Aurora Spine
Annual Report 2018

Plain-text annual report

2018 Annual Report Contents Letter from the Chairman and CEO Key facts Highlights Financial Highlights Director’s Report Auditor’s independence declaration Financial statements Notes to the consolidated financial statements Directors’ declaration Independent auditor’s report Shareholder information Glossary Corporate directory 2 4 6 8 10 39 40 44 78 79 83 85 87 Contents 1 Letter from the Chairman and CEO Dear Shareholders, On behalf of the Board, we are pleased to have delivered a strong result for the full year ended 2018. Autosports Group has delivered a strong result for FY2018. Against 2017 pro forma results, normalised revenue was $1.75b (2017:$1.45b) up 21% and EBITDA increased 11% to $61.0m (2017:$55.1m). This result was achieved through consistent and disciplined delivery of our strategy focused on the prestige and luxury segments in metropolitan areas across the East Coast of Australia. The prestige and luxury segments were resilient with strong performances in some of our newer brands despite a lagging total new vehicle market. Overall, market conditions for new vehicle sales were challenging with marginal growth since the previous year. This Financial Year we grew our BMW presence with the acquisitions of Melbourne BMW in November 2017 and Canterbury BMW in Sydney’s inner South West in April 2018 further diversifying our brand reach. We acquired our first parcel of automotive real estate in Macgregor Queensland. The property houses our Mercedes Benz Macgregor dealership which sits on a prominent Queensland intersection. We complemented this acquisition with an agreement to purchase the adjoining property (scheduled to settle November 2018). The amalgamation of these properties provides a unique opportunity to consolidate the Group’s retail activities on Brisbane’s southside into one prime location. During the year we restructured our Queensland and Victorian corporate offices to streamline our operations and take advantage of the operational synergies that came with our acquisitions. Operationally we continue to develop Autosports Group’s reputation for excellence. In 2018 we achieved Audi Indooroopilly Metro Dealer of the Year 1st place; Audi Sutherland Major Metro Dealer of the Year 1st place; Doncaster BMW Metro Dealer of the Year 1st place; MINI Garage Doncaster 1st place MINI Excellence Award; Volvo Cars Parramatta Major Metro Dealer of the Year 1st place. The Board is committed to delivering excellence in governance. This year our Group made significant progress in the areas of corporate governance, people, culture and diversity. We adopted a risk appetite statement, Compliance and Risk Management Framework and data breach response plan. Our gender diversity survey indicated positive attitudes towards creating a more gender diverse workplace at Autosports Group. We built on this with five gender diversity think tanks conducted nationally during the year and voluntarily completed our first Workplace Gender Equality Agency report for our Dealership division. We invested significantly in the development and rollout of the Salesforce customer relationship management platform to better manage customer data and deliver analytics back to the business to drive revenue growth. We are pleased with our results despite an overall challenging market in FY2018, and we believe Autosports Group is positioned for further growth in FY2019. We will continue to build our market share in new vehicle sales in the prestige and luxury segments. In addition, we will focus on the strong profit margin areas in aftersales including parts, service and collision repair delivering greater earning diversity. We will also continue to streamline our operations and capitalise on post-acquisition synergies. We see market conditions for consolidation as improving with an increasing number of high-quality acquisition opportunities at sensible valuation multiples. Finally, we would like to thank our Board and our employees for their continuing dedication and operational excellence during the Financial Year. We are confident that we continue to have the right management and strategy in place and look forward to discussing these results at our AGM in November 2018. Yours faithfully, Tom Pockett Nick Pagent Independent Chairman Chief Executive Officer 2 Autosports Group | Annual Report 2018 Chairman and CEO’s Letter 3 Key facts 39 business operating in New South Wales, Queensland and Victoria 6 Dealer of the Year / Excellence awards in 2018 Since listing, Autosports Group pursued a clear and focused strategy evenly balanced between acquisitions, organic and greenfields growth 37,780 cars sold 1,336 employees Established 2006 15 prestige and luxury brands represented 4 Autosports Group | Annual Report 2018 Key facts 5 Highlights Autosports Group dual strategy concentrates on luxury and prestige brands and the resilient major East Coast markets 2017 2018 September • Launched Volvo Rushcutters Bay greenfield dealership in Sydney’s Eastern Suburbs November • Acquired landmark metropolitan BMW dealership; Melbourne BMW incorporating locations at Southbank and Kings Way January • Launched new Autosports Group headquarters and training facility in Leichhardt, Sydney February • 5 Dealer of the Year awards and MINI Excellence award April • Acquired Canterbury BMW in Sydney being the Group’s first BMW dealership in NSW August • Declared final dividend of 4.8 cents per share (9.0 cents per share FY18 total) September • Launch of new luxury Maserati and Bentley dealership on the Gold Coast November • Expected launch of MINI Canterbury greenfield 6 Autosports Group | Annual Report 2018 Highlights 7 Financial highlights Normalised 1.75 billion REVENUE 61.0 million EBITDA 32.1 million NPAT1 15.95c EPS 1. Normalised NPAT exclude amortisation of intangibles of $4.3m. 8 Autosports Group | Annual Report 2018 Statutory 1.69 billion REVENUE 59.6 million EBITDA 26.1 million NPAT 12.99c EPS Financial Highlights 9 Directors’ Report 30 June 2018 The Directors present their report, together with the financial statements, on the consolidated entity (‘Autosports Group’or ‘Group’) consisting of Autosports Group Limited (‘Company’) and the entities it controlled at the end of, or during, the year ended 30 June 2018. Directors The following persons were directors of Autosports Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Thomas Pockett – Chairman Nicholas Pagent – Executive director and CEO Ian Pagent – Executive director Robert Quant – Non-executive director Marina Go – Non-executive director Malcolm Tilbrook – Non-executive director (resigned on 3 July 2017) Principal activities During the financial year, the Group’s principal activities were focused on the retail automotive industry. The core business focuses on the sale of new and used motor vehicles, distribution of finance and insurance products on behalf of retail financiers and automotive insurers, sale of aftermarket products and spare parts, motor vehicle servicing and collision repair services. There have been no significant changes in the nature of the Group’s principal activities. The Group’s operations comprise of: • 33 franchised dealerships selling new and used prestige and luxury motor vehicles; • 2 used motor vehicle outlets, focused primarily on the sale of used prestige and luxury motor vehicles; and • 4 specialist prestige motor vehicle collision repair facilities. Brands The Group represents the following brands and dealerships: AUTOSPORTS GROUP BRANDS & DEALERSHIPS 6 1 5 1 4 1 Motorrad 2 1 2 1 4 1 2 1 2 1 The number below each brand is represents the number of dealerships held by the Group. Dividends On 27 August 2018, the directors declared a fully franked final dividend of 4.8 cents per ordinary share (2017: 4.6 cents), to be paid on 31 October 2018 to eligible shareholders on the register as at 17 October 2018. When combined with the interim dividend of 4.2 cents per share paid in May 2018, the total dividend based on 2018 earnings is 9.0 cents per share fully franked. The financial effect of the dividends declared after the reporting date are not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports. Operating and Financial Review How does Autosports Group generate its income The Group generates its income from: • the sale of new and used motor vehicles • the sale or distribution of ancillary products and services, such as finance, insurance and aftermarket products • the sale of motor vehicle spare parts • the provision of motor vehicle servicing • the provision of collision repair services FY2018 Financial Performance Key Metrics Statutory Normalised Revenue EBITDA NPAT NPATA EPS $1.692b $59.6m $26.1m $30.4m 12.99c $1.754b1 $61.0m2 $32.1m3 $31.7m4 15.95c 1. Movement to normalised revenue represents Original Equipment Manufacturer (‘OEM’) bonuses received which are included in cost of goods sold for statutory reporting purposes. 2. Movement to normalised earnings before interest, tax, depreciations and amortisation (‘EBITDA’) relates to add back of one-off acquisition expenses of $1,334,000. 3. Normalised net profit after tax (‘NPAT’) attributable to owners of Autosports Group Limited excludes amortisation of intangibles of $4,300,000 and one-off acquisition expenses of $1,334,000. 4. Movement to normalised net profit after tax excluding amortisation (‘NPATA’) relates to one-off acquisition expenses of $1,334,000. 10 Autosports Group | Annual Report 2018 Directors’ Report 11 Directors’ Report (continued) 30 June 2018 The following tables demonstrate the Group’s statutory financial performance normalised to include non-recurring items. Profit before tax excluding non-recurring items Profit before tax excluding non-recurring items noted below is a financial measure which is not prescribed by Australian Accounting Standards (‘AAS’) and represents the statutory profit under AAS adjusted for certain one-off items. The directors consider profit before tax excluding non-recurring items to reflect the core earnings of the Group. Revenues from ordinary activities Profit before tax Profit before tax excluding non‐recurring items (refer below) Profit for the period attributable to the owners of Autosports Group Limited Year ended 30 June 2018 $’000 Period ended 30 June 2017 $’000 1,692,038 906,080 37,445 38,779 26,102 18,423 29,159 12,198 Comments The profit for the Group after providing for income tax and non-controlling interest amounted to $26,102,000 (2017:$12,198,000). The profit for the year was impacted by one-off items associated with acquisition expenses as follows: Statutory profit after tax attributable to the owners of Autosports Group Limited Add: Non-controlling interest1 Add: Income tax expense Profit before income tax expense Add: Acquisition expenses2 Add: IPO listing expenses Add: Employee gift offer of shares Add: Director gift offer of shares Profit before tax excluding non-recurring items Year ended 30 June 2018 Year ended 30 June 2018 $’000 26,102 332 11,011 $’000 12,198 190 6,035 37,445 18,423 - 1,334 - - 6,155 3,828 503 250 38,779 29,159 1. Represents the 20% minority interest in New Centenary Mazda Pty Ltd held by the dealer principal. 2. Reflects the amounts expensed to profit of loss in relation to acquisition costs (accounting and legal) and optimisation of workforce attached to acquisition. Operational overview Growth Since listing Autosports Group has pursued a clear and focused strategy evenly balanced between acquisitions, organic and greenfield growth. In the financial year, the Group acquired BMW and MINI Southbank, BMW and MINI Kingsway, Motorrad Southbank and BMW Melbourne Body Shop. This acquisition consolidated the Group’s representation with the luxury brands of BMW, BMW Motorrad, MINI and ALPINA. Furthermore, it consolidated Autosports Group’s move into the Victorian market, which commenced in August 2016 with the acquisition of Volvo Cars Brighton and in April 2017 the acquisition of BMW Doncaster and BMW Bundoora. The Group expanded its BMW footprint to New South Wales acquiring Canterbury BMW in Sydney’s inner South-West in April 2018. The financial year saw continued activity in greenfields growth for the Group. In September 2017 Autosports Group expanded its Volvo representation with the opening of Volvo Rushcutters Bay in Sydney’s Eastern Suburbs. Gold Coast Bentley and Maserati is nearing the end of its showroom development and is scheduled to open in October 2018 in Southport. The Group also received approval for a greenfields MINI franchise at Canterbury. Canterbury MINI Garage is scheduled to open in November 2018. The above activity has further diversified our brand presence across the luxury and prestige segments. A number of facilities were upgraded during the financial year including Audi at Five Dock and Indooroopilly and Volvo Parramatta. A second service facility opened in Leichhardt for Volvo and Fiat customers and allowing for increased service capacity at the original Leichhardt facility for Volkswagen service. The Lamborghini service department relocated to a larger location in Five Dock to accommodate the service demand the Group expects to see for the popular Huracan and Urus models. In Queensland, Mercedes Benz Toowong upgraded its AMG facilities and Mercedes Benz Macgregor refurbished its showroom to cater for its new range of commercial vans. During the financial year the Group purchased the property where the Mercedes Benz Macgregor dealership is located. It also entered into an agreement to purchase the adjoining property (scheduled to settle in November 2018). The Group performed well in the luxury and prestige segments despite an overall lagging new vehicle market. Market conditions Market conditions during the financial year were challenging seeing only modest growth in the total new vehicle sales market across the Eastern Seaboard where the Group operates and a decline in some States. Victoria saw the most growth at 3.4% against the prior year followed by Queensland with 2.7%. In New South Wales new vehicle sales fell 2.7% compared to 2017. The bulk of Autosports Group’s acquisition led growth was in Victoria with BMW and MINI. The most dominant market theme in new vehicles has been the substantial fall in some of the main volume brands. New vehicle sales for Holden and Ford fell 22.6% and 10.5%, respectively against the prior year. SUV models continue an upward trend increasing by 25,000 units (10.7%) in the 6 months to 30 June 2018 after ending the calendar year to 31 December 2017 up 24,658 units (5.6%). SUV models’ share of the total new vehicle market has increased to 43.1% from 38.9%. Autosports Group is well placed to take advantage of this growing market with the brands that the Group represents having increased their share of the SUV market from 27.3% to 29% over the 6 months to 30 June. Operational excellence Autosports Group strives to consistently deliver excellence. In 2018, the Group achieved: • Audi Indooroopilly 1st place Audi Metro Dealer of the Year; • Audi Centre Sutherland 1st place Major Metro Dealer of the Year; • Volvo Cars Sydney 1st place Major Metro Dealer of the Year; • Doncaster BMW 1st place Major Metro Dealer of the Year; • MINI Garage Doncaster MINI Excellence Award (Group 2); and • Volvo Cars Parramatta 2nd Place Major Metro Dealer of the Year. 12 Autosports Group | Annual Report 2018 Directors’ Report 13 Directors’ Report (continued) 30 June 2018 Integration and centralisation of activities Autosports Group has acquired numerous businesses since listing. A vital element of acquisitive growth is the ability to integrate these businesses into the broader Autosports Group network. The Group’s strategy is to develop lean and centralised head-office support at one location backed by a corporate branch in each State. This was achieved with the development of a new national head-office at Leichhardt which accommodates the Group’s management team, finance, marketing, human resources and legal functions. The Group also centralised its marketing, accounting and administration teams in Victoria and Queensland. These internal restructures have resulted in efficient use of resources and cost reductions of approximately $1.5m. In FY2019 the Group will focus on further cost saving and integration initiatives across finance and payroll. People and diversity Autosports Group proudly employs 1,336 people from Capalaba in Queensland to Bundoora in Victoria. During the financial year the Group appointed a new national role, ‘Manager – People, Culture and Strategy’. This year the Group conducted a Gender Diversity Survey finding that most employees felt that there was equal opportunity for both men and women at Autosports Group. More than 50% of those surveyed felt that having a more gender balanced workplace was personally important to them. After collecting the data from the Gender Diversity Survey, five think tanks were conducted across Queensland, New South Wales and Victoria. The think tanks brought together a diverse group of employees to discuss gender diversity hurdles, how the Group compares to its competitors and other industries and what the Group can do to improve gender balance. According to the Workplace Agenda Equality Agency (WGEA) Report prepared for the financial year, Autosports Group’s gender composition was 18.6% females and 81.4% males. 58.3% of employees awarded promotions were women and 41.7% were men. Of this, 53.3% of all manager promotions were awarded to women and 66.7% of all non-manager promotions were awarded to women. This report covers 1,245 employees in the Car Retailing industry (ANZSIC Code 3911) out of a total of 1,336 employees. The full WGEA Report is available on the Group’s website at http://investors.autosportsgroup.com.au/investors/?page=corporate- governance. The executive team will continue its focus on gender diversity in FY2019. Marketing and technology Over the past couple of years the Group has invested significantly in the development and rollout of the Salesforce Customer Relationship Management (CRM) platform and improving its digital footprint. This investment has enabled the Group to better manage customer data and has empowered the marketing team to deliver insights back to the business which are driving positive business outcomes. In November 2017 the Group invested in building an in-house digital marketing function which now consists of three digital specialists that are providing strategy and support for the Group. The Group will continue to invest in strengthening its digital platforms and using these to deliver increased vehicle and service sales and positive customer experiences. Giving program Community giving is at the core of Autosports Group’s values. Autosports Group is pleased to have formally introduced a three- tiered Giving Program. The Group’s support of the Audi, Mazda and Honda Foundations, have helped leading charities such as The Smith Family and RUOK Day. The Group’s dealerships have supported many deserving charities during the financial year, some of which include: Australian Mitochondrial Disease Foundation; Royal Women’s Hospital; MS Society; St Vincent’s Hospital Curran Foundation; Food 4 Thought; The Ireland Funds Australia; Kids with Cancer Foundation; Mater Foundation; Hotels with Hearts and a number of Australian schools and sporting teams. Likely developments and expected results of operations in future years Organic growth will comprise: • expansion of the Group’s wholesale used vehicle business, Prestige Auto Traders, into the Victorian market; • growth of back-end services (e.g. servicing and sale of motor vehicle spare parts); • driving aftersales demand through consolidating parts warehousing and distribution logistics; • capacity expansion at existing dealerships to meet demand; and • establishment of new greenfield dealerships when the mix of brand, location and demand is right. Acquisition growth will focus on: • opportunities both in the Group’s existing brands and in prestige and luxury brands where it does not currently have a presence; and • collision and repair acquisitions to expand the Group’s OEM approved repairer facilities to include more brands within its portfolio. Other focus areas include: launch Bentley and Maserati on the Gold Coast; launch MINI Canterbury greenfield; • • • deliver improvements in synergies and logistics across all businesses; • continue focus on high-quality and well-priced acquisition targets on the East Coast in luxury and prestige brands; • explore organic growth opportunities in used cars by utilising Autosports Group’s used car hub model and taking advantage of the Group’s growth in supply of vehicle trade-ins and business to business opportunities; • continue to improve the performance of greenfield sites to increase margins and bring these greenfield businesses through to maturity; • progress gender diversity initiatives; • review work health and safety practices and procedures; and • review and monitor environmental impact. Risk and Governance During the financial year, the Group formalised and adopted its Risk Management and Compliance Framework. Autosports Group recognises that risk management is an essential element in the framework of good corporate governance. The Group identified its key risk areas as: OEM risk – The Group’s supportive and collaborative approach to its relationships with OEMs has cultivated the Group’s excellent reputation amongst OEMs. Work Health and Safety (‘WHS’) – The Group has a zero risk tolerance for death and total and permanent disablement of its staff and customers. During the financial year the Group introduced Safety Navigator to centralise the dissemination of safety information and reporting across all dealerships and business units in each State. Autosports Group will continue its focus on WHS in the 2019 financial year. Reliance on key personnel – During the financial year the Group implemented a succession plan and training initiatives to progress selected employees across the business. Credit risk – The Group will continue to ensure it adheres to the terms of financier floorplan terms, meets the requirements of financier floorplan audits as well as monitor interest rate fluctuations. Regulatory compliance – The Group is prepared for the introduction of flex commission reforms and does not expect the changed model to have a significant impact on revenue streams for point of sale finance products. The Group has implemented procedures under the Takata airbag recall and works closely with its OEMs in this regard. Changes to market trends – The Group continues to monitor market trends to prepare itself for changes to consumer preferences and new technologies. 14 Autosports Group | Annual Report 2018 Directors’ Report 15 Directors’ Report (continued) 30 June 2018 Environmental regulation The Group is committed to continually improving its operations to deliver better environmental outcomes. The Group is subject to environmental regulation and this year has implemented 15 minimum environmental standards at its dealerships and service and panel shops. These standards range from changes to LED lighting, use of recycling facilities and recyclable materials, use of water restriction fittings; monitoring air conditioner use and using low emission fuels. The Group will further review its environmental practices in FY2019. Significant change in the state of affairs The key changes to the business during the year included the Melbourne BMW and Canterbury BMW acquisitions discussed above and the Group’s entry into the automotive property market with the purchase of a property in Macgregor, Queensland, for the purpose of automotive retailing. Refer to note 29 to the financial statements for further details relating to the acquisitions. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Apart from the dividend declared as disclosed above, no other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Regulatory Change The Australian Securities and Investments Commission (ASIC) reforms relating to flex commissions take effect in November 2018. These reforms impose restrictions on the interest rates offered to consumers on the purchase of a motor vehicle. Under the new model lenders are required to set the interest rate which can be discounted up to 2.0 basis points by the dealer. The Group has been in discussions with its lenders and is prepared to operate under the new model. No material change to income is expected as a result of these reforms. The Australian Competition and Consumer Commission (ACCC) published its report on the new car retailing industry in December 2017. The key observations arising from the study related to the way consumers enforce their rights under the Australian Consumer Law, access to information and data for vehicle repair and service and the accuracy of fuel consumption and emissions performance. The ACCC has recommended that a mandatory scheme should be introduced in Australia for car manufacturers to share technical service and repair information. Autosports Group will monitor developments in this space. New South Wales introduced the Modern Slavery Act 2018 (NSW) requiring companies with revenue exceeding $50 million to publish a modern slavery statement on the occurrence of modern slavery in their supply chain. Similar Commonwealth legislation is also under review. In 2018 the ACCC issued a Takata airbag inflator recall notice. The recall requires all defective airbags to be replaced by 31 December 2020. The dealerships have been working closely with OEMs to carry out airbag replacements. The Group has introduced procedures across its portfolio in relation to the recall. Current directors Experience and expertise: Thomas (‘Tom’) Pockett Title: Independent Chairman (appointed to the Board on 29 August 2016) Qualifications: Fellow of the Institute of Chartered Accountants Australia and New Zealand and a Bachelor of Commerce from the University of New South Wales Tom is the Chairman of Stockland Corporation and a Non-Executive Director of Insurance Australia Group Limited (appointed 1 January 2015), O’Connell Street Associates Limited (appointed 1 November 2014) and Sunnyfield, a not-for-profit disability services provider in New South Wales. Tom was Chief Financial Officer of Woolworths Limited from August 2002 to February 2014. He was an Executive Director of Woolworths Limited from November 2006 to 1 July 2014. He previously held the position of Deputy Chief Financial Officer at the Commonwealth Bank of Australia and prior to that held several senior finance roles within the Lend Lease Group following a successful career with Deloitte. Tom was formerly Chairman of The Quantium Group Holdings Pty Limited (September 2014 to February 2016), a Director of ALH Group Pty Ltd (September 2014 to February 2016) and Hydrox Holdings Pty Ltd (September 2014 to December 2015). Tom was a member of the Financial Reporting Council from March 2003 to March 2006 and National President of G100 from August 2000 to January 2003. Other current directorships: Chairman of Stockland Corporation Limited (ASX: SGP) (from 1 September 2014) and Non-Executive director of Insurance Australia Group (ASX: IAG) (from 1 January 2015) Former directorships (last 3 years): None Special responsibilities: Chairman, Member of Audit and Risk Committee and People and Remuneration Committee Relevant Interests in shares: 166,667 ordinary shares held directly Interests in options: Interests in rights: None None Nicholas (‘Nick’) Pagent Title: Managing Director and Chief Executive Officer (appointed on 29 August 2016) Experience and expertise: Nick has over 22 years’ experience in the motor vehicle industry across Australia and the United Kingdom. Prior to founding Autosports Group, Nick worked in the United Kingdom in senior roles including Director of Sales and Dealer Principal with Mercedes-Benz London and Executive Audi, St Albans. Other current directorships: Former directorships (last 3 years): None None Special responsibilities: Managing Director and Chief Executive Officer Relevant interests in shares: 38,951,855 ordinary shares held indirectly (103,389,396 ordinary shares when combined with Ian Pagent’s holding for the purpose of substantial holder declarations) Interests in options: Interests in rights: None 375,000 LTI performance rights convertible into 375,000 ordinary shares 43,035 STI performance rights convertible into 43,035 to ordinary shares 16 Autosports Group | Annual Report 2018 Directors’ Report 17 Directors’ Report (continued) 30 June 2018 Ian Pagent Title: Executive Director (appointed on 29 August 2016) Experience and expertise: Ian has over 49 years’ experience in the motor vehicle industry across Australia, Asia and the United States. Between 1988 and 2002, Ian was co-owner and Managing Director of Trivett Classic Group. During this period, he was the dealer principal for BMW, Audi, Volvo, Jaguar, Land Rover, Aston Martin, Porsche, Lamborghini, Lotus, Mazda, Honda, Peugeot, Toyota and MG Rover. Other current directorships: Non-executive director – Friends of Mater Foundation Former directorships (last 3 years): None Special responsibilities: Executive Director Relevant interests in shares: 64,437,541 ordinary shares held indirectly (103,389,396 ordinary shares when combined with Nick Pagent’s holding for the purpose of substantial holder declarations) Interests in options: Interests in rights: None 150,000 LTI performance rights convertible into 150,000 ordinary shares 17,388 STI performance rights convertible into 17,388 to ordinary shares Robert Quant Title: Qualifications: Independent Non-Executive Director (appointed on 29 August 2016) Fellow of the Institute of Chartered Accountants Australia and New Zealand and a Bachelor of Accounting from the University of Technology, Sydney Experience and expertise: Robert has over 35 years’ experience in professional accounting in advisory and leadership roles having developed sector expertise in retail automotive and professional services. His most recent executive roles include Global Leader - Asia Pacific for Grant Thornton International Limited and CEO of Grant Thornton Australia Limited. As well as sitting on and chairing a number of private boards, he advises in the areas of strategy development and organisational change. Other current directorships: Former directorships (last 3 years): None None Special responsibilities: Chair of Audit and Risk Committee and member of People and Remuneration Committee Relevant interests in shares: 62,499 ordinary shares held indirectly Interests in options: Interests in rights: None None Marina Go Title: Qualifications: Independent Non-Executive Director (appointed on 28 October 2016) Master of Business Administration from the Australian Graduate School of Management (‘AGSM’) and a Bachelor of Arts from Macquarie University Experience and expertise: Marina is currently the Chair of the Wests Tigers NRL Club (appointed September 2014), Non-Executive Director of Energy Australia (appointed April 2017), Non-executive director of 7-Eleven Stores Pty Ltd (appointed February 2018), Non-executive director of Pro-Pac Packaging Limited (appointed August 2018), Chair of Office Brands, Australia’s largest independent network of business supplies dealers (appointed February 2017). She is also Chair of Advisory Board – Centre for Media Transition, UTS. Marina’s executive roles included CEO of magazine publisher Hearst Australia, CEO of Private Media and Group Publishing Director of Independent Digital Media. She has over 25 years’ experience in the media industry, with a focus on global brands for the female consumer and luxury sectors across print, digital and events. Marina has also held senior roles at Fairfax and Pacific Publications. Marina is a University of New South Wales (‘UNSW’) Alumni Leader and Ambassador. Other current directorships: None, other than those listed above. Former directorships (last 3 years): None Special responsibilities: Chair of People and Remuneration Committee and Member of the Audit and Risk Committee Relevant interests in shares: 20,833 ordinary shares held directly Interests in options: Interests in rights: None None ‘Other current directorships’ quoted above are current directorships for listed entities only. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 18 Autosports Group | Annual Report 2018 Directors’ Report 19 Directors’ Report (continued) 30 June 2018 Other Key Management and Company Secretary Aaron Murray Title: Chief Financial Officer Meetings of directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2018, and the number of meetings attended by each director were: Experience and Expertise: Aaron has over 21 years’ experience in accounting and the motor vehicle industry. Aaron has held the role of ASG CFO since 2009, after joining the business in 2007. Prior to joining ASG, Aaron held accounting and finance roles with Trivett Classic, McMillan Volkswagen and Audi Centre Parramatta. Relevant interests in shares: 1,650,508 ordinary shares held indirectly Interests in options: None Caroline Raw Title: Qualifications: Company Secretary and General Counsel (appointed 23 February 2018) Fellow of the Institute of Chartered Secretaries and Administrators, Bachelor of Laws and Bachelor of Commerce from Western Sydney University, Graduate Diploma of Applied Corporate Governance from Governance Institute Experience and Expertise: Caroline Raw has over 13 years’ experience as a corporate lawyer advising listed companies and funds on initial public offerings (‘IPOs’), capital raising, funds management and mergers and acquisitions. Prior to joining Autosports Group, Caroline held a senior role at a national law firm in the equity capital markets and merger and acquisitions practice group. Caroline sat on the Capital Markets Committee of the Property Council of Australia and has previously acted as group company secretary and legal counsel for an ASX-listed property funds management company and an Australian real estate investment trust (‘A-REIT’). Tom Pockett Nick Pagent Ian Pagent Robert Quant Marina Go Malcolm Tilbrook* Full Board People and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held 10 10 10 10 10 - 10 10 10 10 10 - 6 - - 6 6 - 6 - - 6 6 - 7 - - 7 7 - 7 - - 7 7 - * Malcolm Tilbrook resigned on 3 July 2017. Governance The Board has adopted a framework of corporate governance, reflected through Autosports Group’s policies and practices. The Group’s Corporate Governance Statement, which meets the requirements of ASX Listing Rule 4.10.3, can be viewed at: http://investors.autosportsgroup.com.au/investors/ Shares under option There were no unissued ordinary shares of Autosports Group Limited under option outstanding at the date of this report. Shares under performance rights There were 766,340 unissued ordinary shares of Autosports Group Limited under performance rights at the date of this report. Shares issued on the exercise of options There were no ordinary shares of Autosports Group Limited issued on the exercise of options during the year ended 30 June 2018 and up to the date of this report. Shares issued on the exercise of performance rights In August 2018 the Board approved the issue of 10,417 ordinary shares in Autosports Group Limited in relation to the vesting of employee performance rights. These shares will be issued in September 2018. There were no other ordinary shares issued during or since the end of the financial year. Indemnity and insurance of officers The Company has entered into Deeds of Indemnity, Insurance and Access with each of the directors as well as the Company Secretary and Chief Financial Officer of the Company to indemnify them for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. 20 Autosports Group | Annual Report 2018 Directors’ Report 21 Directors’ Report (continued) 30 June 2018 Remuneration Report (audited) 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 Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 25 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 25 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: Overview This remuneration report, which is an integral part of the directors’ report, sets out information about the remuneration of Autosports Group Limited key management personnel ('KMP') for the year ended 30 June 2018. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. This Remuneration Report has been audited in accordance with the Corporations Act. Autosports Group Limited’s Board of Directors has adopted a remuneration framework for the Company that is appropriate for the listed environment and aligns with the Company’s strategy. The Company’s remuneration framework for the executive team comprises the following three key components: (1) fixed remuneration – comprising base salary, superannuation contributions and other benefits; (2) short-term incentive (STI) – an ‘at risk’ component of remuneration where, if individual and Group performance measures are met, senior executives are awarded performance rights which are deferred for one year and are subject to a service condition; and • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the (3) long-term incentive (LTI) – an ‘at risk’ component of remuneration where senior executives are awarded performance rights auditor; • the amount paid to the auditors in relation to non-audit services includes a non-recurring fee in relation to the IPO of the Group. These services were undertaken by personnel distinct from the audit team undertaking the statutory audit of the group; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former partners of Deloitte Touche Tohmatsu There are no officers of the Company who are former partners of Deloitte Touche Tohmatsu. which are subject to an earnings per share (EPS) performance condition and a service condition. The Board believes that this remuneration framework ensures a pay for performance model whereby remuneration outcomes are linked to Company performance and the long-term interests of Shareholders. It is important to note that whilst this year’s remuneration report represents remuneration activity over a full 12-month period, last year’s remuneration report represented remuneration activity from the date of the Company’s incorporation on 29 August 2016. 22 Autosports Group | Annual Report 2018 Remuneration Report 23 Remuneration Report (audited) (continued) Contents Section 1. Remuneration essentials What does this report cover? Who does this report cover? Remuneration governance and framework Remuneration policy and guiding principles Remuneration mix and components Company performance 2. Executive remuneration in detail Fixed remuneration Short-term incentive Long-term incentive Executive service agreements 3. Non-executive director remuneration Principles of non-executive director remuneration Non-executive director remuneration in the financial year Non-executive director remuneration in FY2019 4. Statutory remuneration disclosures Senior executive and non-executive director remuneration Movements in performance rights held by senior executives KMP shareholdings 5. Transactions with KMP Management fees Related party leases Related party loans Page 25 25 25 25 26 26 28 29 29 29 31 33 34 34 34 34 35 35 35 36 37 37 37 37 1. Remuneration essentials What does this report cover? The directors of Autosports Group Limited (ASG) are pleased to introduce to shareholders the Company’s remuneration report for the performance period 1 July 2017 to 30 June 2018 (financial year). Who does this report cover? This report sets out the remuneration arrangements for the Company’s KMP. Throughout the remuneration report, KMP are referred to as either senior executives or non-executive directors. The following table sets out the Company’s KMP for the financial year. All non-executive directors and senior executives held their positions for the whole of the financial year (unless otherwise indicated). Non-executive directors Name Tom Pockett Marina Go Robert Quant Malcolm Tilbrook1 Position Chair and independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director 1 Mr Tilbrook retired from the Board on 3 July 2017. Senior executives Name Nick Pagent Position Managing Director and Chief Executive Officer (CEO) Ian Pagent Executive Director Aaron Murray Chief Financial Officer (CFO) Remuneration governance and framework Role of the Board and People and Remuneration Committee The Board is responsible for establishing, and overseeing the implementation of, the Company’s remuneration policies and frameworks and ensuring that it is aligned with the long-term interests of the Company and its shareholders. The People and Remuneration Committee was established at the time of Listing in November 2016 to assist the Board with these responsibilities. The role of the People and Remuneration Committee is to review key aspects of the Group’s remuneration structure and arrangements and make recommendations to the Board. In particular, the People and Remuneration Committee reviews and recommends to the Board: • arrangements for the senior executives (including annual remuneration and participation in short-term and long-term incentive plans); • key performance indicator (KPI) targets for senior executives; • • • remuneration arrangements for non-executive directors; major changes and developments to the Company’s equity incentive plans; and whether offers are to be made under the Company’s employee equity incentive plans in respect of a financial year and the terms of any offers. 24 Autosports Group | Annual Report 2018 Remuneration Report 25 Remuneration Report (audited) (continued) Use of remuneration consultants and other advisors Executive remuneration framework Prior to Listing on 16 November 2016 the Board engaged an independent external advisor to advise on the remuneration of the senior executives. The scope of the engagement included the provision of remuneration assistance as requested by the Board, including but not limited to, providing data and commentary on market trends, industry comparisons, developing the Company’s remuneration framework for the listed environment, and advising on remuneration structuring. The Board agreed to maintain this structure for the first two years from Listing to assess the performance of the executive team on a year on year basis. Remuneration policy and guiding principles Executive remuneration The Company’s remuneration framework is designed to be competitive and to focus senior executives on executing the Group’s strategy and achieving its business objective to increase shareholder value. The Board and the People and Remuneration Committee are guided by the following objectives when making decisions regarding senior executive remuneration: Attract and retain skilled executives Structure short & long- term incentives that are challenging and linked to the creation of sustainable shareholder returns Ensure remuneration structures are equitable & aligned with the long-term interests of ASG and its shareholders Ensure any termination benefits are in accordance with policy REMUNERATION POLICY OBJECTIVES Fixed remuneration - Cash Short-term incentive (at risk) - Equity Long-term incentive (at risk) - Equity • Base salary plus superannuation and other benefits • Base salary was formally benchmarked at the time of Listing • Influenced by individual performance • Reviewed annually • STI is subject to performance hurdles (including NPAT) and other benefits • The 2018 STI award was also subject to a culture and values gateway hurdle • Granted in performance rights • Vesting subject to an EPS performance condition • Performance generally measured over • Performance generally measured over 3 years 12 months • Granted in performance rights which will vest following a 12-month deferral period subject to the executive’s continuous service Market competitive base reward encourages sustainable performance in the medium to longer term and provides a retention element The tables below illustrate the remuneration mix for the senior executives at target performance. Remuneration mix at target for Nick Pagent for the Financial Year Remuneration mix at target for Ian Pagent for the Financial Year Remuneration mix at target for Aaron Murray for the Financial Year LTI, 20.4% LTI, 13.8% LTI, 13.7% STI, 18.0% Fixed REM, 61.6% Fixed REM, 73.9% Fixed REM, 74.1% STI, 12.3% STI, 12.2% Non-executive director remuneration In remunerating non-executive directors the Group aims to ensure that it can attract and retain qualified and experienced directors having regard to: • • • the specific responsibilities and requirements for the Board; fees paid to non-executive directors of other comparable Australian companies; and the size and complexity of the Group’s operations. Remuneration mix and components The Group's executive remuneration framework, which was put in place from Listing, is summarised below and includes components of remuneration which are structured to motivate executives to deliver sustained returns through a mix of short-term and long-term incentives. The tables below illustrate the remuneration mix for the senior executives at maximum performance. Remuneration mix at maximum performance for Nick Pagent for the Financial Year Remuneration mix at maximum performance for Ian Pagent for the Financial Year Remuneration mix at maximum performance for Aaron Murray for the Financial Year LTI, 28.5% Fixed REM, 43.0% STI, 28.5% LTI, 21.4% LTI, 21.2% STI, 21.4% Fixed REM, 57.2% STI, 21.3% Fixed REM, 57.5% 26 Autosports Group | Annual Report 2018 Remuneration Report 27 Remuneration Report (audited) (continued) Company performance The Group had a solid year and achieved results in line with market expectations. The Group continued to grow organically, as well as through strategic acquisitions and the opening of an additional greenfield dealership. The Group's remuneration structure was established to drive these outcomes and, as a result, a total of 72% (2017:81%) of the target STI has been paid to senior executives. The table below shows the Company’s financial performance using a number of key measures since Listing. Share Performance Earnings performance Liquidity Closing Share Price (A$) Dividend Per Share (c) Basic EPS (c) EBIT $M NPAT $M ROE % Cash flow from Operations $M Interest coverage (EBITDA) 2. Executive remuneration in detail Fixed remuneration The remuneration of all senior executives includes a fixed component comprised of base salary and employer superannuation contributions and other benefits associated with the provision and use of motor vehicles. Fixed remuneration is regularly reviewed by the People and Remuneration Committee with reference to each senior executive’s individual performance and, as appropriate, relevant comparative compensation in the market. Benchmarking of fixed remuneration of the senior executives was conducted prior to Listing against peer companies. Fixed remuneration for senior executives is market-aligned to similar roles in companies of a comparable size, complexity and scale to Autosports Group. 20181 1 Jul 2017 – 30 Jun 2018 2017 16 Nov 17 – 30 Jun 17 1.70 9.0 12.99 50.7 26.4 5.3 46.1 4.51 Short-term incentive Overview of the STI plan 2.09 4.6 6.07 23.8 12.4 2.5 24.2 5.25 Participation 1 2018 is a full year from 1 July 2017 to 30 June 2018 whereas 2017 is the period from Listing 16 November 2016 to 30 June 17. The STI plan is an ‘at-risk’ component of executive remuneration whereby, if the applicable performance conditions are met, STI awards will be delivered in the form of performance rights which will vest after a further deferral of one year subject to the executive’s continued service. Executive directors and other members of senior management are eligible to participate in the STI plan. Performance period 1 July 2017 to 30 June 2018. STI opportunity The STI opportunities of the senior executives are set out below: Nick Pagent Ian Pagent Aaron Murray Level of performance At target At maximum 33% of base salary 75% of base salary 20% of base salary 45% of base salary 20% of base salary 45% of base salary Each senior executive’s STI opportunity is assessed against individually weighted financial and non-financial performance hurdles. In the FY2018 performance period, if performance is assessed as below target, no STI is awarded. If performance is assessed to be between target and maximum, a straight line pro- rata STI award is awarded. For the FY2019 Performance Period, the Board has determined that performance will be assessed from 95% of target whereby if performance is determined to be between 95% and 100% of target, senior executives will be rewarded with 30% of the relevant individually weighted STI opportunity. As with FY2018, if performance is assessed to be between target and maximum, a straight line pro-rata STI award is awarded. Also for the FY2019 performance period, the Board has determined that all performance matrices will exclude new or unbudgeted acquisitions. Performance conditions Performance conditions for the initial grant include: • a “gateway hurdle” of upholding the Company’s culture and values. If the gateway hurdle is not met, no STI is awarded. • in addition, each senior executive has an individualised balanced scorecard that determines their STI awards. These scorecards incorporate individually weighted financial and non- financial performance hurdles determined by the Board annually. The financial hurdles primarily focus on the financial objectives of the Group and include targets measured against Revenue, EBITDA, NPBT and NPAT. The non-financial performance hurdles are aligned to each senior executive’s role and include growth, stakeholder relationships, risk and corporate governance to ensure the business continues to be well managed. The Board has determined that the combination of financial and non-financial conditions provides the appropriate balance between short-term financial measures and the more strategic non-financial measures which in the medium to long-term will ultimately drive further growth and returns for shareholders. 28 Autosports Group | Annual Report 2018 Remuneration Report 29 Remuneration Report (audited) (continued) Measurement of performance conditions Delivery of STI awards Performance rights Number of performance rights to be granted Following the end of the financial year, the People and Remuneration Committee assesses the performance of senior executives against the performance conditions set by the Board and determines the actual level of award for the senior executives for the initial grant and, therefore, the number of performance rights to be granted. The Board believes this method is most efficient and results in the most accurate outcomes. Following measurement against performance conditions, STI awards are delivered in the form of performance rights which will vest following a deferral period of 12 months subject to a continuous service condition. Upon vesting, each performance right entitles the senior executive to one ordinary share in the Company. The Board has the discretion to settle performance rights with a cash equivalent payment. Performance rights are granted for nil consideration and no amount is payable on vesting. The number of performance rights to be granted to senior executives is determined by dividing any STI award that they become entitled to receive by the volume weighted average price (VWAP) of shares traded on the ASX during the 10 trading days following the release of the Group’s 2018 audited results. Dividend and voting rights Performance rights do not carry dividend or voting rights prior to vesting. Shares allocated on vesting carry the same dividend and voting rights as other shares. Treatment on cessation of employment If a senior executive ceases to be employed during the 12 month deferral period, the following treatment will apply, unless the Board determines otherwise: Percentage of STI awarded and forfeited for senior executives during the financial year Details of the STI outcomes received by senior executives during the financial year are outlined in the table below. Senior executives Year Minimum potential STI bonus Maximum potential STI bonus ($)1 STI award ($)2 % of target STI award granted Nick Pagent Ian Pagent Aaron Murray 2018 2017 2018 2017 2018 2017 - - - - - - 450,000 276,174 180,000 110,465 168,750 103,562 129,115 103,285 75,806 41,732 48,568 29,918 40% 85% 70% 85% 40% 65% % of maximum STI award granted % of maximum STI award forfeited 29% 37% 42% 38% 29% 29% 71% 63% 58% 62% 71% 71% 1. The maximum potential bonus is determined by reference to the maximum STI opportunity available to each executive as a percentage of their base salary. 2. 100% of the STI award will be delivered in the form of performance rights. The number of performance rights will be determined following the release of the Group’s 2018 results (or in the case of the Executive Directors after the Annual General Meeting subject to shareholder approval) but will not vest until 30 June 2019, subject to continued service. As at 30 June 2018, the STI award has been calculated in accordance with AASB2 ('Share-based Payments'). • if they resign or are summarily terminated, all of their rights will lapse; or • if they cease employment in any other circumstance, a pro rata portion (for the portion of the performance period elapsed) of unvested rights will remain on foot and will vest in the ordinary course. Long-term incentive Set out below is an explanation of the terms and conditions applying to the LTI awards for senior executives during the performance period. Change of control The Board may determine that all or a specified number of a senior executive’s performance rights will vest or cease to be subject to restrictions where there is a change of control event. Overview of the LTI plan The LTI plan is an ‘at-risk’ equity component of executive remuneration which is subject to the satisfaction of a long-term performance condition. Clawback and preventing inappropriate benefits The Board has broad clawback powers if, for example, the senior executive has acted fraudulently or dishonestly or there is a material financial misstatement. Participation Instrument Number of performance rights to be granted Executive directors and other members of senior management are eligible to participate in the LTI plan. Upon vesting, each performance right entitles the senior executive to one ordinary share in the Company. The Board has the discretion to settle performance rights with a cash equivalent payment. Performance rights are granted for nil consideration and no amount is payable on vesting. The number of performance rights granted to each Senior Executive will be determined by dividing the LTI award opportunity (calculated as a percentage of the Senior Executive’s base salary) by the VWAP of shares traded on the ASX during the 10 trading days following the release of the group’s full year results for that financial year. Performance period The initial grant will be measured from Listing (16 November 2016) to 30 June 2019. Future grants will have a three-year performance period. 30 Autosports Group | Annual Report 2018 Remuneration Report 31 Remuneration Report (audited) (continued) Performance conditions Performance rights will be tested against the compound annual growth rate (CAGR) of the Group’s underlying EPS. The percentage of performance rights that vest, if any, will be determined by reference to the following vesting schedule, subject to any adjustments for abnormal or unusual profit items that the Board, in its absolute discretion, considers appropriate: CAGR of the Company’s underlying EPS over the performance period Percentage of performance rights that vest Less than 7% 7% (threshold performance) Between 7% and 15% Nil 50% Straight-line pro rata vesting between 50% and 100% 15% or above (maximum performance) 100% The Board will arrange for the performance condition to be tested following the release of the Company’s full year results. Any rights that remain unvested at the end of the performance period will lapse immediately. A continuous service condition also applies to the performance rights, subject to the cessation of employment provisions described below. The EPS performance condition has been chosen as it provides evidence of the Company’s growth in earnings and is directly linked to shareholder returns. Measurement and testing of performance conditions To measure the EPS performance condition, financial results are extracted by reference to the Company’s audited financial statements. The use of financial statements ensures the integrity of the measure and alignment with the true financial performance of the Company. EPS is calculated having regard to underlying profit, which measures profit from ASG’s ongoing operations adjusted, where the Board considers it appropriate. Dividend and voting rights The performance rights do not carry dividend or voting rights prior to vesting. Shares allocated on vesting carry the same dividend and voting rights as other shares. Treatment on cessation of employment If an executive ceases to be employed before the executive’s performance rights vest, the following treatment will apply, unless the Board determines otherwise: • if the executive resigns or is summarily terminated, all their performance rights will lapse; or • if the executive ceases employment in any other circumstances, a pro rata portion (for the portion of the performance period elapsed) of their rights will remain on foot and will be tested after the end of the performance period against the performance condition. Change of control The Board may determine that all or a specified number of a senior executive’s performance rights will vest or cease to be subject to restrictions where there is a change of control event. Clawback and preventing inappropriate benefits The Board has broad clawback powers if, for example, the senior executive has acted fraudulently or dishonestly or there is a material financial misstatement. Executive service agreements Each of the senior executives is party to a written executive service agreement with the Company which was entered into prior to Listing. The key terms of these agreements are set out below. Duration Base salary Periods of notice required to terminate and termination payments Ongoing term Nick Pagent – $600,000 per annum base salary plus other benefits valued at $79,950. Ian Pagent – $400,000 per annum base salary plus other benefits valued at $80,980. Aaron Murray – $375,000 per annum base salary plus other benefits valued at $80,760. Nick Pagent – either party may terminate the contract by giving 12 months’ notice. Ian Pagent – either party may terminate the contract by giving 12 months’ notice. Aaron Murray – either party may terminate the contract by giving 3 months’ notice. The Company may terminate immediately in certain circumstances, including where the relevant senior executive engages in serious or wilful misconduct. Remuneration Consultant Fees Prior to Listing, Egan Associates was engaged to advise on the remuneration of the non-executive directors and senior executives. The scope of the engagement included the provision of remuneration assistance as requested by the Board, including but not limited to, providing data and commentary on market trends, developing the Company’s remuneration framework for the listed environment, and advising on remuneration structuring. The engagement of Egan Associates was based on an agreed set of protocols that would be followed by the consultant so that it would be able to carry out its work, including information capture and the formation of its recommendations, free from undue influence by members of the KMP to whom the recommendations may relate. Under the engagement, Egan Associates reported to the Chair of the Board. The Board undertook its own inquiries and review of the processes and procedures followed by Egan Associates and is satisfied that the remuneration recommendations were made free from undue influence by members of the KMP about whom the recommendations may relate. In addition, Egan Associates has confirmed that, in its view, it was acting independently of management. The Board agreed to retain the remuneration structure recommended by Egan Associates and no other advice was provided in relation to executive remuneration during the Performance Period. The Board has agreed to review the arrangements with an independent consultant in FY2019. 32 Autosports Group | Annual Report 2018 Remuneration Report 33 Remuneration Report (audited) (continued) 3. Non-executive director remuneration 4. Statutory remuneration disclosures Principles of non-executive director remuneration As outlined in section 2, in remunerating non-executive directors, the Group aims to ensure that it can attract and retain qualified and experienced directors having regard to: • • • the specific responsibilities and requirements for the Board; fees paid to non-executive directors of other comparable Australian companies; and the size and complexity of the Group’s operations. Non-executive director remuneration in the financial year Board fees The current non-executive director fee pool has been set at $800,000 per annum. The non-executive directors’ fees are $200,000 for the Chair and $100,000 for other non-executive directors (including superannuation) per annum. Directors may be remunerated for reasonable travel and other expenses incurred in attending to the Group’s affairs and any additional services outside the scope of Board and Committee duties they provide. In order to maintain their independence, non-executive directors do not have any ‘at risk’ remuneration component. The Group does not pay benefits (other than statutory entitlements) on retirement to non-executive directors. Committee fees Senior executive and non-executive director remuneration The following table sets out the statutory disclosures in accordance with the Accounting Standards for the financial year. Nick Pagent Ian Pagent Aaron Murray Tom Pockett Marina Go Robert Quant Short-term employee benefits Post-employment benefits Share-based payments Total Cash salary/ Fees $ Non-monetary benefits $2 Superan nuation benefits $ Rights $3 Shares $4 $ 599,999 367,885 392,307 246,538 375,000 230,173 182,648 105,374 109,508 52,853 109,508 64,981 - 64,960 59,950 28,963 60,980 36,221 60,760 36,984 - - - - - - - - 21,613 32,756 20,049 21,959 20,049 20,496 17,351 10,010 10,403 5,021 10,211 5,007 - 5,005 300,380 154,368 144,312 62,164 112,792 49,073 - - - - - - 981,942 583,972 617,648 366,882 568,601 336,726 - - - - - - - - - 199,999 100,000 215,384 - 119,911 50,000 107,874 - 119,719 50,000 119,988 - - 50,000 119,965 Year1 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Non-executive directors are paid Committee fees of $20,000 (including superannuation) per annum for each Board Committee of which they are a Chair. Directors do not receive additional fees for being a member of a Board Committee. Malcolm Tilbrook5 Non-executive director remuneration in FY2019 In FY2019, the Board has agreed to review the base fees and terms of engagement for non-executive directors. 1. 2018 is a full year from 1 July 2017 to 30 June 2018 whereas 2017 is the period from incorporation 29 August 2016 to 30 June 2017. 2. The amounts disclosed as non-monetary benefits includes things such as motor vehicle, motor vehicle insurance, fringe benefit tax on motor vehicle and fuel allowance. 3. The value of rights granted to the senior executives is based on the fair value estimate on grant date. 4. As disclosed in the Prospectus, on completion of the IPO, each of the non-executive directors received a one-off grant of shares in the Company. The shares are not subject to any vesting conditions in order to preserve the directors' impartiality. 5. Malcom Tilbrook resigned on 3 July 2017. There were no termination benefits provided in the financial year. Movements in performance rights held by senior executives STI performance rights for the 2017 award were granted on 20 November 2017. Under this award, 43,035 performance rights were granted to Nick Pagent, 17,388 performance rights were granted to Ian Pagent and 12,465 performance rights were granted to Aaron Murray. The LTI performance rights for the 2018 award were granted on 20 November 2017. Under this award, 187,500 performance rights were granted to Nick Pagent, 75,000 performance rights were granted to Ian Pagent and 70,312 performance rights were granted to Aaron Murray. The following table shows the changes in performance rights granted to senior executives during the financial year. The non-executive directors do not hold performance rights. The rights referred to in the table below include performance rights under the STI plan and LTI plan. 34 Autosports Group | Annual Report 2018 Remuneration Report 35 Remuneration Report (audited) (continued) Rights held at 1 July 2017 Rights granted during Reporting Period Rights exercised during Reporting Period Rights resulting from any other change Rights held at 30 June 2018 Management fees 5. Transactions with KMP Nick Pagent STI LTI Total Ian Pagent STI LTI Total Aaron Murray STI LTI Total - 187,500 187,500 - 75,000 75,000 70,312 70,312 43,035 187,500 230,535 17,388 75,000 92,388 12,465 70,312 82,777 - - - - - - - - - - - - - - - - - - 43,035 375,000 418,035 17,388 150,000 167,388 12,465 140,624 153,089 There were no rights vested and or exercisable as at 30 June 2018. KMP shareholdings During the financial year the Group received property management fees on a salary allocation basis for administration and management of properties owned by lan & Nick Pagent. The Group received management fees in relation to shared service technicians & parts interpreters. The Group received administration service fees in relation to shared administration staff managing a dealership outside of the Group and owned by lan & Nick Pagent. Related party management fee Fee Type GFB Properties Pty Ltd Property management service Autohaus Prestige Five Dock Pty Ltd Property management service Audi Parramatta Property Holdings Pty Ltd Property management service Audi Parramatta Properties 2 Pty Ltd Property management service Autosports Properties Leichhardt Pty Ltd Property management service New Centenary Properties Pty Ltd Property management service Five Dock DJC Pty Ltd TOTAL Related party leases Service Technicians, Parts Interpreters & Administration services The Company received management fees $ 11,124 24,288 11,124 11,124 23,268 11,124 90,000 182,052 The following table outlines the movements in KMP ordinary shareholdings in the Company (including their related parties) for the financial year. During the financial year the Group had operating lease agreements on commercial terms with various entities owned by Ian & Nicholas Pagent. Non-executive directors Tom Pockett Marina Go Robert Quant Malcolm Tilbrook Senior executives Nick Pagent Ian Pagent Aaron Murray 1. On market purchase of shares Held at 1 July 2017 Received as part of remuneration Additions Other net changes1 Held at 30 June 2018 166,667 20,833 62,499 41,666 38,749,199 64,395,541 1,650,508 - - - - - - - - - - - - - - - - - - 166,667 20,833 62,499 41,666 202,656 38,951,855 42,000 64,437,541 - 1,650,508 Related party operating leases Property Location GFB Properties Pty Ltd 3-7 Parramatta Rd, Five Dock NSW Autohaus Prestige Five Dock Pty Ltd 34-36 Spencer St, Five Dock NSW & Unit C 2 Packard Ave, Castle Hill Audi Parramatta Property Holdings Pty Ltd 49-51 Church St, Parramatta NSW Audi Parramatta Properties 2 Pty Ltd 13 Church St, Parramatta NSW Autosports Properties Leichhardt Pty Ltd 531-571 Parramatta Rd, Leichhardt NSW New Centenary Properties Pty Ltd1 135 Moggill Rd, Toowong QLD1 TOTAL The Company Paid Rental fees $ 834,210 279,360 653,928 488,639 952,946 2,291,030 5,500,114 1. During the financial year an entity owned by Ian Pagent and Nick Pagent acquired the freehold title of Toowong Mercedes-Benz & Toowong Mazda premises. The terms of the existing lease have been assumed. Related party loans Prior to Listing, Betar Prestige Cars Pty Ltd, a wholly owned subsidiary of the Company, obtained a loan from a Company owned by Ian & Nick Pagent. The aggregate amount of the recognised loan was $920,000. As at 30 June 2018, there was an amount outstanding of $505,319 which is recognised in the financial statements as a current liability. There is no interest payable on the loan. End of Remuneration Report 36 Autosports Group | Annual Report 2018 Remuneration Report 37 Directors’ Report (continued) Auditor’s Independence Declaration Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 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 immediately after this directors’ report. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. Signed in accordance with a resolution of the Directors: Tom Pockett Independent Chairman 27 August 2018 Nick Pagent Chief Executive Officer Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 Australia Phone +61 2 9322 7000 www.deloitte.com.au The Board of Directors Autosports Group Limited 565 Parramatta Road Leichhardt NSW 2040 27 August 2018 Dear Directors Autosports Group Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Autosports Group Limited. As lead audit partner for the audit of the financial statements of Autosports Group Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Carlo Pasqualini Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 25 38 Autosports Group | Annual Report 2018 Auditor's Independence Declaration 39 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Consolidated Statement of Financial Position As at 30 June 2018 Revenue Expenses Changes in inventories Raw materials and consumables purchased Employee benefits expense Depreciation and amortisation expense Occupancy costs Acquisition expenses Initial public offering (‘IPO’) listing expenses Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year/period Other comprehensive income for the year/period, net of tax Total comprehensive income for the year/period Profit for the year/period is attributable to: Non-controlling interest Owners of Autosports Group Limited Total comprehensive income for the year/period is attributable to: Non-controlling interest Owners of Autosports Group Limited Basic earnings per share Diluted earnings per share Consolidated Year ended 30 June 2018 Period ended 30 June 2017 Note 5 $’000 1,692,038 $’000 906,080 46,639 8,171 (1,472,690) (771,635) 6 6 7 20 20 32 32 (121,435) (8,951) (29,467) (1,334) - (54,130) (13,225) 37,445 (11,011) 26,434 - (62,852) (4,613) (14,304) (3,828) (6,155) (27,021) (5,420) 18,423 (6,035) 12,388 - 26,434 12,388 332 26,102 26,434 332 26,102 26,434 Cents 12.99 12.95 190 12,198 12,388 190 12,198 12,388 Cents 6.07 6.06 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total current assets Non-current assets Property, plant and equipment Intangibles Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Income tax payable Employee benefits Deferred revenue Borrowings Total current liabilities Non-current liabilities Borrowings Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Share-based payments reserve Retained profits Equity attributable to the owners of Autosports Group Limited Non-controlling interest Total equity Consolidated 30 June 2018 30 June 2017 Note $’000 $’000 8 9 10 11 12 7 13 7 14 15 16 17 18 19 20 14,302 104,166 352,658 4,940 476,066 59,895 535,203 7,268 602,366 1,078,432 75,439 5,721 11,012 4,547 414,013 510,732 65,530 1,488 67,018 577,750 500,682 14,903 70,366 256,213 5,519 347,001 36,240 499,678 3,897 539,815 886,816 65,361 4,980 7,530 3,724 287,477 369,072 23,536 2,534 26,070 395,142 491,674 475,637 475,637 894 20,612 497,143 3,539 500,682 392 12,198 488,227 3,447 491,674 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes The above consolidated statement of financial position should be read in conjunction with the accompanying notes 40 Autosports Group | Annual Report 2018 Consolidated Statement of Financial Position 41 Consolidated Statement of Changes in Equity For the year ended 30 June 2018 Consolidated Statement of Cash Flows For the year ended 30 June 2018 Issued capital Share-based payments reserves $’000 $’000 Consolidated Balance at 29 August 2016 Profit after income tax expense for the period Other comprehensive income for the period, net of tax Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 18) Share-based payments (notes 6 and 34) Non-controlling interest arising on business combinations - - - - 475,637 - - Balance at 30 June 2017 475,637 Consolidated Balance at 1 July 2017 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (notes 6 and 34) Dividends paid to non-controlling interest Dividends paid (note 21) Balance at 30 June 2018 Issued capital $’000 475,637 - - - - - - Retained profits $’000 - 12,198 - 12,198 - - - 12,198 Non- controlling interest $’000 - 190 - 190 - - 3,257 3,447 Total equity $’000 - 12,388 - 12,388 475,637 392 3,257 491,674 $’000 12,198 26,102 - 26,102 - - (17,688) 20,612 $’000 3,447 332 - 332 - (240) - 3,539 $’000 491,674 26,434 - 26,434 502 (240) (17,688) 500,682 - - - - - 392 - 392 $’000 392 - - - 502 - - Share-based payments reserve Retained profits Non- controlling interest Total equity 475,637 894 Cash flows from operating activities Profit before income tax expense for the year/period Adjustments for: Depreciation and amortisation Net loss on disposal of property, plant and equipment Share-based payments Interest received Interest and other finance costs Change in operating assets and liabilities: Increase in trade and other receivables Increase in inventories Decrease/(increase) in other operating assets Increase in trade and other payables Increase in employee benefits Increase/(decrease) in deferred revenue Increase in bailment finance Increase/(decrease) in other operating liabilities Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Net payment for the acquisition of businesses Payments for property, plant and equipment Payments for security deposits Proceeds from release of security deposits Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from borrowings Repayment of borrowings Dividends paid Dividends paid to pre-IPO Autosports Group shareholders Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year/period Cash and cash equivalents at the end of the financial year/period Consolidated Year ended 30 June 2018 Period ended 30 June 2017 Note $’000 $’000 37,445 18,423 6 6 6 29 18 18 33 33 21 21 8,951 58 502 (58) 13,225 60,123 (33,800) (46,639) (159) 9,452 556 823 82,957 (392) 72,921 58 (13,225) (13,636) 46,118 (41,920) (20,524) - 920 4,613 - 1,145 (46) 5,420 29,555 (36,262) (8,171) 670 25,613 421 (1,510) 23,820 2,225 36,361 46 (5,420) (6,760) 24,227 (136,759) (10,577) (1,416) - (61,524) (148,752) - - 41,290 (8,797) (17,688) - 14,805 (601) 14,903 14,302 159,380 (9,662) 21,457 (5,973) - (25,774) 139,428 14,903 - 14,903 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 42 Autosports Group | Annual Report 2018 Consolidated Statement of Cash Flows 43 Notes to the Consolidated Financial Statements 30 June 2018 Note 1. General information The financial statements cover Autosports Group Limited as a consolidated entity consisting of Autosports Group Limited (the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the financial year (collectively referred to as the ‘Group’). The financial statements are presented in Australian dollars, which is Autosports Group Limited’s functional and presentation currency. Autosports Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 565 Parramatta Road Leichhardt NSW 2040 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 27 August 2018. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new 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 during the financial year. Accounting period The financial statements cover the financial year from 1 July 2017 to 30 June 2018. The comparatives are presented from 29 August 2016, the date of incorporation of the Company, to 30 June 2017. Working capital deficiency The directors have prepared the financial statements on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The statement of financial position reflects an excess of current liabilities over current assets of $34,666,000 as at 30 June 2018 (2017: $22,071,000). The directors have reviewed the cash flow forecast for the Group through to 31 August 2019. The forecast indicates that the Group will generate net positive operating cash flows and operate within its overall finance facilities and that the Group will, therefore, be able to pay its debts as and when they fall due after considering the following factors: • An amount of $4,547,000 (2017: $3,724,000) is included in current liabilities which relate to deferred revenue and no cash outflow is expected in relation to this amount; • The Group generated $46,118,000 (2017: $24,227,000) of cash flow from operating activities; • During the year the Group used $18,800,000 of available cash to fund business acquisitions and $3,000,000 in capital improvements; • As at 30 June 2018, the Group has undrawn finance facilities amounting to $32,737,000 (2017: $36,509,000); and • The Group has cash and cash equivalents amounting to $14,302,000 as at 30 June 2018 (2017: $14,903,000). The directors have concluded that it is appropriate to prepare the financial statements on the going concern basis, as they are confident that the Group will be able to pay its debts as and when they become due and payable from positive cash flows from operations and available finance facilities for at least 12 months from the date of signing the financial statements. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Note 2. Significant accounting policies (continued) Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 35. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Autosports Group Limited as at 30 June 2018 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. New, demonstrator and used vehicles Revenue from the sale of vehicles is recognised when the buyer has accepted the risks and rewards of ownership, generally by taking delivery of the vehicle. Amounts disclosed as revenue are net of sales returns and trade discounts. Parts and service Revenue from the sale of parts is recognised when the buyer has accepted the risks and rewards of ownership, generally by taking delivery of the goods. Amounts disclosed as revenue are net of sales returns and trade discounts. Service work on customers’ vehicles is carried out under instructions from the customer. Service revenue is recognised based upon the percentage completion of the work requested. The percentage completion is measured by reference to labour hours incurred to date as a percentage of estimated total labour hours for the service to be performed. Revenue arising from the sale of parts fitted to customers’ vehicles during service is recognised upon delivery of the fitted parts to the customer upon completion of the service. Aftermarket accessories and other revenue Aftermarket accessories and other revenue are recognised when they are delivered to the customer or when the right to receive payment is established. Aftermarket accessories relate to items fitted at the dealership and include products such as window tinting, mud flaps and paint protection Finance and insurance revenue Finance and insurance commissions are recognised in the period in which the related sale or rendering of service is provided. Finance and insurance commissions are received from finance companies and insurance companies as commission payments on products sold to customers. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Commercial income and rebates Volume related and vehicle specific bonuses and rebates are credited to the carrying value of inventory to which they relate. Once the inventory is sold, the amount is then recognised in cost of goods sold. Bonuses and rebates are recognised when the right to receive payment is established. 44 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 45 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Trade and other receivables Inventories Trade receivables Are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable may be impaired. The Group provides 100% of trade receivables over 120 days due and 50% of trade receivables over 90 days due. Other receivables Are recognised at amortised cost, less any provision for impairment. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non- current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. New and demonstrator vehicles New and demonstrator vehicles are stated at the lower of cost and net realisable value. Costs are assigned on the basis of specific identification. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Used vehicles Used vehicles are stated at the lower of cost and net realisable value on a unit-by-unit basis. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The age of the car is considered in determining selling price of used cars. Spare parts and accessories Spare parts and accessories are stated at the lower of cost and net realisable value. Costs are assigned to individual items on the basis of weighted average cost. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Other inventory Other inventory includes work in progress and are stated at cost. Costs are assigned to individual customers on the basis of specific identification. Cost includes labour incurred to date and consumables utilised during the service. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Buildings Plant and equipment Furniture, fixtures and fittings Motor vehicles Leasehold improvements 40 years 3 - 20 years 3 - 20 years 4 - 8 years Shorter of unexpired period of the lease or the estimated useful life The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. 46 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 47 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Customer relationships Customer relationships acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite useful life of five years. Customer assets are made up of complementary customer relationships and databases in the servicing and parts business. Impairment of non-financial assets Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. recognised as inventory with the corresponding floor plan liability owing to the finance providers. Floor plan finance facilities are available for drawdown by specified dealerships on a vehicle by vehicle basis, with repayment as it relates to an individual vehicle required immediately after the vehicle is sold. Finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Provision for warranties Provision is made for the estimated claims in respect of extended warranties provided on the majority of the Group’s retail new and used vehicle sales. These claims are generally expected to settle in the next financial year but some may be extended into the following year if claims are made late in the warranty period. Deferred revenue Deferred revenue represents finance and insurance income received in advance. It is recognised as a liability in the statement of financial position, until the revenue has been earned. Employee benefits Short-term employee benefits 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. Loans and borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount and any consideration paid is recognised in profit or loss. Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up Vehicles secured under bailment plans are provided to the Group under bailment agreements with floor plan loan providers. The Group obtains title to the vehicles immediately prior to sale. Vehicles financed under bailment plans are to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high 48 Autosports Group | Annual Report 2018 quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non- financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the Notes to the Consolidated Financial Statements 49 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Autosports Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the 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. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. 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 tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Comparatives Comparatives in the notes to the financial statements have been realigned to the current period presentation. There has been no effect on the profit for the year. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2018. The Group’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below: AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income (‘OCI’). For financial liabilities measured at fair value, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The Group will adopt this standard from 1 July 2018 but it is not expected to significantly impact the financial statements on the basis that the main financial assets recognised represent cash and cash equivalent and trade receivables that do not carry a significant financing component and involve a single cash flow representing the repayment of principal, which in the case of trade receivables is the transaction price. The Group currently does not anticipate any material provisioning for expected credit losses related to its receivables having regard to historical changes in credit risk since initial recognition to reporting date. Both asset classes will continue to be measured at face value. Other financial asset classes are not material to the Group. Financial liabilities of the Group are not materially impacted by this standard. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018, with the Group adopting this standard from 1 July 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Management’s assessment of the new standard are as follows: Warranties: Used car warranty provided to customers is a performance obligation to repair or replace the product if necessary during the warranty period. As per AASB 15 the Group is required to allocate a portion of the total transaction price to the performance obligation. The impact of AASB 15 will result in deferral of revenue associated with the sale of warranties, which will need to be recognised over the life of the warranty. The Group performed an assessment of the impact of the new standard and based on the results the standard will not have a material impact on the financial statements. The Group will adopt the standard from 1 July 2018 and the comparatives will not be restated. 50 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 51 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 2. Significant accounting policies (continued) AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. Subject to exceptions, a lease liability will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A ‘right of use’ asset corresponding to the lease liability will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. The Group expects to adopt this standard from 1 July 2019 and the impact of its adoption will be that operating leases, such as those detailed in note 27, will be brought onto the statement of financial position with a corresponding liability. The actual amount will depend on the operating leases held on the date of adoption and any transitional elections made. IASB revised Conceptual Framework for Financial Reporting The revised Conceptual Framework has been issued by the IASB and is applicable for annual reporting periods on or after 1 January 2020. The Australian equivalent is yet to be published. The application of the new definition and recognition criteria may result in future amendments to several accountings standards. Furthermore, entities who rely on the conceptual framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting Standards may need to revisit such policies. The Group will apply the revised conceptual framework from 1 July 2020 and is yet to assess its impact. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Goodwill The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Note 4. Operating segments The Group’s operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. The directors have determined that there is only one operating segment identified and located in Australia, being motor vehicle retailing. The information reported to the CODM is the consolidated results of the Group. The segment results are therefore shown throughout these financial statements and not duplicated here. Note 5. Revenue Sales revenue New and demonstrator vehicles Used vehicles Parts Service Aftermarket accessories Finance and insurance revenue Other revenue Interest Other revenue Revenue Note 6. Expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Furniture, fixtures and fittings Total depreciation Amortisation Customer relationships Total depreciation and amortisation Share-based payments expense Employee gift offer of shares Director gift offer of shares Share-based payment incentive to directors, executives and employees Total share-based payments expense Finance costs Floor plan interest Corporate interest Finance costs expensed Rental expense relating to operating leases Minimum lease payments Superannuation expense Defined contribution superannuation expense Other provisions Inventory provision expenses Consolidated Year ended 30 June 2018 Period ended 30 June 2017 $’000 $’000 1,027,382 416,176 105,387 96,309 13,884 25,810 561,592 213,648 55,486 46,817 7,509 15,984 1,684,948 901,036 58 7,032 7,090 46 4,998 5,044 1,692,038 906,080 Consolidated Year ended 30 June 2018 Period ended 30 June 2017 $’000 $’000 1,819 1,544 997 794 823 543 4,673 2,342 4,278 8,951 - - 502 502 10,968 2,257 13,225 2,271 4,613 503 250 392 1,145 4,853 567 5,420 27,204 18,217 9,788 7,142 1,028 1,569 52 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 53 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 7. Income tax Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Permanent tax differences Share-based payments Stamp duty on acquisitions Adjustments from pre-acquisition period Current year tax losses not recognised Prior year temporary differences not recognised now recognised Income tax expense Amounts credited directly to equity¹ Deferred tax assets Consolidated Year ended 30 June 2018 Period ended 30 June 2017 $’000 $’000 14,377 (3,366) 11,011 5,162 873 6,035 (3,366) 873 37,445 11,234 32 151 - - 11,417 81 (487) 11,011 18,423 5,527 71 128 1,148 (839) 6,035 - - 6,035 Note 7. Income tax (continued) Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised other than in equity: Tax losses Impairment of receivables Property, plant and equipment Employee benefits Provision for warranties Accrued expenses Deferred income IPO transaction costs Work in progress Prepayments Provision for inventories Customer relationships Other items Amounts recognised in equity: Consolidated Unamortised transaction costs on share issue Year ended 30 June 2018 Period ended 30 June 2017 $’000 $’000 Deferred tax asset Movements: Opening balance Credited/(charged) to profit or loss - (2,899) Credited to equity ¹ Deferred tax assets credited directly to equity reflects the IPO offer costs (fees payable to advisors, joint lead managers and tax, accounting and legal fees) that are attributable to the issuing of new equity. Additions through business combinations (note 29) Closing balance Provision for income tax Provision for income tax Consolidated Year ended 30 June 2018 Period ended 30 June 2017 $’000 $’000 1,390 150 1,109 3,978 276 164 3,029 1,225 (168) - (927) (4,763) 64 5,527 1,741 7,268 3,897 3,366 - 5 7,268 611 75 - 3,019 226 397 1,642 907 (38) (86) (462) (5,258) (35) 998 2,899 3,897 - (873) 2,899 1,871 3,897 Consolidated 30 June 2018 30 June 2017 $’000 $’000 5,721 4,980 54 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 55 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 8. Current assets – trade and other receivables Trade receivables Other receivables Less: Provision for impairment of receivables Consolidated 30 June 2018 30 June 2017 $’000 $’000 98,448 5,865 (147) 104,166 65,633 4,982 (249) 70,366 Impairment of receivables The Group has recognised a gain of $102,000 in profit or loss in respect of reversal of impairment of receivables for the year ended 30 June 2018 (2017: loss of $315,000). The ageing of the impaired receivables provided for above are as follows: 90 to 120 days overdue Over 120 days overdue Movements in the provision for impairment of receivables are as follows: Opening balance Provisions recognised Receivables written off during the year as uncollectable Unused amounts reversed Closing balance Past due but not impaired Consolidated 30 June 2018 30 June 2017 $’000 $’000 39 108 147 66 183 249 Consolidated 30 June 2018 30 June 2017 $’000 249 - - (102) 147 $’000 - 315 (66) - 249 Customers with balances past due but without provision for impairment of receivables amount to $5,565,000 as at 30 June 2018 ($6,762,000 as at 30 June 2017). The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices. The ageing of the past due but not impaired receivables are as follows: Under 30 days overdue Over 30 days overdue Consolidated 30 June 2018 30 June 2017 $’000 2,354 3,211 5,565 $’000 3,367 3,395 6,762 Note 9. Current assets – inventories New and demonstrator vehicles - at cost Less: Write-down to net realisable value Used vehicles - at cost Less: Write-down to net realisable value Spare parts and accessories - at cost Less: Write-down to net realisable value Other inventory - at cost Note 10. Current assets – other assets Prepayments Security deposits Other cash deposits Consolidated 30 June 2018 30 June 2017 $’000 $’000 289,706 (3,891) 285,815 49,423 (866) 48,557 16,901 (502) 16,399 1,887 200,410 (3,018) 197,392 46,497 (583) 45,914 12,090 (351) 11,739 1,168 352,658 256,213 Consolidated 30 June 2018 30 June 2017 $’000 $’000 1,855 4 3,081 4,940 1,813 924 2,782 5,519 Consolidated 30 June 2018 30 June 2017 $’000 $’000 Note 11. Non-current assets – property, plant and equipment Land and buildings - at cost¹ Leasehold improvements Less: Accumulated depreciation Plant and equipment Less: Accumulated depreciation Furniture, fixtures and fittings Less: Accumulated depreciation Motor vehicles Less: Accumulated depreciation Capital work in progress - at cost 12,086 27,271 (2,757) 24,514 14,747 (2,739) 12,008 7,442 (1,523) 5,919 2,096 (430) 1,666 3,702 - 18,605 (794) 17,811 8,616 (823) 7,793 5,398 (543) 4,855 1,553 (182) 1,371 4,410 59,895 36,240 56 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 57 ¹ Land and buildings represents owner occupied premises at 601 Mains Road, Macgregor, Queensland from which Macgregor Mercedes-Benz trades from. Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 11. Non-current assets – property, plant and equipment (continued) Note 12. Non-current assets – intangibles (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Leasehold improvements Plant and equipment Furniture, fixtures and fittings $’000 $’000 $’000 Land and buildings $’000 Consolidated Balance at 29 August 2016 Additions Additions through business combinations (note 29) Depreciation expense Balance at 30 June 2017 - - - - - Additions 12,086 Additions through business combinations (note 29) Disposals Transfers in/(out) Depreciation expense - - - - Balance at 30 June 2018 12,086 - 4,837 13,768 (794) 17,811 2,000 624 - 5,898 (1,819) 24,514 - 646 7,970 (823) 7,793 2,588 - 727 4,671 (543) 4,855 615 3,105 1,450 (36) 102 (1,544) 12,008 (7) 3 (997) 5,919 Motor vehicles $’000 - 182 1,371 (182) 1,371 618 5 (15) - (313) 1,666 Capital work in progress $’000 - Total $’000 - 4,185 10,577 225 - 4,410 5,295 - - (6,003) - 3,702 28,005 (2,342) 36,240 23,202 5,184 (58) - (4,673) 59,895 Property, plant and equipment secured under finance leases Refer to note 27 for further information on property, plant and equipment secured under finance leases. Note 12. Non-current assets – intangibles Goodwill - at cost Customer relationships - at cost Less: Accumulated amortisation Consolidated 30 June 2018 30 June 2017 $’000 $’000 519,327 482,125 22,425 (6,549) 15,876 19,824 (2,271) 17,553 535,203 499,678 Consolidated Balance at 29 August 2016 Additions through business combinations (note 29) Amortisation expense Balance at 30 June 2017 Additions through business combinations (note 29) Amortisation expense Balance at 30 June 2018 Customer Goodwill relationships $’000 - 482,125 - 482,125 37,202 - 519,327 $’000 - 19,824 (2,271) 17,553 2,601 (4,278) 15,876 Total $’000 - 501,949 (2,271) 499,678 39,803 (4,278) 535,203 Goodwill acquired through business combinations has been allocated to one operating segment which consists of the Group’s cash-generating units (‘CGU’). The recoverable amount of the Group’s goodwill has been determined by value-in-use calculations. The calculations use cash flow projections based on the business plan, prior to any future restructuring to which the Group is not yet committed, approved by management covering a four year period. Cash flows beyond the four year period are extrapolated using the estimated growth rates stated below. Key assumptions Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model: (a) Organic EBITDA growth rate; (b) Pre-tax discount rate: 12.2% (2017: 12.27%); (c) Projected growth rate of 2.5% beyond four year period (2017: 2.5%); and (d) Increase in operating costs and overheads based on current levels adjusted for inflationary increases. For the financial year ended 30 June 2018, the recoverable amount of net assets for the CGU exceeded the carrying value and therefore, goodwill is not considered to be impaired. Sensitivity analysis Management estimates that any reasonable changes in the key assumptions would not cause the Group’s CGU carrying amount to exceed its recoverable amount. Remaining amortisation period The remaining amortisation period for customer relationships is 3-5 years (2017: 4-5 years). 58 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 59 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 13. Current liabilities – trade and other payables Trade payables Related party payable GST payable Accrued expenses Refer to note 22 for further information on financial instruments. Note 14. Current liabilities – employee benefits Employee entitlements Movements in employee entitlements are set out below: Carrying amount at the start of the year Additions through business combinations Movements during the year Carrying amount at the end of the year Note 15. Current liabilities – borrowings Bailment finance Capital loans Hire purchase Refer to note 16 for further information on assets pledged as security and financing arrangements. Refer to note 22 for further information on financial instruments. Consolidated 30 June 2018 30 June 2017 $’000 7,530 1,399 2,083 11,012 $’000 - 6,989 541 7,530 Consolidated 30 June 2018 30 June 2017 $’000 $’000 405,095 7,640 1,278 271,736 14,957 784 414,013 287,477 Note 16. Non-current liabilities – borrowings Capital loans Hire purchase Refer to note 22 for further information on financial instruments. Consolidated 30 June 2018 30 June 2017 $’000 $’000 62,467 3,063 65,530 21,531 2,005 23,536 Consolidated 30 June 2018 30 June 2017 $’000 $’000 53,598 505 10,045 11,291 75,439 45,892 297 9,038 10,134 65,361 Consolidated 30 June 2018 30 June 2017 $’000 $’000 Note 16. Non-current liabilities – borrowings (continued) Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bailment finance Capital loans Hire purchase Bailment finance Consolidated 30 June 2018 30 June 2017 $’000 405,095 70,107 4,341 479,543 $’000 271,736 36,488 2,789 311,013 11,012 7,530 Bailment is provided largely by the Original Equipment Manufacturer finance companies on a vehicle by vehicle basis and secured over the underlying vehicle. The current weighted average interest rate is 3.6% (2017: 2.9%). Capital loans Capital loans are secured by a fixed and floating charge over the assets of the Group, except for certain entities within the Group whereby security interest is held by a charge over the inventory and the proceeds from the sale of that inventory. The current weighted average interest rate is 4.2% (2017: 3.8%). Hire purchase The hire purchase liabilities are effectively secured over the hire purchase assets, recognised in the statement of financial position, revert to the financier in the event of default. The current weighted average interest rate is 4.7% (2017: 4.2%). Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bailment finance Capital loans Hire purchase Used at the reporting date Bailment finance Capital loans Hire purchase Unused at the reporting date Bailment finance Capital loans Hire purchase Consolidated 30 June 2018 30 June 2017 $’000 $’000 436,400 71,539 4,341 512,280 405,095 70,107 4,341 479,543 31,305 1,432 - 32,737 305,700 39,033 2,789 347,522 271,736 36,488 2,789 311,013 33,964 2,545 - 36,509 60 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 61 Bailment Finance – Floorplan financing will increase in line with business expectations. Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 17. Non-current liabilities – employee benefits Employee benefits Movements in employee entitlements are set out below: Carrying amount at the start of the year Additions through business combinations Movements during the year Carrying amount at the end of the year Consolidated 30 June 2018 30 June 2017 $’000 $’000 Note 18. Equity – issued capital 30 June 2018 30 June 2017 30 June 2018 30 June 2017 Consolidated 1,488 2,534 Ordinary shares - fully paid 201,000,000 201,000,000 Shares Shares $’000 475,637 $’000 475,637 Consolidated 30 June 2018 30 June 2017 $’000 2,534 481 (1,527) 1,488 $’000 - 2,654 (120) 2,534 Movements in ordinary share capital Details Date Shares Issue price Balance Issue of shares on IPO capital raising Issue of shares to acquire Pre-IPO Autosports Group Issue of shares to acquire Willims Employee gift issue of shares Director gift issue of shares Share issue transaction costs Income tax relating to share issue transaction costs Balance Balance 29 August 2016 18 November 2016 18 November 2016 18 November 2016 18 November 2016 18 November 2016 30 June 2017 30 June 2018 - 66,408,274 124,902,804 9,375,000 209,756 104,166 - - 201,000,000 201,000,000 $2.40 $2.40 $2.40 $2.40 $2.40 $0.00 $0.00 $’000 - 159,380 299,767 22,500 503 250 (9,662) 2,899 475,637 475,637 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company’s share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 30 June 2017 Annual Report. 62 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 63 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 19. Equity – share-based payments reserve Share-based payments reserve Consolidated 30 June 2018 30 June 2017 $’000 $’000 894 392 Note 21. Equity – dividends Dividends Dividends paid during the financial year were as follows: Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 29 August 2016 Share-based payments Balance at 30 June 2017 Share-based payments Balance at 30 June 2018 Share-based payments $’000 - 392 392 502 894 Note 20. Equity – non-controlling interest The non-controlling interest represents the 20% minority interest in New Centenary Mazda Pty Ltd held by the dealer principal. Movements in the non-controlling interest are as follows: Opening balance Non controlling interest arising on business combinations Profit after income tax expense for the year Dividend declared to non-controlling interest Closing balance Consolidated 30 June 2018 30 June 2017 $’000 3,447 - 332 (240) 3,539 $’000 - 3,257 190 - 3,447 Consolidated Year ended Period ended 30 June 2018 30 June 2017 $’000 9,246 8,442 17,688 $’000 - - - Final dividend for the period ended 30 June 2017 of 4.6 cents per ordinary share Interim dividend for the year ended 30 June 2018 of 4.2 cents per ordinary share On 27 August 2018, the directors declared a fully franked final dividend for the year ended 30 June 2018 of 4.8 cents per ordinary shares, to be paid on 31 October 2018 to eligible shareholders on the register as at 17 October 2018. This equates to a total estimated distribution of $9,648,000, based on the number of ordinary shares on issue as at 30 June 2018. The financial effect of dividends declared after the reporting date are not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports. During the previous financial period $25,774,000 was paid to the pre-IPO Autosports Group shareholders to settle the dividend liability acquired by the Company. Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% Consolidated 30 June 2018 30 June 2017 $’000 22,183 $’000 15,555 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • • • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Note 22. Financial instruments Financial risk management objectives The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk and ageing analysis for credit risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units. Finance reports to the Board on a regular basis. Market risk Foreign currency risk The Group is not exposed to any significant foreign currency risk. Vehicles are purchased in Australian Dollars. 64 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 65 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 22. Financial instruments (continued) Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group’s main interest rate risk arises from its borrowings and cash at bank. Borrowings obtained at variable rates expose the Group to interest rate risk. Borrowings obtained at fixed rates expose the Group to fair value interest rate risk. As at the reporting date, the Group had the following variable rate borrowings: Consolidated Bailment finance Capital loans Cash at bank Net exposure to cash flow interest rate risk Balance $’000 405,095 70,107 (14,302) 460,900 Balance $’000 271,736 36,488 (14,903) 293,321 An official increase/decrease in interest rates of 50 (2017: 50) basis points per annum would have an adverse/favourable effect on profit before tax of $2,305,000 (2017: $1,467,000) and equity of $1,614,000 (2017: $1,027,000) (assuming 30% tax). The percentage change is based on the expected volatility of interest rates using market data and analyst’s forecasts. Credit risk 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 a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Bailment finance Capital loans Note 22. Financial instruments (continued) Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. 30 June 2018 30 June 2017 Consolidated - 30 June 2018 $’000 $’000 $’000 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years $’000 Remaining contractual maturities $’000 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Bailment finance Capital loans Interest-bearing - fixed rate Hire purchase Total non-derivatives 53,598 505 409,470 10,400 1,482 475,455 - - - - - - - - - 17,823 33,683 19,705 53,598 505 409,470 81,611 1,476 19,299 1,824 35,507 - 4,782 19,705 549,966 Consolidated - 30 June 2017 $’000 $’000 $’000 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years $’000 Remaining contractual maturities $’000 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing – variable Bailment finance Capital loans Interest-bearing - fixed rate Hire purchase Total non-derivatives 45,892 297 272,433 6,442 864 325,928 - - - - - - - - - 6,705 22,268 4,737 746 7,451 1,288 23,556 61 4,798 45,892 297 272,433 40,152 2,959 361,733 Consolidated 30 June 2018 30 June 2017 $’000 31,305 1,432 32,737 $’000 33,964 2,545 36,509 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 23. Fair value measurement The carrying amounts of trade and other receivables and trade and other payables approximate their fair values due to their short- term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. 66 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 67 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 24. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Consolidated Year ended 30 June 2018 Period ended 30 June 2017 $ $ 1,950,660 1,234,931 99,677 557,484 100,254 515,605 2,607,821 1,850,790 Note 25. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the Company: Audit services - Deloitte Touche Tohmatsu Audit or review of the financial statements Other services - Deloitte Touche Tohmatsu Due diligence relating to the IPO Tax compliance Due diligence relating to acquisitions Consolidated Year ended 30 June 2018 Period ended 30 June 2017 $ $ 582,000 613,000 - 2,073,877 100,000 88,000 188,000 770,000 75,000 - 2,148,877 2,761,877 Consolidated 30 June 2018 30 June 2017 $’000 $’000 Note 27. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Hire purchase commitments - finance Committed at the reporting date and recognised as liabilities, payable: Within one year One to five years More than five years Total commitment Less: Future finance charges Net commitment recognised as liabilities Representing: Hire purchase - current (note 15) Hire purchase - non-current (note 16) Consolidated 30 June 2018 30 June 2017 $’000 $’000 30,186 78,980 27,429 136,595 22,222 71,942 35,907 130,071 1,482 3,300 - 4,782 (441) 4,341 1,278 3,063 4,341 864 2,034 61 2,959 (170) 2,789 784 2,005 2,789 Operating lease commitments includes contracted amounts for dealership operating premises under non-cancellable operating leases expiring within one to eight years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Hire purchase commitments includes contracted amounts for various plant and equipment with a written down value of $4,170,000 (2017: $758,000) under finance leases expiring within one to five years. Under the terms of the leases, the Group has the option to acquire the leased assets for predetermined residual values on the expiry of the leases. Note 28. Related party transactions Parent entity Autosports Group Limited is the parent entity. Note 26. Contingent liabilities Bank guarantees All bank guarantees are to cover landlord deposits on leased property. 3,580 2,356 Subsidiaries Interests in subsidiaries are set out in note 30. Key management personnel Disclosures relating to key management personnel are set out in note 24 and the remuneration report included in the directors’ report. 68 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 69 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 28. Related party transactions (continued) Note 29. Business combinations Transactions with related parties The following transactions occurred with related parties: Consolidated Year ended Period ended 30 June 2018 30 June 2017 $ $ Other income: Management fees received from entities owned by the directors Ian Pagent and Nicholas Pagent 182,052 149,836 Payment for other expenses: Management fees paid to entities related to the directors Ian Pagent and Nicholas Pagent - 8,055 BMW Melbourne On 1 November 2017, the Group acquired certain assets and liabilities of BMW and Mini Southbank, BMW and Mini Kingsway, Motorrad Southbank, and BMW Bodyshop from BMW Australia Limited (collectively ‘BMW Melbourne’). The total consideration transferred amounted to $25,741,000. The goodwill of $21,271,000 represents profitability of the acquired business and the synergistic opportunities it offers and cross-selling opportunities that will arise from the acquisition. The acquired business contributed revenues of $127,367,000 and profit before tax of $2,461,000 to the Group for the period from 1 November 2017 to 30 June 2018. Canterbury BMW On 3 April 2018, the Group acquired certain assets and liabilities of Canterbury BMW from Baldacchino 888 Prestige Autohaus Pty Limited (‘Canterbury BMW’). The total consideration transferred amounted to $16,179,000. The goodwill of $15,931,000 represents profitability of the acquired business and the synergistic opportunities it offers and cross selling opportunities that will arise from the acquisition. The acquired business contributed revenues of $17,301,000 and profit before tax of $926,000 to the Group for the period from 3 April 2018 to 30 June 2018. Lease payments on properties to entities owned by the directors Ian Pagent and Nicholas Pagent 5,500,114 2,424,380 Details of the acquisition are as follows: Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans from related parties The following balances are outstanding at the reporting date in relation to loans with related parties: Consolidated 30 June 2018 30 June 2017 $ $ Current borrowings: Loans from an entity owned by the directors Ian Pagent and Nicholas Pagent 505,319 297,204 Terms and conditions Other than the loans from entities related to Ian Pagent and Nicholas Pagent where no interest is charged or payable, all transactions were made on normal commercial terms and conditions and at market rates. Inventories Prepayments Plant and equipment Customer contracts and relationships Deferred tax asset Trade payables Deferred tax liability Employee benefits Other provisions Bailment finance Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Acquisition costs expensed to profit or loss Cash used to acquire business, net of cash acquired: BMW Melbourne Canterbury BMW Total Fair value Fair value Fair value $’000 42,128 - 4,516 2,214 - (524) (109) (1,477) (133) (42,145) 4,470 21,271 25,741 25,741 728 $’000 7,678 182 668 387 114 (102) - (403) (19) (8,257) 248 15,931 16,179 16,179 144 $’000 49,806 182 5,184 2,601 114 (626) (109) (1,880) (152) (50,402) 4,718 37,202 41,920 41,920 872 Acquisition-date fair value of the total consideration transferred 25,741 16,179 41,920 70 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 71 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 30. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries: Note 31. Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: Name Autosports Brisbane Pty Ltd Autosports Castle Hill Pty Ltd Autosports Five Dock Pty Ltd Autosports Leichhardt Pty Ltd Autosports Prestige Pty Ltd Autosports Sutherland Pty Ltd Betar Prestige Cars Pty Ltd Birchgrove Finance Pty Ltd Modena Trading Pty Ltd Mosman Prestige Cars Pty Ltd New Centenary Mercedes-Benz Pty Ltd Prestige Auto Traders Australia Pty Ltd Prestige Group Holdings Pty Ltd Prestige Repair Works Pty Ltd ASG Brisbane Pty Ltd ASG Melbourne Pty Ltd Principal place of business / Country of incorporation 30 June 2018 % 30 June 2017 % Ownership interest 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% The consolidated financial statements also incorporates the assets, liabilities and results of the following subsidiary with non- controlling interests: Parent Non-controlling interest Principal place of business/ Country of incorporation Principal activities Ownership interest 30 June 2018 Ownership interest 30 June 2017 % % Name New Centenary Mazda Pty Ltd Australia Motor vehicle dealership 80% 80% Ownership interest 30 June Ownership interest 30 June 2018 % 20% 2017 % 20% Summarised financial information of the subsidiary with non-controlling interests has not been included as it is not material to the Group. • Autosports Group Limited • Autosports Brisbane Pty Ltd • Autosports Castle Hill Pty Ltd • Autosports Five Dock Pty Ltd • Autosports Leichhardt Pty Ltd • Autosports Prestige Pty Ltd • Autosports Sutherland Pty Ltd • Betar Prestige Cars Pty Ltd • Modena Trading Pty Ltd • Mosman Prestige Cars Pty Ltd • New Centenary Mercedes-Benz Pty Ltd • Prestige Auto Traders Australia Pty Ltd • Prestige Group Holdings Pty Ltd • Prestige Repair Works Pty Ltd • ASG Brisbane Pty Ltd • ASG Melbourne Pty Ltd By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission. The above companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by Autosports Group Limited, they also represent the ‘Extended Closed Group’. Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of the ‘Closed Group’. Statement of profit or loss and other comprehensive income Revenue Changes in inventories Raw materials and consumables purchased Employee benefits expense Depreciation and amortisation expense Occupancy costs Acquisition expenses Initial public offering ('IPO') listing expenses Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income for the year/period, net of tax Total comprehensive income for the year/period Equity - retained profits Retained profits at the beginning of the financial year/period Profit after income tax expense Dividends paid Retained profits at the end of the financial year/period Year ended Period ended 30 June 2018 30 June 2017 $’000 1,630,053 46,639 (1,422,612) (116,811) (8,880) (28,472) (1,334) - (50,752) (12,710) 35,121 (10,291) 24,830 - 24,830 $’000 864,783 8,171 (737,624) (60,060) (4,572) (13,599) (3,828) (6,155) (24,962) (5,048) 17,106 (5,640) 11,466 - 11,466 Year ended Period ended 30 June 2018 30 June 2017 $’000 11,466 24,830 (17,688) 18,608 $’000 - 11,466 - 11,466 72 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 73 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 31. Deed of cross guarantee (continued) Note 32. Earnings per share Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Non-current assets Other financial assets Property, plant and equipment Intangibles Deferred tax Total assets Current liabilities Trade and other payables Income tax payable Employee benefits Deferred revenue Borrowings Non-current liabilities Borrowings Employee benefits Total liabilities Net assets Equity Issued capital Share-based payments reserve Retained profits Total equity 30 June 2018 30 June 2017 $’000 $’000 13,954 102,339 344,768 4,956 466,017 18,342 59,422 507,276 6,977 592,017 1,058,034 73,636 5,448 10,717 4,546 402,931 497,278 64,129 1,488 65,617 562,895 495,139 475,637 894 18,608 495,139 17,646 66,688 250,711 4,362 339,407 18,342 35,750 472,934 3,459 530,485 869,892 63,697 4,582 7,276 3,724 279,211 358,490 21,373 2,534 23,907 382,397 487,495 475,637 392 11,466 487,495 Profit after income tax Non-controlling interest Profit after income tax attributable to the owners of Autosports Group Limited Consolidated Year ended Period ended 30 June 2018 30 June 2017 $’000 26,434 (332) 26,102 $’000 12,388 (190) 12,198 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 201,000,000 201,000,000 Adjustments for calculation of diluted earnings per share: Estimated options over ordinary shares to be issued post reporting date 525,602 187,394 Weighted average number of ordinary shares used in calculating diluted earnings per share 201,525,602 201,187,394 Basic earnings per share Diluted earnings per share Note 33. Cash flow information Non-cash investing and financing activities Acquisition of plant and equipment by means of finance leases Shares issued under employee share plan Shares issued in relation to business combinations Changes in liabilities arising from financing activities Consolidated Balance at 29 August 2016 Net cash from/(used in) financing activities Changes through business combinations (note 29) Balance at 30 June 2017 Net cash from/(used in) financing activities Acquisition of plant and equipment by means of finance leases Balance at 30 June 2018 Cents 12.99 12.95 Cents 6.07 6.06 Consolidated Year ended Period ended 30 June 2018 30 June 2017 $’000 2,678 - - 2,678 Hire purchase $’000 - (621) 3,410 2,789 (1,126) 2,678 4,341 $’000 - 753 322,267 323,020 Total $’000 - 15,484 23,793 39,277 32,493 2,678 74,448 Capital loans $’000 - 16,105 20,383 36,488 33,619 - 70,107 74 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 75 Notes to the Consolidated Financial Statements (continued) 30 June 2018 Note 34. Share-based payments The Group has established an Equity Incentive Plan (‘EIP’) to assist in the motivation, reward and retention of senior management and other employees. The share-based payment expense for the period was $502,000 (2017: $392,000). The number of performance rights to be granted is determined by dividing any STI award that they become entitled to receive by the volume weighted average price (‘VWAP’) of shares traded on the ASX during the 10 trading days following the release of the Group’s 30 June 2018 audited full year results. EIP is delivered in the form of performance rights which will vest after a further deferral of one year subject to the executive’s continued service. The rights are measured over a 12 month period. Performance conditions for the initial grant include: • a ‘gateway hurdle’ of upholding the Group’s culture and values of individualised attention. Operating with honesty, integrity and accountability at all times and in accordance with the Group’s Code of Conduct. If the gateway hurdle is not met, no STI is awarded. • in addition, each senior executive has an individualised balanced scorecard that determines their awards. These scorecards primarily focus on the financial objectives of the Group and include targets measured against total revenue, EBIT, EBITDA, NPBT and NPAT. The scorecards also include operational KPIs such as sales and margin related matrices, as well as non-financial KPIs predominantly in the areas of risk and corporate governance to ensure the business continues to be well managed. The Board has determined that the combination of financial and non-financial conditions provides the appropriate balance between short term financial measures and the more strategic non-financial measures which in the medium to long term will ultimately drive further growth and returns for shareholders. Upon vesting, each performance right entitles the senior executive to one ordinary share in the Company. The Board has the discretion to settle performance rights with a cash equivalent payment. Performance rights are granted for nil consideration and no amount is payable on vesting. If a senior executive ceases to be employed during the 12 month deferral period, the following treatment will apply, unless the Board determines otherwise: • • if they resign or are summarily terminated, all of their rights will lapse; or if they cease employment in any other circumstances, a pro rata portion (for the portion of the performance period elapsed) of unvested rights will remain on foot and will vest in the ordinary course. Note 35. Parent entity information Set out below is the supplementary information about the parent entity. Note 35. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Retained profits/(accumulated losses) Total equity Parent 30 June 2018 30 June 2017 $’000 128,813 478,868 203 203 $’000 127,749 477,804 98 98 477,495 477,495 894 276 392 (181) 478,665 477,706 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2018 and 30 June 2017. The parent entity and some of its subsidiaries are party to a deed of cross guarantee under which each company guarantees the debts of the others. Refer to note 31 for further details. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and 30 June 2017. Statement of profit or loss and other comprehensive income Significant accounting policies Profit/(loss) after income tax Total comprehensive income Parent Year ended Period ended 30 June 2018 30 June 2017 $’000 18,145 18,145 $’000 (181) (181) The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: • • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 36. Events after the reporting period Apart from the dividend declared as disclosed in note 21, no other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 76 Autosports Group | Annual Report 2018 Notes to the Consolidated Financial Statements 77 Directors’ Declaration 30 June 2018 In the directors’ opinion: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and • at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 31 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Thomas Pockett Independent Chairman 27 August 2018 Sydney Nicholas Pagent Chief Executive Officer Independent Auditor’s Report 30 June 2018 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney, NSW, 2000 Australia Phone: +61 2 9322 7000 www.deloitte.com.au Independent Auditor’s Report to the members of Autosports Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Autosports Group Limited (the “Company”), and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2018, 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, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 66 78 Autosports Group | Annual Report 2018 Independent Auditor’s Report 79 Independent Auditor’s Report 30 June 2018 Independent Auditor’s Report 30 June 2018 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Carrying value of Goodwill As at 30 June 2018 the Group has recognised goodwill of $519m of which $482m relates to acquisitions made in the financial year ended 30 June 2017. During the financial year ended 30 June 2018, the Group further acquired BMW Melbourne and BMW Canterbury as disclosed in Note 29. Consequently, goodwill of $21m and $16m respectively were these acquisitions. recognised on As disclosed in Note 3, the directors’ assessment of the recoverability of goodwill requires the exercise of significant judgement, in particular in estimating future growth rates, discount rates and the expected cash flows of the components (cash generating unit (CGU)) to which goodwill has been allocated. Estimating the cash flows requires the exercise of judgement as to the likely impact of:  Competitive pressures in specific markets; and  Changes resulting from regulatory review of finance and insurance practices across the automotive industry. Our procedures included, but were not limited to:  Evaluating the Group’s categorisation of CGUs and the allocation of goodwill to the carrying value of CGUs based on our understanding of the Group’s business. This evaluation included performing an analysis of the Group’s internal reporting and consultation with our accounting technical specialists;  Comparing growth rates with 3rd party data for the motor industry;  Comparing the Group’s forecast cash flows to the board approved budget;  Evaluating management’s historical forecasting accuracy including comparing actual results to budget;  Performing sensitivity analysis on the growth and discount rates;  In conjunction with our valuation specialists rate utilised by independently calculated the discount to an comparing management discount rate; and  Assessing the appropriateness of the disclosures in Note 12 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. The annual report is expected to be made available to us after the date of this auditor's report. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the Directors 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 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 67 68 80 Autosports Group | Annual Report 2018 Independent Auditor’s Report 81 Independent Auditor’s Report 30 June 2018 Shareholder Information 30 June 2018 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included pages 23 to 37 of the Director’s Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Autosports Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities 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. DELOITTE TOUCHE TOHMATSU Carlo Pasqualini Partner Chartered Accountants Sydney, 27 August 2018 69 82 Autosports Group | Annual Report 2018 The shareholder information set out below was applicable as at 1 August 2018. The Company confirms that, for the period from admission to the ASX until 30 June 2018, it has used the cash and assets held in a form of readily convertible to cash which it had at the time of admission in a manner consistent with its business objectives, other than the purchase of an automotive property disclosed in the directors’ report. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: JIP PARRAMATTA PTY LTD SASTEMPO PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED LIVIST PTY LTD AUDI PARRAMATTA HOLDINGS PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NIP PARRAMATTA PTY LTD NATIONAL NOMINEES LIMITED BARBIZON PTY LTD PAGENT FAMILY INVESTMENTS PTY LTD FIVE DOCK DJC PTY LTD OGLE INVESTMENTS PTY LTD AALHUIZEN NOMINEES PTY LTD RICGAZ PTY LTD LIVERPOOL STREET INVESTMENTS BNP PARIBAS NOMS PTY LTD CITICORP NOMINEES PTY LIMITED DANIARON PTY LTD AUTOSPORTS HOLDINGS PTY LTD Number of holders of ordinary shares 124 178 79 122 50 553 - Ordinary shares Number held % of total shares issued 23,199,693 21,285,348 20,782,930 15,455,897 15,310,969 12,835,132 10,710,704 10,401,678 10,200,444 9,375,000 7,193,635 6,436,189 5,147,053 4,722,374 4,406,237 2,453,632 2,279,154 2,139,000 1,644,259 1,454,269 11.54 10.59 10.34 7.69 7.62 6.39 5.33 5.17 5.07 4.66 3.58 3.20 2.56 2.35 2.19 1.22 1.13 1.06 0.82 0.72 187,433,597 93.23 Shareholder Information 83 Substantial holders Substantial holders1 in the Company are set out below: IAN AND NICHOLAS PAGENT IAN PAGENT NICK PAGENT AUSTRALIAN SUPER PTY LTD2 COMMONWEALTH BANK OF AUSTRALIA3 Ordinary shares % of total shares Number held issued 103,389,396 64,437,541 38,951,855 10,087,287 10,050,854 51.44 32.06 19.38 5.02 5.00 1. At the time of IPO the Company escrowed certain holdings of shares being 66.8% of shares that were issued . As a result, the Company is deemed to have a relevant interest however the Company does not control the voting rights of those escrowed shares. 2. Based on substantial holder notice lodged on 27 June 2018 3. Based on substantial holder notice lodged on 8 May 2018 Voting rights On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Restricted securities - Escrowed shares Class Expiry date Number of shares On release of Company’s results for 30 June 2019 64,189,522 Ordinary shares - Ian Pagent, together with his nominated holding vehicles Ordinary shares - Nick Pagent, together with his nominated holding vehicles On release of Company’s results for 30 June 2019 Ordinary shares - other management shareholders On release of Company's results for 30 June 2019 Ordinary shares - Willims Vendors On release of Company's results for 30 June 2019 Performance Rights The number of performance rights on issue as at the reporting date are: Nick Pagent Ian Pagent Aaron Murray Other management (non KMP) There are no other unquoted equity securities on issue. Buy-back There is no current on-market buy-back. 38,320,477 22,392,805 9,375,000 134,277,804 418,035 167,388 153,089 27,828 766,340 Glossary $ AASB ACCC means Australian currency means the Australian Accounting Standards Board means Australian Competition and Consumer Commission automotive insurer means a provider or manufacturer of motor vehicle related insurance products, which may include CTP greenslip and comprehensive car insurance Autosports Group or the Group includes: (a) Autosports Group Limited ACN 614 505 261; (b) ASG Brisbane Pty Ltd ACN 614 297 684; (c) Autosports Brisbane Pty Ltd ACN 603 332 752; (d) Autosports Castle Hill Pty Ltd ACN 163 974 481; (e) Autosports Five Dock Pty Ltd ACN 118 786 762; (f) Autosports Leichhardt Pty Ltd ACN 161 160 765; (g) Autosports Prestige Pty Ltd ACN 096 909 698; (h) Autosports Sutherland Pty Ltd ACN 125 720 998; (i) Betar Prestige Cars Pty Ltd ACN 118 667 913; (j) Birchgrove Finance Pty Ltd ACN 165 682 057; (k) Modena Trading Pty Ltd ACN 140 018 015; (l) Mosman Prestige Cars Pty Ltd ACN 149 346 476; (m) New Centenary Mazda Pty Ltd ACN 168 183 800 (n) New Centenary Mercedes Benz Pty Ltd ACN 168 183 864; (o) Prestige Auto Traders Australia Pty Ltd ACN 105 105 771; (p) Prestige Group Holdings Pty Ltd ACN 073 650 512; and (q) Prestige Repair Works Pty Ltd ACN 611 760 126. Autosports Group Limited or the Company means Autosports Group Limited ACN 614 505 261, the ultimate holding company of the Group. ASIC ASX means the Australian Securities and Investments Commission means the Australian Securities Exchange Australian Accounting Standards or AAS means the Australian Accounting Standards and other authoritative pronouncements issued by the AASB Corporations Act means the Corporations Act 2001 (Cth) Dealer Principal means an employee of a Dealer who is responsible for the overall management of the Dealership EBIT EBITDA EPS means earnings before interest and tax means earnings before interest, tax, depreciation and amortisation means earnings per Share Financial Year or FY2018 means the year commencing 1 July 2017 and ending 30 June 2018 FY2019 GST IFRS IPO KMP Listing LTI NPAT NPATA NPBT OEM STI VWAP means the full financial year ended 30 June 2019 means goods and services tax means the International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board means initial public offering means key management personnel means admission of the Company to the Official List of the Australian Securities Exchange on 16 November 2016 means long term incentive means net profit after tax attributable to shareholders means net profit after tax excluding amortisation pertaining to acquired intangibles means net profit before tax means original equipment manufacturer means short term incentive means volume weighted average price 84 Autosports Group | Annual Report 2018 Glossary 85 This page has been intentionally left blank Directors Thomas (‘Tom’) Pockett - Chairman Nicholas (‘Nick’) Pagent Ian Pagent Robert Quant Marina Go Corporate Directory Company secretary Caroline Raw Registered office Share registry Auditor 565 Parramatta Road Leichhardt NSW 2040 Tel: +61 2 8753 2873 Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Tel: 1300 554 474 Deloitte Touche Tomatsu Grosvenor Place, 225 George Street Sydney NSW 2000 Stock exchange listing Autosports Group Limited shares are listed on the Australian Securities Exchange (ASX code: ASG) Website www.autosportsgroup.com.au Corporate Governance Statement The Corporate Governance Statement which was approved at the same time as the 2018 Financial Report can be found at www.investors.autosportsgroup.com.au/investors 86 Autosports Group | Annual Report 2018 Corporate Directory 87 . o C e t a e d i | y b n g s e D i www.autosportsgroup.com.au 

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