AVJennings
Annual Report 2016

Plain-text annual report

Housing matters. Community matters. Annual Report 2016 AVJennings Limited ABN 44 004 327 771 Contents. Chairman’s report FY16 Highlights Managing Director’s report Community matters Property portfolio Project pipeline Directors’ Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report to the Shareholders of AVJennings Limited Shareholder Information Company Particulars 1 2 4 6 8 9 12 27 28 29 30 31 75 76 77 80 Chairman’s report. Dear Fellow Shareholders, On behalf of the Board of Directors I am pleased to present our 2016 Annual Report. Our Company has reported another strong result this year. Profit before tax increased 22% on the previous year to $58.8 million. Gearing remains conservative at 17.9%, which is indicative of a sound balance sheet, and despite healthy sales, we have been able to maintain our land bank of 10,048 lots at similar levels to last year (10,198 lots). By maintaining high levels of production, as well as the impact of acquiring the joint venture interests in certain projects in the previous year, we were able to increase turnover. This increased turnover together with stable gross margins in most jurisdictions contributed to the pleasing full year result. It enabled us to declare a final dividend of 3.5 cents bringing total dividends declared for the year to 5.0 cents per share. This time last year the Directors said they remained confident the Company was well positioned for future growth and twelve months on that has not only proved correct, but we continue to hold that view because we believe the market is supported by positive fundamentals. While specific micro-markets such as some inner-city areas of Sydney, Melbourne and Brisbane have experienced significant growth in supply and prices, this is not true of most of the markets in which the Company operates. In these markets, there remains continuing demand and under-supply, particularly in New South Wales and Victoria. Around half of Australia’s population lives in these two states. The historically low interest rate environment is likely to remain for the foreseeable future. Employment outlook remains stable amidst an increasing population. The Company is confident that demand for its products is sustainable given its clear strategy of delivering traditional housing solutions at affordable prices in well-planned communities rather than participating in more volatile segments. It is our unwavering commitment to be a strategy led company that has underpinned another year of strong results. We make considered decisions about how to proceed, and importantly how not to, and this has resulted in a consistently high return for you, my fellow shareholders. At a wider company level, we have continued to strengthen our position and business. Significant steps include replenishing our land bank in our strategic geographical locations and the continued development of our three key assets – people, product and brand. It would be tempting to think the current favourable market conditions have carried the Company along. While it is true we are operating in a propitious environment, the strong results would not be possible without the adherence to strategy and the dedication and expertise of our staff. Without their resolute commitment to building quality affordable housing in thriving communities, our strategy would not be implemented with the same level of success. It is therefore with great pride that I reflect on another significant year in the 84 year history of this remarkable Company. One in which the AVJennings staff, under the leadership of our CEO Peter Summers, have achieved another increase in revenue and profit. AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 1 As Chairman, I would like to thank my fellow Directors for their active engagement and invaluable contributions during the year. Their wise counsel and business acumen enables the Board to appropriately balance oversight and guidance in the interests of all stakeholders. I am particularly grateful for the assistance rendered by Directors in fostering deeper relationships between management and newer financiers to the Company, whose ongoing involvement strengthens our lending platform. Lastly, it is pleasing to see a number of new shareholders on the register and we warmly welcome you. I am delighted those shareholders that have been with the Company through the difficult times are now enjoying healthy returns on their investment. The outlook remains promising for all AVJennings shareholders and I would like to thank you for your continued support. Simon Cheong Chairman 2 | AVJENNINGS LIMITED · ABN 44 004 327 771 FY16 Highlights. STRONG FINANCIAL GROWTH • Revenue +32.7% • PBT +22.0% • EPS +18.6% INCREASED SHAREHOLDER RETURNS • Fully franked final dividend of 3.5 cents • Interim + final dividend is 5 cents fully franked (+25%), yielding ~7.5% at current prices • 3 consecutive years of dividend growth FINANCIAL FLEXIBILITY MAINTAINED SUSTAINABLE OPERATIONS • • Gearing at 17.9% $250 million ‘Club’ banking facility extended to Sept 2018 • Healthy and stable product pipeline of ~10k+ lots • • • Contract signings (lots) +5.5%; WIP +11.2% Geographically diverse project pipeline in urban growth corridors Traditional housing undersupplied; Stable and domestic customer profile; Affordable product FY16 FY15 % change FY14 Revenue Statutory Profit before Tax Statutory Profit after Tax Gross Margins Inventory Provision Write Back (After tax) $421.9m $317.9m $58.8m $40.9m 25.2% $2.6m $48.2m $34.4m 26.8% $2.6m Net tangible assets (NTA) $361.1m $334.5m NTA per share EPS (cents per share) Dividend (cents per share) $0.95 10.7 5 $0.88 9 4 32.7% 22.0% 19.0% -1.6pp 0.0% 7.9% 7.6% 18.6% 25.0% $250.6m $27.0m $18.8m 21.9% $3.6m $313.0m $0.81 4.9 2 AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 3 FY16 Highlights. Revenue ($m) +32.7% Contract signings +5.5% ) m $ ( 500 400 300 200 100 0 r e b m u N 2,000 1,600 1,200 800 400 0 NPAT($m) +19% FY13 FY14 FY15 FY16 Settlements +3.8% ) m $ ( 50 40 30 20 10 0 -10 -20 r e b m u N 2,000 1,600 1,200 800 400 0 FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16 Stronger revenue growth driven by changes in product mix and revenue share including the prior period acquisitions of JV partner interests in ‘Argyle’ and ‘St Clair’ projects FY13FY14FY15FY16158.5250.6317.9421.98191,4151,7371,832-15.318.834.440.98291,2541,5381,5964 | AVJENNINGS LIMITED · ABN 44 004 327 771 Managing Director’s report. Since 2010, when we sold our contract building business, we have refined our business model along lines that are consistent with achieving this strategy. Focusing on a business model in which we only develop housing product on land we own or have an interest in is an important factor in being able to achieve our strategy. This model allows us to maximise the benefits from our internal integrated housing skills. This objective might all sound fairly basic, but so often in the last decade it has been difficult to achieve as governments and sometimes industry get distracted by short term factors. Governments in particular have often failed to play their part in making sure everyday Australians and New Zealanders have access to affordable housing in areas in which they want to live. High property taxes and lack of land supply and infrastructure continue to be barriers to achieving these goals. However, we will continue to focus on the average local buyer and their needs. We have avoided more volatile markets such as foreign buyers and inner city high rise apartments. We will continue to do our part in tackling affordability and providing quality housing in areas where such housing is required. Our future will be driven by having a clear purpose, a clear strategy and continued investment in our people, product and brand. It is very satisfying when results are achieved on the back of adherence to strategy. It is also pleasing when they come from backing our judgement and having faith in our research. As we entered the 2016 financial year, we were not swayed by negative comments in some sections of the media about the likelihood of a downturn in the housing market. Instead we believed the fundamental influences on demand for traditional housing were strong and as a consequence we maintained our production levels which was the driver of another good end of financial year result. For the third year in a row we have reported an increase in profit, revenue and the dividend paid to shareholders. Importantly we believe we have now entered a period of sustained success. When we say we are confident of a period of sustained success, we are still mindful of the fact that we are in a cyclical industry and there will be short term factors especially at state and at individual project level, that will arise. But the reason for our confidence in the medium to longer term is demand for housing in the market segments in which we operate remains strong - particularly in Sydney, Melbourne and Auckland – due to continued undersupply. Our purchasers are seeking to fulfil a basic need for housing and they do so in an environment of generally stable unemployment rates and low interest rates. Sydney remains very active with strong demand driven by inadequate land supply and building delivery constraints, although the rate of sale of developed land lots is showing early signs of moderating as price points test the limits of affordability. Auckland is a strong market and the high quality, master-planned Hobsonville project continues to experience significant demand with good sales and margins being generated, leading the Company to explore additional opportunities in Auckland. Our purpose is clear. We believe housing matters. We believe community matters. We aim to provide affordable quality housing within connected communities. The home and neighbourhood you grow up in shapes you as a person. We believe if we develop great communities, where people really feel like they belong, it will deliver a long term benefit to society. Having a clear understanding of purpose - why you do what you do - has been proven to be a feature of strong, sustainable businesses. Such businesses tend to look at the longer term and not be as reactionary to the short term. This then assists in developing strategies that are aligned to the purpose. At AVJennings, our strategy is: • • • To develop high quality and affordable housing. To ensure the type of housing we develop and build is of the type required by everyday Australians and New Zealanders. That our developments are located in areas where such housing is needed and people want to live. AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 5 Land sale rates and prices seem to be stabilising at more sustainable levels in Brisbane, Caloundra and Coomera in Queensland, while the Adelaide South Australia residential market remains subdued but positive signs are emerging. The Company maintains its relatively small investment in five residential projects in Perth. The Melbourne residential land market remains buoyant with the Company all but selling out its Lyndarum estate. Future results will be enhanced by development of the new flagship ‘Waterline Place’ project located in the inner bayside suburb of Williamstown and the ‘Lyndarum North’ development undertaken in joint venture with AustralianSuper. Following the completion of substantial civil works, construction of the first stages of Waterline has commenced with work beginning on the ‘Ellery’ townhouses and ‘Rosny’ apartment building and settlements expected in late FY2017. Development of the first stage of Lyndarum North is scheduled to commence prior to Christmas following imminent completion of the local precinct structure plan and related regulatory processes. Despite the disruption of a protracted federal election campaign and some ongoing policy uncertainties, the outlook for key residential property industry demand drivers remains positive, particularly in the context of traditional housing. Low interest rates and inflation, positive population growth and continuing shortages of detached and semi-detached houses and low rise apartments in Sydney, Melbourne and Auckland should all help underpin demand from the owner-occupiers and local investors targeted by AVJennings. While activity patterns and growth rates in some markets are changing, the usual bias of results towards the second half of the financial year will remain and contract signings in FY2017 are expected to be at a similar level to that achieved in 2016. Housing affordability remains the subject of public debate and it is something we are passionate about because unless we provide housing solutions that are affordable, we simply do not have a business. We believe there needs to be more traditional housing in areas where Australians want to live. What is not understood is the impact on affordability by the lack of land release; lack of infrastructure; and the continuing reliance by governments on the taxation of property. We need government polices to address all of those three areas and then we will have a much clearer path to a solution on affordability. In closing, I would like to acknowledge our Board and especially our Chairman, Simon Cheong. There have been many points in the last five years or so when the Board was challenged to make difficult decisions or decisions that may not have been totally consistent with more populist views. Without the guidance and support of the Board these results would not have been achieved and we certainly would not be in the position we now find ourselves. I would also like to thank the wonderful staff of AVJennings. It is an honour to lead such a great group of people who care so much about what we want to achieve as a Company. We are a Company that recognizes the importance of maintaining sound, long term relationships with all of our business partners and so to them I also offer our thanks. Peter Summers Managing Director 6 | AVJENNINGS LIMITED · ABN 44 004 327 771 Community matters. AVJennings is a community developer. We want to create wonderful places to live but just as importantly we want to nurture a sense of community. We do that by supporting community minded people and by participating directly in community activities. Steve Waugh Foundation AVJennings is proud to be an inaugural partner of the Steve Waugh Foundation. Steve’s foundation strives to improve the lives of children, young people and their families, who live with rare diseases. Many of these people have nowhere else to turn to receive support. Our staff and their families regularly contribute to various fundraising activities for the foundation including the Captain’s Ride, City to Surf Fun Run and ‘Waugh in the West’ a community cricket event held at St Clair in Adelaide. The cornerstone of our partnership with SWF is the ‘Renee’ series of homes. Each year we come together with our generous suppliers to build a home to raise valuable funding for the Foundation. The ‘Renee’ is named in honour of the remarkable Renee Eliades who has a rare disease that requires the daily use of oxygen bottles. Proudly partnering with AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 7 Creating great Communities We know our customers want to live in a nice home but they also want it to be located in a vibrant, welcoming and well planned community. Good community development is no accident. We put all our experience into making places where living, relaxing, socialising, exploring and being active comes naturally. That’s why we believe, housing matters and community matters. The AVJennings Community A strong sense of community starts from within. We have our own special community around Australia and in Auckland. Our staff take great pride supporting each other. There are many individual staff members and their families who volunteer their time or talent to make a positive difference. Participating in Communities AVJennings wants to be a good ‘neighbour’ and support community initiatives by contributing talent or time. Whether it be working with local schools, business communities or sporting clubs; or simply supporting local events by attending them, we look for ways to foster a community spirit. 8 | AVJENNINGS LIMITED · ABN 44 004 327 771 Property portfolio. AVJennings’ diversified geographic mix provides opportunities in different markets. We continue to focus on urban growth corridors and infill sites where people want to live. Number of lots at 30 June 2016 10,048 QLD No. of lots: 987 NSW No. of lots: 2,768 WA No. of lots: 426 SA No. of lots: 2,446 VIC No. of lots: 3,007 NZ No. of lots: 414 Number of Lots by Location 10% 30% 28% 24% 4% 4% QLD VIC NSW SA WA NZ AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 9 Project pipeline. As at 30 June 2016 Project Name Halpine Lake, Mango Hill Creekwood, Caloundra Glenrowan, Mackay Essington Rise, Leichhardt Villaggio, Richlands Parkside, Bethania Big Sky, Coomera Bridgeman Downs Kenmore Bridgeman Downs 2 Argyle, Elderslie Magnolia, Hamlyn Terrace Spring Farm (South) Spring Farm (East) Ravensworth Heights, Goulburn Seacrest, Sandy Beach Arcadian Hills, Cobbitty Cobbitty II Cobbitty Road, Cobbitty Boundary Road, Schofields Warnervale Spring Farm Starhill PDA Lyndarum North, Wollert Wollert JV Lyndarum, Epping North Arlington Rise, Portarlington Hazelcroft, Doreen Waterline, Williamstown D N A L S N E E U Q S E L A W H T U O S W E N I A R O T C V I A Pathways, Murray Bridge H T U O S I L A R T S U A River Breeze, Goolwa North St Clair Eyre at Penfield Z Hobsonville Point, Hobsonville N Airfields, Hobsonville N R E T S E W A I L A R T S U A Indigo China Green, Subiaco Viridian China Green, Subiaco The Heights Kardinya Viveash Parkview, Ferndale Remaining No. of Lots Pre FY 2017 FY 2018 FY 2019 FY 2020 FY 2021+ 83 303 177 58 39 116 64 60 32 54 300 322 204 540 75 123 241 206 50 27 595 79 78 1,820 19 199 200 691 53 80 615 1,688 312 102 124 74 107 75 46 TOTAL NO. OF REMAINING LOTS 10,031 • Total No. of Remaining Lots does not include 17 remnant lots • Note that it is not possible for the reader of this Report to calculate the remaining number of lots from year to year because that number is a product of not only lots purchased and settled but also changes in stage reconfiguration 10 | AVJENNINGS LIMITED · ABN 44 004 327 771 Queensland MACKAY CALOUNDRA MANGO HILL BRIDGEMAN DOWNS BRISBANE KENMORE RICHLANDS LEICHHARDT BETHANIA COOMERA Land sales rates and prices stabilising at sustainable levels in Brisbane, Gold Coast and Sunshine Coast. New South Wales WARNERVALE HAMLYN TERRACE SANDY BEACH CENTRAL COAST SCHOFIELDS COBBITTY ELDERSLIE SPRING FARM SYDNEY GOULBURN WOLLONGONG Sydney and Central Coast markets remain active with strong demand driven by inadequate supply and building delivery constraints. Victoria WOLLERT EPPING NORTH WILLIAMSTOWN DOREEN MELBOURNE PORTARLINGTON The Melbourne market remains buoyant.  Future results will be enhanced by the development of Waterline Place at Williamstown and Lyndarum North. AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 11 South Australia PENFIELD ST CLAIR ADELAIDE GOOLWA NORTH MURRAY BRIDGE The Adelaide residential market remains subdued but positive signs are emerging. Western Australia VIVEASH SUBIACO PERTH FERNDALE KARDINYA The local Perth economy is transitioning.  The Company has invested in 5 joint venture projects with a local developer and all 426 lots are within the Perth metropolitan area. New Zealand HOBSONVILLE POINT AUCKLAND Auckland remains a strong market with positive net population migration. Hobsonville continues to experience significant demand. AVJennings is exploring further opportunities in Auckland to add to the 414 lots acquired in 2015. 12 | AVJENNINGS LIMITED · ABN 44 004 327 771 The Directors of AVJennings Limited present their report together with the Financial Report of the Group (referred to hereafter as “AVJennings” or “Group”) and the Auditor’s Report thereon for the year ended 30 June 2016. The Group comprises AVJennings Limited (“Company” or “Parent”) and its controlled entities. DIRECTORS The Directors of AVJennings Limited during the financial year and up until the date of this Report are as follows. Directors were in office for the entire period. S Cheong RJ Rowley Non-Executive Chairman Non-Executive Deputy Chairman PK Summers Managing Director and Chief Executive Officer E Sam B Chin Non-Executive Director Non-Executive Director BG Hayman Non-Executive Director TP Lai D Tsang Non-Executive Director Non-Executive Director PRINCIPAL ACTIVITY The principal activity of the Group during the year was Residential Development. OPERATING RESULTS The consolidated profit after tax for the financial year was $40.9 million (2015: $34.4 million). DIVIDENDS Dividends paid to members during the financial year were as follows: 2014 final dividend of 2.0 cents per share, paid 18 September 2014. Fully franked @ 30% tax 2015 interim dividend of 1.0 cent per share, paid 8 April 2015. Fully franked @ 30% tax 2016 final dividend of 3.0 cents per share, paid 23 September 2015. Fully franked @ 30% tax 2016 interim dividend of 1.5 cents per share, paid 15 April 2016. Fully franked @ 30% tax 2016 $’000 – – 11,532 5,767 2015 $’000 7,688 3,844 – – Total cash dividends declared and paid 17,299 11,532 In addition to the above, subsequent to the end of the financial year, a fully franked final dividend of 3.5 cents per share was paid on 23 September 2016 (2015: 3.0 cents). The Dividend Reinvestment Plan remains suspended. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 13 OPERATING AND FINANCIAL REVIEW Financial Results The Company recorded profit before tax of $58.8 million for the year ended 30 June 2016, up 22.0% on the previous year (30 June 2015: $48.2 million) and profit after tax of $40.9 million (30 June 2015: $34.4 million). Strong revenues in the second half of FY2016, substantial post balance date cash inflows from the collection of receivables and confidence in the outlook for FY2017 enabled the Directors to declare that a fully franked final dividend of 3.5 cents per share be paid in September 2016, taking total dividends declared for 2016 to 5.0 cents per share. Contract signings of 1,832 lots were up on last year (1,737 lots) as too were settlements, which rose to 1,596 lots. Full year revenue increased 32.7% to $421.9 million (30 June 2015: $317.9 million) on the back of changes in product mix and project share, with the Company benefitting from announcements made in prior periods that it would acquire the interests of joint venture partners in the ‘Argyle’, Sydney and ‘St Clair’, Adelaide projects. Business Overview Continuing high levels of production, sales and settlements together with stable gross margins in most jurisdictions contributed to the pleasing full year result. New South Wales, Queensland and New Zealand all continued to benefit from the net positive effect of active project and product mix changes that enabled the Company to capitalise on the differing strengths of each market. Particularly good contributions were made by certain projects including ‘Arcadian Hills’, ‘The Ponds’ and ‘Argyle’ in Sydney and ‘Magnolia’ on the Central Coast of New South Wales. ‘Nottingham Square’ in Brisbane, ‘Big Sky’ in Coomera and ‘Creekwood’ in Caloundra all performed well for Queensland. ‘Hazelcroft’ and ‘Lyndarum’ demonstrated the ongoing strength of demand in the north of Melbourne Victoria, while ‘St Clair’ in Adelaide South Australia and ‘Catalina’ in Hobsonville Auckland had appeal for customers in those markets. Work in progress was up 11.2% year-on-year to 1,681 lots. The level of completed unsold stock remained insignificant at only 2.8% by value of total lots under control. The Company actively replenished inventory during the year, which saw controlled land fall only nominally to 10,048 lots (30 June 2015: 10,198 lots) despite continuing strong sales. Acquisitions included: • • the remaining 50% of the Argyle Elderslie, New South Wales joint venture; two separate land parcels in Bridgeman Downs, Queensland (approximately 114 townhouse and land lots); • a land parcel in Kenmore, Queensland (estimated 32 townhouse lots); • a large land parcel at Spring Farm, New South Wales (up to 540 lots); • a land parcel at Cobbitty, New South Wales • (approximately 50 lots); and land parcels in Hobsonville Auckland (approximately 414 lots). Gearing remained low with net debt/total assets of only 17.9% (30 June 2015: 13.6%) and the Company extended the termination date of its core $250 million ‘Club’ banking facility by a further 12 months from 30 September 2017 to 30 September 2018. Outlook The Company believes that the level of activity currently experienced in many of its markets is the product of strong fundamentals. While specific micro-markets such as some inner-city areas of Sydney and Melbourne continue to experience strong price growth, this is not true of most of the Company’s estates, where price growth is moderated by competition. The Company is confident that demand for its products is sustainable given its clear strategy of delivering traditional housing solutions at affordable prices in well- planned communities rather than participating in more volatile segments. Sydney remains very active with strong demand driven by inadequate land supply and building delivery constraints, although the rate of sale of developed land lots is showing early signs of moderating as price points test the limits of affordability. Auckland is a strong market and the high quality, master- planned Hobsonville project continues to experience significant demand with good sales and margins being generated, leading the Company to explore additional opportunities in Auckland. Land sale rates and prices seem to be stabilising at more sustainable levels in Brisbane, Caloundra and Coomera in Queensland, while the Adelaide South Australia residential market remains subdued but positive signs are emerging. The Company maintains its relatively small investment in five residential projects in Perth. The Melbourne residential land market remains buoyant with the Company all but selling out its Lyndarum estate. Future results will be enhanced by development of the new flagship ‘Waterline Place’ project located in the inner bayside suburb of Williamstown and the ‘Lyndarum North’ development undertaken in joint venture with AustralianSuper. Following the completion of substantial civil works, construction of the first stages of Waterline has commenced with work beginning on the ‘Ellery’ townhouses and ‘Rosny’ apartment building and settlements expected in late FY2017. Development of the first stage of Lyndarum North is scheduled to commence prior to Christmas following imminent completion of the local precinct structure plan and related regulatory processes. Despite the disruption of a protracted federal election campaign and some ongoing policy uncertainties, the outlook for key residential property industry demand drivers remains positive, particularly in the context of traditional housing. Low interest rates and inflation, positive population growth and continuing shortages of detached and semi-detached houses and low rise apartments in Sydney, Melbourne and Auckland should all help underpin demand from the owner-occupiers and local investors targeted by AVJennings. While activity patterns and growth rates in some markets are changing, the usual bias of results towards the second half of the financial year will remain and contract signings in FY2017 are expected to be at a similar level to that achieved in 2016. Directors’ Report14 | AVJENNINGS LIMITED · ABN 44 004 327 771 SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE Subsequent to 30 June 2016, the Group has extended its Club Borrowing Facility expiry date from 30 September 2017 to 30 September 2018. No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect: a) the Group’s operations in future financial years; or b) the results of those operations in future financial years; or c) the Group’s state of affairs in future financial years. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES The prospects and business strategies of the Group are discussed on page 13 of this Report. ENVIRONMENTAL REGULATION The Group’s operations are subject to various environmental regulations under both Commonwealth and State legislation, particularly in relation to its property development activities. The Group’s practice is to ensure that where operations are subject to environmental regulations, those obligations are identified and appropriately addressed. This includes the obtaining of approvals, consents and requisite licences from the relevant authorities and complying with their conditions. There have been no significant known breaches of environmental regulations to which the Group is subject. INFORMATION ON THE DIRECTORS Simon Cheong B.Civ.Eng. MBA Director since 20 September 2001. Mr Cheong has over 30 years experience in real estate, banking and international finance. He currently serves as Chairman and Chief Executive Officer of SC Global Developments Pte Ltd. Mr Cheong has formerly held positions with Citibank (Singapore) as their Head of Real Estate Finance for Singapore as well as with Credit Suisse First Boston as a Director and Regional Real Estate Head for Asia (excluding Japan). In 1996, Mr Cheong established his own firm, SC Global Pte Ltd, a real estate and hotel advisory and direct investment group specialising in structuring large and complex transactions worldwide. He was twice elected President of the prestigious Real Estate Developers’ Association of Singapore (REDAS) for 2 terms from 2007 until 2010. He served on the Board of the Institute of Real Estate Studies, National University of Singapore from 2008 to 2011 and was a board member of the Republic Polytechnic Board of Governors from 2008 to 2011. He was also a Council Member of the Singapore Business Federation, a position he held from 2007 to 2010. Resident of Singapore. Responsibilities: Chairman of the Board, Non-Executive Director, Chairman of Investments Committee, Member of Remuneration Committee, Member of Nominations Committee. Directorships held in other listed entities: None. Jerome Rowley SF Fin, FAICD Director since 22 March 2007. Mr Rowley has been a career banker since the early 1970s with Citigroup, Morgan Grenfell and ABN Amro. From 1992 until 2002, he served as Managing Director and CEO of ABN Amro Australia and Head of Relationship Management and Structured Finance for ABN Amro, Asia Pacific. He has been active in both wholesale and investment banking domestically and internationally. During his career, Mr Rowley devoted considerable effort towards the recognition, understanding and management of risk as a means of profit optimization. Of particular significance was his involvement in advising and funding including debt, equity and hybrids, of infrastructure projects in both Australia and Asia Pacific. Resident of Sydney. Responsibilities: Deputy Chairman of the Board, Non-Executive Director, Chairman of Risk Management Committee, Member of Audit Committee, Member of Investments Committee, Member of Nominations Committee. Directorships held in other listed entities: None. Peter K Summers B.Ec. CA Director since 27 August 1998. Mr Summers is a Chartered Accountant and has been employed with the Company and its related corporations since 1984, when he joined the Jack Chia Australia Ltd Group from Price Waterhouse (now PricewaterhouseCoopers). During Mr Summers’ early period with the Group, he held various management and directorship roles within the Group. Following the acquisition of the AVJennings residential business in September 1995, Mr Summers was appointed Chief Financial Officer, becoming Finance Director of AVJennings in August 1998. He was appointed Managing Director and Chief Executive Officer of the Company on 19 February 2009. Mr Summers has extensive experience in general and financial management as well as mergers and acquisitions. Resident of Melbourne. Responsibilities: Managing Director and Chief Executive Officer. Directorships held in other listed entities: None. Elizabeth Sam B.A. Hons. (Economics) Director since 20 September 2001. Mrs Sam has over 40 years experience in international banking and finance. She has served on numerous high level Singaporean government financial and banking review committees and was the Chairman of the International Monetary Exchange from 1987-1990 and 1993-1996. Mrs Sam is a Director of SC Global Developments Pte Ltd, the Company’s major shareholder. Resident of Singapore. Responsibilities: Non-Executive Director, Chairman of Nominations Committee, Chairman of Remuneration Committee. Directorships held in other listed entities: Banyan Tree Holdings Limited, since 23 March 2004. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 15 INFORMATION ON THE DIRECTORS (continued) Bobby Chin CA (ICAEW) B.Acc. Director since 18 October 2005. Mr Chin is currently the Chairman of NTUC Fairprice Co-operative Limited and NTUC Fairprice Foundation Limited. He is the Deputy Chairman of the Housing & Development Board and NTUC Enterprise Co-operative Limited. He is a Director of Singapore Labour Foundation and also serves as a member of the Singapore Council of Presidential Advisers. Mr Chin served 31 years with KPMG Singapore and was its Managing Partner from 1992 until September 2005. He is an Associate Member of the Institute of Chartered Accountants in England and Wales. Resident of Singapore. Responsibilities: Non-Executive Director, Chairman of Audit Committee. Directorships held in other listed entities: Yeo Hiap Seng Limited, since 15 May 2006. Ho Bee Investment Limited, since 29 November 2006. Sembcorp Industries Limited, since 1 December 2008. Singapore Telecommunications Limited, since 1 May 2012. Other Directorships: Temasek Holdings (Private) Limited, since 10 June 2014. Bruce G Hayman Director since 18 October 2005. Mr Hayman has over 46 years commercial management experience with 20 of those at operational Chief Executive or General Manager level. He is currently Chairman of Chartwell Management Services where he brings his very wide business experience to clients by way of the leadership, marketing, business performance and coaching programs he offers. He has fulfilled senior management roles both in Australia and overseas for companies such as Nicholas Pharmaceutical Group, Dairy Farm Group, Hong Kong Land and Seagram Corporation. During his time in Singapore, he held the position of Foundation President of the Singapore Australia Business Council now known as AUSTCHAM Singapore. He has also served as CEO of the Australian Rugby Union and as Chairman of the Board of the Rugby Club Ltd. He is Chairman of the Ella Foundation and a Director of Diabetes NSW. Resident of Sydney. Responsibilities: position with Citigroup was as Managing Director of Citicorp Investment Banking Singapore Ltd (Corporate Finance and Capital Market Activities) from 1986 to 1987. Mr Lai joined Oversea-Chinese Banking Corporation (OCBC) in January 1988 as Executive Vice President and Division Head of Corporate Banking. He moved on to various other senior management positions in OCBC, such as Head of Information Technology and Central Operations and Risk Management. He was head of Group Audit prior to retiring in April 2010. Resident of Singapore. Responsibilities: Non-Executive Director, Member of Audit Committee, Member of Remuneration Committee, Member of Investments Committee. Directorships held in other listed entities: PT Bank OCBC NISP Tbk (Commissioner) since 4 September 2008. Oversea-Chinese Banking Corporation since 1 June 2010. David Tsang B.A. (Economics) Director since 2 June 2014. Mr Tsang has over 20 years experience in real estate, corporate finance and investments, completing transactions in Asia, North America and Europe. He currently holds the position of Managing Director for SC Global Developments Pte Ltd and has held various senior director and finance positions within the SC Global Group. Mr Tsang began his career in Investment Banking with Nesbitt Burns in New York. He relocated from the United States to Singapore in 1996 and joined Simon Cheong as a founding member in establishing SC Global Pte Ltd, a boutique real estate advisory and principal investment firm. In 1999, Mr Tsang co-led two successful M&A transactions for the SC Global Group, acquiring controlling interests in publicly listed companies MPH Ltd and ANA Hotels (Singapore) Ltd. Mr Tsang took an executive position as Director of Special Projects at MPH Ltd from 2000 to 2004, helping to restructure and unlock value for shareholders. Mr Tsang also helped lead the transformation of ANA Hotels (Singapore) Ltd into the business of high end residential development and which continues to operate today as SC Global Developments. Mr Tsang served previously as a Director on the Board of AVJennings Ltd from 2004 to 2006. Resident of Singapore. Responsibilities: Non-Executive Director, Member of Audit Committee, Member of Investments Committee. Non-Executive Director, Member of Remuneration Committee, Member of Nominations Committee, Member of Investments Committee, Member of Risk Management Committee. Directorships held in other listed entities: None. Directorships held in other listed entities: None. Teck Poh Lai B.A. Hons. (Economics) Director since 18 November 2011. Mr Lai has been a career banker since the late 1960s. He joined Citibank Singapore in April 1968, rising through the ranks to become Vice President and Head of the Corporate Banking Division. During his time with Citibank, Mr Lai undertook international assignments with Citibank in Jakarta, New York and London. His last INFORMATION ON THE COMPANY SECRETARY Carl D Thompson LLB B. Comm Company Secretary since 12 January 2009. Mr Thompson previously held the company secretary and general counsel role at Downer EDI Limited. Prior to that he was a partner at national law firm Corrs Chambers Westgarth, practising in corporate and commercial work. Resident of Melbourne. Directors’ Report16 | AVJENNINGS LIMITED · ABN 44 004 327 771 REMUNERATION REPORT (Audited) This Remuneration Report for the Group is provided in accordance with the requirements of the Corporations Act 2001 (the Act) and has been audited as required by section 308(3C) of the Act. The Remuneration Report details the remuneration arrangements of Key Management Personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Parent Entity and some of the Executive Committee members. 1. Key Management Personnel The name and position of each KMP whose remuneration is disclosed in this report are set out below: (i) Directors S Cheong RJ Rowley PK Summers E Sam B Chin Non-Executive Chairman Non-Executive Deputy Chairman Managing Director and Chief Executive Officer Non-Executive Director Non-Executive Director BG Hayman Non-Executive Director TP Lai D Tsang Non-Executive Director Non-Executive Director (ii) Executives L Mahaffy SC Orlandi CD Thompson L Hunt Chief Financial Officer Chief Strategy Officer Company Secretary/ General Counsel General Manager, Human Resources 2. Remuneration Framework 2.1 Remuneration Governance The Board has established a Remuneration Committee which comprises four Non-Executive Directors and is responsible for determining and reviewing remuneration arrangements for KMP and other senior management personnel. The Committee is responsible for ensuring that remuneration is set at fair and competitive levels to enable the Group to access the skills required to operate successfully. 2.2 External Advisers No remuneration consultant made any remuneration recommendation as defined in Section 9B of the Corporations Act 2001 during the year ended 30 June 2016. 2.3 Non-Executive Director (NED) Remuneration Arrangements At the Annual General Meeting (AGM) in the year 2000, shareholders approved a maximum annual aggregate fee pool of $400,000 for NEDs. The allocation of fees to individual NEDs is determined after considering factors such as time commitment, the size and scale of the Company’s operations, skill sets, participation in committee work and fees paid to directors of comparable companies. The Group does not provide any retirement benefits scheme for NEDs. NEDs do not receive any performance-based remuneration. Three NEDs, Mr S Cheong, Mrs E Sam and Mr D Tsang do not receive fees. However, AVJennings pays a consulting fee to the Ultimate Parent Entity, SC Global Developments Pte Ltd. The fees are paid pursuant to a consultancy and advisory agreement for the provision of the following: • Services of at least two directors on the Board; • Assistance in sourcing and facilitating financial and banking requirements particularly from Asian-based and other institutions; • Assistance in secretarial and administrative matters in connection with the Company’s Singapore listing; • Sourcing and facilitating business, commercial and investment opportunities; and • Ancillary advice. The appropriateness of the agreement and the reasonableness of the fees is assessed annually by the Australian-based independent NEDs taking into account the actual services provided, comparable market data for similar services, the benefits to the Company and the likely cost of replacement of the services provided. The annual fees payable are $600,000. The agreement may be terminated by either party giving six months’ notice or by the Company on 30 days’ notice for cause. The remuneration of NEDs is detailed on page 23. 2.4. Executive Remuneration Arrangements Executive remuneration includes a mix of fixed and variable remuneration. Variable remuneration includes short term incentives, long term incentives and retention components. i) Fixed Remuneration Fixed Remuneration is represented by Total Employment Cost (TEC) which comprises base remuneration and superannuation contributions. TEC is reviewed annually or on promotion/appointment to the role. TEC is benchmarked against market data for comparable roles in the market. The Company sets TEC based on relevant market analysis, the scope and nature of the role and the individual’s performance, skills and responsibilities. The fixed component of remuneration of other KMP’s is detailed on page 24. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 17 REMUNERATION REPORT (Audited) (continued) 2.4. Executive Remuneration Arrangements (continued) ii) Variable Remuneration A) Short Term Incentive (STI) Executives participate in a STI plan which assesses achievement against Key Performance Measures (KPM). Each executive has Key Performance Measures that are aligned to company, business unit and individual performance. An STI payment is awarded to the extent performance is achieved by individuals against the Key Performance Measures set at the beginning of the financial year, as appropriate, and with regards to relevant business unit and company performance. STI awards for the executive team in the 2016 financial year were based on the scorecard measures and weightings disclosed below. These targets were set by the Remuneration Committee and align with the Group’s strategic and business objectives. They are reviewed annually. The CEO has a target STI opportunity of 35% of TEC and other Executives have a STI opportunity of 17% to 30% of TEC. The variable “at risk” component of executive remuneration ensures that a proportion of remuneration varies with performance (both of the individual and, as appropriate, the business unit and the Company as a whole). Allocation of Overall Performance Incentive between Components (shown as % of TEC) Position CEO Senior Executives State General Managers Total At Risk (%) STI (%) LTI (%) Retention (%) 100 33 50 35 17 30 40 8 10 25 8 10 The proportions of STI, LTI and retention components take into account: • Market practice; • • The objectives that the Board seeks to achieve and the behaviours which support that outcome; The desire for Senior Executives to have a shareholding as a proportion of remuneration in the event that equity rewards have vested; and The service period before executives can receive equity rewards. • Directors’ Report18 | AVJENNINGS LIMITED · ABN 44 004 327 771 REMUNERATION REPORT (Audited) (continued) 2.4. Executive Remuneration Arrangements (continued) The table below provides an overview of the STI against key financial and non-financial performance measures. Financial and Business Performance Underlying Profit Performance • Group profit before tax. • Return on NFE (Net Funds Employed). • Cost to income ratio. • Appropriate and efficient capital management. • Alignment of priorities and allocation of resources. • Market conditions, in particular performance in the Business Performance prevailing market. • Implementation of Company strategy and improvement in underlying health of the Company. • Increase in the Group’s market share of residential CEO Senior Executives State General Managers 70% 30% to 40% 50% Non-Financial Customer and Stakeholder Performance People Safety and Environment property sector. • Risk management. • Customer Advocacy. • Employee retention and engagement. • Leadership. • Providing a safe work environment. • Minimise the impact of our activities on the environment. 30% 60% to 70% 50% The Remuneration Committee is responsible for determining the STI to be paid based on an assessment of the extent to which the Key Performance Measures are met. The STI payment is made within two months of the reporting date. The Committee has the discretion to adjust STIs upwards or downwards in light of unexpected or unintended circumstances. Based on achievements of the Group in the 2016 financial year and performance against individual Key Performance Measures, the Remuneration Committee determined that Executives achieved between 65% and 100% of their target opportunity (average 81%). In making this assessment, the Committee considered the following factors: • Performance in implementing Company strategy. • Performance in the prevailing market. • Strong profit before tax. • An increase in contract signings compared to the previous year. • • Performance against individual KPMs. Improvement in the underlying health of the Company. Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 19 Retention component – years of service Percentage of rights vesting one year two years three years 33.33% 33.33% 33.34% On 29 May 2015 and 18 September 2015, rights were granted to KMP as detailed in the table on page 21. The May 2015 Grant was delayed from 2014 whilst the Remuneration Committee considered the changes to the plan resulting in the Rights plan. The May 2015 Grant was made for the FY15 year (with LTI testing in September 2018). The September 2015 Grant was made in the FY16 year with LTI testing in September 2018. The fair value of the rights at the date of the grant is determined using an appropriate valuation model. The fair value is expensed over the period in which the performance and/or service conditions are fulfilled with a corresponding increase in share-based payment reserve in equity. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Consolidated Statement of Comprehensive Income represents the movement in cumulative expense recognised between the beginning and end of that period. (ii) LTI (FY14 and prior years) The AVJ Deferred Employee Share Plan (the LTI Plan) administers employee share schemes under which shares were purchased on-market by the LTI Plan Trustee on behalf of employees. These shares will vest to employees for no cash consideration subject to certain conditions being satisfied. Shares held by the LTI Plan’s trust and not yet allocated to employees are shown as treasury shares in the Financial Statements. Vesting is subject to both service and performance conditions, except for the FY13 Delayed Grant which is only subject to the service condition (see page 20). The service condition requires the executive to be employed by the Company as at 30 September in the third year after the grant date for each grant. The performance conditions apply to each grant – as to 50% as measured by the TSR hurdle and as to 50% by the EPS hurdle. The two performance hurdles are tested differently. The EPS hurdle is tested as at 30 June in the test year (three years after grant). The TSR hurdle is tested at 30 September of the third year after grant. REMUNERATION REPORT (Audited) (continued) 2.4. Executive Remuneration Arrangements (continued) B) Long Term Incentive (LTI) LTI awards are only made to executives who are in a position to have an impact on the Group’s performance and the creation of shareholder value over the longer term. (i) LTI and Retention (current year and FY15) With effect from FY15, LTI arrangements were varied and remuneration is now provided by the Issue of Rights (instead of shares) and includes a retention component. The use of Rights as an incentive reduces the upfront cash requirements of the Company (as shares do not need to be acquired for allocations) and because participants do not receive dividends on Rights (as distinct from shares). The Total Shareholder Return (TSR) hurdle of the LTI component was replaced by a Return on Equity (ROE) hurdle which uses market capitalisation as a proxy for equity, and is more appropriate from a shareholders’ perspective as the required rates of return do not vary with “market” performance. The ROE hurdle operates such that 50% vesting occurs at an average annual return of 12% with 100% vesting at an average annual return of 18%. The EPS hurdle remains unchanged and is consistent with the FY14 and prior years’ LTI structure explained under LTI (FY14 and prior years) below. The performance conditions will be tested at the end of the three year vesting period and the number of rights that may vest will depend on the level of average annual returns achieved over that three year period. The service rights are split into three tranches that progressively vest each year subject to satisfaction of the service condition. The CEO’s participation was determined as 40% (LTI) and 25% (Retention component) of TEC respectively. The operation of the EPS, ROE and Retention hurdles are set out below. AVJennings’ EPS growth rate over the three year performance period < 5% 5% 5% –10% >=10% Percentage of rights vesting Nil 50% of the allocation for the hurdle Pro-rata between 50% and 100% 100% of the allocation for the hurdle AVJennings’ ROE over the three year performance period Percentage of rights vesting <12% 12% 15% >=18% Nil 50% 75% 100% (Straight line interpolation between 12% and 18%) Directors’ ReportAVJennings’ EPS growth rate over the performance period Percentage vesting < 5% 5% 5% – 10% >=10% Nil 50% of the allocation for the hurdle Pro-rata between 50% and 100% 100% of the allocation for the hurdle The original cost of equity-settled transactions is treated as a reduction in share capital and the underlying shares identified separately as treasury shares. The fair value at the date when the Grant is made is determined using an appropriate valuation model. That fair value is expensed over the period in which the performance and/or service conditions are fulfilled with a corresponding increase in share-based payment reserve in equity. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Consolidated Statement of Comprehensive Income represents the movement in cumulative expense recognised between the beginning and end of that period. In respect of shares forfeited, no further amounts are expensed. The cumulative amounts relating to non-market based measures expensed to the date of forfeiture are reversed. There is no non-recourse financing provided to executives in relation to any share-based payments. 20 | AVJENNINGS LIMITED · ABN 44 004 327 771 REMUNERATION REPORT (Audited) (continued) 2.4. Executive Remuneration Arrangements (continued) The following is the status of allocations made to KMP under the LTI Plan: FY13 Grant On 12 September 2012, shares were granted to KMP and as detailed in the table on page 21, these vested during the year. FY13 Delayed Grant On 25 September 2013, shares were granted to KMP as detailed in the table on page 21. The Grant was subject only to service conditions as to 50% for one year to 30 September 2014, which vested in the previous year, and as to 50% for two years to 30 September 2015, which vested in the current year. FY14 Grant On 25 September 2013, shares were granted to KMP as detailed in the table on page 21. The service vesting condition for the FY13 and FY14 Grants is that the employee must still be employed by AVJennings at 30 September 2015 and 30 September 2016 respectively. In the event of death, permanent disablement or retrenchment, the shares may vest to the estate at the Board’s discretion. If the employee resigns (in certain circumstances) or is terminated, the unvested shares will be forfeited. The performance vesting conditions are: • Total Shareholder Return (TSR) performance measured against the ASX Small Industrials Index; and • Earnings Per Share (EPS) growth. AVJennings’ EPS growth for the performance period must meet or exceed the target set. The EPS hurdle for total vesting for each grant is as follows: FY2013 Grant – 10% p.a. growth for the three financial years to 30 June 2015 FY2014 Grant – 10% p.a. growth for the three financial years to 30 June 2016 Half of the allocation is assessed against each performance condition. The vesting schedule for the TSR and EPS performance conditions are set out in the following tables. The holder of the shares is entitled to receive all dividends paid between grant and vesting dates. AVJennings’ TSR rank against companies in the Index at 30 September Percentage vesting < median At the median Nil 50% > median but < 75th percentile Pro-rata between 50th and 75th percentiles >=75th percentile 100% Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 21 REMUNERATION REPORT (Audited) (continued) 2.4. Executive Remuneration Arrangements (continued) The following is the status of shares granted to KMP under the FY14 and previous years’ LTI Plans: KMP PK Summers PK Summers A Soutar (1) A Soutar (1) L Mahaffy SC Orlandi SC Orlandi CD Thompson CD Thompson L Hunt L Hunt Total Year of Grant Fair Value Shares at beginning of the year FY13-D FY14 FY13 FY14 FY14 FY13-D FY14 FY13-D FY14 FY13-D FY14 $166,866 $351,499 $74,389 $77,902 $56,947 $24,720 $50,407 $25,619 $62,286 $18,877 $38,493 142,620 666,349 280,712 147,682 107,957 21,128 95,558 21,897 118,078 16,134 72,973 Forfeited – – – (110,761) – – – – – – – Vested (142,620) – (280,712) (36,921) – (21,128) – (21,897) – (16,134) – Shares at end of the year – 666,349 – – 107,957 – 95,558 – 118,078 – 72,973 $948,005 1,691,088 (110,761) (519,412) 1,060,915 (1) Ceased employment 30 June 2015. Note: In the table above, “FY13-D” refers to the FY13 Delayed Grant. The following is the status of rights granted to KMP under the current year and FY15 LTI Plans: KMP PK Summers PK Summers A Soutar (1) L Mahaffy L Mahaffy SC Orlandi SC Orlandi CD Thompson CD Thompson L Hunt L Hunt Total Year of Grant FY15 FY16 FY15 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 Rights at beginning of the year 665,068 – 92,236 79,812 – 70,646 – 87,296 – 53,946 – Number of Rights granted – 643,864 – – 102,783 – 90,979 – 112,419 – 69,475 Issued on vesting of Rights (82,654) (78,996) – (12,969) (16,527) (11,480) (14,629) (14,185) (18,076) (8,766) (11,171) Rights forfeited Rights at end of the year – – (92,236) – – – – – – – – 582,414 564,868 – 66,843 86,256 59,166 76,350 73,111 94,343 45,180 58,304 1,049,004 1,019,520 (269,453) (92,236) 1,706,835 (1) Ceased employment 30 June 2015. AVJennings prohibits executives from entering into arrangements to protect the value of unvested LTI awards. This prohibition includes entering into hedging arrangements in relation to AVJennings shares. 3. Group Performance The table below shows the Group’s earnings performance as well as the movement in the Group’s Earnings Per Share (EPS), Total Shareholder Return (TSR) and Market Capitalisation over the last 5 years. Financial Report Date 30 June 2012 30 June 2013 30 June 2014 30 June 2015 30 June 2016 Profit/(Loss) After Tax $’000 (29,828) (15,266) 18,782 34,385 40,912 Basic EPS Cents (10.99) (5.46) 4.94 9.03 10.71 TSR* Cents (15.0) 14.0 13.0 10.5 (4.0) Market Capitalisation $‘000 Return on Market Capitalisation % 81,455 167,666 216,715 245,694 213,968 (36.62) (9.11) 8.67 14.00 19.12 * TSR is the aggregate of the movement in the share price and dividends paid during the year ended 30 June. Directors’ Report22 | AVJENNINGS LIMITED · ABN 44 004 327 771 REMUNERATION REPORT (Audited) (continued) 5. Remuneration of KMP 4. Employment Contracts i) Chief Executive Officer Mr Summers’ employment contract does not have a termination date and does not stipulate a termination payment. However, it specifies a six month notice period. Details regarding the remuneration paid to Mr Summers are contained in the table on page 24. ii) Other Executives The other executives are full time permanent employees with employment contracts. The employment contracts do not have termination dates or termination payments. However, they specify a notice period of three months. Details of the nature and amount of each element of remuneration of Directors and executives are set out in the tables on pages 23 and 24. The Directors are the same as those identified in the Directors’ Report. 6. Remuneration Options: Granted and Vested During the Year No options were either granted or exercised during the year. There are currently no unexercised or outstanding options. None of the Directors or executives hold any options. 7. Shareholdings of KMP The number of shares in the Company held during the financial year by each KMP of the Group, including their personally related parties, are set out below. For the year ended 30 June 2016 Directors S Cheong E Sam PK Summers RJ Rowley D Tsang Executives L Mahaffy SC Orlandi CD Thompson L Hunt Opening Balance Vested as Remuneration On market Purchase Closing Balance 192,318,030 209,349 2,815,505 252,000 837,396 19,967 202,483 884,448 87,082 – – 304,270 – – 29,496 47,237 54,158 36,071 – – – – – 192,318,030 209,349 3,119,775 252,000 837,396 – – 288,500 26,033 49,463 249,720 1,227,106 149,186 Total 197,626,260 471,232 314,533 198,412,025 For the year ended 30 June 2015 Directors S Cheong E Sam PK Summers RJ Rowley D Tsang Executives A Soutar (1) L Mahaffy SC Orlandi CD Thompson L Hunt 192,318,030 209,349 2,416,266 252,000 837,396 212,131 19,967 143,337 823,152 41,916 – – 399,239 – – – – 59,146 61,296 45,166 Total 197,273,544 564,847 (1) Ceased employment 30 June 2015. – – – – – – – – – – – 192,318,030 209,349 2,815,505 252,000 837,396 212,131 19,967 202,483 884,448 87,082 197,838,391 Directors’ ReportAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 23 REMUNERATION REPORT (Audited) (continued) 8. Remuneration Tables i) Non-Executive Directors S Cheong (1) RJ Rowley E Sam (1) B Chin BG Hayman TP Lai D Tsang (1) Total Total Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Short-Term Fees $ Post Employment Superannuation(2) $ – – 77,626 77,626 – – 60,000 60,000 45,662 45,662 50,000 50,000 – – 233,288 233,288 – – 7,374 7,374 – – – – 4,338 4,338 – – – – 11,712 11,712 Total $ – – 85,000 85,000 – – 60,000 60,000 50,000 50,000 50,000 50,000 – – 245,000 245,000 (1) (2) These Directors were not paid fees. A consulting fee of $50,000 per month was paid to the ultimate parent entity SC Global Developments Pte Ltd which covers the services of these Directors. International airfares to attend meetings are paid for by a related entity. Payments to Defined Contribution Plans consist of Superannuation Guarantee Contribution payments as well as employee voluntary contributions. The Group does not contribute to any Defined Benefit Plans. (a) Directors are also reimbursed for airfares (other than the international airfares for those Directors referred to in (1) above, and other expenses relating to the provision of their services. Directors’ Report 24 | AVJENNINGS LIMITED · ABN 44 004 327 771 e c n a m r o f r e P d e t a e R l l a t o T d e s a b - e r a h S m r e T - g n o L t n e m y o p m E l r e h t O t s o P % 5 7 5 3 . 0 2 8 1 . – 7 3 3 2 . 2 5 6 1 . 8 6 3 1 . 2 2 7 1 . 6 0 0 1 . 1 7 8 1 . 7 6 2 1 . 9 1 6 1 . 3 7 8 . $ I T L $ 8 0 8 1 9 7 , 6 9 9 7 1 , 6 4 1 , 9 1 2 , 1 4 3 6 , 1 2 4 – 8 1 2 5 1 5 , 0 3 7 , 1 6 4 9 3 4 2 0 4 , 2 2 2 , 7 3 4 9 8 2 5 7 3 , 4 2 1 , 1 3 5 2 0 7 3 5 4 , 0 9 5 , 8 1 3 4 4 7 4 6 2 , – 2 9 3 9 4 , 3 2 2 , 3 6 9 6 4 8 1 , 0 2 5 , 7 5 5 2 1 2 , 5 6 7 , 0 7 1 6 4 5 , 3 2 6 1 , 4 2 9 , 3 4 d e u r c c A e c i v r e S g n o L e v a e L ) 1 ( n o i t a u n n a r e p u S ) 2 ( r e h t O $ 6 1 4 , 8 2 4 5 0 5 2 , – 2 7 6 5 , 0 6 4 , 7 4 9 1 4 , 2 8 5 , 2 1 8 2 1 9 , 6 1 6 , 8 1 1 1 4 1 1 , 7 3 3 , 0 1 4 7 2 6 , $ 8 0 3 , 9 1 3 8 7 8 1 , – 3 8 7 4 3 , 8 0 3 , 9 1 3 8 7 8 1 , 8 0 3 , 9 1 3 8 7 8 1 , 8 0 3 , 9 1 3 8 7 8 1 , 8 0 3 , 9 1 3 8 7 8 1 , $ 3 4 3 , 1 6 5 9 5 7 7 , – – – – – – – – – – I T S $ 0 9 9 , 4 9 1 6 9 3 8 8 1 , – 0 2 0 1 7 , 8 0 7 , 3 4 9 9 5 6 3 , 6 2 4 , 6 4 6 5 8 4 4 , 1 4 7 , 3 6 5 8 5 1 6 , 4 4 5 , 9 2 5 4 5 8 2 , m r e T - t r o h S d e u r c c A e v a e L l a u n n A y r a a S l $ 2 9 9 , 9 1 9 8 0 5 2 , – 1 1 4 9 1 , ) 6 2 3 , 2 ( 7 3 3 5 , 6 8 1 , 1 1 9 3 1 0 2 , ) 4 4 4 , 4 ( 3 3 7 5 , ) 7 6 3 ( 4 4 1 1 , $ 3 6 4 , 3 7 4 5 9 8 8 3 4 , – 0 4 9 4 3 3 , 7 5 3 , 0 3 3 7 5 0 9 1 3 , 0 0 2 , 0 9 2 8 5 2 0 8 2 , 8 3 1 , 3 6 3 9 2 7 0 5 3 , 4 4 8 , 5 1 2 5 7 3 8 0 2 , r a e Y 6 1 0 2 5 1 0 2 6 1 0 2 5 1 0 2 6 1 0 2 5 1 0 2 6 1 0 2 5 1 0 2 6 1 0 2 5 1 0 2 6 1 0 2 5 1 0 2 2 1 8 , 7 6 9 , 2 6 6 0 , 7 5 6 1 1 4 , 7 7 0 4 5 , 6 9 3 4 3 , 1 6 9 0 4 , 8 7 3 1 4 0 , 4 2 2 0 0 , 3 7 6 , 1 6 1 0 2 , 0 0 2 3 0 8 2 , 6 6 0 5 9 , 3 3 7 1 6 , 8 9 6 8 2 1 , 5 9 5 7 7 , 1 0 0 1 3 4 , 3 5 8 6 7 , , 4 5 2 2 3 9 1 , 5 1 0 2 s r e m m u S K P ) 3 ( r a t u o S A y ff a h a M L i d n a l r O C S n o s p m o h T D C t n u H L l a t o T l a t o T ) d e u n i t n o c ( ) d e t i d u A ( T R O P E R N O I T A R E N U M E R l ) d e u n i t n o c ( s e b a T n o i t a r e n u m e R . 8 P M K r e h t O ) i i l . s n a P t fi e n e B d e n fi e D y n a o t e t u b i r t n o c t o n s e o d p u o r G e h T . s n o i t u b i r t n o c y r a t n u o v e e y o p m e s a l l l l e w s a s t n e m y a p n o i t u b i r t n o C e e t n a r a u G n o i t a u n n a r e p u S f o t s i s n o c s n a P n o i t u b i r t n o C d e n fi e D o t l s t n e m y a P . s t fi e n e b e c h e v i l r o t o m l f o e u a v e h t o t s e t a e r l ’ r e h t O ‘ . 5 1 0 2 e n u J 0 3 t n e m y o p m e d e s a e C l ) 1 ( ) 2 ( ) 3 ( Directors’ Report AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 25 MEETINGS OF DIRECTORS AND DIRECTORS’ COMMITTEES The number of meetings of Directors and Directors’ Committees held during the year, for the period the Director was a Member of the Board or a Committee, and the number of meetings attended by each Director are detailed below. Full Meetings of Directors Audit Held 4 4 4 4 4 4 4 4 Attended 4 4 4 4 4 4 4 4 Held – 3 – – 3 – 3 3 Attended – 3 – – 3 – 3 3 Meetings of Committees Remuneration Held 1 – – 1 – 1 1 – Attended 1 – – 1 – 1 1 – Nominations Held 1 1 – 1 – 1 – – Attended 1 1 – 1 – 1 – – Risk Management Attended – 3 – – – 3 – – Held – 3 – – – 3 – – S Cheong RJ Rowley PK Summers E Sam B Chin BG Hayman TP Lai D Tsang Investments Committee The Investments Committee does not formally meet in person. It conducts physical inspections of certain major development sites and receives detailed briefings from management on all major development sites prior to consideration of formal acquisition proposals which are dealt with by way of circular resolution. DIRECTORS’ INTERESTS INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. ROUNDING ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 is applicable to the Group and in accordance with that Instrument, amounts in the Financial Report and the Directors’ Report are rounded to the nearest thousand dollars, unless otherwise indicated. The relevant interests of the Directors in the shares of the Company at the date of this Report are: Director S Cheong E Sam PK Summers* RJ Rowley D Tsang Number 192,318,030 209,349 3,119,775 252,000 837,396 *Does not include unvested shares under the AVJ Deferred Employee Share Plan. Refer to page 21. INDEMNIFYING OFFICERS During the year, the Group paid a premium in respect of a contract insuring its Directors and employees against liabilities that may be incurred in defending civil or criminal proceedings that may be brought against the Officers in their capacity as Officers of entities in the Group. In accordance with common practice, the insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. Directors’ Report26 | AVJENNINGS LIMITED · ABN 44 004 327 771 AUDITOR’S INDEPENDENCE DECLARATION We have obtained the following Independence Declaration from our auditors, Ernst & Young: AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF AVJENNINGS LIMITED As lead auditor for the audit of AVJennings Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to t he audit ; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of AVJennings Limited and the entities it controlled during the financial year. Ernst & Young 28 September 2016 Mark Conroy Partner A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation NON-AUDIT SERVICES The Group’s auditor, Ernst & Young provided certain non-audit services as outlined in note 29. The Board has considered these and based on advice received from the Audit Committee, is satisfied that provision of these services is compatible with, and did not compromise, the auditor independence requirements imposed by 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; and the non-audit services do not 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 as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as advocate for the Group or jointly sharing economic risks or rewards. Signed in accordance with a resolution of the Directors. Simon Cheong Director 28 September 2016 Peter Summers Director Directors’ Report Consolidated Statement of Comprehensive Income AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 27 Revenues Cost of sales Gross profit Share of (losses)/profits of associates and joint venture entities accounted for using the equity method Change in inventory loss provisions Other operational expenses Selling and marketing expenses Employee expenses Depreciation expense Finance costs Management and administration expenses Profit before income tax Income tax Profit after income tax Other comprehensive income Foreign currency translation Other comprehensive income/(loss) for the year Note 2 22(b) 2 2 2 2 3 2016 $’000 421,884 (315,731) 106,153 (583) 3,665 (5,479) (11,002) (24,797) (275) (526) (8,373) 58,783 (17,871) 40,912 2,042 2,042 2015 $’000 317,903 (232,641) 85,262 1,569 3,720 (4,953) (7,126) (20,402) (300) (863) (8,736) 48,171 (13,786) 34,385 (1,397) (1,397) Total comprehensive income for the year 42,954 32,988 Earnings per share (cents per share): Basic earnings per share Diluted earnings per share 30 30 10.71 10.71 9.03 9.03 28 | AVJENNINGS LIMITED · ABN 44 004 327 771 Consolidated Statement of Financial Position CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Tax receivable Other assets Total current assets NON-CURRENT ASSETS Trade and other receivables Inventories Equity accounted investments Available-for-sale financial asset Plant and equipment Intangible assets Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Tax payable Provisions Total current liabilities NON-CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Deferred tax Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total equity Note 2016 $’000 2015 $’000 4 5 6 7 5 6 22 8 9 10 11 12 13 43,086 106,060 209,939 – 2,140 37,812 69,088 204,942 143 2,060 361,225 314,045 21,694 343,098 8,684 2,880 985 2,816 13,094 312,007 10,667 2,880 605 2,816 380,157 342,069 741,382 656,114 120,611 10,057 10,494 6,261 117,461 3,008 – 5,510 147,423 125,979 11 12 3(b) 13 40,355 165,466 23,437 794 51,556 123,716 16,775 742 230,052 192,789 377,475 318,768 363,907 337,346 14 15(a) 15(c) 160,436 6,022 197,449 363,907 160,436 3,074 173,836 337,346 Consolidated Statement of Changes in Equity AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 29 Attributable to equity holders of AVJennings Limited Total equity Foreign Currency Translation Reserve Share-based Payment Reserve Retained Earnings Contributed Equity Note $’000 $’000 $’000 $’000 $’000 At 1 July 2014 160,436 3,188 1,173 150,983 315,780 Profit for the year Other comprehensive loss for the year Total comprehensive (loss)/income for the year Transactions with owners in their capacity as owners - Share-based payment expense reversed (forfeited shares) - Share-based payment expense - Dividends paid 28(a) 28(a) 16 – – – – – – – – (1,397) (1,397) – – – 34,385 – 34,385 (1,397) 34,385 32,988 – – – (326) 436 – – (326) 436 – (11,532) (11,532) (1,397) 110 22,853 21,566 At 30 June 2015 160,436 1,791 1,283 173,836 337,346 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners - Share-based payment expense reversed (forfeited shares) - Share-based payment expense - Dividends paid 28(a) 28(a) 16 – – – – – – – At 30 June 2016 160,436 – 2,042 2,042 – – – 2,042 3,833 – – – 40,912 40,912 – 40,912 2,042 42,954 (19) 925 – 906 – – (19) 925 (17,299) (17,299) 23,613 26,561 2,189 197,449 363,907 30 | AVJENNINGS LIMITED · ABN 44 004 327 771 Consolidated Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Finance costs including interest paid Income tax paid Note 2016 $’000 2015 $’000 417,922 (432,880) (12,566) (786) 317,278 (320,115) (10,396) (1,127) 2 Net cash used in operating activities 17 (28,310) (14,360) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of plant and equipment Payments for plant and equipment Interest received Distributions received from associates and joint venture entities Dividends received from joint venture entity Payment for available-for-sale financial asset Investments in associates and joint venture entities Net cash from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Repayment of borrowings Dividends paid Net cash from financing activities 9 2 22(b) 22(b) 22(b) 16 2 (735) 526 – 1,400 – – 8 (274) 863 18,750 5,350 (1,380) (6,091) 1,193 17,226 454,482 (405,683) (17,299) 240,177 (199,036) (11,532) 31,500 29,609 NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash and cash equivalents 4,383 37,812 891 CASH AND CASH EQUIVALENTS AT END OF YEAR 4 43,086 32,475 4,796 541 37,812 AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 31 Section A – How the numbers are calculated Section A1 Segment information 1. OPERATING SEGMENTS AVJennings operates primarily in residential development. The Group determines segments based on information that is provided to the Managing Director who is the chief operating decision maker (CODM). The CODM assesses the performance and makes decisions about the resources to be allocated to the segment. Each segment prepares a detailed finance report on a monthly basis which summarises the following: • Historic results of the segment; and • Forecast of the segment for the remainder of the year. Reportable segments Jurisdictions: This includes activities relating to Land Development, Integrated Housing and Apartments Development. Other: This includes numerous low value items, amongst the most significant of which are interest and certain sales commissions. Notes to the Consolidated Financial Statements32 | AVJENNINGS LIMITED · ABN 44 004 327 771 l a t o T r e h t O Z N A S D L Q C V I W S N 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ s t n e m g e s g n i t a r e p O s e u n e v e R : s t n e m g e s g n i t a r e p o g n d r a g e r n o i t a m r o f n i i s t l u s e r d n a s e u n e v e r e h t s t n e s e r p e b a t g n w o i l l l o f e h T ) d e u n i t n o c ( S T N E M G E S G N I T A R E P O . 1 3 1 6 6 , 5 8 7 8 8 8 7 0 3 , 3 0 2 0 2 4 , – – – – 2 0 4 3 , 6 9 8 2 0 4 3 , 6 9 8 – 4 9 4 6 3 , 3 5 2 4 4 , 8 0 8 5 3 , 6 4 2 1 4 , 9 4 2 2 0 1 , 2 4 0 9 9 , 3 3 8 9 4 , 2 1 9 8 6 , 4 0 5 3 8 , 0 5 7 6 6 1 , l s e a s l a n r e t x E 9 1 7 3 – 8 5 – 2 2 – – – – – 7 7 2 0 1 7 9 5 5 5 , 0 5 s e e f t n e m e g a n a M – – – – e u n e v e r r e h t O 3 0 9 , 7 1 3 4 8 8 , 1 2 4 2 0 4 , 3 6 9 8 3 1 2 , 7 3 6 5 2 , 4 4 6 6 8 , 5 3 8 6 2 , 1 4 9 4 2 , 2 0 1 2 4 0 , 9 9 0 1 1 , 0 5 2 2 6 , 9 6 3 6 0 , 9 8 0 0 8 , 6 6 1 s e u n e v e r t n e m g e s l a t o T 2 5 1 7 5 , 9 2 5 3 7 , 0 7 0 1 , 8 6 1 2 2 6 0 1 , 3 0 3 3 1 , 9 8 4 6 , 5 1 5 4 , 1 0 7 2 1 , 3 6 1 4 1 , 8 9 6 2 , 7 8 7 2 , 2 7 5 3 2 , 3 9 5 8 3 , s t l u s e r t n e m g e S s t l u s e R 1 7 1 8 4 , 3 8 7 8 5 , ) 6 8 7 3 1 ( , ) 1 7 8 7 1 ( , 5 8 3 , 4 3 2 1 9 , 0 4 9 6 5 1 , ) 3 8 5 ( 0 2 7 3 , 5 6 6 3 , – – – ) 5 9 5 ( 2 0 4 3 , 6 9 8 2 0 4 3 , 6 9 8 ) 0 0 3 ( ) 5 7 2 ( ) 9 0 5 6 1 ( , ) 3 2 9 7 1 ( , ) 3 6 8 ( ) 6 2 5 ( – – – – – – – – – – – – – – – – – – 1 – – – – – ) 5 ( – – – – – – – – – – – – ) 1 ( – – – – 6 1 7 – – – – – – – – – – – 9 6 5 1 , 7 1 d o h t e m y t i u q e e h t g n i s u r o f d e t n u o c c a s V J d n a s e t a c o s s a i f o s t fi o r p / ) s e s s o l ( f o e r a h S 0 2 7 3 , 9 4 9 2 , s s o l y r o t n e v n i n i e g n a h C s n o i s i v o r p – – – – – – – – i n o i t a c e r p e d d e t a c o l l a n U n o i t a s i t r o m a d n a s e s n e p x e d e t a c o l l a n U e m o c n i r e h t O e s n e p x e t s e r e t n i d e t a c o l l a n U x a t e m o c n i e r o f e b t fi o r P x a t e m o c n i r e t f a t fi o r P x a t e m o c n I Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 33 l a t o T r e h t O Z N A S D L Q C V I W S N 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 5 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ s t n e m g e s g n i t a r e p O s t e s s A 4 1 1 6 5 6 , 2 8 3 1 4 7 , 1 0 2 4 4 , 9 4 4 7 5 , 7 4 8 9 4 , 2 2 4 4 8 , 4 0 7 1 0 1 , 8 8 1 5 9 , 2 6 7 6 8 , 4 7 2 9 9 , , 5 4 1 5 8 1 , 6 5 2 8 8 1 5 5 4 8 8 1 , 3 9 7 6 1 2 , s t e s s a t n e m g e S 4 1 1 , 6 5 6 2 8 3 , 1 4 7 1 0 2 , 4 4 9 4 4 , 7 5 7 4 8 , 9 4 2 2 4 , 4 8 4 0 7 , 1 0 1 8 8 1 , 5 9 2 6 7 , 6 8 4 7 2 , 9 9 5 4 1 , 5 8 1 6 5 2 , 8 8 1 5 5 4 , 8 8 1 3 9 7 , 6 1 2 s t e s s a l a t o T 8 6 7 8 1 3 , 5 7 4 7 7 3 , 4 3 7 3 3 1 , 1 3 6 0 7 1 , 1 2 6 5 2 , 6 8 5 2 6 , 6 5 1 5 , 8 8 0 6 , 9 7 2 7 , 0 3 5 4 1 , 2 8 1 8 9 , 7 2 5 0 7 , 6 9 7 8 4 , 3 1 1 3 5 , s e i t i l i b a i l t n e m g e S 8 6 7 , 8 1 3 5 7 4 , 7 7 3 4 3 7 , 3 3 1 1 3 6 , 0 7 1 1 2 6 , 5 2 6 8 5 , 2 6 6 5 1 , 5 8 8 0 , 6 9 7 2 , 7 0 3 5 , 4 1 2 8 1 , 8 9 7 2 5 , 0 7 6 9 7 , 8 4 3 1 1 , 3 5 s e i t i l i b a i l l a t o T s e i t i l i b a i L : s t n e m g e s g n i t a r e p o g n d r a g e r n o i t a m r o f n i i s e i t i l i b a i l d n a s t e s s a e h t s t n e s e r p e b a t g n w o i l l l o f e h T ) d e u n i t n o c ( S T N E M G E S G N I T A R E P O . 1 Notes to the Consolidated Financial Statements 34 | AVJENNINGS LIMITED · ABN 44 004 327 771 Section A2 Profit and loss information 2. REVENUES AND EXPENSES Revenues Sales of land and built form Interest received Management fees received/receivable Other Total revenues Revenue recognition 2016 $’000 2015 $’000 420,203 307,888 526 785 370 863 6,613 2,539 421,884 317,903 Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major business activities as follows: Development projects and land sales Revenue from the sale of land, houses and apartments is recognised when the significant risks, rewards of ownership and effective control have been transferred to the buyer. This has been determined to generally occur on settlement. Revenue from land sales is recognised prior to settlement when a signed unconditional contract for sale exists, the significant risks, rewards of ownership and effective control have been transferred to the buyer, and there is no management involvement to the degree usually associated with ownership. Construction contracts Contract revenue and costs are recognised by reference to the stage of completion of the contract. Depending on the nature of the contract, this is measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs; completion of physical proportion of the contract work; or surveys of work performed. Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense as incurred, and where it is probable that the costs will be recovered, revenue is recognised to the extent of costs incurred. Where it is probable that a loss will arise from a construction contract, the excess of total costs over revenue is recognised as an expense immediately. Interest revenue Revenue is recognised as interest accrues using the effective interest rate method. Management fees Revenue is recognised upon delivery of the services. Dividends Dividends are recognised as revenue when the right to receive payment is established. Notes to the Consolidated Financial Statements2. REVENUES AND EXPENSES (continued) Expenses AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 35 Note 2016 $’000 2015 $’000 Cost of sales include: Amortisation of finance costs capitalised to inventories 15,454 10,172 Employee expenses Superannuation contributions Other employee costs Total employee expenses Depreciation expense Leasehold improvements Plant, equipment and motor vehicles Total depreciation expense Other expenses Minimum operating lease payments Finance costs Bank loans and overdraft Less: Amount capitalised to inventories Finance costs expensed Impairment of assets Decrease in inventory loss provisions Total impairment reversed 1,744 23,053 1,473 18,929 24,797 20,402 9 9 8 267 275 7 293 300 2,636 2,421 12,566 (12,040) 526 3,665 3,665 10,396 (9,533) 863 3,720 3,720 For the year ended 30 June 2016, the movement in inventory loss provisions resulted from a realignment of future assumptions with current market conditions predominantly driven by projects in New South Wales and Queensland. Notes to the Consolidated Financial Statements36 | AVJENNINGS LIMITED · ABN 44 004 327 771 3. INCOME TAX The major components of income tax are: Current income tax Current income tax charge Adjustment for prior year Deferred income tax Current year temporary differences Adjustment for prior year Income tax reported in the Consolidated Statement of Comprehensive Income 2016 $’000 2015 $’000 11,442 10 6,425 (6) 915 41 12,871 (41) 17,871 13,786 Numerical reconciliation between aggregate tax recognised in the Consolidated Statement of Comprehensive Income and tax calculated per the statutory income tax rate: Accounting profit before income tax Tax at Australian income tax rate of 30% (2015 – 30%) Adjustment for prior year Non-assessable equity accounted share of Joint Venture losses/(profits) Other non-deductible items and variations Income tax Effective tax rate (a) Tax consolidation legislation 58,783 17,635 4 175 57 48,171 14,451 – (471) (194) 17,871 13,786 30% 29% AVJennings Limited and its wholly owned Australian entities are in a Tax Consolidated Group. All members of the Tax Consolidated Group are taxed as a single entity. The Head Entity, AVJennings Limited, has entered into an agreement with its wholly owned subsidiary, AVJennings Properties Limited, under which AVJennings Properties Limited will account for the current and deferred tax amounts of the controlled entities in the Tax Consolidated Group. The entities in the Tax Consolidated Group have entered into a Tax Sharing Agreement which provides for the allocation of income tax liabilities between the entities. This limits the tax liability of the wholly owned entities in the case of a default by the Head Entity. The entities in the Tax Consolidated Group have also entered into a Tax Funding Agreement to fully compensate/be compensated by the Head Entity for current tax balances and deferred tax assets or unused tax losses and credits transferred. Notes to the Consolidated Financial Statements 3. INCOME TAX (continued) (b) Deferred tax The balance comprises temporary differences attributable to: – inventories – unearned revenue – prepayments and accruals – employee provisions and accruals – brand name – tax losses – other AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 37 2016 $’000 15,421 9,954 (1,209) (1,294) 845 – (280) 2015 $’000 13,783 6,639 (819) (927) 845 (2,506) (240) Deferred tax liabilities 23,437 16,775 (c) Accounting Income tax expense is calculated at the applicable tax rate and recognised in the profit and loss for the year, unless it relates to other comprehensive income or transactions recognised directly in equity. The tax expense comprises current and deferred tax. Broadly, current tax represents the tax expense paid or payable for the current year. Deferred tax accounts for tax on temporary differences. Temporary differences generally occur when income and expenses are recognised by tax authorities and for accounting purposes in different periods. Deferred tax assets, including those arising from tax losses, are only recognised to the extent it is probable that sufficient taxable profits will be available to utilise the losses in the foreseeable future. Notes to the Consolidated Financial Statements38 | AVJENNINGS LIMITED · ABN 44 004 327 771 Section A3 Balance Sheet information 4. CASH AND CASH EQUIVALENTS Cash at bank and in hand Accounting 2016 $’000 2015 $’000 43,086 37,812 Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at bank and in hand and short term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. 5. TRADE AND OTHER RECEIVABLES Current Trade receivables Related party receivables Funds held in trust accounts Other receivables 2016 $’000 102,910 1,600 657 893 2015 $’000 62,823 1,753 1,730 2,782 Total current trade and other receivables 106,060 69,088 Non-current Trade receivables Related party receivables Other receivables 15,063 1,601 5,030 12,818 276 – Total non-current trade and other receivables 21,694 13,094 (a) Accounting Trade receivables are recognised at the amount invoiced less provision for impairment. Trade receivables are generally due for settlement between 30 and 180 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written-off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due. The amount of the impairment allowance is the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in profit or loss. When a trade receivable for which an impairment allowance has been recognised becomes uncollectible in a subsequent period, it is written-off against the allowance account. Subsequent recoveries of amounts previously written off are recognised in profit or loss. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 39 5. TRADE AND OTHER RECEIVABLES (continued) (b) Allowance for impairment loss No impairment loss (2015: $Nil) has been recognised by the Group in the current year. At 30 June, the ageing analysis of trade receivables is as follows: Number of days outstanding Total $’000 0-30 $’000 31-60 $’000 61-90 $’000 + 91 $’000 + 91# $’000 2016 2015 # Considered impaired. At the beginning of the year Amounts written off during the year At the end of the year (c) Related party receivables 117,973 117,962 75,641 75,627 6 7 – 1 5 6 2016 $’000 – – – – – 2015 $’000 82 (82) – For terms and conditions relating to related party receivables, refer to note 27(j). (d) Other receivables These generally arise from transactions outside of the classification of trade receivables such as sundry debtors. These receivables are not past due or impaired. (e) Fair value and credit risk The carrying value of receivables is assumed to approximate their fair value. The effect of discounting is immaterial. Receivables consist of a large number of customers and there is no significant credit risk exposure to a single customer. Receivables in respect of land and built form require to be fully settled prior to passing of title. Notes to the Consolidated Financial Statements 40 | AVJENNINGS LIMITED · ABN 44 004 327 771 6. INVENTORIES Current Broadacres Land to be subdivided – at cost Borrowing and holding costs capitalised Impairment provision Total broadacres Work-in-progress Land subdivided or in the course of being subdivided – at cost Development costs capitalised Houses and apartments under construction – at cost Borrowing and holding costs capitalised Impairment provision Total work-in-progress Completed inventory Completed houses and apartments – at cost Completed residential land lots – at cost Borrowing and holding costs capitalised Impairment provision Total completed inventory Total current inventories Non-current Broadacres Land to be subdivided – at cost Borrowing and holding costs capitalised Impairment provision Total broadacres Work-in-progress Land subdivided or in the course of being subdivided – at cost Development costs capitalised Houses and apartments under construction – at cost Borrowing and holding costs capitalised Impairment provision Total work-in-progress Completed inventory Completed residential land lots – at cost Borrowing and holding costs capitalised Impairment provision Total completed inventory Total non-current inventories Total inventories Note 2016 $’000 2014 $’000 6(a) 6(a) 6(a) 6(a) 6(a) 6(a) 49,237 9,873 (3,133) 55,977 61,590 26,025 22,799 11,105 (2,390) 39,983 10,630 (4,409) 46,204 48,177 29,147 25,950 12,559 (3,304) 119,129 112,529 14,742 18,138 2,833 (880) 34,833 7,984 38,025 2,758 (2,558) 46,209 209,939 204,942 278,176 29,182 (14,076) 254,162 27,562 (19,394) 293,282 262,330 32,382 14,757 1,231 1,805 (519) 33,838 4,558 1,219 6,896 (530) 49,656 45,981 178 11 (29) 160 3,685 32 (21) 3,696 343,098 312,007 553,037 516,949 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 41 6. INVENTORIES (continued) (a) Borrowing costs attributable to qualifying assets are capitalised. These include interest, fees and costs associated with interest rate derivatives and have been capitalised at a weighted average rate of 6.18% (2015: 6.90%). (b) Inventory with a carrying value of $98,405,000 (2015: $18,019,000) was pledged as security for project specific borrowings (refer to note 12(b)). The Group’s remaining inventory has been pledged as security for the main banking facility (refer to note 12(a)). Accounting Inventories are stated at the lower of cost and net realisable value. 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. Estimates of net realisable value are based on the most recent evidence available at the time the estimates are made, of the amount the inventories are expected to realise and the estimate of costs to complete. Development projects and land Costs include cost of acquisition, development, borrowings and all other costs directly related to specific projects. Borrowing and holding costs such as rates and taxes incurred after completion of development and construction are expensed. Costs expected to be incurred under penalty clauses and rectification provisions are also included. Construction contracts Construction work-in-progress is stated at the aggregate of contract costs incurred to date plus recognised profits less recognised losses and progress billings. Contract costs include all costs directly related to specific contracts, and costs that are specifically chargeable to the customer under the terms of the contract. The stage of completion is measured using the percentage of completion method. Movement in impairment provisions At beginning of year Amounts utilised Amounts reversed At end of year 7. OTHER ASSETS Prepayments Deposits Total other current assets 2016 $’000 30,216 (5,524) (3,665) 2015 $’000 46,267 (12,331) (3,720) 21,027 30,216 2016 $’000 2,052 88 2015 $’000 1,943 117 2,140 2,060 Notes to the Consolidated Financial Statements42 | AVJENNINGS LIMITED · ABN 44 004 327 771 8. AVAILABLE-FOR-SALE FINANCIAL ASSET Property Fund Units 2016 $’000 2015 $’000 2,880 2,880 These comprise units in unlisted property funds that do not have an active market. As the range of reasonable fair values can be significant and these estimates cannot be made reliably, the units are measured at cost less impairment. The Company intends to hold the property fund units until the development activity being undertaken is completed, and all product is sold. Impairment and risk exposure The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset is impaired. A financial asset is impaired only if there is objective evidence of impairment as a result of one or more events that occurred and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below the cost is considered an indicator that the assets are impaired. If there is objective evidence of impairment for an available-for-sale financial asset, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss, is taken to profit and loss. None of the financial assets are either past due or impaired. All available-for-sale investments are denominated in Australian currency. As a result, there is no exposure to foreign currency risk. There is also no exposure to price risk as the intention is to hold the investments to maturity. Notes to the Consolidated Financial Statements9. PLANT AND EQUIPMENT Leasehold improvements At cost Less: accumulated depreciation Total leasehold improvements Plant, equipment and motor vehicles At cost Less: accumulated depreciation Total plant, equipment and motor vehicles Total plant and equipment AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 43 2016 $’000 379 (259) 120 6,631 (5,766) 865 985 2015 $’000 410 (347) 63 6,167 (5,625) 542 605 Reconciliations Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the year are set out below: For the year ended 30 June 2015 Note Carrying amount at 1 July 2014 Additions Disposals Depreciation charge Carrying amount at 30 June 2015 For the year ended 30 June 2016 Carrying amount at 1 July 2015 Additions Disposals Depreciation charge Carrying amount at 30 June 2016 Accounting 2 2 Leasehold improve- ments $’000 Plant, equipment and motor vehicles $’000 62 8 – (7) 63 63 91 (26) (8) 120 580 266 (11) (293) 542 542 644 (54) (267) 865 Total $’000 642 274 (11) (300) 605 605 735 (80) (275) 985 Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Depreciation is calculated on a straight-line basis using the following rates which are consistent with the prior year: Plant, equipment, and motor vehicles Leasehold improvements 3-7 years 3-10 years Notes to the Consolidated Financial Statements44 | AVJENNINGS LIMITED · ABN 44 004 327 771 10. INTANGIBLE ASSETS Brand name at cost Less: accumulated amortisation Total intangible assets 2016 $’000 9,868 (7,052) 2,816 2015 $’000 9,868 (7,052) 2,816 The intangible asset relates to the value of the “AVJennings” brand name which was acquired as part of a business combination in 1995. On recognition, the asset was determined to have a finite life of 20 years and was amortised over the expected useful life. In accordance with the accounting policy discussed below, the amortisation period and the amortisation method for an intangible asset are reviewed at least each financial year-end. A review carried out at 31 December 2009 determined that the brand name has indefinite useful life. This change in accounting estimate has been applied prospectively with amortisation ceasing as of 31 December 2009. The brand name is tested for impairment annually, or more frequently if there are indicators of impairment. At 30 June 2016, there were no indicators of impairment. Accounting Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination is their fair value as at the date of the acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The Group does not capitalise any expenditure resulting in the creation of internally generated intangible assets. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates and adjusted on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the Consolidated Statement of Comprehensive Income in the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Notes to the Consolidated Financial Statements11. TRADE AND OTHER PAYABLES Current Secured Land creditors Unsecured Land creditors Trade creditors Related party payables Other creditors and accruals Total current payables Non-Current Unsecured Land creditors Other creditors and accruals Total non-current payables Land creditors AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 45 2016 $’000 2015 $’000 4,350 – 74,904 14,306 3,128 23,923 89,689 12,403 3,128 12,241 116,261 117,461 120,611 117,461 39,571 784 51,556 – 40,355 51,556 Titles for land purchased from unsecured land creditors only transfer to the Group on settlement of the amount outstanding or upon provision of some other security. Related party payables For terms and conditions relating to related party payables, refer to note 27(j). Fair value Due to the short term nature of current payables, their carrying amount is assumed to approximate their fair value. Non-current land creditors have been discounted using a rate of 5.65% (2015: 6.95%). Accounting Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are usually unsecured and paid within 30 to 60 days of recognition. Notes to the Consolidated Financial Statements46 | AVJENNINGS LIMITED · ABN 44 004 327 771 12. INTEREST-BEARING LOANS AND BORROWINGS Current Bank loans Total current interest-bearing liabilities Non-current Bank loans Total non-current interest-bearing liabilities Accounting Borrowing costs 2016 $’000 2015 $’000 10,057 3,008 10,057 3,008 165,466 123,716 165,466 123,716 Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. Interest income on borrowed funds pending their expenditure, is deducted from borrowing costs eligible for capitalisation. Interest-bearing loans and borrowings Loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Subsequently, the carrying value of loans and borrowings is at approximation to their fair values. The difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit and loss over the period of the borrowings using the effective interest method. Fees paid on establishment of loan facilities are capitalised as a prepayment and amortised over the period of the facility. Borrowings are classified as current liabilities unless there is an unconditional right to defer repayment for at least 12 months after the reporting date. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 47 12. INTEREST-BEARING LOANS AND BORROWINGS (continued) Financing arrangements The Group has access to the following lines of credit: 30 June 2016 Main banking facilities – bank overdraft – bank loans – performance bonds Other non-cash facilities Project funding facilities – bank loans Contract performance bond facilities – performance bonds 30 June 2015 Main banking facilities – bank overdraft – bank loans – performance bonds Other non-cash facilities Project funding facilities – bank loans Contract performance bond facilities – performance bonds Note 12(a) 12(b) 12(c) 12(a) 12(b) 12(c) Available $’000 Utilised $’000 Unutilised $’000 5,000 225,000 20,000 250,000 220 – 143,243 14,317 157,560 – 5,000 81,757 5,683 92,440 220 92,000 32,280 59,720 35,000 22,239 12,761 5,000 210,000 35,000 250,000 1,800 – 123,716 9,778 133,494 – 5,000 86,284 25,222 116,506 1,800 3,026 3,008 18 25,000 21,134 3,866 At 30 June 2016 main banking facilities are interchangeable up to $47 million (2015: $47 million) between the bank loans and performance bonds. Notes to the Consolidated Financial Statements 48 | AVJENNINGS LIMITED · ABN 44 004 327 771 12. INTEREST-BEARING LOANS AND BORROWINGS (continued) Significant terms and conditions (a) Main banking facilities The Group’s main banking facilities which were due to mature on 30 September 2017 have subsequent to the year end been extended to 30 September 2018. The main banking facilities are secured by a fixed and floating charge over all the assets and undertakings of the entities within the Group that are obligors under the main banking facilities, and by first registered mortgages over various real estate inventories other than those controlled by the Group under project development agreements and those assets pledged as security for project funding (see note 12(b)). The Parent Entity has entered into a cross deed of covenant with various controlled entities to guarantee obligations of those entities in relation to the main banking facilities (see note 21). The current interest rates on the bank loans range from 2.88% to 3.74% (2015: 3.09% to 4.30%). (b) Project funding facilities Project funding facilities are secured by: • a fixed and floating charge over the assets of the entity involved in the relevant project, namely, AVJennings Waterline Pty Ltd; and • a first registered mortgage over certain real estate inventories of the entity involved in the relevant project, namely, AVJennings Waterline Pty Ltd. The lines of credit shown are maximum limits which are available progressively as projects are developed. The expiry date for the facility at the reporting date was November 2019. The outstanding amounts are expected to be repaid or refinanced prior to expiry of the facility. As at 30 June 2016, the balance outstanding on the bank loan facilities was $32,280,000 (2015: $3,008,000). The carrying amounts of the pledged assets are as follows: Waterline, Victoria Arlington Rise, Victoria 2016 $’000 2015 $’000 98,905 - - 18,051 The weighted average interest rate on the project funding loans at year-end was 3.40% (2015: 2.09%). (c) Contract performance bond facilities The Group has entered into Contract performance bond facilities of $35,000,000 (2015: $25,000,000). The Contract performance bond facilities are subject to review annually. The facilities expire by 31 December 2016 and management expects the annual review which is underway, to be completed shortly and the facilities extended for a further 12 months. The performance bond facilities are secured by Deeds of Indemnity between the Parent Entity and various controlled entities. Details of the controlled entities, included in the Deeds of Indemnity are set out in note 21. Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 49 2016 $’000 4,028 2,233 2015 $’000 3,760 1,750 6,261 5,510 794 794 742 742 13. PROVISIONS Current Employee benefits Other Total current provisions Non-current Employee benefits Total non-current provisions Accounting Provisions A provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the obligation. Wages, salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits and annual leave are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Long service leave Liabilities for long service leave are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date, discounted using corporate bond rates. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Notes to the Consolidated Financial Statements50 | AVJENNINGS LIMITED · ABN 44 004 327 771 14. CONTRIBUTED EQUITY Ordinary shares Treasury shares Share capital Note 14(a) 14(b) 2016 Number 2015 Number 2016 $’000 384,423,851 384,423,851 162,793 (2,338,154) (3,502,401) (2,357) 2015 $’000 162,793 (2,357) 382,085,697 380,921,450 160,436 160,436 (a) Movement in ordinary share capital Number Number $’000 As at the beginning of the year 384,423,851 384,423,851 162,793 $’000 162,793 As at the end of the year 384,423,851 384,423,851 162,793 162,793 Holders of ordinary shares are entitled to dividends and to one vote per share at shareholders’ meetings. (b) Movement in treasury shares Number Number $’000 As at the beginning of the year Employee share scheme issue (3,502,401) (4,221,605) (2,357) 1,164,247 719,204 – $’000 (2,357) – As at the end of the year (2,338,154) (3,502,401) (2,357) (2,357) Accounting Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company’s equity instruments, for example as the result of a share-based payment plan, the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the owners of AVJennings Limited as treasury shares. Shares held by the AVJ Deferred Employee Share Plan are disclosed as treasury shares and deducted from contributed equity. 15. RESERVES AND RETAINED EARNINGS (a) Reserves At 1 July 2014 Foreign currency translation Share-based payment expense At 30 June 2015 Foreign currency translation Share-based payment expense At 30 June 2016 (b) Nature and purpose of reserves Foreign currency translation reserve Foreign Currency Translation Reserve $’000 Share-based Payment Reserve $’000 3,188 (1,397) – 1,791 2,042 – 3,833 1,173 – 110 1,283 – 906 2,189 Note 28(a) 28(a) Total $’000 4,361 (1,397) 110 3,074 2,042 906 6,022 Exchange differences arising on translation foreign operations are recognised in other comprehensive income as explained in note 36(e) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to the Consolidated Statement of Comprehensive Income when the net investment is disposed of. Share-based payment reserve The share-based payment reserve is used to recognise the fair value of shares issued to employees, with a corresponding increase in employee expense in the Statement of Comprehensive Income. Refer to note 28(b) for details of the Plan. Notes to the Consolidated Financial Statements15. RESERVES AND RETAINED EARNINGS (continued) (c) Retained earnings Movements in retained earnings were as follows: At the beginning of the year Net profit for the year Dividends At the end of the year 16. DIVIDENDS Cash dividends declared and paid 2014 final dividend of 2.0 cents per share, paid 18 September 2014. Fully franked @ 30% tax 2015 interim dividend of 1.0 cent per share, paid 8 April 2015. Fully franked @ 30% tax 2015 final dividend of 3.0 cents per share, paid 23 September 2015. Fully franked @ 30% tax 2016 interim dividend of 1.5 cents per share, paid 15 April 2016. Fully franked @ 30% tax AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 51 2016 $’000 2015 $’000 173,836 40,912 (17,299) 150,983 34,385 (11,532) 197,449 173,836 2016 $’000 2015 $’000 – – 11,532 5,767 7,688 3,844 – – Total cash dividends declared and paid 17,299 11,532 Dividends proposed 2015 final dividend of 3.0 cents per share, paid 23 September 2015. Fully franked @ 30% tax 2016 final dividend of 3.5 cents per share, paid 23 September 2016. Fully franked @ 30% tax Total dividends proposed The Company’s Dividend Reinvestment Plan remains suspended. Dividend franking account – 11,532 13,455 13,455 – 11,532 Franking credits available for subsequent financial years based on a tax rate of 30% 15,162 18,596 The above balance is based on the balance of the dividend franking account at the year-end adjusted for: • • franking credits that will arise from the payment of the amount provided for income tax; and franking debits that will arise from the payment of dividends proposed at the year-end. Notes to the Consolidated Financial Statements52 | AVJENNINGS LIMITED · ABN 44 004 327 771 Section A4 Cash Flows information 17. CASH FLOW STATEMENT RECONCILIATION Reconciliation of profit after tax to net cash flow used in operating activities Profit after tax Adjustments for non-cash items: Depreciation Net loss on disposal of plant and equipment Interest revenue classified as investing cash flow Share of losses/(profits) of associates and joint venture entities Change in inventory loss provisions Share-based payments expense Change in operating assets and liabilities: Increase in inventories Increase in trade and other receivables Increase in other current assets Decrease/(increase) in current tax receivables Increase in deferred tax liability Increase/(decrease) in current tax liability (Decrease)/increase in trade and other payables Increase in provisions 2016 $’000 2015 $’000 40,912 34,385 275 80 (526) 583 (9,189) 906 (26,899) (45,572) (80) 143 6,662 10,494 (6,902) 803 300 4 (863) (1,569) (16,051) 110 (120,075) (31,466) (673) (143) 12,734 (251) 108,350 848 Net cash used in operating activities (28,310) (14,360) Section B – Risk 18. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of financial statements involves the use of certain critical accounting estimates and requires management to exercise judgement. These estimates and judgements are continually reviewed based on historical experience, current and expected market conditions as well as other relevant factors. (i) Judgements In applying the Group’s accounting policies, management makes judgements, which can significantly affect the amounts recognised in the Consolidated Financial Statements. This includes the determination of whether revenue recognition criteria has been satisfied on sales of land lots with deferred settlement terms. (ii) Estimates and assumptions Estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. Estimates of net realisable value of inventories: Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made of the net amount expected to be realised from the sale of inventories, and the estimated costs of completion. The key assumptions used in this exercise require judgement and are reviewed at least half-yearly. Profit recognised on developments: The calculation of profit for land lots and built form is based on actual costs to date and estimates of costs to complete. Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 53 19. FINANCIAL RISK MANAGEMENT The Group’s principal financial instruments comprise receivables, payables, loans and borrowings, cash and short-term deposits, derivatives and financial guarantee contracts. The Group’s treasury department focuses on the following main financial risks: interest rate risk, foreign currency risk, credit risk and liquidity risk. It provides assurance to the Group’s senior management that financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with policies and risk objectives. Responsibility for the monitoring of financial risk exposure and the formulation of appropriate responses rests with the Chief Financial Officer. The Board reviews and approves policies, discusses their appropriateness with senior management and varies them as necessary. (i) Interest rate risk Interest rate risk is the risk that the fair value of a financial instrument or future cash flows associated with it will fluctuate because of changes in market interest rates. The exposure to market interest rates primarily relates to interest-bearing loans and borrowings issued at variable rates. In assessing interest rate risk, the Group considers its loan maturity and cash flow profile and the outlook for interest rates over the medium term. To manage this, the Group may enter into hedging strategies that combine interest rate caps and floors, as well as floating-to-fixed interest rate swap contracts. However, the forecast cash position together with the current benign outlook for medium term interest rates has resulted in the Group retaining none of the drawn debt at a fixed rate of interest. The Group may use various techniques, including interest rate swaps, caps and collars to hedge its risk associated with interest rate fluctuations. These derivatives do not qualify for hedge accounting and changes in fair value are recognised in profit and loss. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and their fair value is reassessed at the end of each reporting period. Derivative financial instruments are not held for trading purposes. At balance date, the following variable rate borrowings, interest rate cap and interest rate collar contracts were outstanding: Cash Bank loans Net financial liabilities Interest rate cap and collar Borrowings not hedged 2016 2015 Weighted average interest rate % 2.16 3.41 Weighted average interest rate % 1.73 3.24 Balance $‘000 (43,086) 175,523 132,437 – 132,437 Balance $‘000 (37,812) 126,724 88,912 (20,000) 68,912 Notes to the Consolidated Financial Statements54 | AVJENNINGS LIMITED · ABN 44 004 327 771 19. FINANCIAL RISK MANAGEMENT (continued) (i) Interest rate risk (continued) Interest rate derivative contracts are exposed to fair value movements if interest rates change. Details of these contracts are: Type of derivative Period Start Date Period End Date Interest rate cap and collar 11-Jun-15 30-Sep-15 Cap Rate % 2.95 Floor Rate % 2.50 Principal Amount 2016 $’000 2015 $’000 – 20,000 At 30 June 2016, none of the available borrowings are at capped and collared rates of interest (2015: 9.2%). The Group analyses its interest rate exposure on an ongoing basis. Within this analysis, consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. The following table demonstrates the sensitivity to a reasonably possible change in interest rates on exposures existing at balance date. With all other variables held constant, profit after tax and other comprehensive income would have been affected as follows: Profit After Tax Higher/(Lower) Other Comprehensive Income Higher/(Lower) 2016 $’000 (276) (138) 138 2015 $’000 (163) (86) 55 2016 $’000 2015 $’000 – – – – – – +100 basis points +50 basis points – 50 basis points (ii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s net investments in foreign subsidiaries. At balance date, the Group had the following exposure to New Zealand Dollar foreign currency that is not hedged: Financial Assets Cash and cash equivalents Trade and other receivables Total financial assets Financial Liabilities Trade and other payables Interest-bearing loans and borrowings Total financial liabilities Net exposure 2016 NZ$’000 2015 NZ$’000 10,273 50,076 60,349 57,511 5,500 63,011 (2,662) 6,399 41,430 47,829 20,120 5,500 25,620 22,209 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 55 19. FINANCIAL RISK MANAGEMENT (continued) (ii) Foreign currency risk (continued) The following table demonstrates the sensitivity to a change in AUD/NZD exchange rates on exposures existing at balance date. With all other variables held constant, profit after tax and other comprehensive income would have been affected as follows: AUD/NZD +10% AUD/NZD – 5% AUD/NZD – 10% (iii) Credit risk Profit After Tax Higher/(Lower) Other Comprehensive Income Higher/(Lower) 2016 $’000 (732) 366 732 2015 $’000 (656) 328 656 2016 $’000 (204) 102 204 2015 $’000 (140) 70 140 Credit risk is the risk that a counterparty will not meet its contractual obligations under a financial instrument, leading to a financial loss. Credit risk arises from cash and cash equivalents, trade and other receivables, available-for-financial asset, financial instruments and from granting of financial guarantees. Trade Receivables Contracts for Land, Integrated Housing and Apartments usually require payment in full prior to passing of title to customers and collateral is therefore unnecessary. In the event that title is to pass prior to full payment being received, appropriate credit verification procedures are performed before contract execution. Financial instruments and cash deposits Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with Group policy. Surplus funds are invested in high quality and low risk short-term money market instruments to ensure preservation of capital. Counterparties are limited to financial institutions approved by the Board. Credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of the financial assets as well as $5,593,000 (2015: $2,801,000) in relation to financial guarantees granted – see note 33 for further information. The Group has no significant concentrations of credit risk. (iv) Liquidity risk The Group manages its liquidity risk by monitoring forecast cash flows on a fortnightly basis and matching the maturity profiles of financial assets and liabilities. These are reviewed by the Chief Financial Officer and presented to the Board as appropriate. The objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and committed available credit facilities. The current main banking facilities are due to mature on 30 September 2018 and are therefore non-current. In addition, the Group operates certain project funding facilities which are discussed in note 12(b). The maturity profile of all debt facilities is monitored on a regular basis by the Chief Financial Officer and ongoing financing plans presented to the Board for approval well in advance of maturity. Notes to the Consolidated Financial Statements56 | AVJENNINGS LIMITED · ABN 44 004 327 771 19. FINANCIAL RISK MANAGEMENT (continued) (iv) Liquidity risk (continued) At 30 June 2016, 5.7% (2015: 2.4%) of the Group’s interest-bearing loans and borrowings will mature in less than one year. The table below summarises the maturity profile of the Group’s financial assets and liabilities based on contractual undiscounted payments. Year ended 30 June 2016 Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Trade and other payables Interest-bearing loans and borrowings* Financial Guarantees < 6 months $’000 6–12 months $’000 > 1–5 years $’000 Total $’000 43,086 91,922 135,008 103,714 2,868 5,593 – 14,138 14,138 16,897 12,892 – – 21,694 43,086 127,754 21,694 170,840 40,355 168,420 – 160,966 184,180 5,593 112,175 29,789 208,775 350,739 Net maturity 22,833 (15,651) (187,081) (179,899) Year ended 30 June 2015 Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Trade and other payables Interest-bearing loans and borrowings* Financial Guarantees < 6 months $’000 6–12 months $’000 > 1–5 years $’000 Total $’000 37,812 58,987 96,799 106,670 5,163 2,801 – 10,377 10,377 10,791 2,109 – – 12,818 37,812 82,182 12,818 119,994 51,556 129,040 – 169,017 136,312 2,801 114,634 12,900 180,596 308,130 Net maturity (17,835) (2,523) (167,778) (188,136) * Expected settlement amounts of interest-bearing loans and borrowings include an estimate of the interest payable to the date of expiry of the facilities. In addition to maintaining sufficient short term assets to meet short term payments, at reporting date, the Group has approximately $165 million (2015: $122 million) of unused credit facilities available for its immediate use. Please refer to note 12. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 57 19. FINANCIAL RISK MANAGEMENT (continued) (v) Fair value The following table provides the fair value measurement hierarchy of the Group’s financial assets and financial liabilities: Year ended 30 June 2016 Year ended 30 June 2015 Quoted prices in active markets (Level 1) $’000 Significant observable inputs Significant unobservable inputs Total (Level 2) $’000 (Level 3) $’000 $’000 Quoted prices in active markets (Level 1) $’000 Significant observable inputs Significant unobservable inputs Total (Level 2) $’000 (Level 3) $’000 $’000 Financial liabilities Interest-bearing loans and borrowings – – 175,523 175,523 – – 175,523 175,523 – – 126,724 126,724 – – 126,724 126,724 20. CAPITAL RISK MANAGEMENT In managing capital, management’s objective is to ensure that returns to shareholders are optimised by using a mix of funding options. The aim is to achieve the lowest possible weighted average cost of capital. In order to maintain or adjust the capital structure, management may change the amount of dividends, offer a dividend reinvestment plan, return capital to shareholders, issue new shares or sell assets to reduce debt. During the year ended 30 June 2016, a total dividend of $17,299,000 was paid (2015: $11,532,000). Management monitors capital mix through the debt to equity ratio (net debt/total equity) and the debt to total assets ratio (net debt/total assets) calculated below: Interest-bearing loans and borrowings Less: cash and cash equivalents Net debt Total equity Total assets Net debt to equity ratio Net debt to total assets ratio Consolidated 2016 $’000 175,523 (43,086) 2015 $’000 126,724 (37,812) 132,437 88,912 363,907 337,346 741,382 656,114 36.4% 17.9% 26.4% 13.6% AVJennings Limited complied with the financial covenants of its borrowing facilities during the 2016 and 2015 reporting periods. Notes to the Consolidated Financial Statements 58 | AVJENNINGS LIMITED · ABN 44 004 327 771 Section C – Group Structure 21. CONTROLLED ENTITIES (a) Investment in controlled entities The following economic entities are the controlled entities of AVJennings Limited: ECONOMIC ENTITY (1) 2016 2015 2016 2015 % Equity Interest Included in Banking Cross Deed of Covenant (2) Entities included in the Closed Group A.V. Jennings Real Estate Pty Limited AVJennings Real Estate (VIC) Pty Limited AVJennings Holdings Limited(3) AVJennings Properties Limited(3) Jennings Sinnamon Park Pty Limited Long Corporation Limited(3) Orlit Pty Limited(3) Sundell Pty Limited(3) AVJennings Housing Pty Limited(3) AVJennings Home Improvements S.A. Pty Limited(3) AVJennings Mackay Pty Limited(3) Entities excluded from the Closed Group Crebb No 12 Pty Limited Dunby Pty Limited Epping Developments Limited Montpellier Gardens Pty Limited AVJ ODP Pty Limited AVJennings (Cammeray) Pty Limited AVJennings Syndicate No 3 Limited AVJennings Syndicate No 4 Limited(3) AVJennings Officer Syndicate Limited(3) AVJennings Properties SPV No 1 Pty Limited AVJennings Properties SPV No 2 Pty Limited AVJennings Properties SPV No 4 Pty Limited AVJennings Properties Elderslie No 2 Pty Ltd AVJennings Wollert Pty Limited AVJ Erskineville Pty Limited AVJ Hobsonville Pty Limited AVJennings Properties SPV No 9 Pty Limited AVJennings SPV No 10 Pty Limited AVJennings SPV No 19 Pty Limited AVJennings SPV No 20 Pty Limited AVJennings SPV No 21 Pty Limited Creekwood Developments Pty Limited(3) Portarlington Nominees Pty Limited AVJennings St Clair Pty Limited St Clair JV Nominee Pty Limited AVJennings Properties Wollert SPV Pty Limited AVJennings Waterline Pty Limited 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 – – – 100 100 100 100 100 100 No No Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes No Yes No Yes No Yes Yes No Yes Yes No Yes Yes Yes Yes No No No No Yes Yes Yes Yes No No No No Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes No Yes No Yes No Yes Yes No No Yes N/A Yes Yes Yes No No N/A N/A N/A Yes No Yes Yes No No (1) All entities are incorporated in Australia. With the exception of AVJ Hobsonville Pty Limited which has a branch in New Zealand, all entities operate within Australia. (2) These entities, including AVJennings Limited, are included under the Banking Cross Deed of Covenant referred to in note 12(a). (3) These entities, including AVJennings Limited, are included in the Deeds of Indemnity for performance bond facilities referred to in note 12(c). Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 59 21. CONTROLLED ENTITIES (continued) (b) Ultimate parent AVJennings Limited is the ultimate Australian parent entity. SC Global Developments Pte Ltd is the ultimate parent entity. (c) Deeds of cross guarantee Certain entities within the Group are parties to deeds of cross guarantee under which each controlled entity guarantees the debts of the others. By entering into these deeds, the controlled entities are relieved from the requirement to prepare Financial Statements and Directors’ Reports under Class Order 98/1418 (as amended by Class Orders 98/2017, 00/321, 01/1087, 02/248, 02/1017, 04/663, 04/682, 04/1624, 05/542, 06/51, 08/11, 08/255, 08/618 and 09/626) issued by the Australian Securities and Investments Commission (ASIC). Those entities included in the Closed Group are listed in note 21(a). These entities represent a “Closed Group” for the purposes of the Class Order, and as there are no other parties to the deeds of cross guarantee that are controlled by AVJennings Limited, they also represent the “Extended Closed Group”. (d) Class order closed group Certain controlled entities were granted relief by ASIC (under provisions of Class Orders) from the requirement to prepare separate audited financial statements, where deeds of indemnity have been entered into between the Parent Entity and the Controlled Entities to meet their liabilities as required (refer to note 21(c)). The Extended Closed Group referred to in the Directors’ Declaration therefore comprises all of the entities within the Class Order. Certain entities falling outside of the Extended Closed Group are listed in note 21(a), and are therefore required to prepare separate annual financial statements. The Consolidated Statement of Comprehensive Income for those controlled entities which are party to the deed is as follows: Revenues Cost of property development sold Other expenses Profit before income tax Income tax Profit after income tax Dividends paid (Loss)/profit for the year Closed Group 2016 $’000 200,591 (139,923) (40,587) 20,081 (6,057) 2015 $’000 162,203 (107,375) (34,941) 19,887 (6,576) 14,024 13,311 (17,299) (11,532) (3,275) 1,779 Notes to the Consolidated Financial Statements60 | AVJENNINGS LIMITED · ABN 44 004 327 771 21. CONTROLLED ENTITIES (continued) (d) Class order closed group (continued) The Consolidated Statement of Financial Position for those controlled entities which are party to the deed is as follows: CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other assets Total current assets NON-CURRENT ASSETS Trade and other receivables Inventories Equity accounted investments Available-for-sale financial asset Plant and equipment Intangible assets Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Tax payable Provisions Total current liabilities NON-CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Deferred tax Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total equity 2016 $’000 2015 $’000 41,265 182,747 104,115 644 31,503 182,447 88,470 1,852 328,771 304,272 6,631 148,976 5,495 2,880 985 2,816 – 132,899 6,090 2,880 605 2,816 167,783 145,290 496,554 449,562 64,512 9,146 6,136 50,372 – 5,411 79,794 55,783 784 138,000 19,078 794 – 118,846 13,718 742 158,656 133,306 238,450 189,089 258,104 260,473 160,436 2,188 95,480 160,436 1,282 98,755 258,104 260,473 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 61 21. CONTROLLED ENTITIES (continued) (d) Class order closed group (continued) The Consolidated Statement of Changes in Equity for those controlled entities which are party to the deed is as follows: At beginning of year (Loss)/profit for the year Total income and expenses for the year Transactions with owners in their capacity as owners – Share-based payment expense Closed Group 2016 $’000 2015 $’000 260,473 258,584 (3,275) (3,275) 906 (2,369) 1,779 1,779 110 1,889 At end of year 258,104 260,473 22. EQUITY ACCOUNTED INVESTMENTS Investment in Associate – unincorporated Interest in Joint Ventures – unlisted Total equity accounted investments Accounting Note 22(a) 2016 $’000 4 8,680 8,684 2015 $’000 4 10,663 10,667 An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Investments in associate and joint ventures are accounted for using the equity method. Under the equity method, investments in these entities are carried at cost plus post acquisition changes in the Group’s share of net assets of these entities. The Consolidated Statement of Comprehensive Income reflects the Group’s share of profits or losses of equity accounted investments. Changes in OCI of these investments are presented as part of the Group’s OCI. If a change has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of the change in equity. Dividends received from an associate or a joint venture are recognised as a reduction in the carrying amount of the investment. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture, until such time as they are realised by the associate or joint venture on consumption or sale. The aggregate of the Group’s share of profit or loss of associate and joint ventures is shown separately on the face of the Consolidated Statement of Comprehensive Income and represents profit or loss after tax and non-controlling interests in the associates and joint ventures. The financial statements of the associate and joint ventures are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on its equity accounted investments. If there is objective evidence that the investment in the associate or joint venture is impaired, the Group calculates the amount of impairment as the difference between the recoverable amount of the investment and its carrying value and recognises it in the Consolidated Statement of Comprehensive Income. Notes to the Consolidated Financial Statements62 | AVJENNINGS LIMITED · ABN 44 004 327 771 22. EQUITY ACCOUNTED INVESTMENTS (continued) (a) Interest in Joint Ventures Joint Venture and principal activities Eastwood – Land Development and Building Construction Woodville – Land Development and Building Construction Pindan Capital Group Dwelling Trust – Building Construction Movements in carrying amount At beginning of year Contributions made Distributions received Dividends received Share of (loss)/profit At end of year Interest held 2016 2015 50.0% 50.0% 33.3% 2016 $’000 10,663 – – (1,400) (583) 8,680 50.0% 50.0% 33.3% 2015 $’000 27,103 6,091 (18,750) (5,350) 1,569 10,663 The Group’s share of the individually immaterial Joint Ventures’ assets, liabilities, revenues and expenses are as follows: Share of assets and liabilities Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Share of revenues and expenses Revenues Expenses (Loss)/profit before income tax Income tax (Loss)/profit after income tax 2016 $’000 3,778 10,868 14,646 4,093 1,873 5.966 8,680 43 (621) (578) (5) (583) 2015 $’000 7,586 8,970 16,556 4,846 1,047 5,893 10,663 29,985 (27,743) 2,242 (673) 1,569 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 63 23. INTEREST IN JOINT OPERATIONS A number of controlled entities have entered into joint operations. Information relating to the Joint Operations is set out below: Joint Operation name, principal place of business and principal activities Hobsonville Joint Venture (New Zealand) – Land Development Elderslie Joint Venture (New South Wales) – Land Development and Building Construction Wollert Joint Venture (Victoria) – Land Development and Building Construction Interest Held 2016 2015 – – 49% 50% 50% 49% In June 2015, the development and sales of land at Hobsonville Buckley A was completed. In November 2015, the Group purchased the remaining 50% share held by the joint operation partner in the Elderslie Joint Venture. Elderslie did not constitute a business and was therefore accounted for as an asset acquisition. Accounting A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities of the joint operation. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The proportionate interests in the assets, liabilities, revenues and expenses of joint operations have been recognised in the Financial Statements under the appropriate headings. The Group’s interest in the profits and losses of the individually immaterial Joint Operations are included in the Consolidated Statement of Comprehensive Income, under the following classifications: Revenues Cost of property developments sold Other expenses Profit before income tax Income tax Profit after income tax Total comprehensive income for the year 2016 $’000 3,088 (2,695) (188) 205 (62) 143 143 2015 $’000 15,606 (11,082) (946) 3,578 (1,073) 2,505 2,505 Notes to the Consolidated Financial Statements64 | AVJENNINGS LIMITED · ABN 44 004 327 771 23. INTEREST IN JOINT OPERATIONS (continued) The Group’s interest in the assets and liabilities of individually immaterial Joint Operations are included in the Consolidated Statement of Financial Position, under the following classifications: CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Total current assets NON-CURRENT ASSETS Inventories Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Total current liabilities NON-CURRENT LIABILITIES Trade and other payables Total non-current liabilities Total liabilities Net assets 2016 $’000 2015 $’000 947 12 730 6,259 493 - 1,689 6,752 22,315 17,920 22,315 17,920 24,004 24,672 259 259 10,100 10,100 1,028 1,028 232 232 1,287 10,332 22,717 14,340 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 65 Section D – Other information 25. STATEMENT OF COMPLIANCE 24. CORPORATE INFORMATION The Consolidated Financial Statements of AVJennings Limited for the year ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 28 September 2016. AVJennings Limited (the Parent) is a for-profit Company limited by shares domiciled and incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange and the Singapore Exchange through SGX Globalquote. The ultimate parent is SC Global Developments Pte Ltd, a company incorporated in Singapore which owns 50.03% of the ordinary shares in AVJennings Limited. The Group (“AVJennings” or “Group”) consists of AVJennings Limited (“Company” or “Parent”) and its controlled entities. The nature of the operations and principal activities of the Group are provided in the Directors’ Report. These consolidated financial statements are general purpose financial reports. They have been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board, the Corporations Act 2001 and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). 26. BASIS OF PREPARATION These financial statements have been prepared on a going concern basis, using historical cost convention. All figures in the financial statements are presented in Australian dollars and have been rounded to the nearest thousand dollars in accordance with ASIC Corporations Instrument 2016/191, unless otherwise indicated. Where necessary, comparative information has been restated to conform to the current year’s disclosures. 27. RELATED PARTY DISCLOSURES (a) Ultimate parent AVJennings Limited is the ultimate Australian parent entity. SC Global Developments Pte Ltd (incorporated in Singapore) is the ultimate parent entity. (b) Share and share option transactions with Directors and Director-related entities The aggregate number of shares and options held at the reporting date either directly or indirectly or beneficially by the Directors or by an entity related to those Directors of AVJennings Limited are as follows: Fully paid ordinary shares Owned by Directors directly, or indirectly or beneficially 2016 Number 2015 Number 196,736,550 196,432,280 (c) Entity with significant influence over AVJennings Limited 192,318,030 ordinary shares equating to 50.03% of the total ordinary shares on issue (2015: 192,318,030 and 50.03% respectively) were held by SC Global Developments Pte Ltd and its associates in the Parent Entity at 30 June 2016. Certain Directors of SC Global Developments Pte Ltd are also Directors of AVJennings Limited. Details of Directors’ interests in the shares of the Parent Entity are set out in the Directors’ Report. (d) Parent Entity amounts receivable from and payable to controlled entities An impairment assessment is undertaken each reporting period to determine whether there is objective evidence that a related party receivable is impaired. At 30 June 2016, there is no evidence of impairment and recoverability is considered probable (2015: Nil). Notes to the Consolidated Financial Statements 66 | AVJENNINGS LIMITED · ABN 44 004 327 771 27. RELATED PARTY DISCLOSURES (continued) (e) Transactions with related parties Entity with significant influence over the Group: SC Global Developments Pte Ltd Consultancy fee paid/payable Joint Ventures: Eastwood JV Management fee received/receivable Accounting services fee received/receivable Dividends received Distributions received Woodville JV Note 2016 $ 2015 $ (i) 600,000 600,000 49,684 12,500 5,558,869 45,833 1,400,000 5,350,000 – 18,750,000 Accounting services fee received/receivable 16,500 30,000 Joint Operations: Wollert JV Planning services fee received/receivable Management fee received/receivable Accounting services fee received/receivable Cheltenham JV – 1,935,132 50,000 813,450 276,447 8,333 Accounting services fee received/receivable – 24,000 (i) Consultancy fees paid to SC Global Developments Pte Ltd of $600,000 (2015: $600,000) (f) Joint ventures and Joint operations in which related entities in the Group are venturers Joint arrangements in which the Group has an interest are set out in notes 22 and 23. (g) Outstanding balances arising from provision of services The following balances are outstanding at the end of the reporting period in relation to transactions with related parties. Current receivables Joint Ventures Non-current receivables Joint Ventures (h) Loans to and from related parties Loan advanced Joint Ventures Loan received Joint Ventures 2016 $’000 2015 $’000 1,600 1,753 1,601 276 1,119 181 2,978 2,978 Notes to the Consolidated Financial Statements 27. RELATED PARTY DISCLOSURES (continued) (i) Remuneration of Key Management Personnel Short-term – Salary/Fees – Accrued annual leave – STI – Other (1) Post employment – Superannuation (2) Long-term – Accrued Long service leave Share-based payment AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 67 2016 $ 2015 $ 1,906,290 2,165,542 24,041 378,409 61,343 76,853 431,001 77,595 108,252 140,410 77,411 657,066 61,733 95,066 3,212,812 3,048,200 (1) (2) ‘Other’ represents the value of motor vehicle benefits. Payments to Defined Contribution Plans consist of Superannuation Guarantee Contribution payments as well as employee voluntary contributions. The Group does not contribute to any Defined Benefit Plans. (j) Terms and conditions of transactions with related parties Transactions with related parties are made at arm’s length both at normal market prices and on normal commercial terms. Outstanding balances at year-end are unsecured, interest free, at call and settlement occurs in cash. 28. SHARE-BASED PAYMENT PLANS (a) Recognised share-based payment expenses Total expenses arising from share-based payment transactions and disclosed as part of employee benefit expenses are shown in the table below: Expense arising from equity-settled share-based payment transactions Expense reversed on forfeiture of shares Total expense arising from share-based payment transactions The share-based payment plan is described in note 28(b). (b) Type of share-based payment plan 2016 $’000 925 (19) 906 2015 $’000 436 (326) 110 LTI awards are only made to executives who are in a position to have an impact on the Group’s performance and the creation of shareholder value over the long term. Notes to the Consolidated Financial Statements 68 | AVJENNINGS LIMITED · ABN 44 004 327 771 28. SHARE-BASED PAYMENT PLANS (continued) (b) Type of share-based payment plan (continued) (i) LTI and retention (current year and 2015) With effect from FY15, LTI arrangements were varied and remuneration is now provided by the Issue of Rights (instead of shares) and includes a retention component. The use of Rights as an incentive reduces the upfront cash requirements of the Company (as shares do not need to be acquired for allocations) and because participants do not receive dividends on Rights (as distinct from shares). The Total Shareholder Return (TSR) hurdle of the LTI component was replaced by a Return on Equity (ROE) hurdle which uses market capitalisation as a proxy for equity, and is more appropriate from a shareholders’ perspective as the required rates of return do not vary with “market” performance. The ROE hurdle operates such that 50% vesting occurs at an average annual return of 12% with 100% vesting at an average annual return of 18%. The EPS hurdle remains unchanged and is consistent with the FY14 and prior years’ LTI structure explained under LTI (FY14 and prior years) below. The performance conditions will be tested at the end of the three year vesting period and the number of rights that may vest will depend on the level of average annual returns achieved over that three year period. The service rights are split into three tranches that progressively vest each year subject to satisfaction of the service condition. The CEO’s participation was determined as 40% (LTI) and 25% (Retention component) of TEC respectively. The operation of the EPS, ROE and Retention hurdles are set out below. AVJennings’ EPS growth rate over the three year performance period < 5% 5% 5% –10% >=10% Percentage of rights vesting Nil 50% of the allocation for the hurdle Pro-rata between 50% and 100% 100% of the allocation for the hurdle AVJennings’ ROE over the three year performance period Percentage of rights vesting <12% 12% 15% >=18% Nil 50% 75% 100% (Straight line interpolation between 12% and 18%) Retention component – years of service Percentage of rights vesting one year two years three years Accounting 33.33% 33.33% 33.34% The fair value of the rights at the date of the grant is determined using an appropriate valuation model. The fair value is expensed over the period in which the performance and/or service conditions are fulfilled with a corresponding increase in share-based payment reserve in equity. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Consolidated Statement of Comprehensive Income represents the movement in cumulative expense recognised between the beginning and end of that period. (ii) LTI Awards (FY2014 and prior years) The AVJ Deferred Employee Share Plan (the LTI Plan) administers employee share schemes under which shares were purchased on-market by the LTI Plan Trustee on behalf of employees. These shares will vest to employees for no cash consideration subject to certain conditions being satisfied. Shares held by the LTI Plan’s trustee and not yet allocated to employees are shown as treasury shares in the Financial Statements. Vesting is subject to both service and performance conditions, except for the FY13 Delayed Grant which is only subject to the service condition (see below). The service condition requires the executive to be employed by the Company as at 30 September in the third year after the grant date for each grant. The performance conditions apply to each grant – as to 50% as measured by the TSR hurdle and as to 50% by the EPS hurdle. The two performance hurdles are tested differently. The EPS hurdle is tested as at 30 June in the test year (three years after grant). The TSR hurdle is tested at 30 September of the third year after grant. The service vesting condition for the FY13 and FY14 Grants is that the employee must still be employed by AVJennings at 30 September 2015 and 30 September 2016 respectively. In the event of death, permanent disablement or retrenchment, the shares may vest to the estate at the Board’s discretion. If the employee resigns (in certain circumstances) or is terminated, the unvested shares will be forfeited. Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 69 28. SHARE-BASED PAYMENT PLANS (continued) (b) Type of share-based payment plan (continued) Summary of treasury shares The following summarises the movement of the number of shares (both KMP and other executives) under the LTI Plan: Purchased on market Issued from holding account Forfeited and transferred to holding account Shares vested Unvested shares FY2011 Grant FY2012 Grant FY2013 Grant FY2013 Delayed Grant FY2014 Grant FY2015 Rights Grant FY2016 Rights Grant Holding Account 1,375,452 1,695,735 293,913 – 856,505 – – – – – (1,375,452) – (1,240,047) (455,688) – (513,168) (32,653) (494,374) – – – – (258,443) (36,921) 1,314,732 – – (169,402) (213,898) – – 219,255 527,027 753,591 169,402 213,898 (1,883,173) 2,906,595 – 1,023,422 Total 4,221,605 – – (1,883,451) 2,338,154 Summary of rights granted The following is the status of rights granted (both KMP and other executives) from FY15 onwards under the restructured share-based remuneration: FY2015 Grant FY2016 Grant Total Rights granted Rights vested Rights forfeited Unvested rights 1,363,583 1,587,251 (169,402) (213,898) (164,666) (104,413) 1,029,515 1,268,940 2,950,834 (383,300) (269,079) 2,298,455 Notes to the Consolidated Financial Statements70 | AVJENNINGS LIMITED · ABN 44 004 327 771 28. SHARE-BASED PAYMENT PLANS (continued) (b) Type of share-based payment plan (continued) The performance vesting conditions are: Total Shareholder Return (TSR) performance measured against the ASX Small Industrials Index; and • • Earnings Per Share (EPS) growth. AVJennings’ EPS growth for the performance period must meet or exceed the target set. The EPS hurdle for total vesting for each grant is as follows: FY2013 grant – 10% p.a. growth for the three financial years to 30 June 2015 FY2014 grant – 10% p.a. growth for the three financial years to 30 June 2016 Half of the allocation is assessed against each performance condition. The vesting schedule for the TSR and EPS performance conditions are set out in the tables below. The holder of the shares is entitled to receive all dividends paid between grant and vesting date. AVJennings’ TSR rank against companies in the Index at 30 September Percentage vesting AVJennings’ EPS growth rate over the performance period < median At the median Nil 50% < 5% 5% > median but < 75th percentile Pro-rata between 50th and 75th percentiles 5% – 10% >=75th percentile 100% >=10% Percentage vesting Nil 50% of the allocation for the hurdle Pro-rata between 50% and 100% 100% of the allocation for the hurdle Accounting The original cost of equity-settled transactions is treated as a reduction in share capital and the underlying shares identified separately as treasury shares. The fair value at the date when the grant is made is determined using an appropriate valuation model. That fair value is expensed over the period in which the performance and/or service conditions are fulfilled with a corresponding increase in share-based payment reserve in equity. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Consolidated Statement of Comprehensive Income represents the movement in cumulative expense recognised between the beginning and end of that period. In respect of shares forfeited, no further amounts are expensed. The cumulative amounts relating to non- market based measures expensed to the date of forfeiture are reversed. There is no non-recourse financing provided to executives in relation to any share-based payments. Notes to the Consolidated Financial Statements AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 71 29. AUDITOR’S REMUNERATION Ernst & Young Audit and assurance services – Audit and review of the financial reports of the Group – Share of audit and review costs of the financial reports of the Group’s joint ventures Non-assurance services Total auditor’s remuneration 30. EARNINGS PER SHARE 2016 $ 2015 $ 282,014 2,624 264,288 – – 128,190 284,638 392,478 Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year. Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the Parent by the sum of the weighted average number of ordinary shares outstanding during the year (adjusted for treasury shares) and the weighted average number of ordinary shares, if any, that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and diluted EPS computations: Profit attributable to ordinary equity holders of the parent 40,912 34,385 2016 $’000 2015 $’000 Weighted average number of ordinary shares Treasury shares 2016 Number 2015 Number 384,423,851 384,423,851 (2,338,154) (3,502,401) Weighted average number of ordinary shares for EPS 382,085,697 380,921,450 Notes to the Consolidated Financial Statements72 | AVJENNINGS LIMITED · ABN 44 004 327 771 31. PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the Parent Entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholders' equity Contributed equity Reserves Share-based payment reserve Retained earnings Total equity Profit for the year Total comprehensive income 2016 $’000 2015 $’000 52,745 216,031 51,839 215,125 6 6 6 6 160,436 160,436 2,189 53,400 1,283 53,400 216,025 215,119 – – – – (b) Guarantees entered into by the Parent Entity The Parent Entity has not provided any financial guarantees other than those mentioned in notes 12(a), 12(c) 21(c) and 33. (c) Contingent liabilities of the Parent Entity Please refer to note 33 for details of the Parent Entity’s contingent liabilities. 32. COMMITMENTS Operating lease commitments – Group as lessee Operating leases include property, display homes, computer equipment leases and leases for motor vehicles provided under novated leases. Certain property leases include inflation escalation and market review clauses. No renewal or purchase options exist in relation to operating leases, and no operating leases contain restrictions on financing or other leasing activities. Future minimum rentals payable under non-cancellable operating leases are as follows: Operating leases Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities: Within one year After one year, but not more than five years Total operating leases Represented by: Non-cancellable operating leases Cancellable operating leases Total operating leases 2016 $’000 2015 $’000 2,080 2,382 4,462 4,210 252 4,462 1,867 691 2,558 2,268 290 2,558 Notes to the Consolidated Financial StatementsAVJENNINGS LIMITED · ANNUAL REPORT 2016 | 73 33. CONTINGENCIES Unsecured Cross guarantees The Parent Entity has entered into deeds of cross guarantee in respect of the debts of certain of its controlled entities as described in note 21(c). Contract performance bond facilities The Parent Entity has entered into Deeds of Indemnity with various controlled entities to indemnify the obligation of those entities in relation to the Contract performance bond facilities. Details of these entities are set out in note 21. Contingent liabilities in respect of certain performance bonds, granted by the Group’s financiers, in the normal course of business as at 30 June 2016 amounted to $22,239,000 (2015: $21,134,000). No liability is expected to arise. Legal issues From time to time a controlled entity defends actions served on it in respect of rectification of building faults and other issues. It is not practicable to estimate the amount, if any, which the entity could be liable for in this respect. The Directors anticipate that the resolution of any such matters currently outstanding will not have a material effect on the Group’s results. Secured Banking facilities The Parent Entity has entered into a cross deed of covenant with various controlled entities to guarantee the obligations of those entities in relation to the banking facilities. Details of these entities are set out in note 21. Performance guarantees Contingent liabilities in respect of certain performance guarantees, granted by the Group bankers in the normal course of business to unrelated parties, at 30 June 2016, amounted to $8,724,000 (2015: $6,977,000). No liability is expected to arise. Financial guarantees Financial guarantees granted by the Group’s bankers to unrelated parties in the normal course of business at 30 June 2016, amounted to $5,593,000 (2015: $2,801,000). No liability is expected to arise. 34. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE Subsequent to 30 June 2016, the Group has extended its Club Borrowing Facility expiry date from 30 September 2017 to 30 September 2018. No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect: a) the Group’s operations in future financial years; or b) the results of those operations in future financial years; or c) the Group’s state of affairs in future financial years. 35. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS The new and amended standards adopted by the Group for the year ended 30 June 2016 have not had a significant impact on the current period or any prior period and are not likely to have a significant impact on future periods. Certain new accounting standards have been published that are not mandatory for the year ended 30 June 2016 and have not been adopted early by the Group. The Group’s assessment of the impact of these new standards is set out below: AASB 9 Financial Instruments (effective 1 January 2018 / applicable for the Group 1 July 2018 with early adoption permitted) AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. The Group does not expect a material impact to the Group’s accounting for financial instruments. AASB 15 Revenue from Contracts with Customers: (effective 1 January 2018 / applicable for the Group 1 July 2018 with early adoption permitted) AASB 15 Revenue from Contracts with Customers establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue and AASB 111 Construction Contracts. The new standard is unlikely to have a material impact on land and built form revenue as the performance obligation is delivering the completed product. AVJennings is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 15. The Group has not yet decided when to adopt AASB 15. AASB 16 Leases: (effective 1 January 2019 / applicable for the Group 1 July 2019 with early adoption permitted if AASB 15 is also adopted) AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. This standard will predominantly affect lessees, bringing all major leases on balance sheet. AVJennings is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 16. The Group has not yet decided when to adopt AASB 16. Notes to the Consolidated Financial Statements74 | AVJENNINGS LIMITED · ABN 44 004 327 771 36. OTHER ACCOUNTING POLICIES Significant accounting policies relating to particular items are set out in the relevant notes. Other significant accounting policies adopted in the preparation of the financial report are set out below. a) Basis of consolidation The Consolidated Financial Statements comprise the financial statements of AVJennings Limited and its subsidiaries as at 30 June 2016. Subsidiaries are entities over which the Group has control. Control is achieved 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 consolidated from the date on which control is transferred to the Group and deconsolidated from the date control ceases. The financial statements of subsidiaries are prepared for the same period as the Parent, adopting consistent accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows are fully eliminated in preparing the consolidated financial statements. The AVJ Deferred Employee Share Plan Trust was formed to administer the Group’s employee share scheme. This Trust is consolidated, as the substance of the relationship is that the Trust is controlled by the Group. Shares held by the Trust are disclosed as treasury shares and deducted from contributed equity. b) Business combinations Business combinations are accounted for using the acquisition method. This involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values. Acquisition-related costs are expensed as incurred. c) Leases Leases where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. The Group did not have any finance leases at the year end. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee, are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognised as an expense on a straight-line basis over the period of the lease. Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the Consolidated Statement of Financial Position based on their nature. d) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a sale or purchase of assets or services is not payable to or recoverable from the taxation authority, in which case the GST is recognised as part of the revenue or as part of the cost of acquisition of the asset or the expense item as applicable receivables and payables, which are stated with the amount of GST included. • The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Consolidated Statement of Financial Position. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Cash flows are included in the Consolidated Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. e) Foreign currency translation (i) Functional and presentation currency The Group’s functional and presentation currency is Australian Dollars. (ii) Translation of Group Companies’ functional currency to presentation currency The results and financial positions of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position; income and expenses for each Statement of Comprehensive Income are translated at average exchange rates; and • • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Notes to the Consolidated Financial StatementsDirectors’ Declaration AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 75 In accordance with a resolution of the Directors of AVJennings Limited, we state that: 1) In the opinion of the Directors: i) the Consolidated Financial Statements and Notes are in accordance with the Corporations Act 2001, including; a) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of their performance for the year ended on that date; and b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001; ii) the Consolidated Financial Statements and Notes also comply with International Financial Reporting Standards as disclosed in note 25; and iii) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2) 3) This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2016. In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 21 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. On behalf of the Board Simon Cheong Director 28 September 2016 Peter Summers Director 76 | AVJENNINGS LIMITED · ABN 44 004 327 771 Independent auditor’s report to the shareholders of AVJennings Limited Report on the financial report Independence We have audited the accompanying financial report of AVJennings Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 25, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial report 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 entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. Opinion In our opinion: a. the financial report of AVJennings Limited is in accordance with the Corporations Act 2001, including: i giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and ii complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 25. Report on the remuneration report We have audited the Remuneration Report included in pages 11 to 22 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of AVJennings Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Ernst & Young Mark Conroy Partner Sydney 28 September 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 77 Shareholder Information As at 21 September 2016 1. NUMBER OF SHAREHOLDERS AND DISTRIBUTION OF EQUITY SECURITIES Range of Holdings of Ordinary Shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total number of holders Number of holders of less than a marketable parcel 2. SUBSTANTIAL SHAREHOLDERS As disclosed by latest notices received by the Company: Name SC Global Developments Pte Ltd IOOF Holdings Limited Australian Securities Exchange Singapore Exchange Total 597 840 343 573 110 2,463 387 587 1,601 500 457 32 3,177 283 1,184 2,441 843 1,030 142 5,640 670 Ordinary Shares 192,318,030 43,897,871 % 50.03 11.42 78 | AVJENNINGS LIMITED · ABN 44 004 327 771 Shareholder Information As at 21 September 2016 3. TWENTY LARGEST SHAREHOLDERS ON THE AUSTRALIAN REGISTER Name The Central Depository (Pte) Ltd JP Morgan Nominees Australia Ltd HSBC Custody Nominees (Australia) Ltd Citicorp Nominees Pty Ltd BNP Paribas Nominees Pty Ltd National Nominees Ltd John E Gill Trading Pty Ltd John E Gill Operations Pty Ltd Citicorp Nominees Pty Limited Pacific Custodians Pty Ltd Gillcorp Pty Limited HSBC Custody Nominees (Australia) Ltd Luton Pty Ltd Horrie Pty Ltd Brazil Farming Pty Ltd HSBC Custody Nominees (Australia) Ltd - A/c 3 Gillcorp Pty Limited IQ Rental & Finance Pty Ltd Jilliby Pty Ltd D R M Gill & J M Gill (Gill Super Fund A/c) Ordinary Shares % 224,606,708 58.43 17,141,352 15,797,219 12,203,201 10,112,765 9,098,546 5,648,712 5,459,927 4,986,022 4,927,433 4,738,416 2,917,753 2,700,000 2,670,000 2,600,000 1,647,210 1,475,123 1,290,000 1,250,000 1,242,832 4.46 4.11 3.17 2.63 2.37 1.47 1.42 1.30 1.28 1.23 0.76 0.70 0.69 0.68 0.43 0.38 0.34 0.33 0.32 Total 332,513,219 86.50 AVJENNINGS LIMITED · ANNUAL REPORT 2016 | 79 Shareholder Information As at 21 September 2016 4. TWENTY LARGEST SHAREHOLDERS ON THE SINGAPORE REGISTER Name UOB Nominees (2006) Pte Ltd United Overseas Bank Nominees Pte Ltd Trimount Pte Ltd Oei Hong Leong Foundation Pte Ltd DBS Nominees Pte Ltd UOB Kay Hian Pte Ltd Lim Chin Tiong Tsang Sze Hang Rowland Wong Kwok Ho Vesmith Investments Pte Ltd OCBC Nominees Singapore Pte Ltd Pansbury Investments Pte Ltd Raffles Nominees (Pte) Ltd Hexacon Construction Pte Ltd Citibank Nominees Singapore Pte Ltd Chng Bee Suan Teo Chiang Long HSBC (Singapore) Nominees Pte Ltd Wee Kim Choo @ Elizabeth Sam Lim Kong Wee Total Ordinary Shares % 179,235,872 46.62 12,003,929 1,659,940 1,462,112 1,366,246 1,283,345 1,158,220 837,396 748,833 634,876 605,517 496,160 485,932 368,480 349,364 322,320 250,648 225,953 209,349 200,974 3.12 0.43 0.38 0.36 0.33 0.30 0.22 0.19 0.17 0.16 0.13 0.13 0.10 0.09 0.08 0.07 0.06 0.05 0.05 203,905,466 53.04 Percentages are calculated on the total number of shares on issue. 5. VOTING RIGHTS Ordinary Shareholder On a show of hands, every member present in person or by representative, proxy or attorney shall have one vote, and on a poll each fully paid share shall have one vote. 6. TOTAL NUMBER OF SHARES The total number of shares on issue and listed on the Australian Securities Exchange is 384,423,851. 80 | AVJENNINGS LIMITED · ABN 44 004 327 771 Company Particulars DIRECTORS Mr Simon Cheong Mr Jerome Rowley Mrs Elizabeth Sam Mr Bobby Chin Mr Lai Teck Poh Mr Bruce Hayman Mr David Tsang Mr Peter Summers COMPANY SECRETARY Mr Carl Thompson PRINCIPAL REGISTERED OFFICE IN AUSTRALIA Level 4, 108 Power Street Hawthorn Vic 3122 Telephone +61 3 8888 4800 AUDITORS Ernst & Young 680 George Street Sydney NSW 2000 BANKERS SHARE REGISTRY Australia Link Market Services Ltd Tower 4 727 Collins Street, Docklands Vic 3008 Telephone: +61 1300 554 474 Singapore The Central Depository (Pte) Ltd 11 North Buona Vista Drive #06-07 The Metropolis Tower 2 Singapore 138589 Telephone +65 6535 7511 ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at: Westin Room IV The Westin Melbourne 205 Collins Street Melbourne Vic 3000. Friday, 18 November 2016 at 10.00 a.m. DIVIDENDS Commonwealth Bank of Australia Ltd (Bankwest Division) DBS Bank HSBC Bank Australia Ltd United Overseas Bank Ltd Dividends paid in the year under review: Final Dividend of $0.03 for FY15 paid on 23 September 2015 Interim Dividend of $0.015 for FY16 paid on 15 April 2016 STOCK EXCHANGE LISTINGS Australia The Company is listed on: The Australian Securities Exchange Level 4, 525 Collins Street Melbourne Vic 3000 Singapore The Company’s shares are also quoted and traded on: The Singapore Exchange 11 North Buona Vista Drive #06-07 The Metropolis Tower 2 Singapore 138589 through SGX Globalquote (formerly known as the Central Limit Order Book System (CLOB)). 

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