not in accordance with the current Board Charter. This is considered to be a temporary situation and will be resolved once a Chief Financial Officer is appointed and Mr Fayad, currently an executive director will become a non- executive director and fulfil the third non-executive director role. As an interim measure, the Chairman has been given a casting vote to ensure that decisions are made based on the non-executive majority. Independent Directors are those who have the ability to exercise their duties unfettered by any business or other relationship. It is the approach and attitude of each non-executive Director which is critical to determining independence and this must be considered in relation to each Director. Other relevant factors to be taken into account are set out in the Board Charter which is available on the Corporate Governance section of the Company’s website. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 25 Corporate Governance Statement The board review annually the independence of each member of the board, in accordance with the criteria for an “independent” Director, as set out in the Company’s Board Charter. It is the attitude and approach of each Director and the ability to bring an independent judgement in Board deliberations that is critical in determining independence of each such member. The Chairman A Director may not simultaneously hold the positions of Managing Director and Chairman of the Board. is a non-executive independent Director and there is a clear division of responsibility between the Chairman and the Managing Director. The Chairman’s role is clearly defined in the Board Charter. With the exception of the Managing Director, no Director is entitled to hold office for a period beyond three years from re-election, but is eligible for re- election by shareholders. The size and composition of the Board are determined in accordance with the in Constitution of the Company. accordance with the Board Charter, the Board will comprise Directors with a broad range of skills, expertise and experience from a diverse range of backgrounds. In addition, The Board considers that, collectively the Directors have the range of skills, experience and expertise necessary to govern the Company. Details of each Director’s skills, experience and expertise relevant to their position and their term in office and details of their attendance at Board and/or Committee meetings are set out in the Directors’ Report included in this Annual Report. The Board Charter also provides that a Director is entitled to seek independent professional advice (including, but not limited to, legal, accounting and financial advice) at the Company’s expense, on any matter connected with the discharge of his or her responsibilities. A Director must obtain the approval of the Chairman prior to seeking such advice. The Board has established a Nomination Committee which is primarily responsible for: establishing a criteria for Board memberships, having regard to the desired mix of skills and diversity for the Board; periodically assessing the skills required to discharge the Board’s duties, having regard to the strategic director of the Company; proposing candidates for directorships for consideration by the Board by using a structured approach to identify a pool of candidates and using external experts where necessary, while having regard to the desired composition as stated in the Board Charter; and reviewing any retiring Director’s performance and recommending to the board whether that Director should be re-appointed. The committee will consider whether it is necessary and desirable to recruit additional Directors, bearing in mind: the mix of skills, experience, expertise and diversity of existing Directors; the business and strategic needs of Company; the need to replace Directors before scheduled retirements; and the opportunity to obtain the services of particular persons with desirable skills when they are available. the The committee is also responsible for implementing the Selection and Appointment of Directors which can be found on the company’s website (“Board Selection Policy”). of are their provided with New Directors formal appointment letters setting out the key terms and including conditions remuneration. In addition, all senior executives are provided with executive services contracts, which include expectations of term of appointment, termination entitlements and rights and responsibilities. appointment, their role, Details of the Directors, their qualifications, period in office, skills and experiences are detailed in the directors’ report. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 26 Corporate Governance Statement Conflicts of interests Audit and Risk Management Committee Directors of the Company are required to act in a manner which is consistent with the best interests of the Company as a whole, free of any actual or possible conflicts of interest. If a Director considers there may be a conflict, the Director is required to: immediately inform the Board of the potential conflict; and abstain from voting on any motion relating to the matter and be absent during all Board deliberations relating to the matter. The Board Charter, available on the Company’s website, provides further detail on managing conflicts of interest. Board committees In order to effectively fulfil its duties, the Board has established the following committees: the Company’s audit, the Audit and Risk Management Committee, which is responsible for monitoring and advising the Board on risk management and regulatory compliance policies and procedures; is the Remuneration Committee, which responsible for overseeing the remuneration of the Company; and the Nomination Committee, which is responsible for advising the Board on the composition of the Board and the performance of the Board, its committees and the individual Directors and advising the Board on its corporate governance policies. its committees, reviewing Each committee has a formal charter approved by the Board, outlining its composition, role and responsibilities. These charters are available on the Corporate Governance section of the Company’s website. The Audit and Risk Management Committee’s functions include: financial assisting the Board for in fulfilling its oversight reporting the responsibilities process, the system of internal control relating to all matters affecting the Company’s financial performance, the Company’s process for monitoring compliance with laws and regulations and the Company’s Code of Conduct; the audit process, and determining the scope of the internal audit function and ensuring its resources are sufficient and used appropriately; reviewing of internal audit performance and independence; assisting the Board with the adoption and application of appropriate ethical standards and management of the Company and the conduct of the Company’s business; assisting the Board in supervising the Company’s risk management framework (such framework is described under a separate heading “Risk management” later in this Statement); and reviewing the adequacy of the Company’s insurance policies. The Audit and Risk Management Committee also independence of the Company’s monitors the external auditor. The committee must approve in advance the terms of engagement of the external auditor to perform audit and related work. Any non- audit work to be performed by the external auditor must be approved by the committee and, in doing so, the committee ensures the external auditor’s independence and integrity is maintained. The lead engagement audit partners of the Company’s external auditor will be the engagement after five years. rotated from ASHLEY SERVICES GROUP ANNUAL REPORT 2014 27 Corporate Governance Statement auditors, The Audit and Risk Management Committee is responsible for reviewing the performance of the and external and appointment of The committee will recommend to the Board the re- appointment of the current external auditor or a tender process to select a new external auditor. the the external auditor. selection The committee ensures that it meets with the external auditors, independent of management, and independent of the external with management auditors. The Board has requested that the external auditor attend the 2014 AGM and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. The companies Audit and Risk Management Committee Charter require the committee to consist only of non-executive Directors. The Committee must have a minimum of three members, with the majority of members being independent directors. This Currently the committee includes executive director, Ross Shrimpton. is considered to be a temporary situation, pending Mr Fayad becoming a non-executive director upon the appointment of the Chief Financial Officer and Mr Ross Shrimpton will at that time cease to be a member. Subsequent to Mr Fayad joining the Audit and Risk Management Committee and any matter that pertains to issues arising during the period of time that Mr Fayad was an executive director, Mr Fayad will abstain from dealing with such matters. The Audit and Risk Management Committee charter independent requires the Board to appoint an chairperson to the Committee and the Chair is also not to be the Chairperson of the Board. Currently Audit and Risk Management Committee meetings are being chaired by Peter Turner who also chairs the Board. For the reasons noted above, this is considered to be a temporary arrangement and will be rectified in FY 2015. Remuneration Committee The Remuneration Committee’s functions are to endeavour to ensure: that the Board is provided with advice and recommendations regarding an executive and senior executive remuneration policy; they review and provide recommendations to the Board with respect to the remuneration packages of senior executives and Executive Directors; review and provide recommendations to the Board with respect to incentive schemes; provide advice to the Board with respect to Non- executive Directors’ remuneration; and review and provide recommendations to the remuneration, the Company’s Board on recruitment, retention and termination policies. also reviews committee The and make recommendations to the Board regarding executive and senior management remuneration including, but not limited to, base pay, incentive payments, equity awards and service contracts and identifying any gender based disparities between comparable positions. The committee may seek such advice from any external parties or professional advice as it may consider necessary or desirable to ensure informed decision making. The committee will comprise a minimum of three members, with a majority of members being independent directors. The Board of the Company will nominate the Chairman of the committee, who must be an independent Director. The committee will meet at least three times each year. A copy of the Remuneration Committee Charter is available on the Corporate Governance section of the Company’s website. Nomination Committee The Nomination Committee’s functions are to; provide advice and recommendations to the Board with respect to the appointment and removal of Directors and senior executives; develop and maintain a succession plan designed to ensure that an appropriate balance of skills, experience and expertise is maintained on the Board; ASHLEY SERVICES GROUP ANNUAL REPORT 2014 28 Corporate Governance Statement ensuring that the Board is of a size and composition that ensures a range of different skills and perspectives and allows for decisions to be made effectively and expediently; facilitating and supervising the election of Directors; and evaluate and review of the performance of the Board. The committee will comprise a minimum of three members, with a majority of members being independent directors. The Board of the Company will nominate the Chairman of the committee, who must be an independent Director. The committee will meet at least twice times each year. A copy of the Nomination Committee Charter is available on the Corporate Governance section of the Company’s website. Performance review / evaluation The Board and Nomination Committee Charters outline the responsibility for the performance review of the Board, the Chairman of the Board and the individual performance of all Directors and senior management. During the year, the Chairman meets with each Director and assesses the performance of the Board, committees and individual Directors as well as the members of the senior management team. The Chairman of the Audit and Risk Management Committee interviews the Chairman of the Board. The observations from these interviews are to be communicated to and discussed amongst the Board and any actions to improve performance agreed. Due to the short lapse in time since the board has been established, these reviews will be undertaken during the current financial year. Education and induction New Directors will undergo an induction process in which they will be given a full briefing on the Company. include meetings with Directors, key executives, tours of the premises, a Board manual and presentations from management. Where possible, this will In order to achieve continuing improvement in Board performance, all Directors are encouraged to undergo continual professional development. This includes education concerning key developments in the Company and in the industry and environment in which the Company operates. Independent professional advice and access to the Company’s information Each Director has the right of access to the Company’s information and to the Company’s executives. Further, the Board collectively and each Director, subject to informing the Chairman, has the right to seek independent professional advice from a suitably qualified advisor, at the Company’s expense, with the approval of the Chairman, to assist them to carry out their responsibilities. Where appropriate, a copy of this advice is to be made available to all other members of the Board. Each Director also has access to the General Counsel and Company Secretary. Risk management The Company has a risk management framework to allow it to achieve its business objectives whilst assisting management and ideally, providing early warnings of risks. The Risk Management Policy, covering both risks, documents this framework. The objective of this Risk Management Policy is to: encourage appropriate tolerance of risks across financial and operating all the Company Businesses; establish procedures to analyse risks within agreed parameters across all the Company businesses; establish appropriate risk delegations and corresponding frameworks across the Company; and ensure the Company has in place a risk framework which can measurably react should the risk profile change. Key components of the Risk Management Policy which bring together a number of procedures and controls within the Company are as follows: identification and assessment of all risks; monitoring and wherever possible, mitigation of identified risks; ASHLEY SERVICES GROUP ANNUAL REPORT 2014 29 Corporate Governance Statement periodic reporting; and assessment of effectiveness of the risk management framework. The Risk Management Policy outlines guidance on identified risks identification of commonly the relevant to Ashley Services Group, such as: financial risks; operational risks; and combined risks. will not generally respond to market rumours and speculation except where: o the speculation or rumours indicate that the subject matter is no longer confidential and therefore the exception to disclosure set out in the Listing Rules no longer applies; o the ASX formally requests disclosure by the Company on the matter; or o the Board considers that it is appropriate to make a disclosure in the circumstances; and The Audit and Risk Management Committee regularly reports to the Board about committee activities, issues, and related recommendations. As suggested by Recommendation 7.2 of the ASX Principles, management provides ongoing reporting the Audit and Risk to Management Committee that indicate that the Company’s management of its material business risks is operating satisfactorily. the Board through Attestations by Managing Director and Interim Chief Financial Officer The Managing Director and the Interim Chief Financial Officer has made the declarations required by section 295A of the Corporations Act and recommended under Recommendation 7.3 of the ASX Principles. In order for the Managing Director and Interim Chief Financial Officer to make the declarations, appropriate attestations were made by management to the Managing Director and Interim Chief Financial Officer. Continuous disclosure takes The Company its disclosure obligations seriously and seeks to comply with the spirit as well as the content of the ASX requirements. The Company has adopted a Continuous Disclosure Policy in relation to information disclosures and relevant procedures. The Policy sets out principles that the Company will in relation to the disclosure of material apply information, including that the Company: will not give analysts or other select groups of market participants any material price sensitive non-public information at any time; will only allow company spokespersons to make any public statement on behalf of the Company. authorised A copy of the Continuous Disclosure Policy is available on the Corporate Governance section of the Company’s website. In accordance with ASX Listing Rule 4.10.17, this Annual Report contains a review of the operations and activities of the Company which are set out on managing director’s review and directors’ report. Share Trading Policy to regulate dealings by The Company has adopted a Share Trading Policy in line with the updated ASX Listing Rules and Guidance Note issued by the ASX in respect of trading policies the Company’s executives and non-executive Directors, officers, employees, contractors and consultants (employees). All employees are required to conduct their personal investment activity in a manner that is lawful and avoids conflicts of interest between the employee’s personal interests and those of the company and its clients. The Company is keen to promote shareholder and general market confidence in the integrity of the Company’s internal controls and procedures, and to provide guidance on avoiding any breach of the insider trading laws. A copy of the Securities Dealing Policy is available on the Corporate Governance section of the Company’s website and has also been lodged with the ASX on 21 August 2014 as required by the ASX Listing Rules. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 30 Corporate Governance Statement Code of Conduct The Company has adopted a written Code of Conduct, which applies to all of the Company’s executives and non-executive Directors, officers, contractors and consultants. The purpose of the Code of Conduct is to ensure that: The Company will, where practicable, arrange for advance notification of significant group briefings and will also keep a summary record of the issues discussed at briefings with investors and analysts. The Shareholders Communications Policy is available on the Corporate Governance section of the Company’s website. high standards of corporate and individual behaviour are observed by all employees in the context of their employment with the Company; employees are aware of their responsibilities to the Company contract of under employment and always act in an ethical and professional manner; legal, ethical and other obligations to legitimate stakeholders are complied with; and their all persons dealing with the Company, whether it be employees, shareholders, suppliers, clients or competitors, can be guided by the stated values and practices of the Company. Employees are encouraged to report any potential breaches of the Code and the Company ensures employees are not disadvantaged for any reports made in good faith. The Company will deal with any reports promptly and fairly. A copy of the Code of Conduct is available on the Corporate Governance section of the Company’s website. Diversity Policy improving focus on The Company is committed to workplace diversity, with a particular the representation of women at the senior level of the Company and the Board, and has adopted a The Company recognises the Diversity Policy. benefits arising from employee and board diversity, including a broader pool of high quality employees, improving employee retention, accessing different ideas and benefiting from all perspectives and available talent. With this Policy, the Board also establishes measurable objectives for achieving gender diversity and assesses annually the objectives and progress in achieving them. The following table reflects the percentage of women employees in the whole organisation, head of business, senior management and the Board: Whole organisation Heads of Business Senior Management % 61% Nil Nil Nil Shareholder communication Ashley Services Group Board The Company respects the rights of its shareholders. To facilitate the effective exercise of those rights, the Company has established a Shareholder Communications Policy to: promote effective communications with shareholders of the Company; ensure all information their shareholding is disseminated to shareholders; and relevant to encourage by shareholders at the Company General Meetings. participation effective Diversity includes, but is not limited to, gender, age, ethnicity and cultural background. The Diversity Policy, which the recommendations and guidance provided by the ASX Principles to the extent practicable, provides a framework for the Company to achieve: account takes into a diverse and skilled workforce, leading to continuous improvement in service delivery and achievement of corporate goals; a workplace culture characterised by inclusive practices and behaviours for the benefit of all staff; ASHLEY SERVICES GROUP ANNUAL REPORT 2014 31 Corporate Governance Statement improved employment and career development opportunities for women; a work environment that values and utilises the contributions of employees with diverse backgrounds, experiences and perspectives through improved awareness of the benefits of workforce diversity and successful management of diversity; and awareness in all staff of their rights and responsibilities with regards to fairness, equity and respect for aspects of diversity. embedding of diversity awareness and objectives into the the day-to-day operations of organisation to become part of the way we do business, through newsletters, conferences and other communication forums with staff; retain top talent by ensuring a workplace through supportive female endorsement and delivery of a range of programs, events and policies; and success, of ongoing improvement of core talent processes to (performance, development and career) ensure gender-based equity and transparency. The Diversity Policy is available in the Corporate Governance section of the Company’s website. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 32 Directors’ Declaration The directors of the Group declare that: 1. the consolidated financial statements and notes for the year ended 30 June 2014 are in accordance with the Corporations Act 2001 and: a. b. comply with Australian Accounting Standards the Australian Accounting Interpretations) as disclosed in Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and (including give a true and fair view of the financial position and performance of the Group as at 30 June 2014 and for the year then ended; 2. the Managing Director and Interim Chief Financial Officer have given the declarations required by Section 295A that: a. b. c. the financial records of the Group for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; the financial statements and notes for the financial year comply with the Accounting Standards; and the financial statements and notes for the financial year give a true and fair view; and 3. in the directors' opinion, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. .................................................................. Peter Turner Chairman Sydney, 25th September 2014 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 33 Independent Auditor’s Report To the Members of Ashley Services Group Limited Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Report on the financial report We have audited the accompanying financial report of Ashley Services Group Limited (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The Directors of the Company 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. The Directors’ responsibility also includes 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. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies. 34 plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: a the financial report of Ashley Services Group Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements. Other matter We have audited the Pro Forma Financial Information section included on pages 7 to 12 of the Managing Director’s Review, which comprises the Pro Forma Group’s financial position as at 30 June 2014, and of its performance for the year ended on that date. This information has been prepared in accordance with the pro forma assumptions included on pages 9 to 11 of the Managing Director’s Review. 35 Report on the remuneration report We have audited the remuneration report included in pages 19 to 23 of the directors’ report for the year ended 30 June 2014. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion on the remuneration report In our opinion, the remuneration report of Ashley Services Group Limited for the year ended 30 June 2014, complies with section 300A of the Corporations Act 2001. GRANT THORNTON AUDIT PTY LTD Chartered Accountants C F Farley Partner - Audit & Assurance Sydney, 25 September 2014 36 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the financial year ended 30 June 2014 Revenue Other income On hired labour and training costs Employee benefits expense Occupancy expense Travel expense Advertising and marketing expense Management fees Audit, legal and professional fees Insurance expense Depreciation and amortisation expense Finance costs Consulting fees Other expenses Profit before income tax Income tax expense Profit for the year Other comprehensive income Total comprehensive income for the year Basic earnings per share (cents) Diluted earnings per share (cents) Note 2 2 4 3 3 5 0 0 2014 $000 196,719 565 (181,268) (7,595) (871) (111) (221) (557) (345) (235) (349) (253) (184) (1,002) 4,293 (1,304) 2,989 - 2,989 2013 $000 106,311 798 (93,699) (5,403) (756) (187) (225) (493) (105) (184) (139) (203) (282) (1,019) 4,414 (1,496) 2,918 - 2,918 104,146.34 104,146.34 101,814.38 101,814.38 The accompanying notes form part of these financial statements. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 37 Consolidated Statement of Financial Position As at 30 June 2014 Note 2014 $000 2013 $000 Assets Current assets Cash and cash equivalents Trade and other receivables Financial assets Other assets Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Financial assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Other liabilities Current tax payable Provisions Total current liabilities Non-current liabilities Borrowings Other liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Retained Earnings Total Equity 7 8 9 10 11 13 12 9 14 15 16 13 17 15 16 13 17 18 61 20,655 32,177 473 53,366 1,246 3,634 11,499 - 16,379 69,745 14,581 41,359 212 2,478 1,109 59,739 - 180 803 148 1,131 60,870 8,875 3 8,872 8,875 367 9,365 - 406 10,138 716 1,543 6,697 29,679 38,635 48,773 8,304 - - 358 243 8,905 28,965 - 917 153 30,035 38,940 9,833 1,450 8,383 9,833 The accompanying notes form part of these financial statements. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 38 Consolidated Statement of Changes in Equity For the financial year ended 30 June 2014 2014 Balance at 1 July 2013 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Repayment of capital Balance at 30 June 2014 2013 Balance at 1 July 2012 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends paid Balance at 30 June 2013 The accompanying notes form part of these financial statements. Share capital $000 1,450 - - - - (1,447) 3 1,450 - - - - 1,450 Retained Earnings $000 8,383 2,989 - Total $000 9,833 2,989 - 2,989 2,989 (2,500) - 8,872 9,965 2,918 - (2,500) (1,447) 8,875 11,415 2,918 - 2,918 2,918 (4,500) 8,383 (4,500) 9,833 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 39 Consolidated Statement of Cash Flows For the financial year ended 30 June 2014 Cash from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs paid Income taxes paid Note 2014 $000 2013 $000 208,431 104,194 (206,226) (97,993) 188 (133) 495 (93) (2,154) (2,604) Total cash inflow from operating activities 21(a) 106 3,999 Cash flows from investing activities Payment for property, plant and equipment Proceeds from sale of property plant and equipment Consideration paid for business combination net of cash 21(b) Payment for intangible assets Net cash outflow from investing activities Cash flows from financing activities Net proceeds from external borrowings Net proceeds of related party borrowings Dividend paid Repayment of capital Net cash inflow / (outflow) from financing activities Net cash (decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at the end of the year 7 The accompanying notes form part of these financial statements. (825) 45 (3,792) - (4,572) 1,457 6,650 (2,500) (1,447) 4,160 (306) 367 61 (444) 71 - (533) (906) - 3,497 (4,500) - (1,003) 2,090 (1,723) 367 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 40 Table of Contents for the Notes to the Financial Statements 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. ACCOUNTING POLICIES -------------------------------------------------------------------------------------------------------- 42 REVENUE AND OTHER INCOME --------------------------------------------------------------------------------------------- 51 EXPENSES-------------------------------------------------------------------------------------------------------------------------- 51 AUDITOR’S REMUNERATION ------------------------------------------------------------------------------------------------- 52 INCOME TAX EXPENSE --------------------------------------------------------------------------------------------------------- 52 KEY MANAGEMENT PERSONNEL DISCLOSURES ------------------------------------------------------------------------ 53 CASH AND CASH EQUIVALENTS --------------------------------------------------------------------------------------------- 53 TRADE AND OTHER RECEIVABLES ------------------------------------------------------------------------------------------ 53 FINANCIAL ASSETS -------------------------------------------------------------------------------------------------------------- 54 OTHER ASSETS ------------------------------------------------------------------------------------------------------------------- 55 PROPERTY PLANT AND EQUIPMENT --------------------------------------------------------------------------------------- 55 INTANGIBLE ASSETS ------------------------------------------------------------------------------------------------------------ 56 TAX BALANCES ------------------------------------------------------------------------------------------------------------------- 57 TRADE AND OTHER PAYABLES ----------------------------------------------------------------------------------------------- 58 BORROWINGS -------------------------------------------------------------------------------------------------------------------- 59 OTHER LIABILITIES -------------------------------------------------------------------------------------------------------------- 60 PROVISIONS ---------------------------------------------------------------------------------------------------------------------- 60 SHARE CAPITAL ------------------------------------------------------------------------------------------------------------------ 60 EARNINGS PER SHARE --------------------------------------------------------------------------------------------------------- 61 SEGMENT INFORMATION ----------------------------------------------------------------------------------------------------- 62 CASH FLOW INFORMATION -------------------------------------------------------------------------------------------------- 64 CONTROLLED ENTITIES -------------------------------------------------------------------------------------------------------- 65 PARENT ENTITY DISCLOSURES ----------------------------------------------------------------------------------------------- 67 RELATED PARTY TRANSACTIONS -------------------------------------------------------------------------------------------- 67 SECURED AND CONTINGENT LIABILITIES --------------------------------------------------------------------------------- 68 FINANCIAL INSTRUMENTS ---------------------------------------------------------------------------------------------------- 68 OPERATING LEASE COMMITMENTS---------------------------------------------------------------------------------------- 71 EVENTS AFTER THE BALANCE DATE ---------------------------------------------------------------------------------------- 71 EMPLOYEE SHARE RIGHTS PLAN -------------------------------------------------------------------------------------------- 72 DIVIDENDS ------------------------------------------------------------------------------------------------------------------------ 72 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 41 Notes to the Financial Statements 1. ACCOUNTING POLICIES a. General information The financial statements for the financial year ended 30 June 2014 cover Ashley Services Group Limited and its controlled entities (the “Ashley Services” or the “Group”). Ashley Services Group is a public the Australian Securities listed on Company Exchange the symbol “ASH”), (trading under incorporated and domiciled in Australia. The following is a summary of the material accounting policies adopted by the Group in the preparation financial statements. The accounting policies have been consistently applied unless otherwise stated. consolidated the of b. Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards (including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board. The consolidated financial statements of the Group also comply with International Financial Reporting Standards (‘IFRS’) adopted by the International Accounting Standards Board. The Group is a for- profit entity for the purposes of preparing the financial statements. consolidated statements were financial The authorised for issue by the Board of Directors on 25 September 2014. c. Basis of preparation The consolidated financial statements have been prepared on an accruals basis and are based on historical costs, except for the measurement at fair value of selected non-current assets, financial assets and financial liabilities as disclosed in this note. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. In accordance with Class Order 98/100, amounts in the financial report are rounded off to the nearest thousand dollars unless otherwise indicated. d. Going concern Despite the Groups net current liability position as at 30 June 2014 the consolidated financial statements have been prepared on a going concern basis. The basis for this assessment is as follows: on 1 July 2014, the Group acquired a number of related entities (owned by Mr Ross Shrimpton and Marc Shrimpton and their related family entities) in exchange for scrip. As a consequence of these acquisitions, a number of loans payable eliminate and secondly, these companies are profitable in their own right; the Company completed its initial public offering and net $19.0 million comprising of gross proceeds of $98.7 million, less $41.6 million which was paid to the existing shareholders, $31.8 million paid for the acquisition of Integracom and the costs of the IPO of $6.3 million; and raised result as a a on the 20 August 2014, the Group acquired the Integracom Unit Trust in exchange for cash, deferred consideration and shares. The above events have significantly improved the Groups financial position subsequent to the year end. Further details detailing the above and the impact to the financial position of the Group can be found in Note 28 Events after Balance Date. e. Adoption of new and revised Accounting Standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to their operations which became mandatory. The adoption of these Standards has impacted the recognition and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has resulted in no changes to the Group’s accounting policies, but has resulted in changes in disclosure. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 42 Notes to the Financial Statements The Group adopted following Australian the Accounting Standards, together with the relevant consequential amendments arising from related Amending the mandatory from application date of 1 July 2013: Standards, AASB 10: Consolidated Financial Statements; AASB 11: Joint Arrangements; AASB 12: Disclosure of Interests in Other Entities; AASB 13: Fair Value Measurement; Amendments to AASB 119: Employee Benefits; AASB 127: Separate Financial Statements; AASB 2011–7: Amendments to Australian the Accounting Consolidation and Joint Arrangements Standards; and Standards arising from AASB 2012–10: Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments. These Standards became mandatorily applicable to the Group from 1 July 2013. 127) and AASB AASB 10 introduces a new definition of control in determining whether an entity should be included within the consolidated financial statements of the parent company. AASB 10 supersedes AASB 127 Consolidated and Separate Financial Statements (AASB 112 Consolidation – Special Purpose Entities. These new requirements have the potential to affect which of the Groups to be subsidiaries and therefore to change the scope of consolidation. The requirements on consolidation in non- procedures, accounting controlling interests and accounting for loss of control of a subsidiary unchanged. investees are considered Interpretation for changes Although the first time application of AASB 10 (together with the associated Standards) caused certain changes to the Group’s accounting policy for consolidation and determining control, it did not result in any changes to the amounts reported in the Group’s financial statements as the “controlled” status of the existing subsidiaries did not change, nor did it result in any new subsidiaries being included in the Group as a consequence of the revised definition. AASB 11 requires joint arrangements to be classified as either “joint operations” (where the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities) or “joint ventures” (where the parties that have joint control of the arrangement have rights to the net assets of the arrangement). Revised AASB 128 facilitates the application of AASB 11 and incorporates guidance relating to the equity method of accounting. Joint ventures will be required to be accounted for using the equity method under AASB 11. The proportionate consolidation method is no longer permitted. However, this has not impacted on the Group’s financial statements as the Group currently has no joint arrangement. AASB 12 relates to disclosure requirements for all forms of including subsidiaries, joint arrangements, associates and unconsolidated structured entities. in other entities, interests As a result of adopting the new standard, new disclosures have been the judgements made to determine whether control exists and summarised financial information about certain material joint arrangements and associates. The Group has no equity accounted investments. introduced about The Group has adopted AASB 13: Fair Value Measurement and AASB 2011–8: Amendments to Australian Accounting Standards arising from AASB 13 from 1 July 2013 together with consequential amendments to other Standards. These Standards became mandatorily applicable to the Group from 1 July 2013. AASB 13 sets out a comprehensive framework for measuring the fair value of assets and liabilities and prescribes enhanced disclosures regarding all assets and liabilities measured at fair value. New disclosures prescribed by AASB 13 that are material to this financial report have been provided in the notes to this financial report. Although these Standards do not significantly impact the fair value amounts financial statements, the directors have determined that additional accounting policies providing a general description of fair value measurement and each level of the fair value hierarchy, as set out in the Group’s reported in ASHLEY SERVICES GROUP ANNUAL REPORT 2014 43 Notes to the Financial Statements Note 26, should be incorporated in these financial statements. Group’s assessment of the impact of these new standards and interpretations is set out below. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements removes the individual key management personnel (KMP) disclosures contained in Aus paragraphs 29.1 to 29.9.3. The individual disclosures are not required by either AASB 124’s international equivalent IAS 24 Related Party Disclosures (which requires only aggregate, rather KMP compensation). In addition, the AASB believes that these disclosures are more in the nature of governance and so are better dealt with as part of the Corporations Act 2001. individual, amounts than of As a remuneration has been removed from Note 6. the detailed result, individual KMP to 2012–2: AASB Australian Amendments Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities and AASB 2012–5: Amendments to Australian Accounting Standards arising from Annual Improvements 2009– 2011 Cycle. These Standards make changes to presentation and disclosure requirements, but did not affect the Group’s accounting policies or the amounts reported in the financial statements. 2011–10: Amendments AASB 119: Employee Benefits (September 2011) and to Australian AASB Accounting Standards arising from AASB 119 (September 2011). These Standards did not affect the Group’s accounting policies or the amounts reported in the financial statements, mainly because the Group does not have defined benefit plan assets or obligations and the materiality of the Group's employee leave entitlements balance does not warrant additional disclosure. f. New Accounting Standard and Interpretations not yet adopted new Certain and accounting interpretations have been published that are not mandatory for 30 June 2014 reporting periods and have not been early adopted by the Group. The standards There are no other standards that are not yet effective and that are expected to have a material in the current or future impact on the entity reporting periods and on future foreseeable transactions. 2010–7: AASB 9: Financial Instruments (December 2010) and Australian Amendments AASB Accounting Standards arising from AASB 9 (December 2010). to Applicable for the financial year ended 30 June 2018. These standards are applicable retrospectively and include revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. Once adopted, this standard will affect the Groups’ accounting for its available for sale financial assets resulting in fair value gains and losses associated with the instruments being recognised directly in profit or loss. The new hedging rules align hedge accounting more closely with the Group’s risk management practices. As a general rule it will be easier to apply hedge accounting going forward. The new standard also introduces expanded disclosure requirements and changes in presentation. IFRS 15: Revenue from Contracts with Customers The standard provides a single standard for revenue recognition and replaces IAS 18 Revenue, IAS 11 Construction Contracts and some revenue related interpretations. The standard establishes a new control based revenue recognition model and changes the basis for deciding whether revenue is to be recognised over time or at a point in time. The standard will require: contracts (either written, verbal or implied) to be identified, together with the the separate performance obligations within contact; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative standalone selling price of each distinct good or if no distinct service, or estimation approach ASHLEY SERVICES GROUP ANNUAL REPORT 2014 44 Notes to the Financial Statements observable prices exists; and recognition of revenue when each performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. is required Additional disclosure, both quantitative and qualitative, to understand the contracts with customers and the significant the guidance to those contracts. judgements made to enable users in applying The effective date for this standard is for annual reporting periods beginning on or after 1 January 2017. The Group will adopt this standard and the amendments from the financial year beginning 1 July 2017. There is expected to be no material impact on the transaction and balances recognised in the financial statements. to AASB 136 – AASB 2013–3: Amendments Recoverable Amount Disclosures for Non-Financial Assets. Applicable for the financial year ended 30 June 2015 This standard amends the disclosure requirements in AASB 136: Impairment of Assets pertaining to the use of fair value in impairment assessment. These information amendments address disclosure of about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. Additional disclosures may be necessary if the Group has impaired assets going forward. There are no other new and revised accounting standards which are expected to have a material impact on the group. g. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses and result in the consolidation of its assets and liabilities. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and contingent liabilities) assumed are recognised (subject to certain limited exceptions). (including liabilities a from contingent When measuring the consideration transferred in the business combination, any asset or liability resulting consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as its subsequent equity settlement for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. is not remeasured and is accounted All transaction costs incurred in relation to the business combination are recognised as expenses in the statement of profit or loss and other comprehensive income when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Subsequent to the year end, on 1 July 2014, the group acquired a number of related entities (see Note 28). This business combination is a common control transaction, as the conditions in AASB 3: Business Combinations (Appendix B) apply, in that all businesses were controlled by the same party before and after the transaction, and the control was not considered transitory. Therefore, this business combination is scoped out under AASB 3 paragraph 2, and therefore a suitable accounting policy needs to be determined in in AASB 108: accordance with the hierarchy Accounting Policies, Changes in Accounting Estimates and Errors (paragraph 10). This hierarchy looks for a policy that provides users of the financial statements with relevant and reliable information about the financial position and performance of the reporting entity. Therefore an accounting choice is available for the accounting of this business combination. The choice is to either apply the purchase method (applying a fair value approach to the acquisition value) or to apply the pooling of interest method where the combination is recorded at historical book values. Given the continuing control of the businesses, the Directors consider that it is appropriate to use the pooling of interest method to account for the transaction using the historical book values of the acquired assets and ASHLEY SERVICES GROUP ANNUAL REPORT 2014 45 Notes to the Financial Statements liabilities rather than reassessing these to more subjective and uncertain fair values. In the 30 June 2015 Annual Report the comparative period for 30 June 2014 will be restated, as if the transaction took place at the beginning of the earliest comparative period being 1 July 2013. h. Basis of consolidation The Group financial statements consolidate those of its Ashley Services Group Limited and all of subsidiaries as of 30 June 2014. Ashley Services Group Limited controls a subsidiary if it is exposed, or has its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. to variable returns rights, from All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are the effective date of acquisition, or up to the effective date of disposal, as applicable. recognised from Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. i. Revenue and other income Revenue is measured at the fair value of the consideration received or receivable after taking into account any discounts allowed. All revenue is stated net of the amount of GST. Below are the specific accounting policies adopted by the Group: Training revenue Revenue from training courses is recognised in proportion to the stage of completion of the training course. Labour hire Labour hire revenue is recognised upon delivery of the service to the customers or in the instance of placement fees at the time the employee has been placed. Interest revenue Interest revenue is recognised using the effective interest method, which for floating rate financial assets is the rate inherent in the instrument. Dividend revenue Dividend revenue is recognised when the right to receive a dividend has been established, usually on declaration of the dividend / distribution. Other income Other income primarily includes administration costs recovered. Revenue is recognised in line with the costs incurred. j. Intangible assets Goodwill Goodwill is initially recognised as the difference between the fair value of consideration, and the fair value of net assets acquired less any accumulated impairment losses. The value of goodwill is recognised on acquisition of the business. The Group adopts the full goodwill method. The fair value of the interests in the business is determined using valuation the maximum use of market information where available. Under this method, goodwill attributable to the interests of the business is recognised in the financial statements. techniques which make Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or group of cash-generating units, which represent the lowest level at which goodwill is monitored but where such level is not larger than an operating segment. Gains and losses on the disposal of equity include the carrying amount of goodwill related to the entity sold. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 46 Notes to the Financial Statements Changes in the ownership interest in a subsidiary are accounted for as equity transactions and do not affect the carrying amounts of goodwill. Customer Relationships Customer relationships acquired by the group are stated at fair value less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated statement of profit and loss and other comprehensive income on a straight line basis over the estimated useful life. Useful life of customer relationships recognised is determined to be three to ten years. At year end the groups customer relationships have a remaining useful life of two years and ten months. Income tax The income tax expense (income) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of profit or loss when the tax relates to items that are credited or charged directly to equity. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. tax assets temporary Deferred differences and unused tax losses are recognised only to the extent that it is probable that future relating to taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary differences can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. it k. Tax consolidation tax group under Ashley Services Group Limited and its wholly owned Australian subsidiaries have formed an income tax consolidated consolidation legislation. Each entity in the group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the ‘standalone taxpayer’ approach to allocation. Current tax liabilities (assets) and deferred tax assets arising from unused tax losses and tax credits in the subsidiaries are immediately transferred to head entity. The group notified the Australian Taxation tax Office consolidation group to apply from 1 July 2003. The income tax consolidated group has entered a tax funding arrangement whereby each company in the Group contributes to the income tax payable by the Group in proportion to their contributions to the Group’s taxable income. formed an it has income that Differences between the amounts of net tax assets and liabilities derecognised and the net amounts recognised pursuant to the funding arrangement are ASHLEY SERVICES GROUP ANNUAL REPORT 2014 47 Notes to the Financial Statements recognised as either a contribution by, or distribution, to the head entity. period. (All other classified as non-current assets). loans and receivables are l. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown with short term borrowings in current liabilities on the balance sheet. m. Trade and other receivables Trade and other receivables include amounts due from customers for services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. The recoverability of trade receivables is reviewed on an ongoing basis. Amounts which are determined not to be recoverable are written off by reducing the carrying amount to its recoverable amount, the difference is charged to the statement of profit or loss and other comprehensive income in that period. A provision for impairment of trade recoverable is recognised when there is objective evidence that the group is unable to collect part or all of the amounts due. Factors such as previous trading relationship, financial position, and probability of recoverability are considered when determining the extent the debtor is impaired. n. Financial assets Financial assets mainly consist of loans to directors and are considered non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised costs. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting Interest is charged on loans to directors at arm’s length. o. Plant and equipment Each class of plant and equipment is carried at cost, less where applicable, any accumulated depreciation and impairment losses. Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. is The depreciable amount of depreciated on a straight line basis, over the asset’s useful life to the Group commencing from the time the asset is held ready for use. fixed assets The annual depreciation rates used for each class of depreciable assets are: Class of fixed assets Computer equipment Office equipment Furniture and fittings Motor vehicles Training materials Depreciation rate 37.50% – 40.00% 20.00% 20.00% 18.75 – 30.00% 18.75% lives are determined by reference In the case of leasehold improvements, expected useful to comparable owned assets or over the term of the lease, if shorter. The carrying amount of plant and equipment is reviewed annually at the end of the reporting period by the Directors to ensure it is not in excess of the recoverable amount of these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount its estimated recoverable amount. is greater than ASHLEY SERVICES GROUP ANNUAL REPORT 2014 48 Notes to the Financial Statements Gains and losses on disposals are determined by comparing proceeds with carrying amount. These gains or losses are recognised immediately in profit or loss. p. Trade and other payables Trade and other payables represent the liabilities for goods and services received by the Group that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. q. Employee benefits Provision is made for the Group’s liability for the employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increases and the probability that the employee may not satisfy flows are vesting requirements. discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows. Those cash r. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured at the best estimate of the amounts required to settle the obligation at the end of the reporting period. s. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. t. Impairment of assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. received The assessment will include considering external information and internal sources of sources of information from including dividends subsidiaries, associates or jointly controlled entities, deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell, and its value in use, to the asset’s carrying amount. Any excess of the asset’s carrying value over its recoverable amount is recognised immediately in profit or loss, unless the Any is carried at a revalued amount. asset impairment loss of a revalued asset is treated as a revaluation decrease. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing goodwill and intangible assets with indefinite lives. is performed annually for u. Comparative figures by required When Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Accounting v. GST Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the ATO. 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 ATO 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 ATO are presented as operating cash flows in receipts from customers or included payments to suppliers. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 49 Notes to the Financial Statements w. Critical accounting estimates and judgements Long service leave provisions leave, consideration In determining the provision for employees long service the probability an employee may not satisfy vesting requirements. the provision management assume that employees with a service period of less than five years will not qualify. calculating is given to In Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. x. Dividends A liability is recognised for the amount of any dividend 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 balance date. y. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, after deducting any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Impairment – general The Group assesses impairment at the end of each reporting period by evaluating the conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which key assumptions. incorporate various Business combinations uses valuation techniques Management in determining the fair value of various element of a business combination. Particularly, the fair value of is dependent on the contingent consideration outcome of many variables that affect future profitability. Realisation of deferred tax assets Deferred tax assets are recognised to the extent that it is probable that they will be able to be utilised against future taxable income, based on the Group’s forecast of future operating results which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax losses or credit. Deferred tax liabilities are always provided for in full. Customer relationships Customer relationships acquired by the group are initially stated at fair value. Fair value is calculated using the present value technique. Present value is estimated by estimating future cash inflows and discounting at a post-tax rate of 15.6%. The Group amortises customer relationships over the customer the estimated useful relationships have considered the useful life of the customer contracts to be seven years. The Group recognised. life of ASHLEY SERVICES GROUP ANNUAL REPORT 2014 50 Notes to the Financial Statements 2. REVENUE AND OTHER INCOME Operating activities Training revenue Labour hire revenue Other income Interest received Sundry income Administration charges recovered 3. EXPENSES Profit before income tax includes the following specific expenses: Finance costs Interest expense Bank fees Depreciation Motor vehicles Office equipment Leasehold improvements Amortisation 2014 $000 3,033 193,686 196,719 188 75 302 565 2014 $000 133 120 253 96 138 67 301 2013 $000 5,093 101,218 106,311 495 73 230 798 2013 $000 109 94 203 31 88 20 139 Amortisation of customer contracts and relationships 48 - ASHLEY SERVICES GROUP ANNUAL REPORT 2014 51 Notes to the Financial Statements 4. AUDITOR’S REMUNERATION Auditor of the parent entity – Grant Thornton1 Audit or review of financial reports under the Corporations Act 2001 Tax advisory1 Other assurance services2 Other entities In addition to the above, the related entities detailed in Note 22 have also paid fees to the auditor, Grant Thornton and these are as follows: Audit or review of financial reports under the Corporations Act 2001 Tax advisory 2014 $000 2013 $000 30 3 205 238 60 16 - 76 58 30 88 52 18 70 Note: 1. Trood Pratt was the tax agent and auditor of the parent entity in 2013. 2. Fees in relation to Investigating Accountant services for the initial public offering. These fees have been recognised as a prepayment at 30 June 2014 and will be expensed in FY 2015. 5. INCOME TAX EXPENSE a. Components of tax expense Current tax expense Deferred tax – origination and reversal of temporary differences (Over) / Under provision of tax in prior year Income tax expense 2014 $000 1,288 22 (6) 1,304 b. Reconciliation of prima facie tax on profit from ordinary activities to income tax expense Net profit before tax Prima facie tax expense on net profit from ordinary activities before income tax at 30% (2013: 30%) Add / (less): Tax effect of: – Amortisation expense on client relationships not deductible – Entertainment - Client – Entertainment – Other – Other (non-allowable) / allowable items – Over/(under) provision of tax in prior year Income tax expense ASHLEY SERVICES GROUP ANNUAL REPORT 2014 2014 $000 4,293 1,288 14 15 1 (8) (6) 1,304 2013 $000 1,324 18 154 1,496 2013 $000 4,414 1,324 - - - 18 154 1,496 52 Notes to the Financial Statements The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. 6. KEY MANAGEMENT PERSONNEL DISCLOSURES a. Key management personnel compensation for the year was as follows Short-term employee benefits Post-employment benefits Long-term employee benefits Total (*) 2014 $000 1,045 93 - 1,138 2013 $000 784 63 - 847 * Amounts included in the above table include amounts paid to key management from all entities. This includes entities which were acquired by the Group subsequent to year end – refer to Note 28. b. Individual director and key management personnel disclosures Detailed remuneration disclosures are included in the Director’s Report. The relevant information can be found in Table 14 of the Remuneration Report on pages 22. The remuneration is also inclusive of all entities which were acquired by the Group subsequent to year end – refer to Note 28. 7. CASH AND CASH EQUIVALENTS Cash on hand Cash at bank 8. TRADE AND OTHER RECEIVABLES Current Trade receivables (a) Allowance for impairment of trade receivables (b) Other receivables 2014 $000 6 55 61 2014 $000 20,384 (564) 835 20,655 2013 $000 4 363 367 2013 $000 6,936 (504) 2,933 9,365 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 53 Notes to the Financial Statements a. The aging of trade receivables (before allowing for impairment of receivables) at year end is detailed below. Current Past due 0 – 30 days (not considered impaired) Past due 31 – 60 days (not considered impaired) Past due 60+ days (not considered impaired) Past due 60+ days (considered impaired (b)) 2014 $000 13,712 5,835 97 176 564 20,384 2013 $000 4,949 1,198 228 57 504 6,936 b. The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below. Balance at beginning of year Increase in allowance recognised in profit or loss Balance at end of year 9. FINANCIAL ASSETS Current Director related loans (a) Loans to related entities (b) Non-current Director related loans (a) Loans to related entities (b) a. Director loans 2014 $000 (504) (60) (564) 2014 $000 3,967 28,210 32,177 - - 2013 $000 (272) (232) (504) 2013 $000 - - - 5,951 23,728 29,679 Loans to directors are unsecured. Interest is charged on the loan at market rates. The loans have been repaid since balance date. b. Loans to related entities All loans are unsecured and non-interest bearing. Since balance date, with the acquisition by the Group (as set out in note 28) of the various related entities, the loans will no longer be considered an external asset or liability to the consolidated group which makes-up the Group and will be eliminated on consolidation. As a result of the acquisition by the Group, the loans receivable and payable have been re-classified from non-current to current. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 54 Notes to the Financial Statements 10. OTHER ASSETS Current Prepayments Deposits 11. PROPERTY PLANT AND EQUIPMENT Motor vehicles Cost Accumulated depreciation Office equipment Cost Accumulated depreciation Leasehold improvements Cost Accumulated depreciation Capital works in progress Cost Accumulated depreciation Total property, plant and equipment a. Movement in carrying amounts of property, plant and equipment 2014 $000 413 60 473 2014 $000 341 (105) 236 1,671 (1,108) 563 856 (441) 415 32 - 32 1,246 2014 Balance at 1 July 2013 Additions Acquisition through business combination Disposals Depreciation expense Balance at 30 June 2014 Motor vehicles $000 263 Office equipment $000 382 Leasehold improvements $000 71 Capital Work In Progress $000 - 106 21 (58) (96) 236 276 43 - (138) 563 411 - - (67) 415 32 - - - 32 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 2013 $000 345 61 406 2013 $000 329 (66) 263 1,185 (803) 382 445 (374) 71 - - - 716 Total $000 716 825 64 (58) (301) 1,246 55 Notes to the Financial Statements 2013 Balance at 1 July 2012 Additions Disposals Depreciation expense Balance at 30 June 2013 Motor vehicles $000 Office equipment $000 Leasehold improvements $000 Capital Work In Progress $000 172 225 (103) (31) 263 253 217 - (88) 382 89 2 - (20) 71 - - - - - Total $000 514 444 (103) (139) 716 The Group’s property, plant and equipment are encumbered by a fixed and floating charge as security for the group’s overdraft facility. 12. INTANGIBLE ASSETS Goodwill Cost Accumulated impairment (a) Net carrying value Customer relationships Cost Accumulated impairment Accumulated amortisation Net carrying value Total intangible assets 2014 $000 9,985 - 9,985 1,562 - (48) 1,514 11,499 2013 $000 6,697 - 6,697 - - - - 6,697 a. Impairment tests for goodwill Goodwill is allocated to training and labour hire cash-generating units (CGUs), being the autonomously operated businesses acquired by the Group. The recoverable amount of the CGUs is determined based on value-in-use calculations. Management has based the value-in-use calculations on the most recently completed management approved forecast performance for the forthcoming one-year period. Future cash-flows are projected using forecast growth rates for both labour hire and training of 2.0% (30 June 2013: 2.0%) into perpetuity. A pre-tax discount rate of 9.5% for goodwill relating to training and 18.2% for goodwill relating to labour hire (30 June 2013: 9.5% and 18.2% respectively), reflecting the assessed risks associated with the CGU segments, has been applied to determine the present value of the future cash flow projections. As at 30 June 2014, the Group assessed the recoverable amount of goodwill, and determined that goodwill associated with the Group’s CGUs are not impaired. No impairment expense has been recorded. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 56 Notes to the Financial Statements b. Allocation of goodwill by CGU 2014 Goodwill 2013 Goodwill c. Intangible assets – detailed reconciliation 2014 Balance at 1 July 2013 Acquired through business combinations Amortisation Balance at 30 June 2014 2013 Balance at 1 July 2012 Acquired through business combinations Amortisation Balance at 30 June 2013 13. TAX BALANCES Non-current assets Deferred tax assets (a) Current tax liabilities Income tax payable Non-current liabilities Deferred tax liabilities (a) Training $000 1,258 Labour Hire $000 8,727 Training $000 1,258 Labour Hire $000 5,439 Goodwill $000 6,697 3,288 - 9,985 Goodwill $000 6,164 533 - 6,697 Customer relationships $000 - 1,562 (48) 1,514 Customer relationships $000 - - - - 2014 $000 3,634 2,478 803 Total $000 9,985 Total $000 6,697 Total $000 6,697 4,850 (48) 11,499 Total $000 6,164 533 - 6,697 2013 $000 1,543 358 917 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 57 Notes to the Financial Statements a. Deferred tax assets and liabilities Deferred taxes arising from temporary differences and unused tax losses can be summarised as follows: Balance at Beginning of the Year $000 Recognised in Other comprehensive income $000 Recognised in Business Combination $000 Recognised in Profit & Loss $000 Balance at End of the Year $000 2014 Current assets Trade and other receivables (765) Non-current assets Intangible assets Unused tax losses Current liabilities Trade and other payables Provision Total 2013 Current assets - - - - - - - 585 (181) (469) 91 - - (378) 14 - 1,726 258 2,583 (454) 91 2,998 377 2,831 - - 1,272 119 626 Balance at Beginning of the Year $000 Recognised in Other comprehensive income $000 Recognised in Business Combination $000 Recognised in Profit & Loss $000 Balance at End of the Year $000 Trade and other receivables (389) Non-current assets Property, plant and equipment Current liabilities Trade and other payables Provision Total 14. TRADE AND OTHER PAYABLES (5) 576 148 330 - - - - - - - - - - Current Trade payables Accrued expenses GST payable Sundry creditors (376) (765) 5 696 (29) 296 2014 $000 732 4,066 2,626 7,157 14,581 - 1,272 119 626 2013 $000 366 2,541 2,378 3,019 8,304 The average credit period on purchases of certain products is 30 days. No interest is charged on trade payables. The group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 58 Notes to the Financial Statements 15. BORROWINGS Current Unsecured liabilities Loans from related parties (d) Secured liabilities Bank overdraft (a) Subordinated facility (b) Non-current Unsecured liabilities Loans from related parties (d) a. Bank overdraft facility 2014 $000 2013 $000 38,113 - 1,540 1,706 41,359 - - - - 28,965 The Group entered into the overdraft facility with the bank on 8 August 2002 and is due to expire on 3 December 2015. The bank has fixed and floating charges over the Group’s assets and the property of the ultimate shareholders – refer to Note 24 for details of those shareholders. b. Subordinated facility The Group entered into the subordinated facility with the bank on 8 August 2002 and is due to expire on 3 December 2015. The bank has fixed and floating charges over the Group’s assets. As set out in note 28, the Group has refinanced its facilities with BankWest and this will result in a change in the use of those facilities. c. Groups credit facility Total facilities at reporting date Bank overdraft Subordinated facility Used at balance date Bank overdraft Subordinated facility Unused at balance date Bank overdraft Subordinated facility 2014 $000 4,330 4,535 8,865 1,540 1,706 3,246 2,790 2,829 5,619 2013 $000 4,330 4,535 8,865 - - - 4,330 4,535 8,865 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 59 Notes to the Financial Statements d. Loans from related parties All loans are unsecured and non-interest bearing. Since balance date, with the acquisition by the Group of the various related entities, the loans will no longer be considered an external asset or liability to the consolidated group which makes-up Ashley Services Group Limited and its controlled entities and will be eliminated on consolidation. As a result of the acquisition by the Group, the loans receivable and payable have been re-classified from non-current to current. 16. OTHER LIABILITIES Current Vendor earn-out liability (a) Non-Current Vendor earn-out liability (a) a. Vendor earn-out liability 2014 $000 212 180 2013 $000 - - The Vendor earn-out liability comprises the fair value of estimated initial consideration payments which are payable to vendors in relation to the business acquisition of Concept Engineering Pty Limited (“Concept”) on 1 May 2014. These are payable over a period of one to three years post-acquisition. 17. PROVISIONS Current Employee benefits Non-current Employee benefits a. Reconciliation of employee provisions Opening balance Less: leave taken during the year Add: leave provided for during the year Closing balance 18. SHARE CAPITAL 2,870 (2013: 2,866) fully paid ordinary shares Nil (2013: 4) fully paid "Z" ordinary shares 2014 $000 1,109 148 2014 $000 396 (29) 890 1,257 2014 $ 2,877 - 2,877 2013 $000 243 153 2013 $000 494 (275) 177 396 2013 $ 1,450,002 4 1,450,006 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 60 Notes to the Financial Statements a. Reconciliation of ordinary shares Ordinary shares Balance at 1 July 2013 Return of Capital "Z" ordinary shares converted Balance at 30 June 2013 and 2014 Number of shares 2,866 - 4 2,870 $ 1,450,006 (1,447,129) - 2,877 Ordinary shares confer on their holders the right to participate in dividends declared by the Board. Ordinary shares confer on their holders an entitlement to vote at any general meeting of the Company. “Z” ordinary shares during the year were refinanced by way of the issue of new ordinary shares. On 3 July 2013, the Group performed a return of capital to its shareholders at $504.93 per share. A total of $1,447,129 was paid to shareholder in this regard. Management controls the capital of the Group in order to maintain a debt to equity ratio within pre- determined benchmarks, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. The Group’s financial liabilities and share capital for the year ended 30 June 2014 and 30 June 2013 are as follows: Financial liabilities – Note 26 (d) Ordinary shares 19. EARNINGS PER SHARE Net profit after tax Weighted number of ordinary shares outstanding during the year used in calculating basic earnings per share (EPS) 2014 $000 56,332 3 2014 $000 2,989 2,870 Basic earnings per share (cents) Diluted earnings per share (cents)1 Notes: 1. There were no material share issues during the year and no issue of options that would affect the EPS. 104,146.34 104,146.34 2013 $000 37,269 1,450 2013 $000 2,918 2,866 101,814.38 101,814.38 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 61 Notes to the Financial Statements 20. SEGMENT INFORMATION Management currently identifies the following segments: Labour hire; and Training. These segments are monitored by the Group’s management and by the board and strategic decisions are made based on these segment results. 2014 Revenue From external customers From other segments Segments revenue Other income On hired labour and training costs Employee benefits expense Occupancy expense Travel expense Advertising and marketing expense Management fees Audit, legal and professional fees Insurance expense Depreciation and amortisation expense Finance costs Consulting fees Other expense Profit before tax Unallocated income tax Profit after tax Labour Hire $000 193,686 - 193,686 563 (180,267) (6,477) (701) (91) (183) (557) (104) (235) (283) (250) (387) (870) 3,844 - - Training $000 3,033 - 3,033 2 (1,001) (1,118) (170) (20) (38) - (3) - (66) (3) (35) (132) 449 - - Total $000 196,719 - 196,719 565 (181,268) (7,595) (871) (111) (221) (557) (107) (235) (349) (253) (422) (1,002) 4,293 (1,304) 2,989 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 62 Notes to the Financial Statements 2013 Revenue From external customers (a) From other segments Segments revenue Other income On hired labour and training costs Employee benefits expense Occupancy expense Travel expense Advertising and marketing expense Management fees Audit, legal and professional fees Insurance expense Depreciation and amortisation expense Finance costs Consulting fees Other expense Profit before tax Labour Hire $000 Training $000 101,218 - 101,218 779 (92,820) (4,167) (583) (93) (183) (493) (105) (184) (99) (201) (197) (848) 2,024 5,093 - 5,093 19 (879) (1,236) (173) (94) (42) - - - (40) (2) (85) (171) 2,390 Total $000 106,311 - 106,311 798 (93,699) (5,403) (756) (187) (225) (493) (105) (184) (139) (203) (282) (1,019) 4,414 No segments assets or liabilities are disclosed because there is no measure of segments assets or liabilities regularly reported to Management and to the Board. a. Information about major customers Included in revenues from external customers are revenues of $97.7 million (2013: $33.9 million) which arose from sales to 3 (2013: 2) of the Group’s customers whose individual revenue exceeds 10% of total revenue in the Labour Hire segment. There are no customers whose individual revenue exceeded 10% of total revenue in the Training segment in either financial year. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 63 Notes to the Financial Statements 21. CASH FLOW INFORMATION a. Reconciliation of cash flow from operations to profit after income tax Profit for the year Cash flows excluded from profit attributable to operating activities Non-cash flows in profit - depreciation and amortisation expense - bad and doubtful debts - (gain) / loss on disposal of fixed assets Changes in assets and liabilities - increase in trade and other receivables - increase in other assets - increase in deferred tax asset - increase in trade and other payables - increase / (decrease) in employee provisions - increase / (decrease) in current tax liabilities - (decrease) / increase in deferred tax liabilities Cash flow from operations. b. Acquisition of Concept Note (b) (b) (b) (b) (b) 2014 $000 2,989 349 - 13 (7,673) (67) (2,091) 4,425 861 1,823 (583) 106 2013 $000 2,918 139 232 32 (1,010) (1,524) (736) 4,418 (98) (813) 441 3,999 On 1 May 2014, the Group acquired 100% of Concept Engineering Pty Limited. Details of this transaction are: Cash Fair value of contingent consideration (Note 26) Total purchase consideration Cash consideration Amount due under the contract for sale Cash acquired Cash outflow Assets & liabilities held at acquisition date Cash and cash equivalents Trade and other receivables Property, plant and equipment Trade and other payables Provisions Borrowings Deferred tax liability Customer relationships Net identifiable assets Goodwill on consolidation ASHLEY SERVICES GROUP ANNUAL REPORT 2014 2014 $000 4,009 392 4,401 (4,009) - 217 (3,792) 217 3,675 64 (1,851) (297) (1,788) (469) 1,562 1,113 3,288 4,401 2013 $000 - - - - - - - - - - - - - - - 64 Notes to the Financial Statements Concept contributed $4,842,000 to revenue, $230,000 to net profit before tax and $161,000 to net profit after tax to the Group’s performance. The costs associated with the acquisition of Concept which have been expensed were $58,000. 22. CONTROLLED ENTITIES Set out below are the controlled entities of Ashley Services: Country of incorporation 2014 percentage owned % 2013 percentage owned % Subsidiaries of Ashley Services Group Limited Action Arndell Park Pty Limited Action Workforce NSW Pty Limited (formerly Action Blacktown Pty Limited) Action Botany Pty Limited Action James NSW Pty Limited Action James (Qld) Pty Limited Action James WCF Pty Limited Action James Mascot Pty Limited ADV1 Pty Limited Action James Parramatta Pty Limited Action James Western Suburbs Pty Limited Action Job Support Pty Limited Action Workforce Pty Limited ADV2 Pty Limited Action Workforce Victoria Pty Limited ADV3 Pty Limited CP Action Electronics Pty Limited CP Action Workforce Pty Limited CP Med-WH Pty Limited ADV4 Pty Limited ECA Chullora Pty Limited ADV5 Pty Limited ADV6 Pty Limited ECA Plastics Pty Limited Executive Careers Australia Pty Limited ADV8 Pty Limited James Personnel Pty Limited ADV7 Pty Limited James Warehousing Pty Limited National Institute of Training (NSW) Pty Limited Vocational Training Australia Pty Limited Precast Concrete Labour Pty Limited Action Workforce AC Pty Limited Action Workforce ACT Pty Limited Action Workforce BAX1 Pty Limited ASHLEY SERVICES GROUP ANNUAL REPORT 2014 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 65 Notes to the Financial Statements Country of incorporation 2014 percentage owned % 2013 percentage owned % Action Workforce CAT Pty Limited Action Workforce COLI Pty Limited Action Workforce COS1 Pty Limited Action Workforce COT Pty Limited Action Workforce IMT Pty Limited Action Workforce LIN1 Pty Limited Action Workforce OS Pty Limited Action Workforce OSI 1 Pty Limited Action Workforce OST Pty Limited Action Workforce T1 Pty Limited Action Workforce T2 Pty Limited Action Workforce VAPS Pty Limited Action Workforce VER1 Pty Limited Action Workforce VM Pty Limited Action Workforce VPN Pty Limited Action Workforce VPS Pty Limited ADV9 Pty Limited Advance BGT Pty Limited Action MMX Pty Limited Action WA Pty Limited Advance BW Pty Limited Advance GW Pty Limited Advance KM Pty Limited Advance LLA Pty Limited Advance LSA Pty Limited Advance Man Pty Limited Advance MIX Pty Limited Advance TR Pty Limited Advance WL Pty Limited Advance WLE Pty Limited Advance WLT Pty Limited Advance WMAM Pty Limited Advance WMLF Pty Limited Advance WMPM Pty Limited Advance Exchange Pty Limited* Concept Engineering (Aust) Pty Limited** Concept Employment (Aust) Pty Limited** Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia * Advance Exchange Pty Limited was a company incorporated on 25 July 2013. ** Concept entities were acquired on 1 May 2014. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 66 Notes to the Financial Statements 23. PARENT ENTITY DISCLOSURES a. Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Share capital Retained earnings Total equity b. Statement of profit or loss and other comprehensive income Profit for the year Other comprehensive income Total comprehensive income c. Contingent liabilities of the Parent Entity The Parent entity had no contingent liabilities as at 30 June 2014. d. Commitments for expenditure for the Parent entity The Parent had nil committed expenditure as at 30 June 2014 (30 June 2013: nil). 24. RELATED PARTY TRANSACTIONS a. Parent company 2014 $000 92 283 375 369 - 369 6 3 3 6 2014 $000 2,500 - 2,500 2013 $000 92 1,730 1,822 369 - 369 1,453 1,450 3 1,453 2013 $000 4,500 - 4,500 There is no ultimate parent company for Ashley Services Group Limited. However, Ashley Services is a company that is ultimately controlled by Mr and Mrs Ross and Catherine Shrimpton and their company – Action James Holdings Pty Limited. b. Transactions with related entities Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 67 Notes to the Financial Statements Transactions with related parties are as follows: Rent paid or payable to Shrimpton Family Holdings Pty Limited as trustee for the Shrimpton Family Trust, an entity which is controlled by Mr Ross Shrimpton for the head office at Arndell Park, New South Wales Loan balances to entities associated with Mr Ross Shrimpton. The loans are unsecured and subject to interest. The loans were repaid on 1 July 2014, via the payment of a dividend Interest on the loans to Mr Ross Shrimpton Loan balances from entities associated with Mr Ross Shrimpton. These are unsecured and non-interest bearing loans. These loans have effectively been extinguished as a result of the restructure which occurred since balance date – refer to note 28 for further details. Administration charge from entities associated with Mr Ross Shrimpton. These amounts are charged to the group on a cost recovery basis. Administration charge to entities associated with Mr Ross Shrimpton. These amounts are charged to these entities on a cost recovery basis. 25. SECURED AND CONTINGENT LIABILITIES The Group had no contingent liabilities at 30 June 2014 For assets pledged as security for borrowing facilities see Note 15. 26. FINANCIAL INSTRUMENTS a. Significant accounting policies 2014 $000 2013 $000 89 86 1,317 181 4,882 487 36,613 28,965 302 546 230 493 Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in Note 1 to the financial statement. b. Financial risk management objectives The Board of Directors has overall responsibility for the establishment and oversight of the Group’s financial management framework. The Board has an established Audit and Risk Management Committee which is responsible for developing and monitoring the Group’s financial management policies. The committee provides regular reports to the Board of Directors on its activities. The Audit and Risk Management Committee oversees how management monitors compliance with risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks. The main risks arising from the Group’s financial instruments are market risk (including fair value interest rate risk), credit risk and liquidity risk. The Board reviews and approves policies for managing each of these risks. The Board has yet to approve the principles on interest risk, credit risk, the use of financial derivatives and non- derivate financial instruments, and the investment of excess liquidity and this will be done after year end. The Audit and Risk Management Committee oversees how management monitors compliance with risk management policies and procedures and review the adequacy of the risk management framework in relation to the risks. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purpose. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 68 Notes to the Financial Statements c. Market risk Interest rate risk The Group is exposed to interest rate risk associated with borrowed funds at floating interest rates. During the financial year, risks associated with interest rate movements were monitored by the Board; however, no hedging instruments were considered necessary to manage the risk. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. Interest rate sensitivity The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. At the reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, the effect on the Group would be as follows: Change in profit Increase in interest rates of 1% Decrease in interest rates of 1% Change in equity Increase in interest rates of 1% Decrease in interest rates of 1% Credit risk 2014 $000 (32) 32 32 (32) 2013 $000 4 (4) (4) 4 Credit risk refers to the risk that counterparty will default on its contractual obligations, resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The carrying value of trade receivables recorded in the financial statements, net of any impairment allowances, represents the Group’s maximum exposure to credit risks. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counter parties are reputable banks with high quality external credit ratings. The maximum credit risk exposure of financial assets is their carrying amount in the financial statements. d. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Managing Director and Board of Directors, who have built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 69 Notes to the Financial Statements The Group manages liquidity risk by maintaining adequate reserves, banking facilities and the reserve borrowing facilities by continuously forecasting the comparing actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in Note 15 is a listing of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. Liquidity and interest risk tables The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been presented based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group may be required to pay. The table includes both interest and principal cash flows. Financial liabilities 2014 Trade and other payables Borrowings – bank Borrowings – related party loans Other liabilities – Vendor earn-out Total 2013 Trade and other payables Borrowings – bank Borrowings – related party loans Other liabilities – Vendor earn-out Total Weighted average effective interest rate % n/a 6.87% n/a Weighted average effective interest rate % n/a n/a n/a n/a Within 1 year $000 1 to 5 years $000 Over 5 years $000 14,581 3,246 38,113 212 56,152 Within 1 year $000 8,304 - - - 8,304 - - 180 180 - - - - 1 to 5 years $000 Over 5 years $000 - - 28,965 - 28,965 - - - - - Total $000 52,694 3,245 392 56,332 Total $000 8,304 - 28,965 - 37,269 Fair value of financial instruments Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows: level 1 – the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets is determined with reference to quoted market prices; level 2 – the fair value of other financial assets and liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions; and level 3 – the fair value of derivative instruments is calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 70 Notes to the Financial Statements The valuation used for instruments categorised as Level 2 and 3 are described below: Contingent consideration (level 3). Under the terms of the transaction with the vendors of Concept, there were two earn out payments, which are subject to revenue targets and client retention. The fair value of contingent consideration related to the acquisition of Concept (see Note 21(b)) is estimated using the present value technique. The $392,488 fair value is estimated by probability-weighting the estimated future cash outflows, adjusting for risk and discounting at 6%. The probability-weighted cash outflows before discounting are $450,000 and these cash flows have been subject to the following probabilities: 100% probability for the first tranche of the contingent consideration will be achieved; and 90% probability for the second tranche of the contingent consideration will be achieved. The discount rate used of 6%, based on the Group’s estimated incremental borrowing rate for unsecured liabilities at the reporting date, and therefore reflects the Group’s credit position. The effects on the fair value of risk and uncertainty in the future cash flows are dealt with by adjusting the estimated cash flows rather than adjusting the discount rate. 27. OPERATING LEASE COMMITMENTS Leases as lessee Non-cancellable operating lease rentals are payable as follows: Leases as lessee Less than one year Between one and five years Total 2014 $000 482 239 721 2013 $000 342 148 490 The Group leases a number of offices under operating leases. The leases run over varying periods, some with option periods. Some of the leases have fixed rate rental periods, and some have market rate rental adjustments. 28. EVENTS AFTER THE BALANCE DATE No matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years, except for the following: 1. the Group acquired the following related entities (owned by Ross Shrimpton and Marc Shrimpton and their related family entities – referred to as the “ASH Consolidation”): o ADV Services Pty Limited; o Ashley Institute Holdings Pty Limited; o TBRC Holdings Pty Limited; o Tracmin Pty Limited; and o Australian Institute of Vocational Development Pty Limited; on the 20 August 2014, the Group completed the acquisition of the Integracom Unit Trust. The consideration payable in relation to this acquisition comprised of: 2. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 71 Notes to the Financial Statements o $30.0 million of cash; o shares in the Company valued at $10.0 million (representing 6.024 million new shares in Ashley Services at $1.66 per share); o plus profits for the period from 1 July 2014 up to the date of completion estimated to be $1.8 million; and o a deferred consideration component amounting to $15 million which is payable over three years based on certain performance criteria being met. The fair value of the deferred consideration has been assessed to have present value of $13.4 million; on the 21 August 2014, the Company completed its initial public offering. The effect of the offering was that the Company issued 59.5 million new shares at a price of $1.66 per share; and established a $24.0 million facility with BankWest Limited. 3. 4. These significant events post balance date, combined with the acquisition of Concept which occurred 1 May 2014 has significantly altered the financial position of the Group. 29. EMPLOYEE SHARE RIGHTS PLAN No employee Share Performance Plan existed as at 30 June 2014. The Company intends to implement a performance rights share plan for its executives in financial year 2015. 30. DIVIDENDS a. Ordinary shares Ordinary shares Final Dividend (fully franked) b. Franking credits 2014 Cents per share Total $000 2013 Cents per share Total $000 87,229.59 2,500 157,013.26 4,500 Franking credits available for subsequent financial years based on a tax rate of 30% (2013: 30%) The balance of the franking accounts includes: 2014 $000 2013 $000 6,675 5,939 franking credits that arose from the payment of the amount of the provision for income tax; franking debits that arise from the refund of the amount of the provision for income tax; franking debits that arise from the payment of dividends recognised as a liability at the reporting date; and franking credits that arise from the receipt of dividends recognised as receivables at the reporting date. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 72 ASX Additional Information Set out below is additional information as required by the ASX Limited Listing Rules and not disclosed elsewhere in this report. This information is effective as at 19 September 2014. Number of security holders and securities on issue Quoted equity securities Ashley Services has on issue 150,000,000 fully paid ordinary shares which are held by 585 shareholders. Voting rights Quoted equity securities The voting rights attached to fully paid ordinary shares are that on a show of hands, every member present, in person or proxy, has one vote and upon a poll, each share shall have one vote. Distribution of security holders Quoted equity securities Ordinary fully paid ordinary shares Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Unmarketable parcel of shares Number of shareholders 143 Number of shares 135,777 126 81 195 40 585 272,667 607,708 5,726,013 143,257,835 150,000,000 % 0.09 0.18 0.41 3.82 95.50 100.00 The number of shareholders holding less than a marketable parcel of Fully Paid Ordinary shares is 5 with a total number of shares held is 512. Substantial Shareholders The number of securities held by substantial shareholders and their associates are set out below: Fully Paid Ordinary Shares Name Ross Shrimpton and his related entities. Note all shares are subject to a two year voluntary escrow period commencing 20 August 2014. Number 88,524,096 % 59.0 Unquoted equity securities There are no unquoted shares. On-market buy-back There is no current on-market buy-back. Twenty largest shareholders Fully paid ordinary shares Details of the 20 largest shareholders of quoted securities (grouped) by registered shareholding are: ASHLEY SERVICES GROUP ANNUAL REPORT 2014 73 ASX Additional Information Name Mrs Catherine Shrimpton Action James Holdings Pty Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited Holmes Management Group Pty Ltd Australian Foundation Investment Company Limited BNP Paribas Noms Pty Ltd J P Morgan Nominees Australia Limited UBS Nominees Pty Ltd AMP Life Limited Mr Marc Shrimpton Mirrabooka Investments Limited Citicorp Nominees Pty Limited Brispot Nominees Pty Ltd Citicorp Nominees Pty Limited Amcil Limited RBC Investor Services Australia Nominees Pty Limited UBS Nominees Pty Ltd Netwealth Investments Limited Aust Executor Trustees Ltd Total Number of shares 60,858,282 21,631,861 13,019,837 11,918,277 6,024,096 4,819,277 3,223,788 3,195,300 2,575,577 2,219,428 1,500,000 1,445,783 1,435,967 1,418,796 999,160 963,856 755,074 710,000 637,842 520,577 % 40.57% 14.42% 8.68% 7.95% 4.02% 3.21% 2.15% 2.13% 1.72% 1.48% 1.00% 0.96% 0.96% 0.95% 0.67% 0.64% 0.50% 0.47% 0.43% 0.35% 139,872,778 93.26% Annual General Meeting The annual general meeting of the Company will be held at the offices of Norton Rose Fulbright, Level 18, 225 George Street Sydney at 11.00am on Friday 14 November 2014. Shareholders who are unable to attend the meeting are encouraged to complete and return their proxy form that will accompany the notice of meeting. ASHLEY SERVICES GROUP ANNUAL REPORT 2014 74 Bankers BankWest Level 16 45 Clarence Street Sydney NSW 2000 Telephone: + 61 2 9276 8000 Facsimile: 1300 453 796 Share Registry Link Market Services Limited Central Park, Level 4 152 St Georges Terrace Perth WA 6000 Telephone: +61 1300 554 474 Facsimile: +61 2 9287 0303 Website: www.linkmarketservices.com.au Website www.ashleyservicesgroup.com.au ASX Code ASH Corporate Directory Non-Executive Directors Mr Peter Turner (Chairman) Simon Crean Managing Director Mr Ross Shrimpton (Managing Director) Executive Director Mr Vince Fayad (Interim Chief Financial Officer) Alternative Director Marc Shrimpton Company Secretary Mr Ron Hollands Registered Office Unit 2, 11 Holbeche Road Arndell Park NSW 2148 Australian Company Number ACN: 094 747 510 Australian Business Number ABN: 92 094 747 510 Auditors Grant Thornton Audit Pty Ltd Level 17 383 Kent Street Sydney NSW 2000 Telephone: + 61 2 8297 2400 Facsimile: + 61 2 9299 4445 Legal Adviser Norton Rose Fulbright Australia Level 18 225 George Street Sydney NSW 2000 Telephone: + 61 2 9330 8000 Facsimile: + 61 2 9330 8111 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 75 Ashley Services Group Annual Report 2014 ASHLEY SERVICES GROUP ANNUAL REPORT 2014 76
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