2019 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 Corporate directory 2 4 6 8 10 38 39 43 77 78 82 84 Contents 1 On behalf of the Board, we are pleased to deliver a strong result for FY2019 despite challenging trading conditions experienced by automotive retailers nationally. Dear Shareholders, Autosports Group has delivered a positive result for the FY2019 period. There is no question that 2019 was a difficult year for our sector nationally with challenging market conditions fuelled by a federal election, reduced consumer confidence, unanticipated stock interruption, quarantine problems, new compliance regulations and reform of lending guidelines. Despite this, the Group persevered with a disciplined and focused strategy to enhance its business portfolio, control expenses and invest in business improvements to ensure a resilient outcome. In terms of financial results, the Group results were solid in the circumstances. Normalised revenue was positive at $1.76bn (2018: $1.75bn). Normalised EBITDA was $51.1m, down 16% against the previous year (2018: $61.0m). Strategically, we maintained our disciplined focus on prestige and luxury segments in metropolitan areas on the East Coast of Australia in FY19. Our portfolio was developed and strengthened this Financial Year as we continued to invest in well-timed opportunities that improved our resilience and service offerings. In Sydney’s North Shore, the Group acquired the business and assets of Mercedes-Benz Hornsby with completion taking place in early September 2019. We are delighted to be the first Australian automotive group to hold all three key luxury brands of Audi, BMW and Mercedes-Benz in the same State. 2 Autosports Group | Annual Report 2019 This followed the strategic acquisition of Sydney City Prestige and Auto Approve in August 2019. Sydney City Prestige is a luxury used car wholesale business that integrates seamlessly with our existing luxury used car business Prestige Auto Traders, strengthening our position in Sydney’s used car market. Auto Approve, which was acquired as part of this acquisition, is a finance brokerage firm that leverages the Group’s existing Australian Credit Licence to offer quality finance and insurance products. With a focus on end-to-end customer service and support in metropolitan locations, the Group also acquired a well- established collision repair business, Mosman Smash Repairs in November 2018. Balancing the acquisitions with greenfield growth, we opened promising Greenfield sites including Canterbury MINI Garage that complements our acquisition of Canterbury BMW in early 2018. This followed the launch of our super-luxury car showroom in Southport, Queensland in October 2018 that doubled our representation of Maserati and Bentley dealerships. The Group also completed the purchase and amalgamation of two properties in MacGregor Queensland adding more tangible assets to the balance sheet. From a business improvement perspective, the Group achieved a great deal in FY2019. We expanded the use of our Salesforce customer management platform to gain a better understanding of our customers and optimise market trends and opportunities. We continued to maximise our digital footprint and tailor our customer platforms to help analyse customer behaviours to drive retention and loyalty and deliver a superior customer experience. The Group continues to celebrate and invest in its people. With a strong focus on positive cultures, we invested in new leadership and culture training in addition to an enhanced awareness to build a long-term culture of safety throughout the Group. The talent shortage of Australian automotive technicians and trades was partly addressed with the launch of the Autosports Group Apprenticeship program in NSW, to be rolled out nationally in FY2020. Importantly, diversity targets were introduced in senior management KPIs as we continue to challenge areas where we need to improve for the long-term benefit of our teams, customers, brand partners and shareholders. The Group continued to improve in areas of corporate governance, compliance, risk management and stakeholder relationships. We are cautiously optimistic that trading conditions will improve in FY2020, as we cycle the one-off events that occurred last year and we settle in our recent acquisitions and continue to develop our greenfield businesses. As we look to FY2020, the disruption in the automotive retailing industry coupled with difficult trading conditions is expected to present unique acquisition opportunities. The Group will continue to assess well priced opportunities with a strategic fit to current operations. We will leverage our scale and balanced operations to deliver strong outcomes in the future. We thank our Board and employees for their dedication and support throughout the Financial Year. It is the determination and commitment of each and every employee that makes ‘The Difference’ at Autosports Group. We look forward to seeing you at our Annual General Meeting in November. Yours faithfully Tom Pockett Nick Pagent Independent Chairman Chief Executive Officer Chairman and CEO’s Letter 3 Letter from the Chairman and CEO 43 43 business businesses operating in New operating in New South Wales, South Wales, Queensland and Queensland and Victoria Victoria 1,380 employees $355K in community donations and gift giving First Group to represent all three key luxury brands in NSW 13 prestige & luxury brands represented $2.4m on employee training and development Autosports Group has a balanced strategy of acquisitions, organic and greenfields growth 4 Autosports Group | Annual Report 2019 Key facts 5 Key facts 8 1 0 2 October • Launched new luxury Maserati and Bentley dealership on the Gold Coast November • Opened Canterbury MINI Garage; Acquired Mosman Smash Repairs in Sydney’s North Shore 9 1 0 2 February • Launched new Lamborghini Sydney showroom August • Strategic acquisition of Sydney City Prestige and Auto Approve in Artarmon; Launched Autosports Group Apprentice Program September • Acquired Mercedes‐Benz Hornsby and purchased the associated property 6 Autosports Group | Annual Report 2019 Highlights 7 Highlights NORMALISED $1.75 billion revenue $51.9 million EBITDA $22.0 million NPAT1 10.85c EPS STATUTORY $1.693 billion revenue $50.5 million EBITDA $15.8 million NPAT1 7.79c EPS 1. Normalised NPAT exclude amortisation of intangibles of $4.3m. 8 Autosports Group | Annual Report 2019 Financial Highlights 9 Financial highlights The directors present their report, together with the financial statements, on the consolidated entity (‘Autosports Group’ or ‘Group’) consisting of Autosports Group Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2019. 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 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: • 35 franchised dealerships selling new and used prestige and luxury motor vehicles; • 3 used motor vehicle outlets, focused primarily on the sale of used prestige and luxury motor vehicles; and • 5 specialist prestige motor vehicle collision repair facilities. Brands The Group represents the following brands and dealerships: AUTOSPORTS GROUP BRANDS & DEALERSHIPS 6 2 5 2 4 1 Motorrad 2 1 2 1 4 1 2 1 3 1 The number below each brand represents the number of dealerships held by the Group. 10 Autosports Group | Annual Report 2019 Directors’ Report30 June 2019 Dividends On 29 August 2019, the directors declared a fully franked final dividend of 3 cents per ordinary share (2018: 4.8 cents), to be paid on 12 November 2019 to eligible shareholders on the register as at 29 October 2019. When combined with the interim dividend of 2 cents per share paid in May 2019, the total dividend based on 2019 earnings is 5 cents per share fully franked. The financial effect of the dividends declared after the reporting date is not reflected in the 30 June 2019 financial statements and will be recognised in the subsequent financial period. Operating and financial review 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; and the provision of collision repair services. FY2019 financial performance key metrics Statutory Normalised Revenue EBITDA NPAT NPATA EPS $1.693b $50.5m $15.8m $20.3m 7.79c $1.75b(a) $51.9m(b) $22.0m(c) $21.8m(d) 10.85c (a) Movement to normalised revenue represents Original Equipment Manufacturer (‘OEM’) bonuses received which are included in cost of goods sold for statutory reporting purposes, and removal of revenue relating to closed business. (b) Movement to normalised earnings before interest, tax, depreciation and amortisation (‘EBITDA’) relates to add back of one-off pre-tax acquisition and restructure expenses of $828,000, and removal of pre-tax losses relating to closed business of $833,000. (c) Normalised net profit after tax (‘NPAT’) attributable to owners of Autosports Group Limited excludes pre-tax amortisation of intangibles of $4,485,000 and one-off pre-tax acquisition and restructure expenses of $828,000, and losses relating to closed business. (d) Movement to normalised net profit after tax excluding amortisation (‘NPATA’) relates to one-off pre-tax acquisition and restructure expenses of $828,000, and $833,000 of pre-tax losses relating to closed business. Directors’ Report 11 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 year attributable to the owners of Autosports Group Limited Consolidated 30 June 2019 $’000 30 June 2018 $’000 1,693,640 1,692,038 23,105 24,766 15,662 37,445 38,779 26,102 Comments The profit for the Group after providing for income tax and non-controlling interest amounted to $15,662,000 (2018: $26,102,000). The profit for the year was impacted by non-recurring items as follows: Statutory profit after tax attributable to the owners of Autosports Group Limited Add: Non-controlling interest1 Add: Income tax expense Add: Acquisition expenses2 Add: Restructure expenses3 Add: Other non-recurring items4 Consolidated 30 June 2019 $’000 30 June 2018 $’000 15,662 26,102 224 7,219 23,105 55 773 833 332 11,011 37,445 1,334 - - Profit before tax excluding non-recurring items 24,766 38,779 1. Represents the 20% minority interest in New Centenary Mazda Pty Ltd held by the dealer principal. 2. Relates to acquisition expenses on the Mosman Smash Repairs acquisition during the year. Previous year relates to the BMW Melbourne acquisition. 3. Restructure expenses relate to costs associated with restructure of administration in Queensland and used car wholesale business. 4. Reflects closure of Alfa Romeo and Fiat franchise (which does not meet the criteria of discontinued operations). Profit before tax excluding acquisition and restructure expenses is a financial measure which is not prescribed by Australian Accounting Standards (‘AAS’) and represents the statutory profit under AAS adjusted for such expenses. The directors consider profit before tax excluding acquisition and restructure expenses to reflect the core earnings of the Group. 12 Autosports Group | Annual Report 2019 Directors’ Report (continued)30 June 2019 Operational overview Disciplined growth The Group has continued to pursue a clear and focused strategy balanced between acquisitions, organic and greenfield growth. In the financial year, the Group acquired the business operating as Mosman Smash Repairs which services the Northern Beaches suburbs of Sydney. Mosman Smash Repairs is an accredited Volvo and Volkswagen repairer adding to the Group’s portfolio of approved repairers. Greenfields growth was strong through the financial year. The Group opened Gold Coast Bentley and Maserati in a purpose-built facility in Southport Queensland in October 2018. The Gold Coast facility reinforces the Group’s representation of those brands in key Queensland metropolitan areas. The new Southport facility allows for a third super-luxury brand which is yet to be confirmed. Canterbury MINI Garage opened in November 2018. The catalyst for this greenfield was the Group’s strategic acquisition of Canterbury BMW in 2018. Canterbury MINI Garage extends the Group’s MINI representation to New South Wales. During the financial year the Group purchased land at 589 Mains Road, Macgregor, Queensland. The land adjoins the Group’s existing land and buildings at 601 Mains Road Macgregor from which Mercedes Benz Macgregor trades. In November 2018 the amalgamation of the two properties occurred allowing for future development at this 15,665 square metre site. The Group regularly upgrades its facilities to meet the requirements of its OEM franchisors. Canterbury BMW was upgraded in March 2019 to accommodate the establishment of the new Canterbury MINI Garage. The Group’s new Gold Coast Maserati and Bentley dealerships feature luxury showrooms in a purpose-built facility in Ferry Road, Southport. Lamborghini Sydney revealed a refurbished new showroom at the Group’s Leichhardt facility in February 2019. After careful review of the Group’s portfolio the Group concluded that the continuation of the Alfa Romeo and Fiat franchises were not sustainable due to low vehicle volumes. In the 2019 financial year the Alfa Romeo and Fiat franchises incurred a loss of $833,000. Market conditions Market conditions during the financial year were challenging for automotive retailers nationally. The industry experienced declines in new vehicle sales across all Eastern Seaboard markets where the Group operates including New South Wales (-9.6%), Queensland (-7.7%) and Victoria (-9.4%). The Audi brand nationally declined 32.2% in the 6 months to June 2019. The decline was exacerbated by the stop sell on the Q7, Q3 and A1 due to European carbon emission regulations (‘WLTP’). These stop sells accounted for 70% of the brand’s decline on the prior 6-month period. These models are expected to be made available in the first half of FY2020. In addition to poor market conditions, the Group was impacted heavily in the latter part of the first half of the financial year by quarantine issues and hails storms in Sydney. The quarantine issues arose from heightened surveillance by the Department of Agriculture and Water Resources (‘DAWR’) upon the discovery of the Brown Marmorated Stink Bug on several shipping vessels departing from Europe. As the Group relies on much of its stock arriving from Europe, the quarantine issues impacted stock availability during the year. The Sydney hail storms resulted in delayed deliveries during the latter part of the 2018 calendar year. The impact of the hail storms abated through the second half. Despite these setbacks, management implemented a number of strategies through the year to relieve the pressure of softened consumer demand and stock constraints. As a result, management reduced stock holdings to ease interest expense and realigned other variable expenses in line with market conditions. Operational excellence As a retailer of luxury and prestige vehicles, Autosports Group strives to apply that same standard of luxury and excellence in all aspects of its operations. This year, the Group’s Doncaster BMW dealership was awarded 1st place, Major Metro Dealer of the Year back to back with its win the previous year. The Group performed exceptionally in the Twin Cup competition, a worldwide Audi service department competition, with four Autosport Group employees representing the Australian team. Directors’ Report 13 People and diversity At Autosports Group, diversity is about recognising and valuing the contribution of people from different backgrounds, with different perspectives and experiences. This includes age, disability, sexual orientation, ethnicity, religion and cultural background. It also includes gender. The Group recognises the need for better balance of women in sales roles, technical roles and General Manager/Dealer Principal positions. In FY2019 the Group set and delivered against measurable objectives to improve the gender balance in these roles in a sustainable way. The Group reviewed its gender composition statistics and developed realistic gender diversity targets and made senior executives across the Group accountable for meeting those targets. Leadership and culture training was also delivered during the financial year and will continue in FY2020 to reinforce the Group’s values and support diversity. To address the impacts of the shortage of technicians in Australia the Group launched a bespoke apprentice program in August 2019. The program leverages the Group’s scale and luxury brand representation to attract new talent. The program also serves as a platform to promote the automotive industry as a career opportunity for women. According to the Workplace Gender Equality Agency (‘WGEA’) Report prepared for the financial year (for car retailing businesses, categorised as ANZSIC Code 3911 only), the Group’s gender composition was 20% women. 21% of employees awarded promotions were women and 23.7% of employees who resigned were women. The full copy of this 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 FY2020. Giving program Community giving is at the core of the Group’s values embodied in a three- tiered Giving Program which supports the values of Individualised Attention across the Group. Tier 1 provides a platform for us to support the not-for-profit initiatives of the brands the Group represent. Tier 2 supports giving to traditional charities. Tier 3 allows the Group to support the giving preferences of our people. After surveying those preferences, the Group selected three primary charities which were promoted through the Group’s internal employee referral program. Safety In the financial year, the Group continued to build on its consolidated approach to Work Health and Safety with a review and consultation process in relation to its policy and procedures. The Group has adopted a zero-tolerance risk appetite for serious safety incidents. A large focus for FY2019 was to embed a strong safety culture across the business to reduce incidents, improve workplace culture and drive business efficiencies. Marketing and technology The Group’s investment in the Salesforce Customer Relationship Management (‘CRM’) platform continued in line with a well- defined strategy to develop the Group’s 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 to drive positive business outcomes. In the last 12 months the digital team focused on developing and delivering a customer contact strategy to drive loyalty, retention and increase lifetime customer value. The Group will continue to invest in strengthening its digital platforms and use these to deliver increased vehicle and service sales and positive customer experiences. 14 Autosports Group | Annual Report 2019 Directors’ Report (continued)30 June 2019 Likely developments in operations in future years Organic growth will comprise: • The maturing of greenfield sites to increase margins; • using digital marketing to grow back-end services including servicing and spare part sales; • driving aftersales demand through consolidating parts warehousing and distribution logistics; • expanding capacity at existing dealerships to meet consumer demand; • reviewing service department operations to drive optimal productivity in existing service bays; • establishing new greenfield dealerships when the mix of brand, location and demand works; and • integrating acquisitions benefit from operational synergies. Acquisition growth will focus on: • high-quality and well-priced acquisition targets in East Coast Metropolitan areas in luxury and prestige brands; and • collision and repair acquisitions to expand the Group’s OEM approved repairer facilities to include more brands within the Group’s portfolio. FY2020 outlook: • new vehicle market conditions expected to gradually improve throughout FY2020; • the Group has like for like growth opportunities especially in WLTP affected brands; • service and parts growth expected to continue in FY2020; integration of Mercedes-Benz Hornsby and Sydney City Prestige; and • • conditions exist for further well priced acquisition opportunities. Other focus areas include: • implementing a bespoke program to address the Australian automotive technician skills shortage; • progressing gender diversity initiatives; and • promoting and embedding the Group’s values across the business and organisational culture. Risk and governance The Group identified its key risk areas as: Consumer demand – The Group has taken steps to protect itself from the poor trading conditions experienced nationally by Australian automotive retailers including reducing stock levels and managing variable expenses. The Group will continue to adapt to market conditions as they change. 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 serious safety incidents. During the year the Group revised its Work Health and Safety policies and procedures and worked with each business to improve safety reporting and incident management. Reliance on key personnel – The Group engaged in activities during the year to develop the skills and experience of potential successors as part of its succession planning initiatives. Credit risk – The Group will continue to adhere 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 was prepared for the flex commission reforms that were enacted during the year. The Group continued to monitor and review its Takata airbag recall procedures and work closely with OEMs. Changes to market trends – The Group continues to monitor market trends to prepare itself for changes to consumer preferences and new technologies. Cybersecurity – The Group reviewed its cybersecurity risk profile during the year to protect the business against external and internal cyber threats. Directors’ Report 15 Environmental regulation The Group is committed to continually improving its operations to deliver better environmental outcomes. The Group is subject to environmental regulation and applies minimum environmental standards at its dealerships and service and collision facilities. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year On 2 August 2019, the Group acquired the businesses operating as Sydney City Prestige and a majority stake in Auto Approve for $870,000. Sydney City Prestige is a luxury used car wholesaler located in Artarmon, Sydney and complements the Group’s existing luxury used car wholesaler, Prestige Auto Traders. The Sydney City Prestige business also includes a RAM dealership and LDV parts and service business. Auto Approve is a finance broking business offering primarily automotive finance and insurance products. On 6 August 2019, the Group entered into an agreement to purchase the business of Mercedes Benz Hornsby for $3,500,000 plus certain other assets and liabilities. This business will be the Group’s first Mercedes-Benz dealership in New South Wales. Apart from the dividend declared, no other matter or circumstance has arisen since 30 June 2019 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 took 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. No material change to income occurred as a result of these reforms. In response to the Australian Competition and Consumer Commission (‘ACCC’) report on the new car retailing industry in December 2017, the Government issued a Consultation Paper in February 2019. The objective of the consultation was to gauge the suitability of possible elements of a mandatory scheme for the sharing of motor vehicle service and repair information and the establishment of a Service and Repair Information Sharing Advisory Committee. Subject to the outcome of consultation and a further period of public consultation, the Government proposes to implement a scheme in 2019. 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 monitored and reviewed its procedures across its portfolio in relation to the recall during the financial year. 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. Similarly, Commonwealth legislation took effect during the financial year with the introduction of the Modern Slavery Act 2018 (Cth). The Group will be required to report on its modern slavery initiatives for FY2020 financial period by 31 December 2021. The Final Report on the Royal Commission into the misconduct in the Banking, Superannuation and Financial Services industry Identified a number of recommendations which may impact the automotive industry. None of the recommendation are expected to have a significant impact on the Group. The recommendation seeking to remove the point of sale exemption for the sale of finance and insurance products at dealerships will, subject to legislative change outcomes, likely be resolved by automotive financiers moving to an Authorised Credit Representative model. The Group also holds its own Australian Credit Licence. On 14 August 2019, the Federal Government announced it will shortly commence industry consultation on the development of new draft regulations for the automotive franchising sector. The objective of the proposed reforms is intended to address end of term arrangements and capital expenditure arrangements between dealers and manufacturers. 16 Autosports Group | Annual Report 2019 Directors’ Report (continued)30 June 2019 Current directors 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 Experience and expertise: 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. 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 Interests in shares: Interests in options: Interests in rights: 166,667 ordinary shares held directly None None Nicholas (‘Nick’) Pagent Title: Managing Director and Chief Executive Officer (appointed on 29 August 2016) Experience and expertise: Nick has over 23 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 Interests in shares: Interests in options: Interests in rights: 39,210,602 ordinary shares held indirectly (104,452,574 ordinary shares when combined with Ian Pagent’s holding for the purpose of substantial holder declarations) None 471,054 LTI performance rights convertible into 471,054 ordinary shares 81,358 STI performance rights convertible into 81,358 ordinary shares Directors’ Report 17 Ian Pagent Title: Executive Director (appointed on 29 August 2016) Experience and expertise: Ian has over 50 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 Interests in shares: Interests in options: Interests in rights: 65,241,972 ordinary shares held indirectly (104,452,574 ordinary shares when combined with Ian Pagent’s holding for the purpose of substantial holder declarations) None 188,421 LTI performance rights convertible into 188,421 ordinary shares 47,767 STI performance rights convertible into 47,767 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 36 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 Interests in shares: Interests in options: Interests in rights: 62,499 ordinary shares held indirectly None None 18 Autosports Group | Annual Report 2019 Directors’ Report (continued)30 June 2019 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 Go is Chair of Suncorp Super Netball and Ovarian Cancer Australia, a non-executive director of Energy Australia, 7-Eleven, Pro-Pac, and The Walkley Foundation, Chair of the Advisory Board for the Centre For Media Transition at the University of Technology Sydney, a director of PWC’s Diversity Advisory Board, and author of the business book for women, Break Through: 20 Success Strategies for Female Leaders. Marina has over 25 years of leadership experience in the media industry, having started her career as a journalist. Marina is the former Chair of the Wests Tigers NRL Club and Private Media CEO. She is a member of the Australian Institute of Company Directors. 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 Audit and Risk Committee Interests in shares: Interests in options: Interests in rights: 62,499 ordinary shares held directly 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. Directors’ Report 19 Other Key Management and Company Secretary Aaron Murray Title: Chief Financial Officer Experience and expertise Aaron has over 22 years’ experience in accounting and the motor vehicle industry. Aaron has held the role of Autosports Group Chief Financial Officer since 2009, after joining the business in 2007. Prior to joining Autosports Group, Aaron held accounting and finance roles with Trivett Classic, McMillan Volkswagen and Audi Centre Parramatta. Relevant interests in shares: 1,672,038 ordinary shares held indirectly Interests in options: None Caroline Raw Title: Qualifications: Company Secretary and General Counsel (appointed on 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 has over 14 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’). 20 Autosports Group | Annual Report 2019 Directors’ Report (continued)30 June 2019 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 2019, and the number of meetings attended by each director were: Thomas Pockett Nick Pagent* Ian Pagent* Robert Quant Marina Go 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 7 7 7 7 7 7 7 7 7 7 9 9 9 9 9 9 9 9 9 9 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. * Whilst Nick Pagent and Ian Pagent are not members of the People and Remuneration Committee or Audit and Risk Committee, they attended each meeting. 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 995,848 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 2019 and up to the date of this report. Shares issued on the exercise of performance rights No shares were issued on the exercise of performance rights during or since the end of the financial year. Instead, the Company arranged to purchase shares on-market through a facility offered by its Share Registry, Link Market Services, which satisfied vested performance rights during the financial year. 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. Directors’ Report 21 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 27 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 27 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the 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. 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 Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. 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. 22 Autosports Group | Annual Report 2019 Directors’ Report (continued)30 June 2019 Contents Sections 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 FY2020 4. Statutory remuneration disclosures Senior executive and non-executive director remuneration Movements in performance rights held by KMPs KMP shareholdings 5. Transactions with KMP Management fees Related party leases Related party loans Page 24 24 24 25 25 25 27 28 28 28 30 32 33 33 33 33 34 34 34 35 36 36 36 36 Remuneration Report 23 Remuneration Report (audited) 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 2018 to 30 June 2019 (‘financial year’). Who does this report cover? This report sets out the remuneration arrangements for the Company’s key management personnel (‘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 Position Chair and independent non-executive director Independent non-executive director Independent non-executive director 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 that align with the Company’s short and long-term goals and cultural expectations; • 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 2019 Remuneration Report (audited) (continued) Use of remuneration consultants and other advisors 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. In FY2019, the Board sought further independent external advice to ensure the Company is (a) doing what it said it would in relation to its disclosed remuneration structure (b) that executive base salaries are market appropriate (c) current remuneration plans remain effective and aligned with the Company’s strategy and (d) that decision making around individual KPIs remain valid. 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 and long-term incentives that are challenging and linked to the creation of sustainable shareholder returns Ensure remuneration structures are aligned to culture and values expectations Ensure remuneration structures are equitable and aligned with the long-term interests of ASG and its shareholders REMUNERATION POLICY OBJECTIVES Ensure any termination benefits are in accordance with policy 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. Remuneration Report 25 Executive remuneration framework Fixed remuneration – Cash Short-term incentive (‘STI’) (at risk) – Equity Long-term incentive (‘LTI’) (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 2019 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% 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 2019 Remuneration Report (audited) (continued) Company performance 2019 was a difficult year for the Group with challenging market conditions fuelled by a federal election, quarantine problems, new compliance regulations, reform of lending guidelines and distractions in our sector with competitor consolidation. The Group’s remuneration structure was established to reward both short-term and long-term growth but with gateway hurdles of upholding cultural and value expectations for continual improvement in corporate governance, compliance, risk management and stakeholder relationships. In 2019, whilst the Group did not achieve financial KPIs, senior management optimised opportunities within the particularly difficult trading conditions outlined above. They also achieved several non-financial KPIs and continued to drive improvements in the business. As a result, a total of 33% (2018: 72%) of the target STI has been awarded. 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 ($) Dividend per share (cents) Basis EPS (cents) EBIT $M NPAT $M ROE % Cash flow from operations $M Interest coverage (EBITDA) 2019 1 Jul 2018 – 30 Jun 2019 2018 1 Jul 2017 – 30 Jun 2018 1.26 3.0 7.79 39.5 15.9 3.14 23.1 3.09 1.70 9.0 12.99 50.7 26.4 5.3 46.1 4.51 Remuneration Report 27 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. Short-term incentive Overview of the STI plan 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. Participation Executive directors and other members of senior management are eligible to participate in the STI plan. Performance period 1 July 2018 to 30 June 2019. 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 FY2019 Performance Period, the Board determined that performance would be assessed from 95% of target whereby if performance was determined to be between 95% and 100% of target, senior executives would be rewarded with 30% of the relevant individually weighted STI opportunity. If performance was assessed to be between target and maximum, a straight-line pro-rata STI award would be awarded. For the FY2020 Performance Period, the Board determined that performance is assessed from 90% of target whereby if performance is determined to be between 90% and 100% of target, senior executives will be rewarded with 30% of the relevant individually weighted STI opportunity. If performance is assessed to be between target and maximum, a straight-line pro-rata STI award is awarded. Also, for the FY2019 and FY2020 performance period, the Board determined that all performance measures will exclude new or unbudgeted acquisitions. 28 Autosports Group | Annual Report 2019 Remuneration Report (audited) (continued) 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; and • 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 and EPS. EPS is calculated having regard to underlying profit, which measures profit from ASG’s ongoing operations adjusted, where the Board considers it appropriate. The non-financial performance hurdles are aligned to each senior executive’s role and include culture hurdles, growth, stakeholder relationships, safety, diversity, 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. 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 2019 audited results. Measurement of performance conditions Delivery of STI awards Performance rights Number of performance rights to be granted 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: • 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. 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. Remuneration Report 29 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 % of maximum STI award granted % pf maximum STI award forfeited Nick Pagent Ian Pagent Aaron Murray 2019 2018 2019 2018 2019 2018 - - - - - - 450,000 450,000 180,000 180,000 168,750 168,750 59,400 129,115 40,000 75,806 18,750 48,568 30% 40% 50% 70% 25% 40% 13% 29% 22% 42% 11% 29% 87% 71% 78% 58% 89% 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 2019 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 2020, subject to continued service. As at 30 June 2019, the STI award has been calculated in accordance with AASB 2 'Share-based Payments'. 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. 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. 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 was measured from Listing (16 November 2016) to 30 June 2019. Future grants have a three-year performance period. 30 Autosports Group | Annual Report 2019 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. Remuneration Report 31 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 $80,481. Ian Pagent – $400,000 per annum base salary plus other benefits valued at $81,511. Aaron Murray – $375,000 per annum base salary plus other benefits valued at $81,291. 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. In FY2018, the Board agreed it would review the operation of the existing remuneration structure after two years of listing with an independent consultant. Accordingly, the Board sought proposals from two different independent consultants in FY2019 to review the arrangements in place, Egan Associates was appointed to provide assurance on the following specific matters: (a) ensure the Company is doing what it said it would in relation to its disclosed remuneration structure; (b) that executive base salaries are market appropriate: (c) current remuneration plans remain effective and aligned with the Company’s strategy; and (d) decision making around individual KPIs remain valid. Egan Associates made minor recommendations to improve the clarity the Company’s remuneration report all of which were adopted. Egan Associates also made recommendations to lift reward arrangements for KMP base salaries and reward opportunities. The Board considered the recommendations and agreed to maintain the existing remuneration structure for FY2020. This will be considered again at the end of the FY2020 performance period. The Company incurred $10,000 in fees for Egan Associates in FY2019 32 Autosports Group | Annual Report 2019 Remuneration Report (audited) (continued) 3. Non-executive director remuneration 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 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. Non-executive director remuneration in FY2020 In FY2020, the Board has agreed to review the base fees and terms of engagement for non-executive directors. Remuneration Report 33 4. Statutory remuneration disclosures 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 $1 Superan nuation $ Rights $2 Shares $ $ 600,000 599,999 392,307 392,307 375,000 375,000 182,649 182,649 109,589 109,508 109,589 109,508 59,950 59,950 60,980 60,980 60,760 60,760 - - - - - - 20,531 243,073 21,613 300,380 20,531 113,469 20,049 144,312 20,531 20,049 17,351 17,351 10,411 10,403 10,411 10,211 87,626 112,792 - - - - - - - - - - - - - - - - - - 923,554 981,942 587,287 617,648 543,917 568,601 200,000 200,000 120,000 119,911 120,000 119,719 Year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 1. 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. 2. The value of rights granted to the senior executives is based on the fair value estimate on grant date. There were no termination benefits provided in the financial year. Movements in performance rights held by KMPs STI performance rights for the 2018 award were granted on 23 November 2018. Under this award, 81,358 performance rights were granted to Nick Pagent, 47,767 performance rights were granted to Ian Pagent and 30,604 performance rights were granted to Aaron Murray. The LTI performance rights for the 2019 award were granted on 23 November 2018. Under this award, 283,554 performance rights were granted to Nick Pagent, 113,421 performance rights were granted to Ian Pagent and 106,332 performance rights were granted to Aaron Murray. The following table shows the changes in performance rights granted to KMPs during the financial year, as well as the number of Performance Rights that vested or lapsed/forfeited during the 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 2019 Remuneration Report (audited) (continued) Performance rights awarded, vested and lapsed/forfeited during the year. Nick Pagent STI LTI Total Ian Pagent STI LTI Total Aaron Murray STI LTI Total Rights held at 1 July 2018 Rights granted during reporting period Rights vested during reporting period1 Rights lapsed or forfeited during the reporting period2 Rights held at 30 June 2019 43,035 375,000 418,035 17,388 150,000 167,388 12,465 140,624 153,089 81,358 283,554 364,912 47,767 113,421 161,188 30,604 106,332 136,936 (43,035) - (43,035) (17,388) - (17,388) (12,465) - (12,465) - (187,500) (187,500) - (75,000) (75,000) - (70,312) (70,312) 81,358 471,054 552,412 47,767 188,421 236,188 30,604 176,644 207,248 1. Rights vested after satisfaction of twelve-month continuous employment condition in connection with FY2017 STI grant. 2. Rights lapsed due to non-satisfaction of performance conditions in connection with FY2017 LTI grant. KMP shareholdings The following table outlines the movements in KMP ordinary shareholdings in the Company (including their related parties) for the financial year. Non-executive directors Tom Pockett Marina Go Robert Quant Senior executives Nick Pagent Ian Pagent Aaron Murray Held at 1 July 2018 Received as part of remuneration Additions1 Other net Changes2 Held at 30 June 2019 166,667 20,833 62,499 38,951,855 64,437,541 1,650,508 - - - - 20,000 - - - - 166,667 40,833 62,499 43,035 17,388 12,465 320,602 (104,890) 39,210,602 50,000 9,065 737,043 65,241,972 - 1,672,038 1. On market purchase of shares. 2. In FY2019, there was a re-classification of shares owned by associated entities for Ian and Nick Pagent which affect their relative shareholding. Remuneration Report 35 5. Transactions with KMP Management fees During the financial year the Group received property management fees on a salary allocation basis for administration and management of properties owned by lan and Nick Pagent. The Group received administration service fees in relation to shared administration staff managing a dealership outside of the Group and owned by lan and 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 TOTAL Related party leases The Group received management fees $ 12,000 24,000 12,000 12,000 24,000 12,000 96,000 During the financial year the Group had operating lease agreements on commercial terms with various entities owned by Ian and Nick Pagent. 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 and 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 Ltd 135 Moggill Rd, Toowong QLD TOTAL Related party loans The Group paid rental fees $ 808,641 444,674 610,573 456,241 615,205 2,148,720 5,084,054 Pursuant to a loan agreement between the Group and entities associated with Nick and Ian Pagent, the aggregate amount recognised under the loan was $2,430,170 as at 30 June 2019. The loan is recognised in the financial statements as a non- current liability. There is no interest payable on the loan. End of remuneration report 36 Autosports Group | Annual Report 2019 Remuneration Report (audited) (continued) This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Thomas Pockett Independent Chairman 29 August 2019 Sydney Nicholas Pagent Chief Executive Officer Remuneration Report 37 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 29 August 2019 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 report of Autosports Group Limited for the year ended 30 June 2019, 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 Accountant Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 38 Autosports Group | Annual Report 2019 Auditor’s Independence Declaration Revenue Interest revenue Expenses Changes in inventories Raw materials and consumables purchased Employee benefits expense Depreciation and amortisation expense Occupancy costs Acquisition and restructure expenses Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of Autosports Group Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Autosports Group Limited Basic earnings per share Diluted earnings per share Consolidated 30 June 2019 30 June 2018 Note 5 $’000 $’000 1,693,618 1,691,980 22 58 (6,351) 46,639 (1,411,798) (1,472,690) (126,453) (121,435) (11,043) (33,774) (828) (63,922) (16,366) 23,105 (7,219) 15,886 - (8,951) (29,467) (1,334) (54,130) (13,225) 37,445 (11,011) 26,434 - 15,886 26,434 224 15,662 15,886 224 15,662 15,886 Cents 7.79 7.76 332 26,102 26,434 332 26,102 26,434 Cents 12.99 12.95 6 6 7 22 22 34 34 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Consolidated Statement of Profit or Loss and Other Comprehensive Income 39 Consolidated Statement of Profit or Loss and Other Comprehensive IncomeFor the year ended 30 June 2019 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 Contract liabilities and deferred revenue Income tax payable Employee benefits Borrowings Total current liabilities Non-current liabilities Payables 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 2019 30 June 2018 Note $’000 $’000 8 9 10 11 12 7 13 14 7 15 17 16 18 19 20 21 22 11,292 104,571 346,395 6,918 469,176 69,105 531,938 9,259 610,302 14,302 104,166 352,658 4,940 476,066 59,895 535,203 7,268 602,366 1,079,478 1,078,432 80,971 2,506 2,690 12,203 409,855 508,225 2,430 64,309 1,475 68,214 576,439 503,039 75,439 4,547 5,721 11,012 414,013 510,732 - 65,530 1,488 67,018 577,750 500,682 475,637 475,637 1,033 22,606 499,276 3,763 503,039 894 20,612 497,143 3,539 500,682 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 40 Autosports Group | Annual Report 2019 Consolidated Statement of Financial PositionAs at 30 June 2019 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 36) Dividends paid to non-controlling interest Dividends paid (note 23) Balance at 30 June 2018 Consolidated Balance at 1 July 2018 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 36) Dividends paid (note 23) Balance at 30 June 2019 Issued capital $’000 475,637 - - - - - - 475,637 Issued capital $’000 475,637 - - - - - 475,637 Share-based payments reserve Retained profits Non- controlling interest Total equity $’000 392 - - - 502 - - 894 $’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 Share-based payments reserve Retained profits Non- controlling interest Total equity $’000 894 - - - 139 - 1,033 $’000 20,612 15,662 - 15,662 - (13,668) 22,606 $’000 3,539 224 - 224 - - 3,763 $’000 500,682 15,886 - 15,886 139 (13,668) 503,039 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes Consolidated Statement of Changes in Equity 41 Consolidated Statement of Changes in EquityFor the year ended 30 June 2019 Cash flows from operating activities Profit before income tax expense for the year 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 Decrease/(increase) in inventories Increase in other operating assets Increase in trade and other payables Decrease in contract liabilities and deferred revenue Increase in employee benefits Increase in deferred revenue (Decrease)/Increase in bailment finance 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 disposal of property, plant and equipment Proceeds from release of security deposits Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid Net cash from/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year Consolidated 30 June 2019 30 June 2018 Note $’000 $’000 6 6 6 31 35 35 23 23,105 37,445 11,043 8,951 66 139 (22) 16,366 50,697 (405) 6,351 (1,948) 7,962 (2,041) 970 - (9,920) - 51,666 22 (16,366) (12,184) 23,138 (1,453) (14,450) (24) 241 - 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 (15,686) (61,524) 14,946 (11,740) (13,668) (10,462) (3,010) 14,302 11,292 41,290 (8,797) (17,688) 14,805 (601) 14,903 14,302 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 42 Autosports Group | Annual Report 2019 Consolidated Statement of Cash FlowsFor the year ended 30 June 2019 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 29 August 2019. 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 following Accounting Standards and Interpretations adopted during the year are most relevant to the Group: AASB 9 Financial Instruments The Group has adopted AASB 9 from 1 July 2018. The standard introduced 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 that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are 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 or contingent consideration recognised in a business combination) in other comprehensive income (‘OCI’). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, 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 use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment is measured using 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. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. AASB 15 Revenue from Contracts with Customers The Group has adopted AASB 15 from 1 July 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are 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. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period. Impact of adoption The Group has adopted Accounting Standards AASB 9 and AASB 15 for the year ended 30 June 2019. The Accounting Standards were adopted from 1 July 2018, using the transitional rules available not to restate comparatives. The adoption of AASB 9 and AASB 15 did not result in any change to the opening net assets or the opening retained profits as at 1 July 2018, and has not had a material impact on the Group’s results. The adoption of these Accounting Standards and Interpretations resulted in the following adjustments: • service plans and extended warranty plans provided to customers represents performance obligations to service the product during the free service and extended warranty period. Previously revenue was recognised at a point in time as part of the vehicle transaction and an estimated cost for the future liability was recognised in accrued expenses. In accordance with AASB 15, the Group has allocated a portion of the total transaction price to the service performance obligations which is recognised over time and costs incurred in relation to the obligations are expenses as incurred. As a result of the adoption of the standard, on the 1 July 2018 Notes to the Consolidated Financial Statements 43 Notes to the Consolidated Financial Statements30 June 2019 Note 2. Significant accounting policies (continued) the Group recognised a contract liability of $419,000 with a corresponding reduction in accrued expenses. The impact of the profit and loss account for the year ended 30 June 2019 under the new standard is not material; • provision for impairment of receivables presented in the comparative year is now classified as allowance for expected credit losses; • interest revenue is now shown separately on the face of profit or loss; and 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’). • deferred income liabilities presented in the comparative year are now classified as contract liabilities. Historical cost convention 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 $39,049,000 as at 30 June 2019 (2018: $34,366,000). The directors have reviewed the cash flow forecast for the Group through to 31 August 2020. 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 $2,506,000 (2018: $4,547,000) is included in current liabilities which relate to contract liabilities and no cash outflow is expected in relation to this amount; • The Group generated $23,138,000 (2018: $46,118,000) of cash flow from operating activities; • During the year the Group used $495,000 of available cash to fund business acquisitions and $6,169,000 to fund additions to property, plant and equipment and specifically leasehold improvements, net of borrowings; • As at 30 June 2019, the Group has undrawn finance facilities amounting to $134,072,000 (2018: $32,737,000); and • The Group has cash and cash equivalents amounting to $11,292,000 as at 30 June 2019 (2018: $14,302,000). 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. 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. 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 37. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Autosports Group Limited as at 30 June 2019 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 44 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 2. Significant accounting policies (continued) 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. 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. Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability. New, demonstrator and used vehicles Revenue from the sale of vehicles is recognised at the point in time when the buyer obtains control of the goods, which is generally at the time of delivery of the vehicle. Parts and service Revenue from the sale of parts is recognised at the point in time when the buyer obtains control of the goods, which is generally at the time of delivery of the goods. Service work on customers’ vehicles is carried out under instructions from the customer. Service revenue is recognised over time based on either a fixed price or an hourly rate. Revenue arising from the sale of parts fitted to customers’ vehicles during service is recognised at the point in time 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 at the point in time 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 at the point in time, usually 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. 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 in profit of loss. Bonuses and rebates are recognised when the right to receive payment is established. Notes to the Consolidated Financial Statements 45 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 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. Inventories 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. Trade receivables Used vehicles Are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. 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. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. 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. 46 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 2. Significant accounting policies (continued) 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. 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. 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 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. 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. Notes to the Consolidated Financial Statements 47 Note 2. Significant accounting policies (continued) 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. 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. 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. Contract liabilities Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. In the previous year the balance was disclosed as deferred revenue. 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. 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 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. 48 Autosports Group | Annual Report 2019 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. Employee benefits Short-term employee benefits 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 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 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 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 2. Significant accounting policies (continued) 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 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. Notes to the Consolidated Financial Statements 49 Note 2. Significant accounting policies (continued) 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. 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 2019. 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: Management’s assessment of the new standard are as follows: 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 50 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 2. Significant accounting policies (continued) 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. into both a principal (financing activities) and interest (either operating or financing activities) component. The impact of adoption of this standard as at 1 July 2019, using the modified retrospective approach, will result in the recognition of a right-of-use asset in the range of $195,000,000 to $205,000,000 with a corresponding increase in lease liability, in respect of the Group’s operating leases over premises. New Conceptual Framework for Financial Reporting A revised Conceptual Framework for Financial Reporting has been issued by the AASB and is applicable for annual reporting periods beginning on or after 1 January 2020. This release impacts for-profit private sector entities that have public accountability that are required by legislation to comply with Australian Accounting Standards and other for-profit entities that voluntarily elect to apply the Conceptual Framework. Phase 2 of the framework is yet to be released which will impact for-profit private sector entities. The application of new definition and recognition criteria as well as new guidance on measurement will result in amendments to several accounting standards. The issue of AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework, also applicable from 1 January 2020, includes such amendments. Where the Group has relied on the conceptual framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting Standards, the Group 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. Notes to the Consolidated Financial Statements 51 Note 5. Revenue Revenue for contracts with customers New and demonstrator vehicles Used vehicles Parts Service Aftermarket accessories Finance and insurance revenue Other revenue Other revenue Revenue Disaggregation of revenue Consolidated 30 June 2019 30 June 2018 $’000 $’000 986,421 421,188 132,056 111,052 12,196 23,671 1,027,382 416,176 105,387 96,309 13,884 25,810 1,686,584 1,684,948 7,034 7,032 1,693,618 1,691,980 There is no disaggregation of revenue provided, as all revenue is generated in Australia and revenue is recognised at a point in time, except for service revenue which is recognised over time. Note 6. Expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Furniture, fixtures and fittings Motor vehicles Total depreciation Amortisation Customer relationships Total depreciation and amortisation Share-based payments expense Share-based payment incentive to directors, executives and employees 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/(credits) 52 Autosports Group | Annual Report 2019 Consolidated 30 June 2019 30 June 2018 $’000 $’000 2,921 1,744 1,181 712 1,819 1,544 997 313 6,558 4,673 4,485 11,043 4,278 8,951 139 502 12,820 3,546 16,366 10,968 2,257 13,225 30,890 27,204 10,357 9,788 (356) 1,028 Notes to the Consolidated Financial Statements (continued)30 June 2019 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: 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 Current year tax losses not recognised Prior year temporary differences now recognised Income tax expense Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised other than in equity: Tax losses Allowance for expected credit losses Property, plant and equipment Employee benefits Provision for warranties Accrued expenses Deferred income IPO transaction costs Work in progress Provision for inventories Customer relationships Other items Amounts recognised in equity: Unamortised transaction costs on share issue Deferred tax asset Movements: Opening balance Credited to profit or loss Additions through business combinations (note 31) Closing balance Provision for income tax Provision for income tax Consolidated 30 June 2019 30 June 2018 $’000 $’000 9,153 (1,934) 7,219 14,377 (3,366) 11,011 (1,934) (3,366) 23,105 6,932 89 74 7,095 19 105 7,219 3,576 161 1,262 4,279 302 215 1,884 818 (86) (924) (3,417) 30 8,100 1,159 9,259 7,268 1,934 57 9,259 37,445 11,234 32 151 11,417 81 (487) 11,011 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 2,690 5,721 Notes to the Consolidated Financial Statements 53 Note 8. Current assets – trade and other receivables Trade receivables Other receivables Less: Allowance for expected credit losses (30 June 2018: Provision for impairment of receivables) Consolidated 30 June 2019 30 June 2018 $’000 97,917 6,870 $’000 98,448 5,865 (216) (147) 104,571 104,166 Allowance for expected credit losses The Group has recognised a loss of $108,000 in profit or loss in respect of impairment of receivables for the year ended 30 June 2019 (2018: gain of $102,000). Movements in the allowance for expected credit losses (30 June 2018: 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 The ageing of the past due but not impaired receivables are as follows: Under 30 days overdue Over 30 days overdue 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 54 Autosports Group | Annual Report 2019 Consolidated 30 June 2019 30 June 2018 $’000 147 108 (39) - 216 $’000 249 - - (102) 147 Consolidated 30 June 2019 30 June 2018 $’000 2,630 7,122 9,752 $’000 2,354 3,211 5,565 Consolidated 30 June 2019 30 June 2018 $’000 278,583 (3,675) 274,908 51,465 (672) 50,793 19,268 (556) 18,712 1,982 $’000 289,706 (3,891) 285,815 49,423 (866) 48,557 16,901 (502) 16,399 1,887 346,395 352,658 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 10. Current assets – other assets Prepayments Security deposits Other cash deposits Consolidated 30 June 2019 30 June 2018 $’000 3,080 28 3,810 6,918 $’000 1,855 4 3,081 4,940 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 Consolidated 30 June 2019 30 June 2018 $’000 18,615 33,559 (6,185) 27,374 16,393 (3,994) 12,399 8,182 (2,557) 5,625 4,270 (1,035) 3,235 1,857 $’000 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 69,105 59,895 ¹. Land and buildings represents owner occupied premises at 601 Mains Road, Macgregor, Queensland and the adjoining land 581, Mains Road, Macgregor, Queensland from which Macgregor Mercedes-Benz trades from. Notes to the Consolidated Financial Statements 55 Note 11. Non-current assets – property, plant and equipment (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Additions Additions through business combinations (note 31) Disposals Transfers in/(out) Depreciation expense Balance at 30 June 2018 Additions Additions through business combinations (note 31) Disposals Transfers in/(out) Depreciation expense Land and buildings $’000 - 12,086 - - - - 12,086 6,529 - - - - Balance at 30 June 2019 18,615 Leasehold improvements Plant and equipment Furniture, fixtures and fittings $’000 4,855 615 $’000 7,793 2,588 3,105 1,450 (36) 102 (1,544) 12,008 1,534 236 (1) 366 (1,744) 12,399 (7) 3 (997) 5,919 834 19 (1) 35 (1,181) 5,625 Motor vehicles Capital work in progress $’000 1,371 618 5 (15) - (313) 1,666 2,251 35 (55) 50 (712) 3,235 $’000 4,410 5,295 - - (6,003) - 3,702 1,028 - - (2,873) - 1,857 Total $’000 36,240 23,202 5,184 (58) - (4,673) 59,895 15,785 290 (307) - (6,558) 69,105 $’000 17,811 2,000 624 - 5,898 (1,819) 24,514 3,609 - (250) 2,422 (2,921) 27,374 Property, plant and equipment secured under finance leases Refer to note 29 for further information on property, plant and equipment secured under finance leases. Note 12. Non-current assets – intangibles Consolidated 30 June 2019 30 June 2018 $’000 $’000 520,547 519,327 22,425 (11,034) 11,391 22,425 (6,549) 15,876 531,938 535,203 Goodwill – at cost Customer relationships – at cost Less: Accumulated amortisation 56 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 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: Consolidated Balance at 1 July 2017 Additions through business combinations (note 31) Amortisation expense Balance at 30 June 2018 Additions through business combinations (note 31) Amortisation expense Balance at 30 June 2019 Customer Goodwill relationships $’000 482,125 37,202 - 519,327 1,220 - 520,547 $’000 17,553 2,601 (4,278) 15,876 - (4,485) 11,391 Total $’000 499,678 39,803 (4,278) 535,203 1,220 (4,485) 531,938 Goodwill acquired through business combinations is allocated to one group of cash generating units (‘CGU’) according to the business segment, being motor vehicle retailing which is the lowest level at which management monitors goodwill. The recoverable amount of the Group’s goodwill has been determined by value-in-use calculations (‘VIU’). 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 and a terminal growth rate. 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 VIU model: (a) Earnings before interest, depreciation and amortisation (‘EBITDA’) % between 3.3 – 4.3% (2018: between 3.3 – 3.9%); (b) Pre-tax discount rate: 12.6% (2018: 12.2%); (c) Terminal growth rate of 2.5% beyond four year period (2018: 2.5%); and (d) New vehicle motor growth (including rebates, aftermarket and finance and insurance) between 1.5 – 2.0% in FY2021 to FY2024. For the financial year ended 30 June 2019, the recoverable amount of net assets for the CGU exceeded the carrying value and therefore, goodwill is not considered to be impaired. Sensitivity analysis The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used to determine the recoverable amount of goodwill. The recoverable amount exceeds the carrying amount by $35,647,000. The directors believe that any reasonably possible change in any of the key assumptions below on which the recoverable amount is based will cause the carrying amount to equal the recoverable amount of the CGU. Key assumptions EBITDA % Post-tax discount rate Pre-tax discount rate Terminal growth rate VIU model VIU equals carrying amount Change 3.3% – 4.3% 3.3% – 4.1% 9.8% 12.6% 2.5% 10.2% 13.2% 1.9% 0.2% 0.4% 0.6% 0.6% New vehicle motor growth (including rebates, aftermarket and finance and insurance) between FY2021 – FY2024 1.5 – 2.25% 0.75 – 1.15% 0.75 – 1.1% Notwithstanding the above, should market conditions deteriorate further than forecast, it may cause the carrying amount of the CGU to be lower than recoverable amount at a future date, which may result in an impairment. Notes to the Consolidated Financial Statements 57 Note 12. Non-current assets – intangibles (continued) Remaining amortisation period The remaining amortisation period for customer relationships is 2-4 years (2018: 3-5 years). Note 13. Current liabilities – trade and other payables Trade payables Related party payable GST payable Accrued expenses Consolidated 30 June 2019 30 June 2018 $’000 59,124 - 11,213 10,634 80,971 $’000 53,598 505 10,045 11,291 75,439 Refer to note 24 for further information on financial instruments. Note 14. Current liabilities – contract liabilities and deferred revenue Contract liabilities Deferred revenue Note 15. Current liabilities – employee benefits Employee entitlements Note 16. Non-current liabilities – payables Related party payable Refer to note 24 for further information on financial instruments. Consolidated 30 June 2019 30 June 2018 $’000 2,506 - 2,506 $’000 - 4,547 4,547 Consolidated 30 June 2019 30 June 2018 $’000 12,203 $’000 11,012 Consolidated 30 June 2019 30 June 2018 $’000 2,430 $’000 - 58 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 17. Current liabilities – borrowings Bailment finance Capital loans Hire purchase Consolidated 30 June 2019 30 June 2018 $’000 395,175 12,315 2,365 $’000 405,095 7,640 1,278 409,855 414,013 Refer to note 18 for further information on assets pledged as security and financing arrangements. Refer to note 24 for further information on financial instruments. Note 18. Non-current liabilities – borrowings Capital loans Hire purchase Refer to note 24 for further information on financial instruments. 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 2019 30 June 2018 $’000 62,476 1,833 64,309 $’000 62,467 3,063 65,530 Consolidated 30 June 2019 30 June 2018 $’000 395,175 74,791 4,198 474,164 $’000 405,095 70,107 4,341 479,543 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 2.8% (2018: 3.6%). 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 3.6% (2018: 4.2%). 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 5.6% (2018: 4.7%). Notes to the Consolidated Financial Statements 59 Note 18. Non-current liabilities – borrowings (continued) 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 Bailment finance – Floorplan financing will increase in line with business expectations. Note 19. Non-current liabilities – employee benefits Employee benefits Consolidated 30 June 2019 30 June 2018 $’000 $’000 522,900 81,139 4,197 608,236 395,175 74,792 4,197 474,164 127,725 6,347 - 134,072 436,400 71,539 4,341 512,280 405,095 70,107 4,341 479,543 31,305 1,432 - 32,737 Consolidated 30 June 2019 30 June 2018 $’000 1,475 $’000 1,488 60 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 20. Equity – issued capital Ordinary shares – fully paid 201,000,000 201,000,000 Shares Shares $’000 475,637 $’000 475,637 30 June 2019 30 June 2018 30 June 2019 30 June 2018 Consolidated 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 2018 Annual Report. Note 21. Equity – share-based payments reserve Share-based payments reserve Consolidated 30 June 2019 30 June 2018 $’000 1,033 $’000 894 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. Notes to the Consolidated Financial Statements 61 Note 21. Equity – share-based payments reserve (continued) Movements in reserves Movements in the reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Share-based payments Balance at 30 June 2018 Share-based payments Balance at 30 June 2019 Share-based payments $’000 392 502 894 139 1,033 Note 22. 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 Profit after income tax expense for the year Dividend declared to non-controlling interest Closing balance Note 23. Equity – dividends Dividends Final dividend for the period ended 30 June 2018 of 4.8 cents (2018: 4.6 cents) per ordinary share Interim dividend for the year ended 30 June 2019 of 2 cents (2018: 4.2 cents) per ordinary share Consolidated 30 June 2019 30 June 2018 $’000 3,539 224 - 3,763 $’000 3,447 332 (240) 3,539 Consolidated 30 June 2019 30 June 2018 $’000 9,648 4,020 13,668 $’000 9,246 8,442 17,688 On 29 August 2019, the directors declared a fully franked final dividend for the year ended 30 June 2019 of 3 cents per ordinary share, to be paid on 12 November 2019 to eligible shareholders on the register as at 29 October 2019. This equates to a total estimated distribution of $6,030,000, based on the number of ordinary shares on issue as at 30 June 2019.The financial effect of the dividends declared after the reporting date are not reflected in the 30 June 2019 financial statements and will be recognised in subsequent financial period. 62 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 23. Equity – dividends (continued) Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% Consolidated 30 June 2019 30 June 2018 $’000 25,765 $’000 22,183 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 24. 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. 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 30 June 2019 30 June 2018 Balance $’000 395,175 74,792 (11,292) 458,675 Balance $’000 405,095 70,107 (14,302) 460,900 An official increase/decrease in interest rates of 50 (2018: 50) basis points per annum would have an adverse/favourable effect on profit before tax of $2,293,000 (2018: $2,305,000) and equity of $1,605,000 (2018: $1,614,000) (assuming 30% tax). The percentage change is based on the expected volatility of interest rates using market data and analyst’s forecasts. Notes to the Consolidated Financial Statements 63 Note 24. Financial instruments (continued) 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. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. 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 Consolidated 30 June 2019 30 June 2018 $’000 127,725 6,347 134,072 $’000 31,305 1,432 32,737 64 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 24. 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. Consolidated – 30 June 2019 $’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 Related party payable Interest-bearing – variable Bailment finance Capital loans Interest-bearing – fixed rate Hire purchase Total non-derivatives 59,124 - 406,564 14,835 2,528 483,051 - 2,430 - - - - - - - 12,447 31,539 29,011 1,157 16,034 779 32,318 - 29,011 59,124 2,430 406,564 87,832 4,464 560,414 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 Related party payable 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 1,476 19,299 1,824 35,507 - 19,705 53,598 505 409,470 81,611 4,782 549,966 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 25. 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. Notes to the Consolidated Financial Statements 65 Note 26. 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 30 June 2019 30 June 2018 $ $ 1,950,824 1,950,660 99,766 444,168 99,677 557,484 2,494,758 2,607,821 Note 27. 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 Tax compliance Due diligence relating to acquisitions Note 28. Contingent liabilities Bank guarantees All bank guarantees are to cover landlord deposits on leased property. Consolidated 30 June 2019 30 June 2018 $ $ 487,000 582,000 101,000 - 101,000 588,000 100,000 88,000 188,000 770,000 Consolidated 30 June 2019 30 June 2018 $’000 $’000 5,020 3,580 66 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 29. 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 Total commitment Less: Future finance charges Net commitment recognised as liabilities Representing: Hire purchase – current (note 17) Hire purchase – non-current (note 18) Consolidated 30 June 2019 30 June 2018 $’000 $’000 29,432 73,870 36,636 30,186 78,980 27,429 139,938 136,595 2,528 1,936 4,464 (266) 4,198 2,365 1,833 4,198 1,482 3,300 4,782 (441) 4,341 1,278 3,063 4,341 Operating lease commitments includes contracted amounts for dealership operating premises under non-cancellable operating leases expiring within 1 to 13 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 $4,963,000 (2018: $4,170,000) 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 30. Related party transactions Parent entity Autosports Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 32. Key management personnel Disclosures relating to key management personnel are set out in note 26 and the remuneration report included in the directors’ report. Notes to the Consolidated Financial Statements 67 Note 30. Related party transactions (continued) Transactions with related parties The following transactions occurred with related parties: Consolidated 30 June 2019 30 June 2018 $ $ Other income: Management fees received from entities owned by the directors Ian Pagent and Nicholas Pagent 96,000 182,052 Payment for other expenses: Lease payments on properties to entities owned by the directors Ian Pagent and Nicholas Pagent 5,084,054 5,500,114 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: Current borrowings: Loans from an entity owned by the directors Ian Pagent and Nicholas Pagent Non-current borrowings: Consolidated 30 June 2019 30 June 2018 $ - $ 505,319 Loans from an entity owned by the directors Ian Pagent and Nicholas Pagent 2,430,171 - 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. Note 31. Business combinations Mosman Smash Repair On 28 November 2018, the Group acquired certain assets and liabilities of Mosman Smash Repair from Mosman Smash Repairs Pty Limited. The total consideration transferred amounted to $1,453,000. The goodwill of $1,220,000 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 $2,955,000 and profit after tax of $106,000 to the Group for the period from 28 November 2018 to 30 June 2019. The business combination is final as at the reporting date. 68 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 31. Business combinations (continued) Details of the acquisition are as follows: Inventories Prepayments Plant and equipment Deferred tax asset Employee benefits 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: Acquisition-date fair value of the total consideration transferred Fair value $’000 88 6 290 57 (208) 233 1,220 1,453 1,453 55 1,453 Notes to the Consolidated Financial Statements 69 Note 32. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries: 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 2019 % 30 June 2018 % 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 Name New Centenary Mazda Pty Ltd Australia Motor vehicle dealership Ownership interest 30 June 2019 % 80% Ownership interest 30 June 2018 % Ownership interest 30 June 2019 % Ownership interest 30 June 2018 % 80% 20% 20% Summarised financial information of the subsidiary with non-controlling interests has not been included as it is not material to the Group. 70 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 33. 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: • 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 and restructure expenses Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income for the year, net of tax Total comprehensive income for the year Equity – retained profits Retained profits at the beginning of the financial year Profit after income tax expense Dividends paid Retained profits at the end of the financial year 30 June 2019 30 June 2018 $’000 1,635,648 (4,620) $’000 1,630,053 46,639 (1,366,445) (1,422,612) (122,050) (116,811) (10,970) (32,692) (828) (60,698) (15,804) 21,541 (6,740) 14,801 - 14,801 (8,880) (28,472) (1,334) (50,752) (12,710) 35,121 (10,291) 24,830 - 24,830 30 June 2019 30 June 2018 $’000 18,608 14,801 (13,668) 19,741 $’000 11,466 24,830 (17,688) 18,608 Notes to the Consolidated Financial Statements 71 30 June 2019 30 June 2018 $’000 $’000 10,650 104,289 340,237 6,917 462,093 18,342 68,608 504,011 9,035 599,996 13,954 102,339 344,768 4,956 466,017 18,342 59,422 507,276 6,977 592,017 1,062,089 1,058,034 79,535 2,404 2,731 11,927 - 400,947 497,544 2,430 64,310 1,394 68,134 565,678 496,411 475,637 1,033 19,741 496,411 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 Note 33. Deed of cross guarantee (continued) 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 Contract liabilities and deferred revenue Income tax payable Employee benefits Deferred revenue Borrowings Non-current liabilities Payables Borrowings Employee benefits Total liabilities Net assets Equity Issued capital Share-based payments reserve Retained profits Total equity 72 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 34. Earnings per share Profit after income tax Non-controlling interest Profit after income tax attributable to the owners of Autosports Group Limited Consolidated 30 June 2019 30 June 2018 $’000 15,886 (224) 15,662 $’000 26,434 (332) 26,102 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 843,468 525,602 Weighted average number of ordinary shares used in calculating diluted earnings per share 201,843,468 201,525,602 Basic earnings per share Diluted earnings per share Note 35. Cash flow information Non-cash investing and financing activities Acquisition of plant and equipment by means of finance leases Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2017 Net cash from/(used in) financing activities Acquisition of plant and equipment by means of finance leases Balance at 30 June 2018 Net cash from/(used in) financing activities Acquisition of plant and equipment by means of finance leases Balance at 30 June 2019 Cents 7.79 7.76 Cents 12.99 12.95 Consolidated 30 June 2019 30 June 2018 $’000 1,335 $’000 2,678 Capital loans $’000 36,488 33,619 - 70,107 4,684 - 74,791 Hire purchase $’000 2,789 (1,126) 2,678 4,341 (1,478) 1,335 4,198 Total $’000 39,277 32,493 2,678 74,448 3,206 1,335 78,989 Notes to the Consolidated Financial Statements 73 Note 36. 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 year was $139,000 (2018: $502,000). 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 2019 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. Movements in performance rights during the year Balance at the beginning of the year Granted during the year Exercised during the year Forfeited during the year Balance at the end of the year Performance rights vested and exercisable as at 30 June 2019 was 159,729 (2018: 80,602). 2019 Number 766,340 577,552 (100,716) (332,812) 910,364 2018 Number 332,812 433,528 - - 766,340 74 Autosports Group | Annual Report 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 Note 37. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Retained profits Total equity Parent 30 June 2019 30 June 2018 $’000 25,667 25,667 $’000 18,145 18,145 Parent 30 June 2019 30 June 2018 $’000 140,748 490,868 64 64 477,495 1,033 12,276 490,804 $’000 128,813 478,868 203 203 477,495 894 276 478,665 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 2019 and 30 June 2018. 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 33 for further details. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2019 and 30 June 2018. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019 and 30 June 2018. Significant accounting policies 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. Notes to the Consolidated Financial Statements 75 Note 38. Events after the reporting period On 2 August 2019, the Group acquired the businesses operating as Sydney City Prestige and a majority stake in Auto Approve for $870,000. Sydney City Prestige is a luxury used car wholesaler located in Artarmon, Sydney and complements the Group’s existing luxury used car wholesaler, Prestige Auto Traders. The Sydney City Prestige business also includes a RAM dealership and LDV parts and service business. Auto Approve is a finance broking business offering primarily automotive finance and insurance products. On 6 August 2019, the Group entered into an agreement to purchase the business of Mercedes Benz Hornsby for $3,500,000 plus certain other assets and liabilities. This business will be the Group’s first Mercedes-Benz dealership in New South Wales. Apart from the dividend declared as disclosed in note 23, no other matter or circumstance has arisen since 30 June 2019 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 2019 Notes to the Consolidated Financial Statements (continued)30 June 2019 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 2019 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 33 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 29 August 2019 Sydney Nicholas Pagent Chief Executive Officer Directors’ Declaration 77 Directors’ Declaration30 June 2019 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 2019, the consolidated statement of profit and 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 2019 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 Asia Pacific Limited and the Deloitte Network. 78 Autosports Group | Annual Report 2019 Independent Auditor’s Report Key Audit Matter Carrying value of Goodwill How the scope of our audit responded to the Key Audit Matter As at 30 June 2019, the Group has recognised goodwill of $520m, which relates to acquisitions made in the current and prior financial years. 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 in which the Group operates; and Our procedures included, but were not limited to: Re-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; 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; Technological, legislative and regulatory developments across the motor industry. 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 2019, 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. Independent Auditor’s Report 79 Independent Auditor’s Report 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, 80 Autosports Group | Annual Report 2019 Independent Auditor’s Report 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. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included pages 13 to 24 of the Director’s Report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Autosports Group Limited, for the year ended 30 June 2019, 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, 29 August 2019 Independent Auditor’s Report 81 Independent Auditor’s Report The shareholder information set out below was applicable as at 21 August 2019. Distribution of equity 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 PTY LIMITED LIVIST PTY LTD AUDI PARRAMATTA HOLDINGS PTY LTD NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED NIP PARRAMATTA PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED PAGENT FAMILY INVESTMENTS PTY LTD LAMBHILL PTY LTD FIVE DOCK DJC PTY LTD OGLE INVESTMENTS PTY LTD AALHUIZEN NOMINEES PTY LTD RICGAZ PTY LTD LAMBHILL PTY LTD LIVERPOOL STREET INVESTMENTS CITICORP NOMINEES PTY LIMITED DANIARON PTY LTD ZERO NOMINEES PTY LTD 82 Autosports Group | Annual Report 2019 Number of holders of ordinary shares 127 184 80 110 52 553 - Ordinary shares Number held % of total shares issued 23,199,693 21,285,348 21,117,057 15,455,897 15,310,969 12,040,771 11,571,639 10,401,678 9,423,306 7,193,635 6,582,353 6,436,189 5,147,053 4,722,374 4,161,528 2,792,647 2,353,632 1,675,000 1,644,259 1,643,980 11.54 10.59 10.51 7.69 7.62 5.99 5.76 5.17 4.69 3.58 3.27 3.20 2.56 2.35 2.07 1.39 1.17 0.83 0.82 0.82 184,159,008 91.62 Shareholder Information30 June 2019 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 COPIA INVESTMENT PARTNERS LTD4 Ordinary shares Number held 104,452,574 65,241,972 39,210,602 10,087,287 12,306,850 10,070,000 % of total shares issued 51.97 32.46 19.51 5.02 6.12 5.01 1. At the time of IPO the Company escrowed certain holdings of shares being 19.9% 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 31 August 2018. 4. Based on substantial holder notice lodged on 31 December 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 Ordinary shares Expiry date On release of Company's results for 30 June 2019 Number of shares 39,998,994 Performance rights The number of performance rights on issue as at the reporting date are: Name Nick Pagent Ian Pagent Aaron Murray There are no other unquoted equity securities on issue. Buy-back There is no current on-market buy-back. Number held 552,412 236,188 207,248 995,848 Shareholder Information 83 Directors Thomas(‘Tom’) Pockett – Chairman Nicholas (‘Nick’) Pagent Ian Pagent Robert Quant Marina Go Company secretary Caroline Raw Registered office Share register 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 http://autosportsgroup.com.au/ Corporate Governance Statement The directors and management are committed to conducting the business of Autosports Group Limited in an ethical manner and in accordance with the highest standards of corporate governance. Autosports Group Limited has adopted and has complied with the ASX Corporate Governance Principles and Recommendations (Third Edition) (‘Recommendations’) to the extent appropriate to the size and nature of its operations. The Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year, which is approved at the same time as the Annual Report can be found at: investors.autosportsgroup.com.au/investors. 84 Autosports Group | Annual Report 2019 Corporate Directory30 June 2019 www.autosportsgroup.com.au