Ashland Global
Annual Report 2016

Plain-text annual report

ASHLEY SERVICES GROUP ANNUAL REPORT 2016 1 Ashley Services Group Limited Annual Report 2016 CHAIRMAN AND MANAGING DIRECTOR’S REVIEW ------------------------------------------------------------------ 3 DIRECTORS’ REPORT --------------------------------------------------------------------------------------------------------- 8 AUDITOR’S INDEPENDENCE DECLARATION -------------------------------------------------------------------------- 24 CORPORATE GOVERNANCE STATEMENT ----------------------------------------------------------------------------- 25 DIRECTORS’ DECLARATION----------------------------------------------------------------------------------------------- 26 INDEPENDENT AUDITOR’S REPORT ------------------------------------------------------------------------------------ 27 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ------------- 30 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ----------------------------------------------------------- 31 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ------------------------------------------------------------ 32 CONSOLIDATED STATEMENT OF CASH FLOW ----------------------------------------------------------------------- 33 NOTES TO THE FINANCIAL STATEMENTS ----------------------------------------------------------------------------- 34 ASX ADDITIONAL INFORMATION --------------------------------------------------------------------------------------- 71 CORPORATE DIRECTORY -------------------------------------------------------------------------------------------------- 73 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 2 Chairman and Managing Director’s Review MR IAN PRATT AND MR STEWART CUMMINS Over the past 6 months significant progress has been made in strategically realigning the business. The changes in strategy have been evolutionary in nature and are being progressively implemented across five key areas. Firstly, the Company is committed to its integrated “jobs and skills” business model as this provides a clear differentiation in the market relative to our competitors – allowing us to leverage the twin benefits of work opportunities across a wide range of customers and industries, and high quality job-seeker, upskill and reskill training. Secondly, in terms of key geographies, the Company has maintained its national footprint, however greater sales focus has been concentrated in the New South Wales, Victorian and Western Australian markets. The Company has also consolidated its International operations under the SILK brand focusing on East Coast markets and discontinuing its operations in Perth. Thirdly, the training products being offered have been revised and updated with more emphasis placed on diversification – striving to better balance revenue earned from government-funded training programs with more corporate sales. The target is to move from a circa 75/25 proportion to 50/50 over the next few years. Fourthly, steps have been taken to streamline back office processing for the training business (Ashley Institute of Training; Integracom; and SILK) into 4 state-based centres of excellence to ensure best practice management of state government funding contract obligations. There has also been a restructuring of senior training manager roles in order to reduce costs. Fifthly and finally, to ensure alignment between the business plan and capital structure, the Company’s debt facilities have been renegotiated and re-sized to fit with current business activity and funding needs. We still have work to do but the fundamentals of the business are sound and the process to restore sustained profitability is well on track. The business plan is built around 3 key initiatives: 1. Accelerate growth in the Labour Hire Division New customer relationships have been signed in the logistics and warehousing sector, and with several large construction engineering companies. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 3 Chairman and Managing Director’s Review Our white collar recruitment business has traditionally engaged a multi-service model where its consultants manage both internal and external recruitment assignments. From 1 July 2016 all internal assignments are now handled by dedicated staff, allowing the other staff to be singularly focused on growing our external recruitment for temporary and permanent placements. Early signs are promising with new recruitment consultants joining the team, a flurry of new assignments from existing, valued customers, and a robust pipeline of business from new customers. 2. Turnaround of the Training Division The Training Division had grown too broad and so over 2016 we have:    Rationalised the number of qualifications to better reflect where our experience and current business is focusing. Consolidated our industry groups from 23 to 6, enabling a clearer focus and definition of core markets. These 6 groups are: Food and Agriculture; Telco and Security; Hospitality; Aged Care, Children’s Services and Community Services; Industrial and Logistics; and Business Management (Sales, Customer Services, Leadership and Management). Grown our sales teams in Sydney and Melbourne to harness the greater growth in these two major markets, with a particular emphasis on corporate market opportunities. This will be an ongoing process over the next 12 months. 3. Strengthen IT business support platform Being a human services and IP business, it is important that all our staff have good access to information. Much work has been undertaken during 2016 in order to establish a single Student Management System. We have also launched a new Customer Relationship Management system in the Training Division and a new candidate management system for the white collar recruitment business. DISCUSSION ON RESULTS Earnings and result Earnings Net profit after tax (“NPAT”) for the financial year of the Group was a loss of $69.6 million (2015: $13.7 million profit). This loss includes: 1. 2. 3. a $66.0 million after tax expense for impairment of intangible assets, a $2.6 million after tax loss from the Cantillon operations in Perth, Western Australia, partially offset by a $3.5 million after tax income arising from reassessment of the fair value of deferred consideration liabilities for future earn outs payable in relation to prior period acquisitions. During the final quarter of the financial year, the Board approved an orderly exit from the International student business in Perth, Western Australia. This business was originally acquired through the Cantillon acquisition in September 2014. The Group is fulfilling its obligations for the remaining students and working with third parties to sub-let three separate properties associated with the business. The $2.6 million after tax loss represents the trading loss incurred during the financial year ($0.9 million after tax), together with the costs of exit ($1.7 million), which primarily represents the discounted cost of the future lease obligations. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 4 Chairman and Managing Director’s Review Revenues Revenue from continuing operations at $280.8 million decreased $23.3 million (8%) from the prior period. Labour hire revenues decreased $12.4 million to $248.6 million, driven by timing of account wins versus losses (-$10 million) and reduced revenues with engineering customers (-$2 million). Training revenues decreased $10.8 million to $32.2 million. Total revenues from South Australia and Tasmania declined $3.4 million, following the uneconomic changes to public funding in those states. Queensland revenues declined $6.7 million due partly to changes to the Job Service Provider network, effective 1 July 2015, which impacted Ashley’s public market, but also completion of prior period corporate training contracts, which were not replaced. Earnings before interest taxes depreciation and amortisation (“EBITDA”) Statutory EBITDA (excluding discontinued operations) was a loss of $69.9 million (2015: profit of $23.4 million). The current year result includes a $66.0 million loss from impairment of intangibles assets, partially offset by a $3.5 million benefit from reassessment of the fair value of deferred consideration payable in relation to prior period acquisitions. Statutory EBITDA1 Reassessment of value of deferred consideration liabilities Impairment of Intangible assets/other assets Pre acquisition EBITDA for Integracom and exclusion of SILK post acquisition profit IPO and acquisition related costs taken to income statements Net underlying adjustments Underlying EBITDA NOTES: FY16 $million (69.9) (3.5) 66.0 - - 62.5 (7.4) FY15 $million 23.4 (7.8) 0.9 (0.4) 4.6 (2.7) 20.7 1. EBITDA is a non IFRS measure used internally by management to assess the performance of the business. It has been derived from the IFRS figures in the financial report. Excluding these adjustments, underlying EBITDA for the current period was a $7.4 million loss (2015: profit of $20.7 million) comprising: a. b. c. Labour hire. EBITDA of $4.9 million was $4.1 million below the prior period. The prior period margin benefited from lower workers compensation costs. Current period margin was 2.0%, driven lower due to competitive pressures. Training. The EBITDA loss was $6.6 million (2015: $14.3 million profit). The majority of revenue shortfall flowed to margin, because training cost reductions lagged the volume drop. Also, overheads increased significantly for the year, due mainly to additional sales and marketing costs incurred to pursue growth initiatives and to utilise Smart and Skilled funding in NSW and VET FEE HELP funding nationally. Corporate costs at $5.7 million were $3.1 million above the prior period. Management costs increased, with additional COO/CEO costs from December 2015 and the CFO included for the full year. Marketing costs increased to assist diversification of training revenues, IT costs increased with key core systems being upgraded and legal fees increased. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 5 Chairman and Managing Director’s Review Statement of financial position The Group balance sheet has been heavily impacted by the combined impacts of: a. b. c. $66 million of impairment charges; $7.4 million of current period trading losses, primarily in the first half; and payout of the $6.15 million FY15 final dividend. Consequently, net assets were $27.1 million at 30 June 2016, down from $102.9 million at 30 June 2015. As at 30 June 2016, the Group had $17 million of facilities with Bankwest Limited, comprising a $15 million working capital facility, and $2 million in bank guarantee and credit card facilities. The bank has fixed and floating charges over the Group’s assets. As at 30 June 2016, the working capital facility was undrawn (30 June 2015, nil). Cash Flow There was a strong operating cash inflow (after capex) of $7.4 million during the second half of 2016 (1H16: $12.0 million operating cash outflow) reflecting improved underlying EBITDA trading results, a 60% reduction in capital expenditure, and seasonality of working capital. Changes to capital expenditure were predominantly focused on winding back the planned expansion of the international student business in Perth, and did not inhibit investment in the Company’s core labour hire and training markets. Over the full year there was a net outflow of $10.9 million as a result of the $4.6 million operating cash outflow (after capex) and the final dividend payment for FY15 of $6.2 million. DIVIDEND During the financial year ended 30 June 2016, the Group paid a final dividend of $6.15m on 25 September 2015 which represents a payment of 4.1 cents per share. The Directors did not declare any dividends in respect of the financial year ended 30 June 2016. FUNDING UPDATE Subsequent to year end, the Company has revised its funding arrangements by establishing an ‘evergreen’ invoice discount facility with a Big 4 bank at competitive rates and reduced the BankWest debt facility from $15 million to $10 million in August 2016, with a plan to wind this down to $5 million over the next 4 months. This will provide the Company with equivalent liquidity at comparable cost to the previous $15 million facility. The term of the BankWest facility is unchanged (still 29 October 2017) and includes a similar covenant package, albeit financial measures have been re-set to the Company’s current business plan. EVENTS SUBSEQUENT TO BALANCE DATE On 19 August 2016 the Company served legal proceedings filed in the Supreme Court of New South Wales against Holmes Management Group Pty Limited, the vendor of the Integracom telecommunications training business acquired in August 2014. These proceedings relate to alleged breaches of warranties under the Unit Sale and Purchase Agreement for the acquisition. It is not possible at this time to quantify the likely financial impact of these proceedings. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 6 Chairman and Managing Director’s Review LEVERAGING THE KEY STRENGTHS OF THE BUSINESS Through its 5 main trading brands, Ashley Services Group has built a strong market position as the leading “jobs and skills” company in Australia. We have a talented and dedicated team across our various businesses. We would like to thank our people for their commitment to service our customers and to ensure that Ashley Services Group retains its mantle as a high quality serviceprovider. Ian Pratt Chairman Stewart Cummins Managing Director ASHLEY SERVICES GROUP ANNUAL REPORT 2016 7 Directors’ Report The Directors present their annual financial report on the consolidated entity, being Ashley Services Group Limited and its controlled entities (“Group”) for the financial year ended 30 June 2016. GENERAL INFORMATION a. Directors The names of the Directors in office at any time during, or since the end of the year are: Table 1: Director Details Names Mr Ian Pratt Mr Ross Shrimpton Mr Stewart Cummins Mr Marc Shrimpton Appointed / Resigned Chairman Non-Executive Director Appointed 1 October 2015 Appointed 12 October 2000 Managing Director Executive Director Appointed 15 February 2016 Appointed Alternative Director on 31 July 2014, then appointed Director 1 October 2015 Mr Peter Turner Mr Simon Crean Mr Vincent Fayad Chairman Non-Executive Director Appointed 21 July 2014 and resigned 1 October 2015 Appointed 31 July 2014 and resigned 1 October 2015 Non-Executive Director Appointed 31 July 2014 and resigned 1 October 2015 Directors’ Information   Mr Ian Pratt | Non-Executive Chairman (since 1 October 2015) Qualifications | CA Experience | Mr Ian Pratt has over 40 years’ experience in the accounting profession and is a Director of a number of Public and Private companies. During this time, he has been involved in the recruitment, finance and property industries, and advises on income tax and related matters. Currently Mr Pratt is a Partner at Trood Pratt & Co Chartered Accountants and he is a Director of Charter Hall Direct Property Management Limited (formerly Macquarie Direct Property Management Limited). Mr Pratt is a Member of Chartered Accountants Australia and New Zealand. Ian is the Chairman of the Nominations, Audit & Risk Management and Remuneration Committees. Mr Stewart Cummins | Managing Director (since 15 February 2016) Qualifications | B.Ec (MAC), Master of Management (MGSM), FCA Experience | Stewart was appointed Chief Operating Officer of Ashley Services Group in December 2015 and became Managing Director and Chief Executive Officer (CEO) in February 2016. Prior to this, Stewart has had broad business experience across several sectors, having been the CEO at Vocation Limited (ASX:VET), the CFO of Transpacific Industries Group Ltd (ASX: TPI), and Finance Director at TNT Express N.V. in Australia, New Zealand and the Pacific Islands. Stewart has also held senior financial roles with Caltex Australia, Dairy Farmers, Multiplex and Arthur Andersen over the past 25 years. Stewart is a Fellow of Chartered Accountants Australia & New Zealand and a Graduate Member of the Australian Institute of Company Directors. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 8 Directors’ Report  Mr Ross Shrimpton | Non-Executive Director (from 15 February 2016, Executive Director to 15 February 2016) Qualifications | BComm (UNSW), CA Experience | Ross is the founder and former Managing Director of Ashley Services Group. 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 20 years of relevant experience in the labour hire and training industries. Ross is a member of the Nominations Committee, Audit & Risk Management and Remuneration Committees.  Mr Marc Shrimpton | Executive Director (from 1 October 2015) Qualifications | Member of the Australian Institute of Company Directors. Dip of Management and Leadership, Cert IV in Workplace Training and Assessment. Graduate of the Owner / President Management program at Harvard Business School, Boston. Experience | Marc joined Ashley Services Group in 2000 and has been the key driver of Blackadder, a professional labour hire and recruitment services business since it was acquired in 2007. Prior to the acquisition of Blackadder, Marc held a number of positions within Ashley Services Group, including state manager roles in the Labour Hire and Training business and has over 16 years relevant industry experience. Marc is a member of the Nominations Committee, Audit & Risk Management and Remuneration Committees. 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 2: Shares Held by Directors Names Mr Ian Pratt Mr Ross Shrimpton1 Mr Stewart Cummins Mr Marc Shrimpton Note:  Number of Shares Held 15,060 86,046,305 600,000 1,917,423 Shareholding  % 0.01 57.36 0.40 1.28 1. This includes shares owned by Ross Shrimpton (9,857), Catherine Shrimpton (wife of Ross Shrimpton, 60,858,282), their family companies (22,178,166) and shares purchased on behalf of Dean and Andrew Shrimpton (1,500,000 and 1,500,000 respectively). It excludes shares held non-beneficially in trust on behalf of Holmes Management Group Pty Limited (6,024,096). ASHLEY SERVICES GROUP ANNUAL REPORT 2016 9 Directors’ Report 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 3: Other Directorships of listed entities Name Mr Ian Pratt1 Mr Ross Shrimpton Mr Stewart Cummins2 Mr Marc Shrimpton Mr Peter Turner3 Mr Simon Crean3 Mr Vincent Fayad3 Note: Company Nil Nil Date from Date to - - - - Vocation Limited 1 May 2015 16 December 2015 Nil - - Virtus Health Limited (ASX: VRT) 17 May 2013 Current Nil Greenvale Energy NL (ASX: GRV) Medibio Limited (ASX: BPO) formerly BioProspect Limited (ASX: BPO) Esperance Minerals Limited (ASX: ESM) - - 31 October 2014 Current 29 April 2014 1 February 2013 7 April 2015 12 August 2015 1. Mr Ian Pratt was appointed a Director on 1 October 2015. 2. Mr Stewart Cummins was appointed Managing Director and CEO on 15 February 2016. 3. Messrs Turner, Crean and Fayad resigned as Directors on 1 October 2015. a. Principal activities The principal activities of the Group during the financial year were the provision of labour hire (including recruitment) 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 Ron Hollands held the position of Company Secretary for the entire financial year. 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. c. Directors’ meetings Details of meetings of directors (including committees of directors) held in the financial year and attendances by each director are shown in the following table: ASHLEY SERVICES GROUP ANNUAL REPORT 2016 10 Directors’ Report Table 4: Meeting Attendance Audit & Risk Management Committee Meetings Remuneration Committee Meetings Nomination Committee Meetings Held Attended Held Attended Held Attended Board Meetings Held5 Attended 7 14 7 4 5 5 5 7 14 7 4 5 5 5 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 N/A N/A N/A N/A N/A N/A 3 3 3 3 3 3 1 1 1 1 1 1 - - - - - - Mr Ian Pratt1 Mr Ross Shrimpton Mr Marc Shrimpton2 Mr Stewart Cummins3 Mr Peter Turner4 Mr Simon Crean4 Mr Vince Fayad4 Note: Ian Pratt was appointed a director on 1 October 2015. 1. 2. Marc Shrimpton was alternate director for Ross Shrimpton from 31 July 2014 until he became a director on 1 October 2015. 3. 4. Messrs Turner, Crean and Fayad resigned as directors on 1 October 2015. 5. Meetings held during the period the individual held office. Stewart Cummins was appointed a director on 15 February 2016. 2. BUSINESS REVIEW a. Operating results The consolidated loss of the Group attributable to equity holders after providing for income tax amounted (2015: profit of $13,676,000). to $69,626,000 The Group did not declare any dividends in relation to the year ended 30 June 2016. On 17 August 2015, the Group declared a final fully franked dividend for the year ended 30 June 2015 of 4.1 cents per share ($6,150,000) payable to shareholders on 25 September 2015 based on a record date at 4 September 2015. 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 and Managing Director’s Review. c. Future developments Likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations are referred the Chairman and in Managing Director’s Review. to generally d. Events subsequent to reporting date There have been no matters or circumstances that have arisen since the end of the year that would have significantly affected the group’s operations in financial year 2016, except as follows: Subsequent to year end, the Company has revised its funding arrangements by establishing an ‘evergreen’ invoice discount facility with a Big 4 bank at competitive rates. The BankWest debt facility reduced from $15 million to $10 million in August 2016, and will be reduced to $5 million over the next 4 months. This will provide the Company with equivalent liquidity at comparable cost to the previous $15 million facility. The term of the BankWest (still facility 29 October 2017) and includes a similar covenant package, albeit financial measures have been re- set to the Company’s current business plan. Key terms of the revised facility agreement are outlined in Note 15 to the financial statements. is unchanged In addition, on 19 August 2016 the Company served legal proceedings filed in the Supreme Court of New South Wales against Holmes Management Group Pty Limited, the vendor of the Integracom telecommunications training business acquired in August 2014. These proceedings relate to alleged breaches of warranties under the Unit ASHLEY SERVICES GROUP ANNUAL REPORT 2016 11 Directors’ Report and Purchase Agreement the Sale acquisition. It is not possible at this time to quantify the impact of these proceedings. likely financial for e. Potential Litigation to The Group became aware that IMF Bentham Limited (“IMF”) made a release to the ASX dated 17 August 2015 in which it announced that IMF proposed fund claims of certain ASH shareholders against ASH with respect to alleged misstatements from, ASH’s in, or omissions prospectus dated 7 August 2014 in connection with ASH’s acquisition of training organisation Integracom. registered the The Group has ceased discussions with IMF Bentham in relation to its proposed class action. No legal proceedings have been served. 3. 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. During the year, the Group issued 1,561,688 Performance Rights to senior executives under the terms of the FY16 Long term incentive (LTI) plan. A summary of these terms can also be found in section 4 of this Directors’ report. 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. Grant Thornton did not provide any non-audit services during the year ended 30 June 2016. Details of the amounts paid to the auditor (Grant Thornton) for audit services provided during the in Note 4 to the financial year are outlined statements. 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, secretaries and officers 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 such by proceedings. connection with the officers in 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 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 the premium between amounts insurance against legal costs and those relating to other liabilities. relating to 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. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 12 Directors’ Report g. Rounding off of amounts In accordance with ASIC Corporations (Rounding in Financial Instrument / Directors’ Reports) 2016/191, amounts in the financial report are rounded off to the nearest thousand dollars unless otherwise indicated. 4. REMUNERATION REPORT – AUDITED The directors of Ashley Services Group Limited present the remuneration report for Non-Executive Directors, Executive Directors and other key management personnel, prepared in accordance with the the Corporations Act 2001 and Corporations Regulations 2001. 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; 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 the financial year: Executive Directors:   Ross Shrimpton (to 15 February 2016) Stewart Cummins (from 15 February 2016); and  Marc Shrimpton (from 1 October 2015) Non-Executive Directors: Ross Shrimpton (from 15 February 2016) Peter Turner (until 1 October 2015); Simon Crean (until 1 October 2015); Vince Fayad (until 1 October 2015); and Ian Pratt (from 1 October 2015).      Other key management personnel:    Stewart Cummins (Chief Operating Officer, from 15 December 2015 to 15 February 2016) Paul Brittain (Chief Financial Officer); Brett O’Connor (General Manager, Training); and Paul Rixon (General Manager, Labour Hire).  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 The Board seeks to ensure that executive reward satisfies the following key criteria for good reward governance practices:    competitiveness and reasonableness; acceptability to shareholders; 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 a 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 rewards; and provides recognition for contribution to the business. for earning 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 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 13 Directors’ Report provides further information on the role of this committee. Executive pay  through incentives provided long-term participation in the Ashley Services Group Performance Rights Share Plan. The executive pay and reward framework has three components:  base pay and benefits, including superannuation; short-term performance incentives, provided in cash; and  these combination of The executive’s total remuneration. comprises the ASHLEY SERVICES GROUP ANNUAL REPORT 2016 14 Directors’ Report Table 5: Key components of senior executive remuneration framework in place during the year ended 30 June 2016. Fixed Remuneration/Base Pay Short Term Incentive (STI) Long Term Incentive (LTI) Remuneration Elements     Base pay is determined by reference to appropriate benchmark information, taking into account an individual’s responsibilities, performance, 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. ‘At risk’ award opportunity for the achievement of annual performance objectives linked to annual financial targets and non financial goals set by individual.  ‘At risk’ award opportunity for the achievement of performance hurdle over a three year measurement period. Financial targets in line with budgets set for the individual’s area of influence for the financial year, coupled with non financial key performance measures.  Two performance hurdles: i) 50% relates to achieving 10% compound annual growth rate in Earnings Per Share (EPS) with Proforma EPS for the year ended 30 June 2015 as the base for year 1 of the three year period. ii) 50% relates to Total Shareholder Return (TSR) which measures share price performance of ASH versus a comparator group of 20 companies.  There are no guaranteed base pay increases in any executives’ employment contracts.  Paid in cash within 30 days of finalisation of Audited Annual Report.  No value is derived unless the Group exceeds the EPS growth measure or TSR is 1st or 2nd quartile versus the comparator group.  Vesting is 50% at the end of year 3 and 50% at the end of year 4, provided the 3 year performance hurdles were met and the executive is still employed at the date of vesting.  Grant of equity awards aligns shareholder and executive interests, enhances retention of key talent and focuses executives on long term sustainable business performance. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 15 Directors’ Report Table 6: Key features of the senior executive STI plan for FY16 Overview of the senior executive STI plan Who participates in the Senior Executive STI plan? Senior executives, including the CEO, participate in the senior executive STI plan. How much can executives earn? STI opportunity for senior executives ranges from zero to 100% of target STI for significant out- performance Thresholds and performance conditions Is there a threshold level of performance required? Yes. There are threshold levels for EBITDA that must be met to receive an STI payment. Achievement of the thresholds does not automatically entitle executives to an STI award. Financial and non-financial performance measures must also be met to earn an STI payment. What are the performance conditions? Measures Financial measures (80% of STI opportunity) Non-financial measures (20% of STI opportunity) Senior Executives Assessed against:   Budget EBITDA for the individual’s area of influence for the financial year. 50% payable for achievement of budget. Remaining 50% payable on a straight line pro rata basis for financial performance from 100% to 120% of budget. Assessed against:  Achievement of individual’s performance objectives.  Only eligible for this potential allocation once a financial threshold of 90% of budget EBITDA for the individual’s area of influence is met or exceeded. Setting and assessing performance Who sets and assesses performance? How is the STI delivered? The CEO sets and assesses performance and short term incentive outcomes for senior executives with guidance from the Remuneration Committee. The Remuneration Committee sets the targets for CEO and assesses performance against those targets. 100% of any STI award is paid in cash within 30 days of finalisation of the audited Annual Report. Table 7: Key features of the senior executive FY16 LTI plan Overview of the LTI plan for FY16 Who participates in the Senior Executive LTI? What was awarded under the LTI plan in FY16? Senior executives, including the CEO, participate in the senior executive LTI plan. On 25 September 2015 senior executives received an LTI award of 1,561,688 performance rights, the vesting of which is subject to the performance condition outlined below. The number of rights awarded was calculated by dividing the remuneration value of the award by the volume weighted average price of ASH shares for the 5 day trading period prior to the approval to grant their award. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 16 Directors’ Report Overview of the LTI plan for FY16 Performance conditions What are the performance conditions? Over what period is performance measured? How are the performance conditions assessed? Performance condition 1) EPS Senior executive LTI awards are earned only upon achievement of the following performance hurdles:   Earnings Per Share growth (EPS): 50% of the LTI grant Total Shareholder Return (TSR): 50% of the LTI grant The Board has determined that the LTI plan will be subject to the performance condition over a three year period, commencing 1 July 2015. Absolute EPS performance condition - measured as the compound annual underlying EPS growth over the 3 year performance period. The EPS target is: EPS Actual proforma EPS for the financial year ended 30 June 2015 10% growth FY16 10% growth FY17 10% growth FY18 EPS Target 8.7 cents 9.6 cents 10.5 cents 11.6 cents If actual EPS for the year ended 30 June 2018 exceeds 11.6 cents per share, 50% of the performance rights granted to each employee will vest as follows: 50% of performance rights granted to each employee vest at the end of the third year (25 September 2018) The remaining 50% vest at the end of the fourth year (25 September 2019), provided the executive is still employed at this vesting date. Performance condition 2) TSR The TSR performance condition is a measure of ASH’s TSR compared to the TSR of a comparator group of twenty competing and industry related companies at the beginning of the respective performance periods. TSR is measured by the change in value of the ASH’s cumulative TSR over the performance period compared to the TSR performance of the comparator group over the 3 year performance period. If actual TSR for ASH is top quartile for the 3 year performance period, 50% of the performance rights granted to each employee will vest. If actual TSR for ASH is 2nd quartile for the 3 year performance period 25% of the performance rights granted to each employee will vest. If actual TSR for ASH is below 2nd quartile, none of the performance rights attributed to this performance hurdle will vest. Vesting of TSR related performance rights is as follows: 50% of performance rights granted to each employee vest at the end of the third year (25 September 2018) The remaining 50% vest at the end of the fourth year (25 September 2019), provided the executive is still employee at this vesting date. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 17 Directors’ Report Overview of the LTI plan for FY16 Why were the performance measures chosen? The Board considers two performance conditions to be appropriate because they ensure that a proportion of each executive’s remuneration is linked to the generation of profits (expressed on a per share basis) and shareholder value through the combined application of both absolute and relative performance criteria. In particular, the use of a relative TSR based hurdle: • Ensures alignment between comparative shareholder return and reward for the executive; and Provides a relative, external market performance measure, having regard to those companies with which the Group competes for capital, customers and talent. An absolute underlying EPS growth based hurdle: • Links executive reward to a fundamental indicator of financial performance that is directly connected to shareholders; and Links directly to ASH’s long term objectives of improving and maintaining earnings performance. • • The use of dual performance measures combines a strong external market based focus through share price growth and dividends (TSR), and a non-market based internal measure aimed at driving improved Company earnings results (EPS). No, retesting of performance is not permitted. The Remuneration Committee based on financial information (EPS measure) and share price performance (the TSR measure). No, there are no voting rights or entitlements to dividends on unvested awards under the LTI plan. Is performance subject to retesting? Who assesses performance against targets? Does the executive receive dividends and voting rights on unvested awards? Cessation of employment and change of control What happens in the event of a change of control? Upon a change of control event, the Board may determine to vest some or all of the LTI awards. In making this determination, the Board will consider all relevant circumstances, including the performance against the EPS measure up to the date of the change of control event and the portion of the performance period that has expired. What happens in the event of cessation of employment? In general, unvested LTI awards are forfeited. In limited circumstances, such as upon a senior executive’s death, serious injury or incapacity during the performance period or other reason approved by the Board, any unvested performance shares will vest at the end of the performance period if the relevant performance conditions have been satisfied. STI and LTI plans for the financial year ended 30 June 2017 The remuneration committee has approved a similar Short Term Incentive (STI) plan for the year ended 30 June 2017, based upon budget targets for that annual period. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 18 Directors’ Report In light of the loss for the financial year ended 30 June 2016 and reduced share price, the Board and the Remuneration Committee have temporarily suspended the LTI scheme. There will be no award of performance rights to senior executives in relation to the year ended 2017. Non-executive Director remuneration and Board performance review c. Non-executive Directors’ remuneration are reviewed annually and are determined by the Board based on recommendations from the Remuneration Committee. In making its recommendations, the Remuneration Committee takes into account remuneration paid to other non-executive Directors of comparable 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, fees are not linked to performance. The Company does not operate equity plans for non-executive Directors. Non-executive Directors are entitled to statutory superannuation included as part of their Directors’ fees. There are no other schemes for retirement benefits for non-executive Directors. No review of the Board’s performance occurred in the financial year ended 30 June 2016. Details of remuneration d. Details of remuneration of the Directors and other key management personnel of Ashley Services Group are set out in the tables on pages 19 to 21. The key management personnel of Ashley Services Group are listed on page 13. 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 major provisions of the agreements relating to remuneration are set out below: Table 8: Executive and Key Management Personnel Service Agreements Name Stewart Cummins Marc Shrimpton Paul Brittain Brett O’Connor Paul Rixon Note: Base Salary $1 Target STI %2 Target LTI %2, 3 600,000 275,000 450,000 275,000 275,000 50 50 50 50 50 25 30 50 50 50 Term of agreement Ongoing Ongoing Ongoing Ongoing Ongoing Notice Period 6 months 6 months 6 months 6 months 6 months 1. Base salary includes superannuation contributions. 2. Maximum annual award as a percentage of annual salary. 3. This plan has been suspended for the year ended 30 June 2017. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 19 Directors’ Report Table 9: 2016 – Remuneration of Key Management Personnel 2016 Name Non-executive Directors Ian Pratt5, 7 Ross Shrimpton Peter Turner6 Simon Crean6 Vincent Fayad6 Executive Director Stewart Cummins8 Marc Shrimpton Other key management personnel Brett O’Connor Paul Rixon Paul Brittain Total Note: ST1 employee benefits Cash salary & fees $ Salary non- cash $ ST1 employee bonus S PE2 benefits Super- annuation $ 113,014 134,962 35,388 25,114 20,548 278,259 255,692 366,415 255,692 421,192 1,906,276 - - - - - - - - - - - - - - - - - - - - - - 10,736 9,051 3,361 2,386 1,952 22,490 19,308 19,308 19,308 28,808 136,708 LT3 employee benefit Total4 Performa nce based Remunera tion $ - - - - - - - $ % 123,750 144,013 38,749 27,500 22,500 300,749 275,000 385,723 275,000 450,000 2,042,984 - - - - - - - - - ST – Short-term. PE – Post-employment. 1. 2. 3. LT – Long-term. Details of the long term incentive plan are included in the Directors’ report, pages 15 to 18. Management have assessed the probability of the performance hurdles for the 2015 and 2016 plans being met as nil and no expense has been recognised in the profit and loss account for the year ended 30 June 2016. 4. Amounts included in the above table include amounts paid to key management from all entities. 5. 6. 7. 8. During the year tax advisory fees have also been paid to Trood Pratt & Co (Company in which Ian Pratt is a Partner). Ceased as Directors 1 October 2015 and included to that date. Commenced as Director 1 October 2015 and inclusive from that date. Stewart Cummins commenced as Chief Operating Officer on 14 December 2015 and moved to Executive Director on 15 February 2016. These amounts represent remuneration from the date he commenced with the Group, rather than the date he was appointed Director. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 20 Directors’ Report Table 10: 2015 – Remuneration of Key Management Personnel 2015 Name Non-executive Directors Peter Turner Simon Crean Vincent Fayad5 Executive Director Ross Shrimpton Marc Shrimpton Andrew Shrimpton Other key management personnel Brett O’Connor Paul Rixon Paul Brittain6 John Knights7 Total Note: Cash salary & fees $ ST1 employee benefits Salary non- cash $ ST1 employee bonus S PE2 benefits Super- annuation $ IPO Bonus8 $ 132,751 93,116 74,655 263,165 243,789 231,547 384,994 241,254 245,709 54,001 - - - - - - - - - - 120,001 74,998 - - - 10,753 67,824 2,707 - 100,000 137,501 17,474 71,924 137,501 - - - - - 400,000 12,414 8,846 7,092 17,725 18,058 19,506 17,958 19,242 10,957 4,652 1,964,982 28,227 239,748 872,708 136,450 LT3 employee benefit Performan ce based Remunera tion Total4 $ $ % - - - - - - - - - - - 265,166 176,960 81,747 280,890 261,847 332,336 640,454 487,396 256,666 458,653 3,242,115 - - - - - 20 16 15 - - 1. 2. 3. ST – Short-term. PE – Post-employment. LT – Long-term. Details of the long term incentive plan are included in the Directors report, pages 15 to 18. Management have assessed the probability of the performance hurdle for the 2015 plan being met as nil and no expense has been recognised in the profit and loss account for the year ended 30 June 2015. 4. Amounts included in the above table include amounts paid to key management from all entities. 5. During the year financial advisory fees have also been paid to PKF Lawler Corporate Finance (Company in which Vincent Fayad is a Director). These include payments for the period to 30 November 2014, during which Vince was both a Director and the Interim Chief Financial Officer. Commenced employment and included as KMP from 1 December 2014. Resigned 31 August 2014. Mr Turner and Mr Crean received payments of $120,001 and $74,998 respectively for services rendered as part of the IPO process. John Knights, Andrew Shrimpton, Brett O’Connor and Paul Rixon received bonuses at the time of the IPO for past services rendered. 6. 7. 8. Other transactions with key management personnel Information on share-based payments and other transactions with key management personnel is set out on the previous pages. Shares held by key management personnel e. The number of ordinary shares in the Company during the 2016 reporting period held by each of the Group’s key management personnel, including their related parties are set out below: ASHLEY SERVICES GROUP ANNUAL REPORT 2016 21 Directors’ Report Table 11: Shares held by Key Management Personnel Name Ian Pratt2 Ross Shrimpton1 Stewart Cummins2 Marc Shrimpton Brett O’Connor Paul Rixon Paul Brittain Total Note: Balance at start of the year 15,060 Shares Purchased - Balance at end of the year 15,060 85,248,940 - 1,688,000 41,416 41,416 18,000 87,052,832 797,365 600,000 229,423 6,024 - - 1,632,812 86,046,305 600,000 1,917,423 47,440 41,416 18,000 88,685,644 1. 2. f. This includes shares owned directly by Ross Shrimpton (9,857), Catherine Shrimpton (wife of Ross Shrimpton, 60,858,282), their family companies (22,178,166) and shares purchased on behalf of Andrew (1,500,000) and Dean Shrimpton (1,500,000). It excludes shares held non-beneficially in trust on behalf of Holmes Management Group Pty Limited (6,024,096). Ian Pratt was appointed a director on 1 October 2015. Stewart Cummins was appointed a director on 15 February 2016. Executive service agreements On appointment to the Board, all non-executive Directors sign a letter of appointment with the Company. The letter summarises the terms including compensation, relevant to the office of Director. All contracts with executives may be terminated by either party with a notice period as outlined in Table 8. Executives are typically restricted for twelve months after termination from conducting or engaging in competing businesses and from solicitation of customers and employees of the Company. g. Share-based compensation Senior Executive Share Plan The Company established the Performance Rights Share Plan on 31 July 2014. The Performance Rights Share Plan is intended to provide incentives to attract motivate and retain key executives whose present and potential contributions are important to the success of the Group by offering them an opportunity to participate in ownership of the Company. The Performance Rights Share Plan is administered by the Board in its discretion. The terms and conditions of the Performance Rights Share Plan are summarised below. During the financial year the Board issued 1,561,688 performance rights (2015: 380,787). The number of Performance Rights awarded to executive directors and Key Management Personnel is set out below: Table 12: Performance Rights held by Executive Directors and Key Management Personnel Name Ross Shrimpton Stewart Cummins Marc Shrimpton Brett O’Connor Paul Rixon Paul Brittain Total Note: Balance at start of the year - Performance Rights Granted1 - Balance at end of the year - - 49,699 120,482 82,831 73,755 326,767 - 157,143 428,571 261,905 428,571 1,276,190 - 206,842 549,053 344,736 502,326 1,602,957 1. Rights granted 25 September 2015 at 52.5 cents per right, corresponding to the weighted average price of ASH shares for the 5 days prior to the grant date. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 22 Directors’ Report The offer of rights to Shares under the Employee Performance Rights Plan did not exceed 5% of the total number of issued shares in that class. Consideration for the Shares is provided in the form of services to or for the benefit of the Company and as such performance conditions may be attached to any rights under the Employee Performance Rights Plan. An eligible employee who has contracted with Ashley Services (under the Employee Performance Rights Plan) for the right to Shares in the Company (Participant), holds those rights on the following terms:     disposal of rights is not permitted without the permission of the Board; any new issue of shares to existing shareholders will only apply to the Participant if the rights to shares have vested in the Participant and the Participant has become a shareholder in the Company at the relevant record date (as defined in the ASX Listing Rules); in the event there is a bonus issue to Ashley Services shareholders, the number of shares a Participant is entitled to under the Employee Performance Rights Plan will be increased by the number of Shares the Participant would have received had they been a shareholder before the record date (as defined in the ASX Listing Rules) for the bonus issue; and in the event of a reconstruction of the issued capital of the Company prior to a Participant’s rights under the Employee Performance Rights Plan vesting in the Participant, the rights and Shares to which the Participant is entitled will be reconstructed in accordance with ASX Listing Rules. Rights under the Employee Performance Rights Plan will vest in a Participant at a determined date subject to the Participant’s continued employment with Ashley Services and the satisfaction of any performance conditions and other terms and conditions imposed by the Board. Shares allotted under the plan are held under the following conditions:   shares issued under the plan will rank equally to shares issued in Ashley Services; and compliance with Ashley Services’ Share Trading Policy is required. Management have assessed the probability of the performance hurdles for the 2015 and 2016 plans being met as nil and no expense has been recognised in the profit and loss account for the year ended 30 June 2016. 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 Ian Pratt Chairman Sydney, 30th August 2016 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 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 23 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 2016, 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, 30 August 2016 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 A Corporate Governance Statement has been adopted by the Board on 30August 2016 and can be found at http://www.ashleyservicesgroup.com.au/investor- centre/corporate-governance/ The Board has adopted a suite of governance materials which are available in the Corporate Governance section of the Company’s website (www.ashleyservicesgroup.com.au), under “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. Diversity To date, the board or a committee have not set measurable objectives for achieving gender diversity and to assess annually both the objectives and the company’s progress in achieving them. The Company provides the following information on the proportion of women employees in the whole organisation, women in Senior Executive positions and women on the Board of the Company. Directors & Senior Management Corporate & Administration Labour Hire Recruitment Training Total Female Male 23% 84% 68% 79% 59% 63% 77% 16% 32% 21% 41% 37% During the financial year ending 30 June 2016 the Company submitted its first report to the Workplace Gender Equality Agency. The performance of the Board and Senior Executives in the 2016 financial year has been reviewed against both quantitative and qualitative measures and Directors and Senior Executives provided feedback on the discharge of their responsibilities. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 25 Directors’ Declaration 1. In the opinion of the Directors of Ashley Services Group Limited: a. The consolidated financial statements and notes of Ashley Services Group Limited are in accordance with the Corporations Act 2001, including: i. Giving a true and fair view of its financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and ii. Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b. There are reasonable grounds to believe that Ashley Services Group Limited will be able to pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2016. 3. Note 1 confirms that the consolidated financial statements also comply with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors. .................................................................. Ian Pratt Chairman Sydney, 30th August 2016 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 26 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 Independent Auditor’s Report To the Members of Ashley Services Group Limited 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 2016, 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 plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. 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. 27 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 2016 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. 28 Report on the remuneration report We have audited the remuneration report included in pages 13 to 23 of the directors’ report for the year ended 30 June 2016. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion on the remuneration report In our opinion, the remuneration report of Ashley Services Group Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. GRANT THORNTON AUDIT PTY LTD Chartered Accountants C F Farley Partner - Audit & Assurance Sydney, 30 August 2016 29 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the financial year ended 30 June 2016 Note 30 Jun 2016 $000 30 Jun 2015 $000 Revenue Other income Employment costs Depreciation and amortisation expense Finance costs Other expenses IPO and acquisition related costs Impairment of intangibles Deferred vendor earn-out adjustment (Loss)/profit before income tax from continuing operations Income tax credit/(expense) (Loss)/profit for the year from continuing operations Loss for the year from discontinued operations (Loss)/profit for the year Other comprehensive income Total comprehensive (loss)/income for the year Basic earnings per share (cents) from continuing operations Diluted earnings per share (cents) from continuing operations Basic earnings per share (cents) from discontinued operations Diluted earnings per share (cents) from discontinued operations Basic earnings per share (cents) Total Diluted earnings per share (cents) Total The accompanying notes form part of these financial statements. 2 2 3 3 12 16 5 22 20 20 20 20 20 20 280,832 1,077 (274,065) (3,470) (612) (15,169) - (65,966) 3,482 (73,891) 6,913 (66,978) (2,648) (69,626) - (69,626) (44.65) (44.65) (1.77) (1.77) (46.42) (46.42) 304,083 689 (273,804) (2,535) (934) (10,507) (4,387) - 7,790 20,395 (6,151) 14,244 (568) 13,676 - 13,676 10.06 10.05 (0.40) (0.40) 9.66 9.65 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 30 Consolidated Statement of Financial Position As at 30 June 2016 Note 30 Jun 2016 $000 30 Jun 2015 $000 Assets Current assets Cash and cash equivalents Trade and other receivables Current tax receivable Other assets Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Other liabilities Provisions Total current liabilities Non-current liabilities Other liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Common control reserve (Accumulated losses)/Retained earnings Total Equity 7 8 13 9 10 13 11, 12 14 15 16 17 16 13 17 18 19 1,704 27,925 2,838 930 33,397 6,064 7,590 9,847 23,501 56,898 18,982 102 942 3,792 23,818 - 3,700 2,280 5,980 29,798 27,100 149,929 (57,687) (65,142) 27,100 12,580 37,737 1,974 767 53,058 5,222 3,873 76,216 85,311 138,369 22,300 226 - 2,485 25,011 4,660 5,551 271 10,482 35,493 102,876 149,929 (57,687) 10,634 102,876 The accompanying notes form part of these financial statements. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 31 Consolidated Statement of Changes in Equity For the financial year ended 30 June 2016 For the year ended 30 June 2016 Balance at 1 July 2015 Loss for the period Other comprehensive income for the period Total comprehensive loss for the period Transactions with owners in their capacity as owners: Dividends paid Share Capital $000 Common Control Reserve $000 149,929 (57,687) - - - - - - - - Balance at 30 June 2016 149,929 (57,687) For the year ended 30 June 2015 Balance at 1 July 2014 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividends paid Common control business combination Shares issued to acquire Integracom Shares issued through initial public offering, net of IPO costs Balance at 30 June 2015 3 - - - - - - - - - 57,687 10,000 82,239 (57,687) - - Retained Earnings $000 10,634 (69,626) - Total $000 102,876 (69,626) - (69,626) (69,626) (6,150) (65,142) (6,150) 27,100 31,068 13,676 - 13,676 31,071 13,676 - 13,676 (34,110) (34,110) - - - - 10,000 82,239 149,929 (57,687) 10,634 102,876 The accompanying notes form part of these financial statements. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 32 Consolidated Statement of Cash Flows For the financial year ended 30 June 2016 Note 30 Jun 2016 $000 30 Jun 2015 $000 Operating activities Receipts from customers Payments to suppliers and employees Payments in relation to IPO and acquisition related costs Interest received Interest paid Income taxes received/(paid) Net cash from continuing operations Net cash (used in) discontinued operations Net cash (used in)/from operating activities Investing activities Payments for property, plant and equipment in continuing operations Payments operations for property, plant and equipment in discontinued Proceeds from sale of property, plant and equipment Payments for intellectual property Payments for businesses acquired net of cash acquired Net cash used in investing activities Financing activities (Repayment of) external borrowings in continuing operations (Repayment of) external borrowings in discontinued operations Proceeds from related party borrowings Dividend paid Net proceeds from issue of shares Net cash (used in)/from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period 22 23 22 24 22 Cash and cash equivalents at end of the period 7 The accompanying notes form part of these financial statements. 320,134 336,847 (320,655) (320,725) - 37 (340) 1,617 793 (1,020) (227) (3,576) 383 (257) (7,612) 5,060 (547) 4,513 (2,565) (1,507) (278) 77 (1,301) (307) (4,374) (89) (35) - (47) 165 (1,768) (32,788) (35,945) (5,301) (518) 487 (6,151) (34,110) - (6,275) (10,876) 12,580 1,704 82,239 42,797 11,365 1,215 12,580 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 33 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. 31. 32. 33. ACCOUNTING POLICIES -------------------------------------------------------------------------------------------------------------------- 35 REVENUE AND OTHER INCOME ---------------------------------------------------------------------------------------------------------- 43 EXPENSES -------------------------------------------------------------------------------------------------------------------------------------- 43 AUDITOR’S REMUNERATION ------------------------------------------------------------------------------------------------------------- 44 INCOME TAX EXPENSE --------------------------------------------------------------------------------------------------------------------- 44 KEY MANAGEMENT PERSONNEL DISCLOSURES -------------------------------------------------------------------------------------- 45 CASH AND CASH EQUIVALENTS ---------------------------------------------------------------------------------------------------------- 45 TRADE AND OTHER RECEIVABLES ------------------------------------------------------------------------------------------------------- 45 OTHER ASSETS -------------------------------------------------------------------------------------------------------------------------------- 46 PROPERTY PLANT AND EQUIPMENT ---------------------------------------------------------------------------------------------------- 46 INTANGIBLE ASSETS ------------------------------------------------------------------------------------------------------------------------- 48 IMPAIRMENT --------------------------------------------------------------------------------------------------------------------------------- 49 TAX BALANCES ------------------------------------------------------------------------------------------------------------------------------- 51 TRADE AND OTHER PAYABLES------------------------------------------------------------------------------------------------------------ 52 BORROWINGS -------------------------------------------------------------------------------------------------------------------------------- 52 OTHER LIABILITIES --------------------------------------------------------------------------------------------------------------------------- 54 PROVISIONS ----------------------------------------------------------------------------------------------------------------------------------- 54 SHARE CAPITAL------------------------------------------------------------------------------------------------------------------------------- 55 COMMON CONTROL RESERVE ----------------------------------------------------------------------------------------------------------- 55 EARNINGS PER SHARE ---------------------------------------------------------------------------------------------------------------------- 56 SEGMENT INFORMATION ----------------------------------------------------------------------------------------------------------------- 57 DISCONTINUED OPERATION ------------------------------------------------------------------------------------------------------------ 58 CASH FLOW INFORMATION --------------------------------------------------------------------------------------------------------------- 59 BUSINESS COMBINATION ----------------------------------------------------------------------------------------------------------------- 60 CONTROLLED ENTITIES --------------------------------------------------------------------------------------------------------------------- 61 PARENT ENTITY DISCLOSURES ------------------------------------------------------------------------------------------------------------ 64 RELATED PARTY TRANSACTIONS --------------------------------------------------------------------------------------------------------- 65 SECURED AND CONTINGENT LIABILITIES ---------------------------------------------------------------------------------------------- 65 FINANCIAL INSTRUMENTS ----------------------------------------------------------------------------------------------------------------- 65 OPERATING LEASE COMMITMENTS ---------------------------------------------------------------------------------------------------- 68 EVENTS AFTER THE REPORTING DATE -------------------------------------------------------------------------------------------------- 69 EMPLOYEE SHARE RIGHTS PLAN --------------------------------------------------------------------------------------------------------- 69 DIVIDENDS ------------------------------------------------------------------------------------------------------------------------------------ 70 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 34 Notes to the Financial Statements 1. a. ACCOUNTING POLICIES General information The financial statements for the financial year ended 30 June 2016 cover Ashley Services Group Limited and its controlled entities (“Ashley Services” or the Ashley Services Group “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 financial preparation statements. The accounting policies have been consistently applied unless otherwise stated. consolidated the of d. Going concern The consolidated financial statements have been prepared on a going concern basis. e. Adoption of new and revised Accounting Standards The Group adopted all of the new, revised or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. b. Statement of compliance f. New Accounting Standard and Interpretations 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 30August 2016. 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 ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191, amounts in the financial report are rounded off to the nearest thousand dollars unless otherwise indicated. not yet adopted new standards Certain and accounting interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. 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. AASB 9: Financial Instruments (December 2014) AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities. These requirements improve and simplify for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are: the approach a) Financial assets that are debt instruments will be classified based on: (i) the objective of the entity’s business model for managing the assets; the characteristics of the contractual cash flows. financial and (ii) b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive loss). income (instead of in profit or ASHLEY SERVICES GROUP ANNUAL REPORT 2016 35 Notes to the Financial Statements c) d) for particular ‘fair value through other income’ measurement simple debt Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. Introduces a comprehensive category instruments. Financial assets can be designated and measured at fair value through profit or if doing so loss at eliminates or reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. initial recognition significantly e) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: the change attributable to changes in credit risk are presented in Other Comprehensive Income (‘OCI’); and the remaining change is presented in profit or loss.   If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Otherwise, the following requirements have generally been carried forward unchanged from AASB 139 into AASB 9:   classification and measurement of financial liabilities; and derecognition requirements for financial assets and liabilities. This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2018 (i.e. the Group’s 30 June 2019 year-end). Management’s assessment of these amendments is that they will have no material impact on the Group’s transactions or balances recognised in the financial statements. AASB 15: Revenue from Contracts with Customers AASB 15 replaces AASB 118: Revenue, AASB 111: Construction Contracts and some revenue-related Interpretations:     the basis Establishes a new revenue recognition model; changes for deciding whether revenue is to be recognised over time or at a point in time; provides new and more detailed guidance on element specific arrangements, variable pricing, rights of return, warranties and licensing); and expands and revenue. improves disclosures about (e.g., multiple topics AASB 15 is applicable to annual reporting periods beginning on or after 1 January 2018 (i.e. the Group’s 30 June 2019 year-end). Management’s assessment of these amendments is that they will have no material impact on the Group’s transactions or balances recognised in the financial statements. AASB 16: Leases AASB 16 replaces AASB 117: Leases, was issued in February 2016 and is effective for periods beginning on or after 1 January 2019. AASB 16:      replaces AASB 117 Leases and some lease- related Interpretations; requires all leases to be accounted for ‘on- balance sheet’ by lessees, other than short- term and low value asset leases; provides new guidance on the application of the definition of lease and on sale and lease back accounting; largely retains the existing lessor accounting requirements in AASB 117; and requires new and different disclosures about leases. AASB 16 is applicable to annual reporting periods beginning on or after 1 January 2019 (i.e. the Group’s 30 June 2020 year-end). Management have yet to undertake a detailed assessment of the impact of AASB 16. However, based on the entity’s preliminary assessment, the likely impact on the first time adoption of the Standard for the year ending 30 June 2020 includes:   there will be an increase in lease assets and financial liabilities recognised on the balance sheet; the reported equity will reduce as the carrying lease assets will reduce more amount of ASHLEY SERVICES GROUP ANNUAL REPORT 2016 36 Notes to the Financial Statements   quickly than the carrying amount of lease liabilities; EBIT in the statement of profit or loss and other comprehensive income will be higher as the implicit interest in lease payments for former off balance sheet leases will be presented as part of finance costs rather than being included in operating expenses; and operating cash outflows will be lower and financing cash flows will be higher in the statement of as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities. flows cash 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 equity its subsequent 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. On 1 July 2014, the group acquired a number of related entities. This business combination was treated as a common control transaction, as the conditions in AASB 3: Business Combinations (Appendix B) applied, in that all businesses were controlled by the same party before and after the transaction, and the control was not considered transitory. h. Basis of consolidation The Group financial statements consolidate those of Ashley Services Group Limited and all of its subsidiaries as of 30 June 2016. 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 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 37 Notes to the Financial Statements net of the amount of GST. Below are the specific accounting policies adopted by the Group: to the interests of the business is recognised in the financial statements. Training revenue Revenue from training courses is recognised in proportion to the stage of completion of the training course. Where work has been undertaken, and has not yet been billed or claimed from the relevant sponsoring is authority, a “Work recognised within after “Other adjusting for an estimate of potentially unsuccessful claims. in Progress” balance receivables” 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 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. Changes in the ownership interest in a subsidiary are accounted for as equity transactions and do not affect the carrying amounts of goodwill. Other intangibles Intangibles acquired by the group are stated at cost impairment less accumulated amortisation and losses. Amortisation is charged to the profit or loss on a straight line basis over the estimated useful life. Estimated useful life of intangibles is as follows: Customer relationships 7 years Licenses 5 years Intellectual property - Course material 5 - 7 years Intangible assets, such as Brands, which are deemed to have an indefinite useful life are not amortised, but are assessed for impairment annually, within the they are attributed. Where CGU impairment is recognised, it is recorded in the profit or loss in the period the impairment is identified. to which k. 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 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 38 Notes to the Financial Statements 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. relating tax assets Deferred temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. to 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 Tax consolidation 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. group under tax Such taxes are measured using the ‘standalone Current tax taxpayer’ approach to allocation. 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 Office tax 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 recognised as either a contribution by, or distribution, to the head entity. 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 in the from customers for services performed 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 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 39 Notes to the Financial Statements 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. 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. The depreciable amount of is depreciated on a straight line basis, over the useful asset’s life to the Group commencing from the time the assets are 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 equipment Leasehold improvements Depreciation rate 20% 20% 20% 18.75% 33.33% 20% - 40% 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 Gains and losses on disposals are determined by comparing proceeds with carrying amount. These gains or losses are recognised immediately in profit or loss. o. 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. p. 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 HQ corporate bonds with terms to maturity that match the expected timing of cash flows. Those cash q. 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. r. 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. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 40 Notes to the Financial Statements s. Impairment of assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. including dividends The assessment will include considering external internal sources of sources of information and information from received subsidiaries, 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 asset is carried at a revalued amount. Any 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 t. Comparative figures by required When Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Accounting u. 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. v. Significant management judgement in applying accounting policies the financial preparing When statements, management undertakes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. Significant management judgement are following significant management The judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements. Determination of Cash Generating Units purpose of impairment reviews for Determination of the Cash Generating Units (“CGUs”) for purpose of impairment reviews is a key judgement made by management. Management has undertaken a formal assessment of what constitutes the CGUs, by identifying the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets, being Training and Labour Hire. Assessment of the IMF claim against the Group Management has formally considered the potential class action claim that may be brought against the Group. Management’s view is that the potential claim would be without substance, and likelihood of any unfavourable material outcome resulting from this claim is considered remote. Based on this assessment, neither a provision, nor disclosure as a contingent liability are considered necessary. (Refer Note 28). Recognition of deferred tax assets The extent to which deferred tax assets can be is based on an assessment of the recognised probability of the Group’s future taxable income against which the deferred tax assets can be utilised. Estimation uncertainty Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, income and expenses is provided below. Actual results may be substantially different. liabilities, Impairment ASHLEY SERVICES GROUP ANNUAL REPORT 2016 41 being achieved to be remote, and therefore a provision has not been recognised in relation to this. w. 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. x. 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 in financial year, adjusted for bonus elements 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. Notes to the Financial Statements In assessing impairment, management estimates the recoverable amount of each asset or cash- generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. Both future operating results and discount rates are discussed in Note 12. In 2016, the Group recognised an impairment loss on goodwill and other intangible assets (see Note 12). 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. Uncertainties in these estimates relate to technical obsolescence that may change the utility of certain software and IT equipment. Business combinations uses valuation techniques in Management determining the fair values of the various elements of a business combination (see Note 24). The fair value of contingent consideration is dependent on the outcome of many variables that affect future profitability (see Note 29). The fair value of acquired intangibles to a number of assumptions. This involves developing estimates and assumptions consistent with how market participants would price identified asset. Management bases its assumptions on observable or benchmark data as far as possible but this is not always available. In that case management uses the best information available. is also subject the Long service leave provisions is given leave, consideration In determining the provision for employees’ long service the probability an employee may not satisfy vesting requirements. In doing this, management considers the likelihood of employees reaching a qualifying period of service and adjust the valuation for these estimated probabilities. to Long term incentive plan the determining senior In management’s plan, consideration is given to the probability the required “earnings per share” performance requirement provision term for incentive long ASHLEY SERVICES GROUP ANNUAL REPORT 2016 42 Notes to the Financial Statements 2. REVENUE AND OTHER INCOME Operating activities: Labour hire revenue Training revenue from continuing operations* Other income: Interest received Sundry income *Refer to note 22 for details of discontinued operations. 3. EXPENSES 2016 $000 248,612 32,220 280,832 37 1,040 1,077 2015 $000 261,038 43,045 304,083 381 318 689 Profit before income tax from continuing operations includes the following specific expenses: Finance costs Interest expense Bank fees Depreciation Motor vehicles Office equipment Leasehold improvements Amortisation Customer contracts and relationships – amortisation Customer contracts and relationships – impairment Intellectual property Course material Licences Impairment Impairment of intangible assets 2016 $000 511 101 612 172 831 692 2015 $000 628 306 934 131 660 233 1,695 1,024 129 - 118 1,528 - 1,775 286 476 220 471 58 1,511 65,966 - ASHLEY SERVICES GROUP ANNUAL REPORT 2016 43 Notes to the Financial Statements 4. AUDITOR’S REMUNERATION Auditor of the parent entity – Grant Thornton Audit and review of financial reports under the Corporations Act 2001 Financial due diligence services related to acquisitions 2016 $ 232,000 - 2015 $ 206,000 30,000 Total Remuneration 232,000 236,000 Other entities In addition to the above, the related entities detailed in Note 25 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 45,000 45,000 95,000 95,000 5. a. INCOME TAX EXPENSE Components of tax expense for continuing operations Current tax expense Deferred tax – origination and reversal of temporary differences (Over)/under provision of tax in prior year Income tax (credit)/expense 2016 $000 1,135 (5,615) (2,433) (6,913) b. Reconciliation of prima facie tax on loss from ordinary activities to income tax expense Net (loss)/profit before tax from continuing operations Prima facie tax (credit)/expense on net profit from ordinary activities before income tax at 30% (2015: 30%) Add / (less): Tax effect of: – Entertainment – Other – Deferred vendor earn-out adjustment – Impairment of intangibles – Acquired intangibles – (Over)/under provision of tax in prior year Income tax (benefit)/expense 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. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 44 2015 $000 3,103 3,029 19 6,151 2015 $000 20,395 2016 $000 (73,891) (22,167) 6,118 10 1 (1,044) 19,790 (1,070) (2,433) (6,913) 14 - - - - 19 6,151 Notes to the Financial Statements 6. a. KEY MANAGEMENT PERSONNEL DISCLOSURES Key management personnel compensation for the year was as follows Short-term employee benefits Post-employment benefits IPO related share based payments Long-term employee benefits Total 2016 $ 2015 $ 1,906,276 2,232,957 136,708 - - 2,042,984 136,450 872,708 - 3,242,115 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 the Remuneration section of the report on page 19 to 21, Tables 8 to 10. 7. CASH AND CASH EQUIVALENTS Cash on hand Cash at bank 8. TRADE AND OTHER RECEIVABLES Current Trade receivables Allowance for impairment of trade receivables Other receivables 2016 $000 9 1,695 1,704 2016 $000 20,505 (1,055) 8,475 27,925 2015 $000 10 12,570 12,580 2015 $000 24,330 (803) 14,210 37,737 a. The ageing 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)) ASHLEY SERVICES GROUP ANNUAL REPORT 2016 2016 $000 14,469 2,884 683 1,414 1,055 20,505 2015 $000 16,199 4,859 1,247 1,222 803 24,330 45 Notes to the Financial Statements b. The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below Balance at beginning of year Increase through business combinations Increase/(decrease) in allowance recognised in profit or loss Amounts written-off Balance at end of year 9. OTHER ASSETS Current Prepayments Deposits 10. 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 2016 $000 803 - 849 (597) 1,055 2016 $000 593 337 930 2016 $000 514 (306) 208 7,213 (3,870) 3,343 3,334 (1,239) 2,095 418 - 418 6,064 2015 $000 868 257 (128) (194) 803 2015 $000 492 275 767 2015 $000 663 (300) 363 4,922 (2,719) 2,203 2,193 (303) 1,890 767 - 767 5,222 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 46 Notes to the Financial Statements a. Movement in carrying amounts of property, plant and equipment 2016 Balance at 1 July 2015 Additions Disposals Depreciation expense – continuing operations Depreciation expense – discontinued operations Balance at 30 June 2016 2015 Balance at 1 July 2014 Additions Acquisition through business combination Disposals Depreciation expense Balance at 30 June 2015 Motor vehicles $000 363 Office equipment $000 2,203 Leasehold improvements $000 1,890 Capital Work In Progress $000 767 48 2,125 (29) (172) (2) 208 (40) (831) (114) 3,343 1,019 (14) (692) (108) 2,095 (349) - - 418 Motor vehicles $000 365 Office equipment $000 1,314 Leasehold improvements $000 1,029 Capital Work In Progress $000 172 - 265 (136) (131) 363 688 904 (24) (680) 2,203 271 851 - (261) 1,890 595 - - - 767 Total $000 5,222 2,843 (83) (1,695) (224) 6,064 Total $000 2,880 1,554 2,020 (160) (1,072) 5,222 The Group’s property, plant and equipment are encumbered by a fixed and floating charge as security for the group’s overdraft facility. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 47 Notes to the Financial Statements 11. INTANGIBLE ASSETS Goodwill Cost Reclassification to intellectual property Impairment (note 12) Net carrying value Customer relationships/Licences Cost Impairment (note 12) Accumulated amortisation Net carrying value Brand names Cost Impairment (note 12) Reclassification from goodwill Accumulated amortisation Net carrying value Intellectual property Cost Impairment (note 12) Reclassification from goodwill Accumulated amortisation Net carrying value Total intangible assets 2016 $000 66,256 (1,000) (62,474) 2,782 2,062 (918) (520) 624 3,798 (2,041) 842 - 2,599 7,471 (1,009) 158 (2,778) 3,842 9,847 a. Intangible assets – detailed reconciliation 2016 Balance at 1 July 2015 Capitalised course materials Acquired through business combinations Amortisation – continuing operations Amortisation – discontinued operations Impairment charge1 Balance at 30 June 2016 Note: Customer Relationships and Licences2 $000 1,195 - (129) - (442) 624 Goodwill $000 66,174 - (918) - - (62,474) 2,782 Brand Names3 $000 3,798 - 842 - - (2,041) 2,599 Intellectual Property4 $000 5,049 1,301 158 (1,646) (11) (1,009) 3,842 1. See Note 12c. 2. Customer relationships have a remaining useful life of 5 years. 3. Brand names have an indefinite life and are not amortised. 4. Remaining useful life for Intellectual property is up to 5 years. 2015 $000 66,174 - - 66,174 2,062 (476) (391) 1,195 3,798 - - - 3,798 6,170 - (1,121) 5,049 76,216 Total $000 76,216 1,301 82 (1,775) (11) (65,966) 9,847 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 48 Notes to the Financial Statements 2015 Balance at 1 July 2014 Purchased Acquired through business combinations Amortisation Impairment charge1 Balance at 30 June 2015 Note: Customer Relationships and Licences $000 1,515 Brand Names $000 - Intellectual Property $000 257 500 - (344) (476) 1,195 - 3,798 - - 3,798 1,268 4,215 (691) - 5,049 Goodwill $000 19,743 - 46,431 - - 66,174 Total $000 21,515 1,768 54,444 (1,035) (476) 76,216 1. Relates to impairment of relationship with a major customer acquired through the Concept acquisition. 12. IMPAIRMENT a. Impairment The consolidated entity tests whether goodwill and other intangible assets have suffered any impairment on an annual basis, or more frequently, if required. As a result of the decrease in profitability within the Group, detailed impairment reviews were performed at both 31 December 2015 and 30 June 2016. The recoverable amounts of the cash-generating units (“CGUs”) were determined based on value-in-use calculations, covering detailed forecasts for two years, followed by an extrapolation of expected cash flows for the units’ remaining useful lives using the growth rates determined by management. The present value of the expected cash flows of each segment is determined by applying a suitable discount rate. Long term growth rates after the forecast period and discount rates used were as follows: Training Labour Hire Terminal Growth rates Pre tax discount rates 30 Jun 2016 2% 30 Jun 2015 2% 30 Jun 2016 16.9% 30 Jun 2015 16.9% 0% 2% 18.7% 18.7% The growth rates reflect management’s view of longer-term average growth rates for the respective sectors. The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of each unit. b. Cash flow assumptions for the detailed forecast Training division The recoverable amount of the Training division has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial forecasts approved by management and the Board covering a two-year period (FY17 to FY18), and a pre-tax discount rate of 16.9 per cent. Cash flows beyond that period have been extrapolated using a 2 per cent growth rate. This growth rate is below the Reserve Bank of Australia’s long-term average growth rate for Australia. Management’s key assumption is that revenues for the Training division will grow 10%-12% per annum for FY17 and FY18, as a result of an increase in student numbers combined with a diversification of revenue streams, and stabilise thereafter. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 49 Notes to the Financial Statements Labour Hire division The recoverable amount of the Labour Hire division has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial forecasts approved by management for FY17 and a pre-tax discount rate of 18.7 per cent. Cash flows beyond that period have been held constant, reflecting the competitive nature of the industry. Management’s key assumption is that revenues for the Labour Hire division will increase 8% in FY17, reflecting the net impact of recent customer wins and losses. EBITDA margin is forecast at 1.9% (before corporate overhead allocations). c. Impairment charges Management has also run various sensitivity scenarios, primarily reviewing sensitivity of outcomes to FY17 EBITDA forecasts, long term growth rates and discount rates. In respect of reasonably possible changes in the key assumptions, major sensitivities are summarised as follows: Change in VIU Sustainable EBITDA margin; +/- $0.5 million each CGU 1% increase or decrease in long term growth rate 1% increase or decrease in pre tax discount rate Labour hire CGU $’M +/-2.4 +/-0.7 +/-1.0 Training CGU $’M +/-3.0 +/-1.5 +/-1.7 As a result of the base case and scenario analysis as at 31 December 2015, an impairment charge totalling $63.3 million was recorded in the first six months result. This was revised again at 30 June 2016 and a further impairment of $2.7 million was recognised. The total impairment charge of $66.0 million for the financial year ended 30 June 2016 was, split by CGU as follows: Training Labour Hire Total impairment charge for the year ended 30 June 2016 Goodwill $’000 52,361 Other Intangibles $’000 3,492 10,113 62,474 - 3,492 Total $’000 55,853 10,113 65,966 Movements in the net carrying amount of goodwill and other intangibles are presented in note 11a. The amount of goodwill, brand names and other intangibles remaining by CGU and subject to future impairment testing is as follows: 2016 Training Labour Hire Total Goodwill $’000 - 2,782 2,782 Customer Relationships/ Licences $’000 - 624 624 Brand Names $’000 Intellectual Property $’000 2,599 - 2,599 3,842 - 3,842 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 Total $’000 6,441 3,406 9,847 50 Notes to the Financial Statements 2015 Training Labour Hire Total 13. TAX BALANCES Current assets Income tax receivable Non-current assets Deferred tax assets (a) Current tax liabilities Income tax payable Non-current liabilities Deferred tax liabilities (a) Goodwill $’000 53,249 12,895 66,174 Customer Relationships/ Licences $’000 442 753 1,195 Brand Names $’000 Intellectual Property $’000 3,798 - 3,798 5,049 - 5,049 2016 $000 2,838 7,590 - Total $’000 62,568 13,648 76,216 2015 $000 1,974 3,873 - 3,700 5,551 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 2016 Current assets Trade, other receivables and other assets Non-current assets Intangible assets Property, plant and equipment Current liabilities Trade and other payables Provision 2016 tax loss carried forward Deferred tax asset Total (3,959) (1,362) 11 2,805 827 - (1,678) - - - - - - - ASHLEY SERVICES GROUP ANNUAL REPORT 2016 - 1,610 (2,349) (47) - - - - (47) 549 (11) 753 1,538 1,176 5,615 (860) - 3,558 2,365 1,176 3,890 51 Notes to the Financial Statements 2015 Current assets Trade, other receivables and other assets Non-current assets Intangible assets Property, plant and equipment Current liabilities Trade and other payables Provision Total 14. TRADE AND OTHER PAYABLES Current Trade payables Accrued expenses GST payable Sundry creditors 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 (1,264) (461) 11 3,733 542 2,561 - - - - - - - (2,695) (3,959) (1,264) - - 54 363 - (928) 231 (1,362) 11 2,805 827 (1,210) (3,029) (1,678) 2016 $000 2,661 5,821 2,000 8,500 18,982 2015 $000 3,133 2,836 3,988 12,343 22,300 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. 15. BORROWINGS Current Secured liabilities Bank overdraft (a) Term facility (b) Finance Leases (c) 2016 $000 - - 102 102 2015 $000 - - 226 226 a. Bank overdraft facility Comprises a $15 million working capital facility with BankWest Limited, who have fixed and floating charges over the Group’s assets. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 52 Notes to the Financial Statements b. Term facility At 30 June 2015, the Group had an $8 million term debt facility with BankWest Limited to finance potential acquisition opportunities. This facility was closed during the financial year ended 30 June 2016. c. Finance Leases The Group has a small number of finance leases on company use motor vehicles. The asset carrying value of these vehicles is $84,525 (2015: $156,572) and is included in Note 10. d. Group credit facility Total facilities at reporting date Bank overdraft Term facility Used at reporting date Bank overdraft Unused at reporting date Bank overdraft Term facility 2016 $000 15,000 - 15,000 - - 15,000 n/a 15,000 2015 $000 15,000 8,000 23,000 - - 15,000 8,000 23,000 e. Restructuring of Group credit facilities subsequent to the balance date Subsequent to year end, the Company has revised its funding arrangements by establishing an ‘evergreen’ invoice discount facility with a Big 4 bank at competitive rates. The BankWest debt facility reduced from $15 million to $10 million in August 2016 and will be reduced to $5 million over the next 4 months. This will provide the Company with equivalent liquidity at comparable cost to the previous $15 million facility. The term of the BankWest facility is unchanged (still 29 October 2017) and includes a similar covenant package, albeit financial measures have been re-set to the Company’s current business plan. Key terms of the revised facility agreement are outlined below: Key terms Facility limit Expiration date for facility Security $10M from 17 August 2016 to 30 September 2016. $8M from 1 October 2016 to 30 November 2016 $5M from 1 December 2016 to expiration 29 October 2017 The Bank has fixed and floating charges over the Group’s assets ASHLEY SERVICES GROUP ANNUAL REPORT 2016 53 Notes to the Financial Statements 16. OTHER LIABILITIES Current Vendor earn-out liability (a) Non-Current Vendor earn-out liability (a) a. Vendor earn-out liability 2016 $000 942 2015 $000 - - 4,660 The Vendor earn-out liability comprises the fair value of estimated consideration payments payable to vendors in relation to the acquisition of SILK on 30 April 2015. The liability is payable in September 2016, subject to certain conditions. During the financial year, the fair value of the Vendor earn-out liabilities in relation to the Integracom, Cantillon and SILK acquisitions were re-assessed. This resulted in a $3.5 million reduction in the total Vendor earn-out liability from $4.7 million to $1.2 million. $0.3 million was paid to the vendors of SILK during February 2016, in accordance with the provisions of that Sale and Purchase Agreement. 17. PROVISIONS Current Employee benefits (a) Provision for discontinued operation (b) Total Non-current Employee benefits (a) Provision for discontinued operation (b) Total a. Reconciliation of employee provisions Opening balance Add: acquired through business combination Less: leave taken during the year Add: leave provided for during the year Closing balance ASHLEY SERVICES GROUP ANNUAL REPORT 2016 2016 $000 3,021 771 3,792 540 1,740 2,280 2016 $000 2,756 - (557) 1,362 3,561 2015 $000 2,485 - 2,485 271 - 271 2015 $000 1,829 178 (788) 1,537 2,756 54 Notes to the Financial Statements b. Provision for discontinued operation During the final quarter of the financial year, the Board approved an orderly exit from the International student business in Perth, Western Australia. This business was originally acquired through the Cantillon acquisition in September 2014. The Group is fulfilling its obligations for the remaining students and working with third parties to sub-let three separate properties associated with the business. However, at the time of this report, no sub-leases are in place and the business has been disclosed as a discontinued operation. There was no discontinued provision at 30 June 2015.The $2.5 million provision was provided for during year ended 30 June 2016 and represents the discounted cost of future surplus lease obligations ($2.275 million), together with other exit costs, primarily potential asset write offs and redundancies ($0.226 million). 18. SHARE CAPITAL The Group does not have any share options on issue as at the date of this report. Details of share capital of the group are as follows: 150,000,000 (Jun-15: 150,000,000) fully paid ordinary shares Performance rights 30 Jun 2016 $000 149,929 30 Jun 2016 Number of rights 1,942,475 30 Jun 2015 $000 149,929 30 Jun 2015 Number of rights 380,787 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. At 30 June 2015, the Group had issued 380,787 Performance rights. During the current year the Group issued 1,561,688 Performance Rights to employees. These Performance Rights were granted on the 25th September 2015 with a fair value of 52.5 cents per right. The terms of the Performance Plan have been outlined in the Directors’ Report (Table 7) within this Annual Report. Management have assessed the probability of the performance hurdles for the 2015 and 2016 plans being met as nil and no expense has been recognised in the profit and loss account for the year ended 30 June 2016. The plan has been suspended for the financial year ending 30 June 2017. 19. COMMON CONTROL RESERVE The common control reserve has arisen following the adoption of the pooling of interests method used to account for the 1 July 2014 acquisition of the following entities:      ADV Services Pty Limited; Ashley Institute Holdings Pty Limited; TBRC Holdings Pty Limited; Tracmin Pty Limited; and Australian Institute of Vocational Development Pty Limited. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 55 Notes to the Financial Statements 20. EARNINGS PER SHARE Net (loss)/profit after tax Weighted number of ordinary shares outstanding during the year used in calculating basic earnings per share (EPS) Weighted number of ordinary shares outstanding during the year used in calculating diluted earnings per share (EPS) Basic earnings per share (cents) from continuing operations Diluted earnings per share (cents) from continuing operations Basic earnings per share (cents) from discontinued operations Diluted earnings per share (cents) from discontinued operations Basic earnings per share (cents) Total Diluted earnings per share (cents) Total 2016 $000 (69,626) 2015 $000 13,676 150,000,000 141,618,754 150,000,000 141,747,074 (44.65) (44.65) (1.77) (1.77) (46.42) (46.42) 10.06 10.05 (0.40) (0.40) 9.66 9.65 As the Group has made a loss in the current year, the impact of the Performance Rights is anti-dilutive, and as such has not been included in the calculation of the diluted EPS. There are 1,942,475 Performance Rights not included in the calculation. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 56 Notes to the Financial Statements 21. 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. 2016 Revenue From external customers Segment revenue Other income Employment cost Depreciation and amortisation expense Finance costs Other expenses Impairment of intangibles Deferred vendor earn-out adjustment Segment Profit/(loss) Unallocated items (Loss) before income tax Income tax benefit Total comprehensive (loss) for the year from continuing operations 2015 Revenue From external customers Segment revenue Other Income Employment costs Depreciation and amortisation expense Finance costs Other expenses Deferred vendor earn-out adjustment Segment profit/(loss) Unallocated items IPO and acquisition related costs Profit before income tax Income tax expense Total comprehensive income for the year from continuing operations ASHLEY SERVICES GROUP ANNUAL REPORT 2016 Labour Hire $000 248,612 248,612 1,034 (241,065) (353) (10) (3,663) (10,113) - (5,558) Training $000 32,220 32,220 5 (30,110) (3,015) (92) (8,753) (55,853) 3,482 (62,116) Total $000 280,832 280,832 1,039 (271,175) (3,368) (102) (12,416) (65,966) 3,482 (67,674) (6,217) (73,891) 6,913 (66,978) Labour Hire $000 Training $000 Total $000 261,038 261,038 446 (247,927) (559) (66) (4,045) - 8,887 43,045 43,045 (166) (24,449) (1,899) (581) (5,267) 7,790 18,473 304,083 304,083 280 (272,376) (2,458) (647) (9,312) 7,790 27,360 (2,578) (4,387) 20,395 (6,151) 14,244 57 Notes to the Financial Statements 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 $118.0 million (2015: $117.4 million) which arose from sales to 3 (2015: 3) of the Group’s customers whose individual revenue exceeds 10% of total revenue in the Labour Hire segment. Sales to these 3 customers were $47.9 million, $42.5 million and $27.6 million respectively (2015: $47.3 million, $42.9 million and $27.2 million respectively). There are no customers whose individual revenue exceeded 10% of total revenue in the Training segment in either financial year. 22. DISCONTINUED OPERATION During the final quarter of the financial year, the Board approved an orderly exit from the International student business in Perth, Western Australia. This business was originally acquired through the Cantillon acquisition in September 2014. The Group is fulfilling its obligations for the remaining students and working with third parties to sub-let three separate properties associated with the business. The $2.6 million after tax loss represents the trading loss incurred during the financial year ($0.9 million after tax), together with the costs of termination ($1.7 million), which primarily represents the discounted cost of the future lease obligations: Discontinued operation Revenue Other income Employment cost Depreciation and amortisation expense Finance costs Other expenses Surplus lease provision Other exit costs (Loss) before income tax Income tax credit (Loss) after tax Total comprehensive (loss) for the year 2016 $000 868 51 (803) (236) (3) (1,149) (2,275) (236) (3,783) 1,135 (2,648) (2,648) 2015 $000 617 (1) (789) (48) (11) (579) - - (811) 243 (568) (568) ASHLEY SERVICES GROUP ANNUAL REPORT 2016 58 Notes to the Financial Statements Cash flows from the discontinued operation were: Discontinued operation Receipts from customers Payments to suppliers and employees Interest paid Income taxes received/(paid) Net cash (used in) operating activities Payments for property, plant and equipment Net cash (used in) investing activities (Repayment) of external borrowings Net cash (used in) financing activities Net (decrease) in cash and cash equivalents 2016 $000 1,171 (2,187) (3) (1) (1,020) (278) (278) (35) (35) (1,333) 2015 $000 800 (1,552 (9) 214 (547) (47) (47) (518) (518) (1,112) 23. CASH FLOW INFORMATION Reconciliation of cash flow from operations to (loss)/profit after income tax (Loss)/Profit for the year Cash flows excluded from profit attributable to operating activities Adjustments for non-cash items: - Depreciation and amortisation expense - Bad and doubtful debts - Loss on disposal of fixed assets - Gain on reassessment of deferred consideration liabilities - Impairment of intangibles - IPO bonuses issued as shares Changes in assets and liabilities - Decrease /(increase) in trade and other receivables - Increase in other assets - (Increase)/decrease in deferred tax asset - (Decrease)/increase in trade and other payables - Increase in provisions - Increase in current tax receivables - (Decrease)/ increase in deferred tax liabilities Net cash (used in)/from operating activities ASHLEY SERVICES GROUP ANNUAL REPORT 2016 2016 $000 (69,626) 3,706 849 6 (3,482) 65,966 - 8,950 (163) (3,716) (3,318) 3,316 (864) (1,851) (227) 2015 $000 13,676 2,583 (128) 19 (7,790) - 811 (6,226) (215) 847 2,525 748 (4,465) 2,128 4,513 59 Notes to the Financial Statements 24. BUSINESS COMBINATION a. Current year acquisitions The Group made no acquisitions during the financial year ended 30 June 2016. The Group finalised the purchase price allocation for SILK during the financial year ended 30 June 2016. $1 million of $4,047,100 original goodwill was reallocated to brand names ($842,000) and Intellectual Property ($158,000). b. Prior year acquisitions The Group acquired 100% of the issued share capital and voting rights of Integracom, Cantillon and SILK during the prior financial year. All these companies were Australian-based entities that operate within the training sector. The objective of each acquisition was to: Integracom - increase the Group’s market share in providing training in the telecommunications industry; Cantillon - establish a foot print in the overseas student sector; and SILK - increase the Group’s market share in providing training in the hospitality industry. Details of the business combinations are as follows: 2015 Cash Equity instruments Fair value of contingent consideration Total purchase consideration Cash consideration Cash acquired Net cash outflow on purchase of subsidiaries Assets & liabilities acquired Cash and cash equivalents Trade and other receivables Property, plant and equipment Trade and other payables Provisions Borrowings Deferred tax liability Brand names Integracom $000 30,108 10,000 8,648 48,756 (30,108) 90 (30,018) 90 1,222 1,533 (535) (108) (748) (900) 3,700 Cantillon $000 1,546 - 76 1,622 (1,546) 26 (1,520) 26 307 300 (289) - (553) (364) 98 SILK* $000 1,500 - 2,775 4,275 (1,500) 250 (1,250) 250 122 187 (261) (70) - - - Total $000 33,154 10,000 11,499 54,653 (33,154) 366 (32,788) 366 1,651 2,020 (1,085) (178) (1,301) (1,264) 3,798 Intellectual property 4,215 Net identifiable assets 8,222 Goodwill on consolidation 46,431 * The Group had not yet finalised the purchase price allocation at 30 June 2015. This was subsequently finalised in the 31 December 2015 interim financial report and $1 million of original goodwill was reallocated to brand names ($842,000) and Intellectual Property ($158,000). 3,000 7,254 41,502 1,215 740 882 - 228 4,047 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 60 Notes to the Financial Statements Consideration transferred Acquisition-related costs amounting to $0.75m were not included as part of consideration transferred and were recognised as an expense in the consolidated statement of profit or loss and other comprehensive income for the financial year ended 30 June 2015. Identifiable net assets The fair value accounting for the Integracom and Cantillon acquisitions were finalised in the year ended 30 June 2015. The fair value of accounting for the SILK acquisition was finalised in the year ended 30 June 2016. The fair value of intangible assets acquired as part of the business combinations amounted to:    Integracom - $6.7m; Cantillon - $1.3m; and SILK - $1.0m. Goodwill Goodwill on all three acquisitions was allocated to the Training division cash-generating unit at 30 June 2015. Contribution of acquisitions to the Group’s 2015 result The contribution to Group revenues and net profits (after tax) for each of the above business combinations is as follows: 2015 Integracom Cantillon SILK Revenue $000 10,153 617 766 Profits $000 2,125 (568) 257 25. CONTROLLED ENTITIES Set out below are the controlled entities of Ashley Services Group Limited: Country of incorporation 2016 percentage owned % 2015 percentage owned % Action Arndell Park Pty Limited Action Workforce NSW 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 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 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 61 Notes to the Financial Statements ADV3 Pty Limited CP Action Electronics Pty Limited CP Action Workforce Pty Limited Integracom Holdings Pty Limited (formerly 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 Silk Group Holdings Pty Limited (formerly National Institute of Training (NSW) Pty Limited) Vocational Training Australia Pty Limited Ashley Apprenticeship Network Pty Limited (formerly Precast Concrete Labour Pty Limited) Action Workforce AC Pty Limited Action Workforce ACT Pty Limited Action Workforce BAX1 Pty Limited 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 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 Country of incorporation 2016 percentage owned % 2015 percentage owned % 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 Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 62 Notes to the Financial Statements Action WA Pty Limited Tracmin Holdings Pty Limited (formerly Advance BW Pty Limited) Country of incorporation Australia Australia 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 ASG Integracom (AUST) Holdings Pty Limited (formerly Advance WMAM Pty Limited) ASG Integracom (AUST) Pty Limited (formerly Advance WMLF Pty Limited) Advance WMPM Pty Limited Advance Exchange Pty Limited Concept Engineering (Aust) Pty Limited Concept Employment (Aust) Pty Limited AIVD Holdings Pty Limited Australian Institute of Vocational Development Pty Limited TBRC Holdings Pty Limited The Blackadder Recruitment Company Pty Limited ADV Services Pty Limited Training Support Group Pty Limited Advance Recruitments Pty Limited Ashley Institute Holdings Pty Limited Ash Pty Limited Capra Ryan Online Learning Pty Limited Tracmin Pty Limited Integracom Unit Trust1 Cantillon Holdings Pty Limited2 College of Innovation and Industry Skills Pty Limited3 Global Education and Training Group Pty Limited4 AWF Training 1 Pty Limited5 AWF Training 2 Pty Limited5 AWF Training 3 Pty Limited5 AWF Training 4 Pty Limited5 AWF Training 5 Pty Limited5 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 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 2016 percentage owned % 100 2015 percentage owned % 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 - - - - - 63 Notes to the Financial Statements Country of incorporation 2016 percentage owned % 2015 percentage owned % Notes: 1. Integracom Unit Trust was acquired on 21 August 2014. 2. Cantillon Holdings Pty Limited was a company incorporated on 19 September 2014. 3. College of Innovation and Industry Skills Pty Limited (Cantillon) was a company acquired on 25 September 2014. 4. Global Education and Training Group Pty Limited (SILK) was a company acquired on 30 April 2015. 5. These new companies were incorporated on 24 September 2015. 26. 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 (Loss)/Profit for the year Other comprehensive income Total comprehensive (loss)/income 2016 $000 92 22,513 22,605 - - - 22,605 92,242 (69,637) 22,605 2016 $000 (65,966) - (65,966) 2015 $000 92 88,479 88,571 - - - 88,571 92,242 (3,671) 88,571 2015 $000 (3,674) - (3,674) c. Contingent liabilities of the Parent Entity The Parent entity had no contingent liabilities as at 30 June 2016. The Parent entity is aware that IMF Bentham Limited (“IMF”) announced on 17 August 2015 that is proposed to fund claims of certain ASH shareholders against the Company for alleged misstatements or omissions in its prospectus dated 7 August 2014 (see Note 28 for more detail). Commitments for expenditure for the Parent entity d. The Parent entity had nil committed expenditure as at 30 June 2016 (30 June 2015: nil). ASHLEY SERVICES GROUP ANNUAL REPORT 2016 64 Notes to the Financial Statements 27. RELATED PARTY TRANSACTIONS a. Parent company There is no ultimate parent company for Ashley Services Group Limited. Transactions with related entities b. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with related parties are as follows: Rent paid or payable to Shrimpton 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 from entities associated with Mr Ross Shrimpton. These are unsecured and non-interest bearing loans. These loans were largely extinguished as a result of the restructure which occurred since reporting date. Fees payable to PKF Lawler Corporate Finance Pty Limited (of which Vince Fayad is a Director) for services related to IPO, Interim Chief Financial Officer and sundry financial services Fees payable to Trood Pratt & Co (of which Ian Pratt is a Partner) for taxation services 28. SECURED AND CONTINGENT LIABILITIES The Group had no contingent liabilities at 30 June 2016. For assets pledged as security for borrowing facilities see Note 15. 2016 $ 2015 $ 205,088 197,200 - 210,000 17,900 97,364 308,994 138,203 The Group has become aware that IMF Bentham Limited (“IMF”) announced on 17 August 2015 that is proposed to fund claims of certain ASH shareholders against the Company for alleged misstatements or omissions in its prospectus dated 7 August 2014. The Group has ceased discussions with IMF Bentham in relation to its proposed class action. No legal proceedings have been served. The Company denies any liability and believes there is no proper foundation for any such claim. The Company would vigorously defend any proceedings if ever commenced. 29. FINANCIAL INSTRUMENTS a. Significant accounting policies 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. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 65 Notes to the Financial Statements 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 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. 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 2016 $000 16 (16) 16 (16) 2015 $000 124 (124) 124 (124) Credit risk refers to the risk that a 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. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 66 Notes to the Financial Statements 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 is limited because the counter parties are a reputable bank 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. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously comparing actual cash flows with forecasts 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 2016 Trade and other payables Borrowings – bank Finance leases Other liabilities – Vendor earn- out Total 2015 Trade and other payables Borrowings – bank Finance leases Other liabilities – Vendor earn- out Total Weighted average effective interest rate % Within 1 year $000 1 to 5 years $000 Over 5 years $000 n/a 4.45% n/a n/a 18,982 - 102 942 20,026 - - - - - - - - - - Weighted average effective interest rate % Within 1 year $000 1 to 5 years $000 Over 5 years $000 n/a 4.4% n/a n/a 22,300 - 226 - 22,526 - - - 4,660 4,660 - - - - - Total $000 18,982 - 102 942 20,026 Total $000 22,300 - 226 4,660 27,186 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; ASHLEY SERVICES GROUP ANNUAL REPORT 2016 67 Notes to the Financial Statements   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 – where quoted 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. 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, Integracom, Cantillon and SILK there were various earn out payments, which are subject to revenue and profit targets depending upon the individual acquisition. The fair value of contingent consideration is estimated using the present value technique. The 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 have been assessed as follows:     in relation to the acquisition of Concept, nil (out of an original maximum of $450,000) in relation to the acquisition of Integracom, nil (out of an original maximum of $15 million) in relation to the acquisition of Cantillon, nil (out of an original maximum of $745,000) in the relation to the acquisition of SILK, $1.25 million, of which $0.3 million was paid in February 2016 and the remainder will be payable in September 2016, subject to certain conditions. The discount rate used of 6% is 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. 30. 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 2016 $000 2,897 5,303 8,200 2015 $000 2,461 5,423 7,884 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. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 68 Notes to the Financial Statements Of these obligations, $1.8 million has already been expensed as part of the loss from discontinued operations. 31. EVENTS AFTER THE REPORTING 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: Subsequent to year end, the Company has revised its funding arrangements by establishing an ‘evergreen’ invoice discount facility with a Big 4 bank at competitive rates. The BankWest debt facility reduced from $15 million to $10 million in August 2016 and will be reduced to $5 million over the next 4 months. This will provide the Company with equivalent liquidity at comparable cost to the previous $15 million facility. The term of the BankWest facility is unchanged (still 29 October 2017) and includes a similar covenant package, albeit financial measures have been re-set to the Company’s current business plan. Key terms of the revised facility agreement are outlined in Note 15 to the financial statements. In addition, on 19 August 2016 the Company served legal proceedings filed in the Supreme Court of New South Wales against Holmes Management Group Pty Limited, the vendor of the Integracom telecommunications training business acquired in August 2014. These proceedings relate to alleged breaches of warranties under the Unit Sale and Purchase Agreement for the acquisition. It is not possible at this time to quantify the likely financial impact of these proceedings. 32. EMPLOYEE SHARE RIGHTS PLAN The Company implemented a performance rights share plan for its executives, which operated during the financial years ended 30 June 2015 and 30 June 2016. The terms of the 2016 Performance Plan have been outlined in the Directors’ Report (Table 7) within this Annual Report. For details of Performance Rights issued during the financial year, see Note 18. ASHLEY SERVICES GROUP ANNUAL REPORT 2016 69 Notes to the Financial Statements 33. DIVIDENDS a. Ordinary shares Record Date Payment Date Cents Per Share Franked Amount Per Share (Cents) Final Dividend – 2015 4 September 2015 25 September 2015 4.1 4.1 No dividends were declared or paid in relation to the year ended 30 June 2016. b. Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% (2015: 30%) 2016 $000 2015 $000 3,869 6,562 The balance of the franking accounts includes:     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 2016 70 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 8 August 2016. 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 684 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 Number of shares 159 151 85 221 68 684 124,333 364,038 681,580 7,904,650 140,925,399 150,000,000 % 0.08 0.24 0.45 5.27 93.95 100.00 The number of shareholders holding less than a marketable parcel of Fully Paid Ordinary shares is 240 with a total number of shares held is 237,489. 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.1 National Nominees Limited ATF Australian Ethical Investments Number 92,060,544 16,109,959 % 61.37% 10.74% 1. Includes shares held non-beneficially in trust on behalf of Holmes Management Group Pty Limited (6,024,096). Unquoted equity securities There are no unquoted shares. On-market buy-back There is no current on-market buy-back. Twenty largest shareholders ASHLEY SERVICES GROUP ANNUAL REPORT 2016 71 ASX Additional Information Fully paid ordinary shares Details of the 20 largest shareholders of quoted securities (grouped) by registered shareholding are: Name Mrs Catherine Shrimpton Action James Holdings Pty Limited National Nominees Limited Holmes Management Group Pty Ltd JJC Group (Aust) Pty Ltd Mr Craig Graeme Chapman Yellow Diamond Pty Ltd HSBC Custody Nominees (Australia) Limited Aust Executor Trustees Ltd Mr Marc Shrimpton Mr Dean Michael Shrimpton Mr Andrew Douglas Shrimpton Mr Marcus Andrew Levy and Vanessa Sanchez-Levy Hishenk Pty Ltd Nicola Jagusch Aust Executor Trustees Ltd Friendlyfly Pty Ltd Kingston Properties Pty Limited Mr Gerald Francis Pauley and Mr Michael James Pauley Mr Stewart George Cummins Total Annual General Meeting Number of shares 60,858,282 22,178,166 16,109,959 6,024,096 3,755,832 2,375,432 2,572,084 2,345,937 1,582,009 1,500,000 1,500,000 1,500,000 1,189,717 1,150,000 1,103,072 874,575 700,000 679,618 639,199 600,000 % 40.57% 14.79% 10.74% 4.02% 2.51% 1.58% 1.71% 1.56% 1.05% 1.00% 1.00% 1.00% 0.79% 0.77% 0.74% 0.58% 0.47% 0.45% 0.43% 0.40% 129,237,978 86.16% The annual general meeting of the Company will be held at the company’s offices at Level 10, 92 Pitt Street Sydney NSW 2000 at 10.00am on Wednesday 9 November 2016. 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 2016 72 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 Ian Pratt (Chairman) Mr Ross Shrimpton Executive Directors Mr Marc Shrimpton Mr Stewart Cummins – Managing Director and CEO Company Secretary Mr Ron Hollands Registered Office Level 10 92 Pitt Street Sydney NSW 2000 Australian Company Number 094 747 510 Australian Business Number 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 Herbert Smith Freehills Level 34 161 Castlereagh St Sydney NSW 2000 Telephone: + 61 2 9225 5000 Facsimile: + 61 2 9322 4000 ASHLEY SERVICES GROUP ANNUAL REPORT 2016 73 

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